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15 August 2017Patents

FRAND: The way forward in the licensing landscape

With the advent of new technology, determining what constitutes a fair, reasonable and non-discriminatory (FRAND) licence is growing in importance, with a number of discussions and disputes occurring or in the pipeline.

In June this year, Huawei was slapped with a FRAND injunction by Mr Justice Birss of the English High Court, in what Pat Treacy, partner at Bristows, describes as a “ground-breaking decision”.

“For a respected Patent Court judge, who knows a fair bit about the standard-essential patents (SEP) industry, to take this view will be influential and will shake up the negotiating practices of a number of people on both sides of the fence,” she says.

According to David Rose, partner at Mishcon de Reya, it’s the first decision of its kind, “certainly in Europe”.

Chinese technology company Huawei had failed to accept a licence that the court had found to be fair and reasonable, following an earlier decision in April when the court had backed licensing company Unwired Planet.

In March 2014, Unwired had sued Huawei, Samsung and Google (the latter two subsequently settled), alleging infringement of six UK patents. Five were claimed to be SEPs for telecommunications standards, such as 3G and 4G.

Unwired made an open offer to the defendants to license its entire global portfolio (SEPs and non-SEPs) after proceedings began, but the defendants denied infringement, claiming that the patents were invalid and counterclaiming for revocation.

Huawei, Samsung and Google alleged that because of this, no licence was required and that Unwired’s offer was not FRAND and therefore a breach of competition law.

In July 2014, Unwired made a further offer, covering only the company’s SEPs, but this was rejected by the defendants as not meeting FRAND standards.

Nearly one year later, each side made certain open offers of licensing terms—Huawei argued that a UK SEP licence was an “inevitable and mandatory outcome”, while Unwired instead offered a worldwide licence.

The main dispute for Birss to resolve was whether and to what extent various terms on offer were or would be FRAND, with one key issue being the value of Unwired’s patents reflected in the royalty rates.

Birss backed Unwired, holding that a worldwide licence would not be contrary to competition law and that “willing and reasonable parties” would agree on a worldwide licence, adding that an injunction ought to be granted.

The injunction wasn’t granted there and then, but it was in a following hearing, where Birss included a provision that it would cease

to have effect if the defendant enters into a FRAND licence.

“It’s a different approach from the judge himself who, in previous cases, had laid down a note of caution about the idea of imposing an injunction in the UK because that could compel parties to take one of these global portfolio licences,” explains Andrew Bowler, partner at Bristows.

Breaking new ground

A few strands to this decision make it ground-breaking, according to the partners at Bristows.

First, the English court was willing to write the terms of a global licence to an entire portfolio, and to threaten Huawei with an injunction if it didn’t accept the licence.

According to Rose, this is the first time in Europe that a court has been involved in the detail of determining specific royalty rates for a licence between two private companies and sought to do so on a global basis.

According to Treacy, another interesting aspect is that “the court went so far as to say that because Huawei had never indicated a willingness to take a global licence, but had only ever made offers to take a UK licence, that Huawei was not acting in a FRAND way”.

Another ground-breaking feature of the decision, Treacy says, was that Birss held that in relation to telecoms patents, the concept of being obliged to act in a FRAND way is contractually enforceable.

“This means that companies don’t have to rely on more difficult theories to make FRAND enforceable. In the past, businesses had to rely on theories such as estoppel or competition law theories, which are quite difficult to make good on,” she says.

Lighting a fire

Will this decision spark more litigation? The answer isn’t totally clear.

“Once the music stops, you’re going to have a pretty clear set of principles (although they will be complicated and detailed) as to how you should go about negotiating FRAND rates and the principles to apply,” says Rose.

Once a framework is in place, this will encourage commercial parties to have a better feel for the spectrum of likely royalty fees and the typical terms of a licence that the court would endorse, he explains.

Because of this, Rose expects a lower incidence of FRAND litigation in the long term, although he points out that litigation will not fall in relation to the underlying patents.

Bowler believes that the decision makes the UK a more attractive place to handle disputes.

“Currently, it’s quite restrictive in the US to bring proceedings and obtain injunctions. The country is clamping down on forum-shopping and the inter partes review proceedings kill a number of patents. We may therefore see more of these SEP licensing disputes being played out in the UK,” says Bowler.

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