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13 December 2018

FRAND News Analysis: More room for manoeuvre

On October 23, the English Court of Appeal held that the owner of a standard-essential patent (SEP) is able to meet fair, reasonable, and non-discriminatory (FRAND) obligations through the offer of a worldwide licence.

Affirming the English High Court’s decision of April 2017, the Court of Appeal ruled that if an implementer refuses a global FRAND licensing offer, the court is able to issue an injunction to prevent continued infringement in the UK.

The decision is “hugely significant”, according to David Rose, partner, and Nina O’Sullivan, legal director, both from Mishcon de Reya in London.

In fact, the 2017 ruling had represented the first instance in which the High Court had made a FRAND determination and set a royalty rate, and the recent affirmation of that ruling is an important one in the complex world of SEP licensing.

National courts, global matters

Richard Johnson, partner at Mewburn Ellis in Bristol, UK, says that the Court of Appeal’s decision shifted the balance of power in favour of SEP owners in a landscape where there was already continual tension between competition law and patent law.

"An implementer could be potentially liable to an injunction even where the court has determined its counter-offer was a FRAND one." David Rose & Nina O'Sullivan, Mishcon de Reya

Rose and O’Sullivan explain that the ruling also confirmed that UK courts are “prepared to settle the terms of a global FRAND licence even where, as in this case, it has only determined questions of infringement in relation to UK patents”.

In practice this means that, if an implementer chooses not to take the licence advocated for by the court, it may be subject to an injunction which would keep the implementer out of the UK market.

Johnson agrees that this is a particularly controversial element of the ruling.

“The decision holds that a national court can find a global licence to comply with the FRAND standard, and can therefore issue a judgment that effectively sets royalty rates across multiple jurisdictions,” he elaborates.

These implications mean that the ruling will affect SEP owners’ perception of the UK as a FRAND resolution location.

For example, Rose and O’Sullivan say, the decision “firmly cements the attractiveness of the UK courts as a forum for the resolution of licensing disputes”, as parties will be able to use a single judicial framework to resolve disagreements without having to bring SEP litigation in all relevant territories separately.

The ‘ND’ in FRAND

Although the Court of Appeal broadly agreed with the lower court’s findings, it did differ from the earlier decision when it came to FRAND rates.

"That the Court of Appeal’s decision shifted the balance of power in favour of SEP owners." Richard Johnson, Mewburn Ellis

Last year, the High Court said there can be only a single FRAND rate for any given set of circumstances.

The Court of Appeal instead ruled that, given the complexities of patent licences and the commercial priorities of the parties involved, “the reality is that a number of sets of terms may all be fair and reasonable in a given set of circumstances”.

“This is important because it weakens the position of implementers who seek to take a licence on the same terms as other licensees under the ‘non-discriminatory’ prong of the FRAND requirement,” Johnson explains.

Rose and O’Sullivan add that the Court of Appeal seems to have indicated that there can be a FRAND offer by the SEP owner, and a FRAND counter-offer by the implementer—and in that scenario, the SEP owner will have satisfied its obligations under the FRAND undertaking.

“This would appear to suggest that an implementer could be potentially liable to an injunction even where the court has determined its counter-offer was a FRAND one,” they explain.

Simply put, the decision gives SEP owners “more room for manoeuvre,” Johnson says.

He predicts that implementers who do not want a global agreement will have to find ways to show that a global licence is not appropriate for them.

The final word

Although the Court of Appeal has already refused Huawei’s request to appeal against the ruling, the Chinese telecoms company said that it will seek permission to appeal to the UK Supreme Court.

According to Rose and O’Sullivan, if the Supreme Court does grant Huawei permission to appeal, a final ruling in the matter may not be given for another 18 months or so.

They believe it is “quite possible” that permission will be granted, given the number of points of general public importance (whether a global licence can be FRAND, the proper scope of the ‘non-discrimination’ limb, etc) tied up in the matter.

Johnson adds that, regardless, while the decision makes it clear that a global licence can be FRAND, whether or not it is in any given scenario will depend on the details.

Therefore, when parties do not agree there will be further litigation, he says.

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