Mobile technology patent holders Unwired Planet and Conversant achieved a landmark victory this week when the UK Supreme Court (the Court) dismissed appeals by Huawei and ZTE in favour of patentees in a long-awaited decision.[1]  Licensing of patented technology critical for mobile technology ‘standards’ past and future was at issue in this case. The Court’s decision will be of interest to owners of patents that have been incorporated into industry standards, known as ‘standard essential patents’ (SEPs) as well as those whose business models depend upon using them.

About Standards and SEPs

‘Standards’ are intended to ensure that systems, services, products and components are reliable, safe and fit for purpose.  Frequently, across a wide variety of industries, implementation of standardised technologies requires the use of patented inventions (SEPs). A key theme in this case and the licensing of SEPs generally is the balancing of the interests of patent holders and ‘implementers’ of those patents. Patent holders seek a fair reward for use of their patented technology, while implementers need to use the patented technology in order to develop and produce products that comply with the relevant standards.  It is virtually impossible to manufacture standard compliant products (such as smartphones), without using technologies covered by a SEP.

Internationally, Standard Development Organisations (SDOs) or Standard Setting Organisations (SSOs) regulate this area to ensure that global markets are competitive and fair.  To this end, SDOs and SSOs require holders of SEPs to agree to license their technology to third parties on fair, reasonable and non-discriminatory (FRAND) terms.

Currently in Australia, there are no regulatory requirements for the disclosure and licensing of SEPs, and patent holders are not required to negotiate licences on FRAND terms. However, the enforcement of SEPs and requirement to license on FRAND terms is now common practice in other parts of the world, and this may provide impetus for Australian laws to follow suit.

Background to the case: Unwired Planet v Huawei Technologies

The case concerned the rights of patent holders, Unwired Planet and Conversant, and whether they could obtain injunctions to prevent the implementers, Huawei and ZTE, from using Unwired Planet’s and Conversant’s SEPs in the UK. 

At issue was the interaction of patent law and the rules of the European Telecommunications Standards Institute (ETSI), in the context of Unwired Planet and Conversant holding numerous patents for the same invention across various jurisdictions (many of which were subject to challenge in the UK as well as in other jurisdictions). 

Huawei and ZTE did not hold licences for Unwired Planet’s and Conversant’s UK patents.  Unwired Planet and Conversant argued that, in accordance with ETSI rules, they were prepared to offer a global licence to their invention on FRAND terms, but Huawei and ZTE refused to enter into such a licence agreement.  As such, Unwired Planet and Conversant argued that they could avail themselves of injunctive remedies to protect their invention.

Huawei’s and ZTE’s argument was that such an approach would effectively compel Huawei and ZTE to enter into a global licence, which would preclude them from challenging the validity of patents for the same invention in other jurisdictions – that is, the UK court would be determining the terms of the licence applicable to non-UK patents as well as the validity of non-UK patents. 

The Court’s findings – in summary

Issue 1: Do UK courts have jurisdiction?

In the first blow to Huawei and ZTE, the Court held that UK courts do have jurisdiction to determine the terms of a licence involving foreign patents.  

The UK courts are not ruling on validity or infringement issues relating to a foreign patent; rather, the Court held, they are ruling on the contractual arrangements established under the ETSI framework.  The Court expressly rejected the proposition that requiring an implementer to enter into a global licence would necessarily involve the implementer giving away its rights to challenge foreign patents; and, the Court noted that the licence terms could expressly deal with this contingency.

Issue 2: Is the UK the proper forum?

In the Conversant appeals, ZTE argued that China was a more appropriate forum for the infringement action and that, therefore, the case ought to have been permanently stayed in the UK (the doctrine of forum conveniens). 

The Court, however, rejected this argument, relying upon expert evidence that Chinese courts do not have jurisdiction to determine the terms of a global FRAND licence, absent agreement by all parties to the dispute. 

Issue 3: What constitutes “non-discriminatory” terms in the context of FRAND?

Unwired Planet offered terms to Huawei which contained a royalty fee greater than that which Unwired Planet had previously agreed with Samsung.  Did this fail the “non-discriminatory” test? Huawei argued that “non-discriminatory” meant that it should have been offered on terms that were the same or similar to that offered to Samsung.

The Court rejected this argument, and held that “fair, reasonable and non-discriminatory” was a composite phrase with a single meaning, and that it required Unwired Planet to offer a single royalty price to all market participants.  This did not, however, require Unwired Planet to offer licences on “most favoured customer” terms, and the Court noted that there were a number of commercially legitimate reasons as to why a patent holder may adjust its prices between licensees at various times.

Issue 4: Did Unwired Planet act anti-competitively?

At issue was whether Unwired Planet did enough to enter into a licence with Huawei before it sought injunctive remedies.  Huawei argued that the guidance given by the Court of Justice of the European Union in Huawei v ZTE (Case C-170/13) required Unwired Planet to make a FRAND licence offer before it could seek injunctive relief. 

At paragraph 157 of the UK Supreme Court’s decision, the Court had regard to how the European Commission (the Commission) interpreted the Court of Justice in the European Union (CJEU’s) decision, noting that as the Commission pointed out “the objective is to protect both the intellectual property rights of SEP owners and the interests of what it calls “good-faith technology users” and the fact that the scheme set up by the CJEU “prevents an organisation which is unwittingly using a SEP without a licence from being ambushed by injunction proceedings without any prior notification of the problem…and otherwise provides a number of points of reference to assist in assessing the all-important question of whether each of the parties is willing to enter into a licence on FRAND terms.”

The Court held that, in the context of the present case, the fact that Unwired Planet had shown itself willing to enter in to a FRAND licence was enough and that, as a result, it was not precluded from seeking injunctive relief.

Issue 5: Is injunctive relief available?  Should patent holders be limited to a remedy sounding in damages?

Huawei submitted that an injunction was neither appropriate nor proportionate; rather, damages were the proper remedy, based on the royalties foregone in respect of the infringed UK patent.

The Court dismissed this argument and held that limiting remedies to an award of damages would be wholly impractical in the context of SEPs.  It would result in implementers having an unfair advantage as, without the risk of a prohibitive injunction, an implementer could infringe the patent at will and hold out on agreeing a FRAND licence until compelled to pay by a court.  In this situation, the patent holder bears the expense and effort of litigating in each jurisdiction to obtain a damages award. 

What does this mean for those using SEPs?

The Court’s decision is a win for patent holders, many of whom are smaller entities, effectively enabling them to insist that those using their SEPs must take a global licence on FRAND terms, rather than having to seek a country-by-country licence.

It is yet to be seen whether Australia will follow the global trend and create a regime under which patent holders are required to license their inventions on FRAND terms, in return for their inventions being incorporated into Australian standards. 

To date, there have not been any Australian court decisions on FRAND licensing obligations (the closest domestic example being Apple v Samsung, a dispute that settled before any judicial decision was delivered), and it is difficult to tell what direction Australian courts will take on these and similar issues.

Authors: John Lee, Andrew Hii, Vanessa Farago-Diener and Meaghan Powell