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The Frand Zone: Huawei Loses its Appeal

Date: 21 January 2019

 

By Dr. Janet Strath

 

This article has been updated as of the Court of Appeal decision of 30 January 2019. See below for details.

 

In its recent decision in Unwired Planet Ltd v Huawei Technologies Co Ltd, the Court of Appeal of England and Wales has brought some clarity to the issues associated with licensing standard essential patents (SEPs) under fair, reasonable and non-discriminatory (FRAND) terms.

 

The court has confirmed that a SEP owner does not need to offer a per-country licence - a worldwide licence can meet obligations under the European Telecommunications Standards Institute (ETSI) Intellectual Property Rights (IPR) policy - and a UK judge has the jurisdiction to set the terms of such a global FRAND license. In addition, UK courts can (under certain circumstances) grant a FRAND injunction to prevent further patent infringement.

 

Unwired Planet was a familiar name back in the late 1990’s when, together with Ericsson, Motorola and Nokia, it launched the Wireless Application Protocol (WAP) Forum, an early approach to mobile internet access. The company claims to have developed technology that allowed mobile devices to connect to the Internet, including the Handheld Device Markup Language (HDML) and wireless browsers, and shipped software for over one billion handsets.

 

In 1999, Unwired Planet changed its name to Phone.com and subsequently merged with Software.com to become “Openwave Systems”. It continued to develop mobile internet technology but the balance of power gradually began to shift away from Openwave’s customers (carriers) and  towards device makers like Apple and  Google. In November 2011, Openwave  decided to sell its product business  and concentrate on earning revenue  from its IP. After the sale, the business  was  renamed  “Unwired  Planet” and became  a licensing business, staffed by a small group of IP specialists and accountants. 

 

The prevalence of companies that do not produce their own goods or services but instead exist only to buy up patents and use them as leverage to extract money from businesses by threatening legal action has led to calls for tougher regulation to deter so-called “patent trolls” from filing frivolous lawsuits. In answer to accusations of being a patent troll, Unwired Planet’s General Counsel gave a great answer:
“We happen to be at the point in our business cycle where what’s left is a patent portfolio.”

 

The most interesting part of the judgement is the settlement with Samsung. Unwired Planet was on the verge of insolvency and agreed a rock-bottom royalty for Samsung, but this “did not represent useful evidence of the fair market value of the Unwired Planet patent portfolio.” This is an important and valid point. It is not unreasonable for Huawei to cry “unfair” or “discrimination” if they have to pay more than Samsung, but it confirms that “fair” and “non-discriminatory” do not mean that all licensee rates must drop to the lowest common denominator. This is also confirmed in the judgement by the finding that there can be more than one set of FRAND terms in a given set of circumstances. This last point is the only point of difference vis-à-vis the first instance decision, and it strengthens the negotiating hand of the licensor. If there is more than one set of FRAND terms, the licensor can choose which to offer.

 

As for the worldwide licence point, all Huawei were trying to do was limit the damage of the case to the UK and continue to “hold out” in every other country. Lord Kitchen said it would be “wholly impractical” to engage in country-by-country licensing. Mr Justice Birss said it would be “madness”.

 

Our full article discussing the approach adopted by the court in this developing area will be published in the Computer and Telecommunications Law Review (CTLR) Issue 2 (2019).

 

Update: in separate appeal proceedings in Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Others, Huawei submitted the Court of Appeal had no jurisdiction to grant a global FRAND licence where UK sales only account for 1% or less of the sales on which royalties are claimed. The Court rejected this appeal in a judgement on 30th January 2019, stating that this was a dispute involving the determination of infringement, validity and essentiality of UK patents. It stressed that the FRAND element could not be considered separately for the purpose of the forum conveniens analysis.

 

You can find this article and others in our Patent Issues Newsletter Spring 2019.

 

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