Author: Simon Kahn
25 May, 2017
We have previously commented on the significant litigation between Unwired Planet and Huawei, in May 2015 and December 2015. This case relates to a number of allegedly Standards Essential Patents (SEPs), owned by Unwired Planet and in previous High Court decisions, two of these were held to be valid, infringed and essential, whilst another two Patents were found invalid. Although trials to consider other Patents had been scheduled, both parties agreed to postpone these other trials indefinitely and instead allow the court to hold a non-technical trial, looking at the issues of licensing SEPs and Competition Law. This decision, handed down by Mr Justice Birss in April 2017, Unwired Planet International v Huawei Technologies Co., Ltd & Ors  EWHC 711 (Pat), is lengthy and wide ranging, but includes some potentially valuable advice to any company looking to acquire and license SEPs.
Unwired Planet initially began proceedings against Huawei, Samsung and Google in April 2014. However, Google settled in the summer of 2015 regarding the SEPs (infringement of one non-SEP was also alleged) and Samsung settled completely in the summer of 2016. The European Telecommunications Standards Institute (ETSI), which sets the appropriate standards for mobile telecommunications, requires Patent owners to licences SEPs under “Fair Reasonable And Non-Discriminatory” (FRAND) terms. Unwired Planet made a number of offers to Huawei, both for worldwide licensing of their portfolio and for licences only in the UK, based on a percentage royalty rate. Huawei argued that Unwired Planet’s offers were not FRAND, especially the offer of preferential rates for a worldwide licence over a UK licence and for a portfolio licence over a per-patent licence. Huawei’s counter-offers were all on a UK only basis.
The court therefore considered a number of important questions, which Birss J answered in a way that left very little unresolved. These are some of the main points:
- Are Unwired Planet, who are not a member of ETSI, required to license on FRAND terms? Birss J held that the ETSI terms still applied to Unwired Plaenet under French contract law and therefore they were required to offer a FRAND licence.
- Can there be more than one FRAND set of terms? This was an important question, because if more than one offer was deemed FRAND, the court might not set a specific set of terms for the licence, but rather give a range of options for negotiation. Nonetheless, Birss J decided that only one set of terms was in fact FRAND in a given set of circumstances, so it was possible for the Court to impose the licence terms on both parties. This does not mean that other licences were problematic, because their circumstances were different and because FRAND also refers to the process of licence negotiation.
- In this case, must the FRAND terms be (a) UK-only or worldwide and (b) per-patent or on a portfolio basis? The decision here was in Unwired Planet’s favour, with Birss J ruling that the terms must be worldwide and on a portfolio basis. This is because, in the court’s view, a willing licensee would not want to negotiate each country and patent separately. Huawei were nevertheless free to continue parallel litigation in other countries and the licence would include terms to dictate the consequences of those decisions.
- How are FRAND royalty rates set? In principle, Birss J was less prescriptive on this point, agreeing that both comparable licences and a ‘top down’ approach (based on patent owner’s share of relevant SEPs, applying that to a total aggregate royalty rate for a standard) were acceptable. It was also acceptable, within the worldwide licence, to have different rates for different countries.
Advice to SEP owners
Whilst much of the particular outcome in this case is fact-specific, there are some significant messages that companies seeking to build up an SEP portfolio should bear in mind:
• Portfolio size: Unwired Planet appeared to benefit by having a sizeable portfolio of SEP patents, in that the court’s FRAND terms required the whole portfolio of SEPs to be licenced, without considering the individual value of each Patent. Having a bigger portfolio of SEPs is therefore potentially advantageous.
• Geographical spread: The wide spread of Unwired Planet’s SEPs across the world allowed them to assert that a willing licensee would negotiate worldwide and not on a per-country basis. Building up and maintaining a portfolio in the major markets looks to provide a realisable value, at least in the telecommunications industry.
• SEP origin: Unwired Planet acquired most of the SEP portfolio from Ericsson and, in this area, were considered a Non-Practicing Entity (NPE). This did not appear to have any significant effect on their ability to obtain a decision in their favour.
This case does not appear to be over yet and the case will likely move on to the Court of Appeal. We will continue to provide guidance on this area of great interest, as further decisions are issued. If you need further information please contact Simon Kahn or your usual Boult Wade Tennant adviser.