Supreme Court unanimously dismisses appeals in FRAND telecommunications cases

August 25, 2020

The Supreme Court has dismissed two appeals in Unwired Planet International Ltd and another (Respondents) v Huawei Technologies (UK) Co Ltd and another (Appellants) Huawei Technologies Co Ltd and another (Appellants) v Conversant Wireless Licensing SÀRL (Respondent); ZTE Corporation and another (Appellants) v Conversant Wireless Licensing SÀRL (Respondent) [2020] UKSC 37.

The appeals concerned actions for infringement of UK patents said to be essential to the implementation of international standards for mobile telephony. This type of patent is called Standard Essential Patent (SEP). The international standards are set by the European Telecommunications Standards Institute(ETSI). Under its IPR Policy, ETSI then requires the SEP owner to give an irrevocable undertaking to license their patented technology on terms that are “fair, reasonable and non-discriminatory” (“FRAND”). This aims to give those implementing the standards access to the technology protected by SEPs, while also providing the SEP owners with a fair reward for the use of their SEPs.

The first appeal concerned an action brought by Unwired against Huawei for infringement of five UK patents which Unwired claimed to be SEPs. The second appeal concerned an action brought by Conversant against Huawei and ZTE for infringement of four of its UK patents. The Court of Appeal upheld the trial judges’ orders in both appeals. Huawei and ZTE appealed to the Supreme Court.

The Supreme Court decision

The Supreme Court unanimously dismissed both appeals. The appeals raised five issues of significance to the telecommunications sector.

Issue 1: The jurisdiction issue

The Supreme Court was asked to decide if the English courts have jurisdiction and may properly exercise a power, without both parties’ agreement: (a) to grant an injunction to restrain the infringement of a UK patent that is a SEP unless the implementer of the patented invention enters into a global licence of a multi-national patent portfolio; and (b) to determine the royalty rates and other terms of such a licence. 

The Court ruled that the English courts have jurisdiction and may properly exercise these powers. The contractual arrangements under ETSI’s IPR Policy give the English courts jurisdiction to determine the terms of a license of a portfolio of patents which includes foreign patents. It said that the possibility that a national court might grant an injunction is a necessary part of the balance which the IPR Policy seeks to strike, because it provides incentives to implementers to negotiate and accept FRAND terms to use the SEP owner’s portfolio. The Court rejected Huawei’s contention that there is a clear distinction between the terms that operators might choose to agree voluntarily as part of a commercial negotiation and the terms that can be imposed on them by the courts. It ruled that the IPR Policy envisages that the courts may decide if licence terms are FRAND and in doing so the courts should look to and draw on commercial practice in the real world when assessing this. 

The Court also disagreed that the English courts do not have jurisdiction to determine the terms of a licence of disputed (or potentially disputed) foreign patents. The lower courts had not attempted to rule on the validity or infringement of foreign patents, which would have been beyond their jurisdiction. Instead, they looked to the industry practice of taking a license of a portfolio of patents and construed ETSI’s IPR Policy as promoting that behaviour. 

The Court also rejected Huawei’s submission that the approach of the English courts is out of step with that of foreign courts and dismissed the argument that it is improper for an English court to exclude Huawei’s products from the UK market by exercising a discretion to grant an injunction in respect of an infringement of a SEP.

Issue 2: The suitable forum issue

The question was whether the High Court should have: (a) set aside service of Huawei and ZTE out of jurisdiction; and (b) permanently stayed the proceedings as against the English subsidiaries of Huawei and ZTE on the basis that China was a more suitable forum. The Court rejected this argument because the Chinese courts did not currently have the jurisdiction needed to determine the terms of a global FRAND licence, at least, without all parties’ agreement that they should do so. In contrast, the English court has jurisdiction to do this.

The other issue was whether the English proceedings should be stayed temporarily until the Chinese proceedings challenging the validity of Conversant’s Chinese patents have been concluded. The Court upheld the Court of Appeal’s decision refusing this.

Issue 3: The non-discrimination issue

This related to the requirement that license terms must be non-discriminatory. Huawei argued that SEP owners like Unwired must therefore grant the same or similar terms to all licensees, unless it can be shown that there are objective reasons for treating them differently. 

The Court held that Unwired had not breached this. ETSI’s IPR Policy requires SEP owners to make licenses available “on fair, reasonable and non-discriminatory… terms and conditions”. This is a single, composite obligation. The “non-discriminatory” part of the undertaking indicates that, to qualify as FRAND, a single royalty price list should be available to all market participants. This must be based on the market value of the patent portfolio, without adjustment for the characteristics of individual licensees. However there was no requirement for SEP owners to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees. Indeed, ETSI previously rejected proposals to include a “most favourable licence” term of this kind.

Issue 4: The competition issue

In the Unwired appeal, Huawei argued that Unwired’s claim for an injunction should be regarded as an abuse of its dominant position, contrary to Article 102 of the TFEU. This was because Unwired has failed to comply with the guidance given by the CJEU in Huawei v ZTE (Case C-170/13) because it did not make a FRAND licence offer before claiming injunctive relief. Therefore, Unwired’s remedy should have been limited to damages. The Supreme Court confirmed that bringing an action for a prohibitory injunction without notice or prior consultation with the alleged infringer will infringe Article 102. However, the nature of the notice or consultation required will depend on the circumstances of the case. On the facts, what mattered was that Unwired had shown itself to be willing to grant a licence to Huawei on whatever terms the court decided were FRAND, and so had not behaved abusively.

Issue 5: The remedies issue

Huawei argued that, even if it was infringing Unwired and Conversant’s SEPs, the court should not have granted an injunction to stop the continuing infringement. Instead, the more appropriate and proportionate remedy would be for the court to award the claimants damages, based on the royalties which would reasonably be agreed for a licence of the infringed UK patents. The Supreme Court rejected this argument. It said that the Court could not properly substitute an award of damages for the injunction granted in the Unwired appeal and upheld by the Court of Appeal. There was no risk that Unwired or Conversant could use the threat of an injunction as a means of charging exorbitant fees, since they cannot enforce their rights unless they have offered to license their SEPs on terms which the court is satisfied are FRAND. Moreover, an award of damages would not be an adequate substitute for an injunction.