LESI: Territorial tangle
Almost five years have passed since the ground-breaking decision of the Court of Justice of the EU in Huawei v ZTE in July 2015 (CJEU C-170/13). The European patent courts have digested the procedure outlined by the European judges and analysed the decision extensively. Many of the first decisions deal with the nature of the fair, reasonable and non-discriminatory (FRAND) undertaking and the more formal details of the procedure.
Despite differences in the details there is broad consensus that FRAND is a global issue. Territoriality, however, seems to be a controversial topic for courts all over the world. Although for industry a global portfolio licence is a common practice at least in the areas of mobile phones and electronics, in court proceedings this understanding is threatened by legal arguments and discussions on competence.
The German courts have long recognised that a global portfolio licence is common practice and therefore FRAND. In the UK, Justice Birss, in the England and Wales High Court’s comprehensive first instance decision in the infringement dispute between Unwired Planet v Huawei, for the first time determined a global FRAND rate (2017 EWHC
711 [Pat]).
Judge Selna did the same in TCL v Ericsson before the District Court of Central California in 2018 (SACV14-00341 JVS [DFMx]). Both decisions are not yet final.
In the UK, Huawei objected in particular to the worldwide scope of the licence set by the court and insisted that a UK licence was FRAND in the specific individual case. The England and Wales Court of Appeal (Lord Kitchin), however, confirmed the worldwide approach of Justice Birss on appeal (2018 EWCA Civ 2344); the Supreme Court has not yet ruled on Huawei’s further appeal (UKSC 2018/0214).
In the US, the Federal Circuit overturned Judge Selna’s first instance decision due to a procedural error (US Court of Appeals for the Federal Circuit, 5 December 2019, 2018-1363, 2018-1732).
The fact that national courts see themselves as “one-stop shops” for the determination of a global portfolio licence is to be welcomed in principle. In procedural terms, however, such actions regularly resulted in legal disputes over territoriality (jurisdiction and lis pendens) and state sovereignty. A national patent can only ever develop its legal effects nationally. One single standard-essential patent (SEP) is sufficient to exclude the implementer from the market in a jurisdiction.
"Foreign proceedings aimed at depriving the plaintiff of the right to sue in Germany constituted an illegal encroachment on the plaintiff’s rights."
The situation is even worse, however, with regard to liability for damages. Once convicted, the implementer owes damages from one SEP on a country-by-country basis. No court in the world is entitled to award the SEP proprietor tortious damages for more than the acts of use from the patent at issue.
In order to avoid having to sue for damages from all portfolio patents in all countries of the world, the SEP holder is striving for a lever to a worldwide portfolio licence. To achieve this, the SEP holder is dependent on a contractual solution with the implementer.
A licence agreement is concluded either because the SEP holder demands a licence fee that is accepted by the standard implementers, or because of the economic pressure of an injunction in an economically significant market, which has a severe impact on the implementer. In the former case, there is no litigation anyway. In the second case, the parties fight with all means to quickly enforce their legal protection goal in a court location that is advantageous for them. Other court jurisdictions and parallel proceedings are blocked, preferably with territorial arguments.
We have brought together the two central case groups that are currently moving the FRAND litigation practice.
International jurisdiction
The first group of cases concern the international jurisdiction of a particular court.
EWHC—Vestel v HEVC/Philips
In this case, Vestel alleged abuse/excessive pricing under article 102 of the Treaty on the Functioning of the European Union (TFEU) because other pools for HEVC patents have a lower rate and because there was overlap of patents between pools. Vestel requested the EWHC to declare its own FRAND rate. Philips understood the case to be an “English FRAND Torpedo” to prevent HEVC pool members using the German courts to consider FRAND as for the defendants in the UK proceedings (from the US and the Netherlands) there was almost no UK relation.
Therefore, the English High Court ruled that it does not have jurisdiction in relation to these claims brought against the US and Dutch defendants alleging abuse of dominance in relation to the licensing of standard essential patents (EWHC [2019] 2766 [Ch]).
EWHC—Philips v Asus/HTC
In a second case before the EWHC Asus submitted it was not going to take a FRAND licence and would therefore accept an injunction and withdraw from the UK market. Philips wanted the case to continue and claimed its damages for past infringement of the UK patent. It argued that these should be assessed on the basis of Asus’ worldwide sales as a world-wide licence was the only licence that the implementer could have taken to avoid infringement, and therefore the amount that Philips has lost out on.
Justice Smith noted that any measure of damages that automatically drags in past sales of other jurisdictions runs a risk of usurping the jurisdiction of other courts. He proceeded to differentiate between a “declared” licence (ie, the forward-looking court-determined FRAND licence), and a “counterfactual” licence used to calculate damages for past infringements of which “the implementer simply pays damages calculated by reference to the licence it should have entered into in order to render its past unlawful infringements lawful”.
In an interim decision Justice Smith held that the extent to which a declared licence is considered in the assessment of damages was a question of fact and, in this case, to be determined at the FRAND trial (EWHC [2020] 29 [Ch]).
EWCA—Huawei/ZTE v Conversant
Conversant had sued Huawei and ZTE for patent infringement before the EWHC. Already at the first instance stage before the EWHC Huawei argued that China (where separate proceedings were ongoing) was the natural and appropriate forum because it was the major focus of their business activities.
At first instance, the EWHC had found that it had jurisdiction to determine an action involving
UK SEP infringement allegations and the determination of a global FRAND licence (EWHC [2018] 808 [Pat]). Nevertheless, the EWHC announced that any Chinese rates determined by the Chinese courts will be factored into global rate (EWHC [2018] 2549 [Ch]).
The EWCA dismissed the appeal by Huawei and ZTE against the rejection of their jurisdiction challenge. It argued that the disputes in China and the UK (which involved different patent rights and families) were different matters (EWCA [2018] 808).
In November 2019 the Nanjing Intermediate People’s Court of Jiangsu Province set a China-only rate in the Chinese parallel proceedings between Huawei and Conversant. This rate will now have to be factored into any worldwide rate set by the UK courts.
Encroachment on the power of decision
The second group of cases concerns possible encroachments on the decision-making sovereignty of other courts through so-called anti-suit injunctions, which have been issued in the past, particularly in the US and China.
Higher Regional Court Munich—Nokia v Continental
In December 2019, the Higher Regional Court Munich confirmed the first German anti-suit injunction (6 U 5042/19). The Regional Court Munich had prohibited the defendants and their interveners in a German patent infringement complex from bringing anti-suit injunction proceedings before the US District Court of Northern California.
The defendants were not allowed to take any measures that would prevent the plaintiff from pursuing its legal action in Germany. Foreign proceedings aimed at depriving the plaintiff of the right to sue in Germany constituted an illegal encroachment on the plaintiff’s rights.
For the assessment of illegality, the German legal system alone was decisive: legality does not result from the legality of an anti-suit injection in the US.
Tribunal Judiciaire de Paris—TCL v Philips
The Tribunal Judiciaire de Paris had to decide on a similar issue. In October 2018 Philips brought an infringement action against TCL before the EWHC (case ID: HP-2018-000032). Philips’ main objective was for the UK court to determine a global FRAND licence rate for its entire universal mobile telecommunications service and long term evolution patent portfolio.
In early 2019 TCL filed a countersuit at the Tribunal Judiciaire de Paris and contested the EWHC’s jurisdiction and argued that, because the European Telecommunication Standards Institute (ETSI) is based near Antibes, jurisdiction should lie with the French court. Philips in return challenged the jurisdiction of the French court.
The Tribunal Judiciaire followed that argument and dismissed all of Philips’ motions and claimed jurisdiction in the FRAND issue (Entsch v 06.02.2020, RG 19/02085).
Summary
This accumulation of cases with territorial implications and difficulties demonstrates the dire need for the global FRAND jurisdiction to establish procedural and substantive law mechanisms so that the jurisdiction of different countries can not only be harmonised, but also take into account territorial specificities and state sovereignty.
Alexander Haertel is a partner at Kather Augenstein. He is the co-chair of the European Committee as well as a vice-chair of the Dispute Resolution Committee at the Licensing Executives Society International (LESI). He publishes and lectures regularly on IP matters. He can be contacted at: haertel@katheraugenstein.com
Jonas Block is a senior associate with Kather Augenstein and member of LESI’s Young Members Congress. He is an expert IP litigator with an extensive knowledge of FRAND and publishes regularly on IP topics. He can be contacted at: block@katheraugenstein.com
