United Kingdom: SEPs and FRAND – litigation, policy and latest developments

Introduction

Probably the most notable feature of the UK’s approach to FRAND is the willingness of its courts (following the UK Supreme Court’s judgment in Unwired Planet v Huawei) to determine the terms, including royalty rates, of FRAND licences on a global basis. As the first jurisdiction in the world to declare itself competent to do so, the UK has become a popular forum for SEP owners seeking to resolve their licensing disputes with implementers of their standardised technology, with 2023 seeing the publication of two further UK FRAND decisions setting global FRAND licence terms. However, not all the consequences of the UK’s global approach have been fully resolved, with further cases due to be heard, including in all likelihood by the UK Supreme Court, which will further illuminate how the UK’s approach fits into the global FRAND framework.

The UK courts can set the terms of global FRAND licences

The UK views FRAND primarily as a matter of contract law. Normally in the UK a patentee would be able to obtain an injunction against an infringer; however, if the patent is subject to a FRAND commitment, the implementer can rely upon that contractual commitment to avoid the injunction by compelling the patentee to offer a FRAND licence. As a result the UK Court has in three cases so far determined what the terms are for the FRAND licence which the patentee is required to offer. The UK courts will pay attention to commercial realities, so that where the SEP owner has a sufficiently large international portfolio of patents and an implementer markets its products in many countries, the SEP owner will be deemed to have met its FRAND obligations if it chooses only to offer a global licence.

An infringing implementer therefore has a choice: either submit to a UK injunction or enter into the FRAND global licence made available by the SEP owner. Given that questions of validity and infringement of a national patent are within the exclusive jurisdiction of the courts of the state that has granted the patent, is this a case of jurisdictional overreach? The UK Supreme Court did not think so. It is the contractual arrangement, which ETSI has created in its IPR Policy, that gives the UK courts the jurisdiction to determine a FRAND licence to a portfolio of patents that includes foreign patents. The judgments of the lower courts in Unwired Planet had not purported to rule on the validity or infringement of foreign patents but had looked to the commercial practice in the industry of agreeing to take a licence to a portfolio of patents, regardless of whether or not each patent was valid or infringed, and had interpreted the ETSI IPR Policy as promoting that behaviour.

In many countries, courts will only adjudicate on the terms of a global licence with the consent of both parties. It has been said that the UK is unusual in adjudicating the terms of a global licence without each party’s agreement that it should do so. However, on at least one view that is not correct. The patentee effectively consents to the court making such an adjudication by seeking an injunction, and the implementer consents by undertaking to enter into the court-determined licence rather than be subject to an injunction. Following the Supreme Court’s logic, the UK courts cannot compel an implementer to enter into a licence; they can only grant an injunction preventing further infringement of a UK SEP if the implementer declines to enter into the licence. Hence there is a choice for the implementer. In its more recent decisions, the UK courts have addressed the question of when this choice should be made.

Sequence of trials – infringement / validity or FRAND first?

The issues of infringement and validity of patents asserted by the SEP owner will usually be determined in a series of technical trials. As a matter of general practice so far, two or more technical trials have been scheduled to take place before the FRAND trial, meaning that the FRAND trial can take place over two years after the start of proceedings, increasing the length (and the associated costs) of multiple-trial proceedings. This does have a certain internal logic; the only remedy for the SEP owner to compel the implementer to take a licence is an injunction, and to have an injunction there has to be a patent that is valid and infringed. But it might also be argued that in a large portfolio there is almost certainly at least one UK patent which is valid and infringed and so the SEP owner will almost certainly prevail in at least one technical trial.

In his recent judgment in Nokia v Oppo, Mr Justice Meade saw the long period to the FRAND trial as a potential source of unfairness on the patentee and did not see that any particular sequencing of trials or case management was necessary. The door has been left ajar, therefore, for the FRAND trial to be scheduled first in a series of trials or at around the same time as the first technical trial. An implementer can also start proceedings and have FRAND determined first, as occurred in the case of Kigen v Thales. If this were to become the practice, the main issue of settling the terms of a licence could be dealt with at the earliest opportunity (perhaps within 12 months of the start of proceedings if expert evidence were streamlined). This, in turn, might lead to less litigation or earlier settlements once litigation is commenced.

Implementer’s undertaking to take a licence on FRAND terms yet to be determined by the court to avoid an injunction

The fact that technical trials have come first in UK FRAND proceedings has given rise to another question: what happens if the implementer is found to have infringed a valid and essential patent before the court has determined what licence terms are FRAND, but the implementer does not wish to commit to enter into the licence terms subsequently determined by the Court?

The Court of Appeal in Optis v Apple upheld Mr Justice Meade’s decision that, once a patent has been determined as valid and infringed, the SEP owner is entitled to an injunction unless and until the implementer undertakes to take a licence on the terms subsequently determined by the court to be FRAND.

The Court, however, rejected the argument that an implementer should be subject to an immediate and unqualified injunction if it does not undertake to take a court-determined FRAND licence. Instead, the form of injunction endorsed by the Court of Appeal was a FRAND injunction, modified to bite unless the implementer undertakes to take a licence on terms to be determined to be FRAND.

Whether this approach is correct was going to be heard by the UK Supreme Court, but that appeal was later withdrawn by Apple. However, the issue may still be heard by the Supreme Court in the later case of Nokia v Oppo, in which the question of FRAND determinations occurring contemporaneously in courts in different countries has arisen.

Parallel proceedings in other jurisdictions

In Nokia v Oppo, Oppo are seeking a global rate determination from the Chinese courts. The question therefore arose as to whether an undertaking from Oppo to enter into the FRAND licence determined by the Chinese courts (as opposed to the English courts) would be enough to avoid an injunction in respect of Oppo’s infringement of Nokia’s valid UK SEP. Referring to the Court of Appeal’s decision in Unwired Planet (see below), Mr Justice Meade concluded that Nokia could meet its FRAND obligation by choosing to offer the terms to be set by the UK court (rather than by the Chinese court). The judge concluded that Oppo was not a willing licensee as their willingness was qualified by insisting on terms set by the Chinese courts and that Nokia was a willing licensor having given an unqualified commitment to offer and then, if Oppo wanted, grant a licence on whatever FRAND terms the UK court decides.

However, the judge did not accept that the UK court is always and without any exception obliged to set FRAND terms itself. For example, it might not if proceedings abroad were already far advanced when the UK court came to deal with the matter, and the proceedings gave effect to the patentee’s right to choose between different licences that were all FRAND, and it was clear that the proceedings abroad would give a prompt and enforceable result. So, there is the possibility that the UK court might defer to another court’s global FRAND determination in the future.

As seen in Nokia v Oppo (and other cases such as Conversant v Huawei & ZTE, IP Bridge v Huawei, Interdigital v Lenovo and Optis v Apple), it is common in UK FRAND cases for parallel proceedings to be commenced in other jurisdictions by one or both parties. For example, a SEP owner that has brought proceedings in the UK for infringement of certain UK SEPs may also choose to bring infringement proceedings asserting non-UK patents before the courts of other countries. An implementer might bring proceedings for a FRAND rate determination before the courts of another jurisdiction (like Oppo has) or seek to invalidate certain of the SEP owners’ non-UK patents before non-UK courts.

Actual or potential concurrent proceedings on the same or similar subject matter in the UK and in other jurisdictions may be undesirable (for example, from a costs perspective or because of the risk of inconsistent judgments) but are not of themselves regarded as an attack on the UK courts.

Despite the general position that parallel proceedings are legitimate, the UK courts have granted anti-suit relief in five different FRAND cases (or at least said that they would have granted it had agreement not been reached between the parties beforehand).

The first three cases arose from similar facts – the defendant began proceedings in another jurisdiction, seeking relief that the UK court found to be objectionable.

• In 2017 in Unwired Planet, Huawei began proceedings before the Shenzhen courts in China claiming that Mr Justice Birss’ FRAND judgment and global licence were not FRAND and sought an injunction to prevent Unwired Planet from pursuing the UK proceedings.

• In 2018, ZTE brought proceedings before the Shenzhen courts for a declaration that Conversant’s licence offers were not FRAND and an injunction restraining Conversant from bringing UK proceedings.

• In 2019, Lenovo filed a motion for an anti-suit injunction (‘ASI’) in US proceedings, seeking to enjoin UK proceedings commenced by IPCom.

This type of ASI now seems to be more a thing of the past. Defendants to UK proceedings are wise to the injunction risk, opting instead to bring proceedings in other courts in respect of local patents and seeking local or (if permitted) global rate-setting, without claiming the types of relief previously found to be objectionable.  

In October 2020, the UK court granted Philips’ application for an interim anti-anti-suit injunction (AASI) preventing Xiaomi from commencing proceedings in China to frustrate its jurisdiction. However, the subsequent application to continue the AASI was compromised on confidential terms. This was the first indication that a UK court was prepared to grant a preventative AASI but Mr Justice Mann’s reasons in that case have not been made public.

In July 2022, in Philips v Oppo, Mr Justice Meade granted an AASI against Oppo. ‘A central part of the picture’ was the Sharp v Oppo litigation before the Chinese courts in which Oppo sought and obtained an ASI which ended German infringement proceedings. Oppo argued that it had renounced the practice of seeking anti-suit relief before the Chinese courts. It pointed to more recent proceedings against Nokia and Interdigital, in which it had not done so and said that their approach had switched to challenging the jurisdiction of the non-Chinese court. The judge considered that Oppo’s evidence left room for it to change its mind and seek an ASI, especially if its jurisdiction challenge failed.

Oppo’s position in that case also appeared to be weakened by a proposed undertaking to give Philips seven days’ notice before seeking any relief from the Chinese courts that would restrain, prevent, require the withdrawal of or seek to penalise Philips for pursuing the UK proceedings. This begged the question: what was Oppo reserving the right to do specifically? This was not clarified.

The court concluded that there was a sufficiently imminent threat that Oppo would seek anti-suit relief from the Chinese courts and that this would be vexatious, oppressive and unconscionable, given that it would prevent a UK court from determining infringement of a UK patent. Out of deference to the requirements of comity that form part of the court’s discretion to grant anti-suit relief, the terms of the court’s order defended the UK court’s proceedings, while not restricting the Chinese courts from conducting global rate-setting. Enforcement of any rate-setting judgment from the Chinese courts would not be affected.

There can be more than one set of FRAND terms and it’s the SEP owner’s choice which alternative to offer

In Nokia v Oppo, Mr Justice Meade, in circumstances where the UK and Chinese courts had been asked to rule on FRAND licence terms for the same patent portfolio, concluded that Nokia could meet its FRAND obligation by offering the terms to be determined by the UK court. This follows the Court of Appeal’s ruling in Unwired Planet that it was unreal to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of licence terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances. If the SEP owner and prospective licensee cannot agree upon the terms and royalty rates of a FRAND licence and the question of what is FRAND falls to be determined by a court or arbitrator, they will normally decide one set of terms as FRAND. However, if the outcome of proceedings is that two different sets of terms are each found to be FRAND, then the SEP owner will satisfy its obligation to ETSI if it offers either one of them. In other words, the SEP owner has to offer a FRAND licence, but does not have to offer every possibility that is capable of being FRAND.

Competition law and Huawei v ZTE

Although in some European countries such as Germany the approach set out by the Court of Justice of the European Union (CJEU) in Huawei v ZTE plays a prominent part in assessing whether there has been an abuse of a dominant position, this is far less so in the UK. In Huawei v ZTE, following a request by a referring German court as to the circumstances in which a SEP owner would abuse its dominant position as a result of bringing an action for a prohibitory injunction, the CJEU set out a series of steps that should be followed by a SEP owner and an implementer during licensing negotiations.

As noted above, the UK considers FRAND to be primarily a matter of contract, rather than competition law (in contrast to jurisdictions such as Germany). Nevertheless, competition law still plays a role, and it is common in litigation for implementers to counterclaim that a patent owner has abused its dominant position, although so far without success. For example, in Optis v Apple, Mr Justice Marcus Smith ruled that Optis was not a dominant undertaking, Optis’ conduct in negotiations with Apple was not abusive, and that even if there had been abuse Apple had not suffered any loss.

In Unwired Planet, the UK Supreme Court interpreted Huawei v ZTE to mean that an action for a prohibitory injunction without prior notice to or consultation with the alleged infringer will amount to an abuse of a dominant position under article 102 of the TFEU. However, the nature of the notice or consultation required will depend on the circumstances of the case. Beyond that notice or consultation, there was no obligation to follow the rest of the scheme in Huawei v ZTE; the Supreme Court agreed with Mr Justice Birss that it amounted to a ‘standard of behaviour against which both parties’ behaviour can be measured to decide in all the circumstances if an abuse has taken place.’ What mattered on the facts of Unwired Planet was that Unwired Planet had shown itself willing to license Huawei on whatever terms the court determined were FRAND, whereas Huawei had only been prepared to take a licence with a scope determined by it.

Despite the prior notice or consultation being the only mandatory aspect, the Huawei v ZTE scheme remains a ‘standard of behaviour’ for SEP owners and implementers to follow. In addition, global FRAND disputes are rarely limited to the UK – as stated above, in German proceedings, competition law and the Huawei v ZTE scheme play a central role, and so the ‘Huawei v ZTE dance’ continues to have an impact on FRAND negotiations.

How the UK courts determine the FRAND rate – differing facts or differing approaches to issues of principle?

To date, there have been three different judgments in the UK which have determined a FRAND rate: Unwired Planet v Huawei, Interdigital v Lenovo and Optis v Apple. Each of these judgments looked primarily at comparable licences to determine the appropriate royalty rate, with a top-down approach being used as no more than a cross-check, if at all. However, there are differences in how the ‘comparables approach’ was adopted in each case.

The two more recent cases (Interdigital v Lenovo and Optis v Apple) have not yet reached the appeal stage. The Court of Appeal may decide that the differences in approach simply reflect the differences in circumstances in each case, or may identify points of principle raised in the judgments and provide guidance on how they should be resolved. One issue that UK FRAND proceedings have faced is the volume (and costs) of expert evidence required to assist the court to determine FRAND royalty rates. Appellate guidance on any points of principle arising from these recent decisions are likely to reduce the number of points in dispute, and hence the volume of evidence, and therefore cost, needed for future FRAND trials.

The UKIPO’s call for views on SEPs and Innovation

To date, the UK approach to FRAND has been driven primarily by case-law. More recently, the UK Intellectual Property Office (UKIPO) held a public consultation on aspects of FRAND to seek views on whether the ecosystem around SEPs is functioning efficiently and effectively and strikes the right balance for all entities involved. As a result, the UKIPO published a document called ‘Summary of Responses to the Call for Views’. There were 56 respondents, including SEP holders, implementers, licensing pool administrators and academic institutions. While the report provides a useful summary of views on various key questions, it concludes that there was little consensus on the nature, extent, causes and impact of problems related to the efficiency or effectiveness of the SEP ecosystem identified, with SEP holders and implementers often advancing opposing arguments in response to the questions posed. There was also little consensus on the need for the UK government to intervene.

Conclusion

The UK courts are a popular forum for SEP owners seeking to resolve their licensing disputes with implementers of their standardised technology. The UK FRAND ecosystem has developed dramatically in the last five years through court decisions in a series of important cases such as Unwired Planet v Huawei, Interdigital v…