News Analysis: Huawei in the crosschairs
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Brexit and the Unwired Planet appeal reveal intertwined issues coming to a head in London this autumn, argues Jim Beveridge of the Innovators' Network.
Autumn 2019 is limbering up to be a landmark season for lawyers and lawmakers in London. Two unresolved issues to be tested: the outcome of the Brexit referendum and the Unwired Planet v Huawei appeal. Two very different issues but both impacting the future implementation of technical standards across Europe.
The UK’s current extension to Article 50 runs out on January 31. Triggering Article 50 is the mechanism by which EU member states signal their intent to leave the European Union. It’s almost certain there will be a general election before the year’s out. If nothing else changes between now and the end of January, the UK could leave the EU institutions abruptly without a deal.
UK PM Boris Johnson is demanding that the EU rewrite the terms of any future trade deal to allow the UK to substantially diverge from European rules including technical standards. The UK leaving the EU without a deal means that the status of relevant technical standards is uncertain, currently under debate.
Also, this autumn, the UK’s highest court has heard arguments on questions arising in two disputes concerning standard-essential patents (SEPs).
Unwired Planet International Ltd and another v Huawei Technologies (UK) Co Ltd and another UKSC 2018/0214 and the joined cases Huawei Technologies Co Ltd and another v Conversant Wireless Licensing SARL UKSC 2019/0041 and ZTE Corporation and another v Conversant Wireless Licensing SARL UKSC 2019/0042.
For Brexit the standards issue is how much independence is a sovereign state allowed to exercise when adherence to standards is part and parcel of any future trade deal with a much larger trading bloc.
In the case of Unwired Planet, SEPs will once again be the subject of intense scrutiny. The case in question hinges on whether or not an English Court has the jurisdiction to grant relief in the form of a global patent licence in regard to a claim for infringement of UK patents
Brexit and the Unwired Planet case have become intertwined. Brexit uncertainty has caused the pound to devalue, this means cheaper patent litigation costs for cases brought in the UK. This notwithstanding the resulting interplay between both issues could be bad news for British consumers, with companies potentially removing products from the UK market to avoid Unwired Planet-style lawsuits.
Unwired Planet—where are we?
To recap …. Unwired Planet has a business in patent licensing. In 2013 Unwired Planet acquired over 2,000 SEPs from Ericsson and just over a year later sued Huawei and others in the English High Court for patent infringement. Huawei counterclaimed based on Unwired Planet’s alleged failure to offer on FRAND terms.
A seven-week FRAND trial took place in London at the end of 2016. The High Court ruled that a FRAND licence necessarily had to be global, went on to define its terms, and issued an injunction against Huawei in the UK that would be lifted only if Huawei agreed to a global license under the terms set by the court.
This case then went to the UK Court of Appeal; it held that a global licence can in principle be FRAND and that Unwired Planet was justified in offering a global licence in this case. The court noted that Telecom standards (in this case set by ETSI) are international in scope; that global licensing conforms to normal industry practice; and that individual country licensing will give rise to significant inefficiencies.
The case wasn’t over, Huawei appealed. In April, 2019, the Supreme Court of the UK granted Huawei’s petition for review of its jurisdictional challenge, as noted above the arguments are likely to focus on one question: can a national court impose a global license in SEP cases.
The UK Supreme Court heard Huawei’s appeal last week (October 21-24). It will hand down judgment later this year or early in 2020.
This approach by the UK court in taking on the role of a ‘global FRAND law enforcement entity’ has caused consternation in legal circles. It is being seen as unfair as the majority of the patents were issued outside of the UK, the premier market for the products impacted is China and the devices in question were exclusively manufactured in China.
An ancillary concern is that if its ok for the UK courts to set a global rate, what is to stop other jurisdictions from following suit. Will this lead to courts developing law that either favours the patent owner or the implementer? The danger is that the overall SEP system which relies upon balance between the patent holders and implementers becomes tilted to the disadvantage of the SME. The SME relies upon obtaining fair access to enabling technologies and in most cases, doesn’t have the resources to court shop.
Unwired Planet—what has changed?
What has changed since the Unwired Planet ruling in 2016 is the greater awareness of the importance of 5G to the digital transformation of all sectors of industry?
5G is spurring acceleration in the digital transformation of industry, the world is at a point of growth inflection fuelled by the increase in connectivity resulting in greater access to lower-cost cloud computing services. AI, IoT, big data—they rely upon the internet and that requires low cost, ubiquitous connectivity.
Previously vertical industries have addressed their connectivity needs with dedicated or industry-specific solutions. Industries have lobbied hard for costly dedicated slices of spectrum from the relevant radio communications regulators.
5G changes that model by providing a common interoperable platform, where the individual vertical industry sectors will rent* a slice of 5G from service operators. (One of the techniques used by the service operators is network slicing, this technique allows multiple, vertical-specific, logical networks to be grafted on top of a common shared physical infrastructure.)
Vertical market players will over time become implementers of the 5G technologies at the heart the SEP disputes.
In turn, this means that the vertical industries will be able to address business-critical requirements better through more ubiquitous coverage, higher bandwidths, lower latency and increased security.
As 5G data gathering technology becomes integrated into everything, from a John Deere tractor to a toothbrush, a whole new suite of companies seeking to innovate in their own vertical sector risk being caught up in the FRAND uncertainty.
To sustain growth telecom players will need to acquire technical expertise from the vertical implementers so they can augment the base 5G telecom standards. 5G solutions will become sector-specific, operators developing targeted vertical enabling services.
It will be difficult if not impossible for vertical industries to 'opt out' of the 5G technologies under dispute.
Again, talking the example of an SME seeking to launch an innovative product and that is connected to the internet using 5G. He doesn’t want to become an expert on 5G, he doesn’t want to have to navigate complex licensing terms, have to work out what a fair royalty is and finally engage in a far-flung court to defend his innovation.
Unwired Planet—European SEP ecosystem
Europe prides itself on its communications standards-setting institutions. CEN, CENELEC, ETSI are the backbone of its technology setting prowess. The advent of the mobile phone-based on the GSM mobile standard and televisions adhering to the DVB television standards are testament to that prowess.
The EU Commission recognises that the digital transformation of its vertical markets is critical to the delivery of the Digital Single Market. A fast rollout of 5G in Europe will allow its industrial base to drive and benefit from the IoT.
The telecom participants in Europe’s 5G industries are lobbying the EU to support large-scale 5G demonstrations and rollouts, this with the aim of getting industry involved in trials. Verticals have been poor relations in the 5G-standardisation process, which has been driven by the horizontal, standards-setting, telecom industry.
Europe with its myriad languages benefits from a collaborative approach to specifying technology platforms. Representatives from different companies and cultures across Europe work together to forge technology standards that interoperate across linguistic and cultural barriers to the benefit of Europe’s citizens.
Traditionally the reward for companies participating in the SSOs standards-setting committees was a ready-made pan European market for their harmonised specifications and interoperable, compliant products. The main advantage in SSO participation was time to market, profits being made from resulting hardware sales.
Fast-forward to today where manufacturing has moved offshore, hardware margins are slimmer and some companies that once ruled the roost with innovative product launches have to sustain their presence by leveraging patent portfolios. Some of these companies practice divesting portions of their SEP portfolio to NPEs, often with revenue sharing to increase effective royalty rates.
The concern of participants in Europe’s SSO community is that the issues under appeal in the Unwired Planet case are symptomatic of a greater uncertainty impacting SSOs.
Because Europe boasts a rich heritage in standards-making, its institutions are at the forefront of the debate.
The good news the institutional stakeholders, Regional Regulators, Local Courts and SSOs, responsible for architecting the patent ecosystem are playing pivotal roles in fixing its future.
At the EU Commission level, following on from the well-received 2017 communication on SEPs, the Commission has set in train a couple of initiatives with a view to improving matters. They are an Expert Working Group to issue guidance on the licensing and valuation of SEPs and a pilot project on patent essentiality.
At the court level, German courts have been instrumental in clarifying the practical implications of the Huawei ZTE ruling. Additionally, in a separate Unwired Planet v Huawei case held in the Dusseldorf court it was found that a patent holder bringing its patent into an SSO undertakes to license the SEP on equal terms. This means they not only have to grant access to the buyer but also the licensees. Furthermore, licensees should be able to see active licence agreements in order to assess whether they are discriminated against or not.
SSO’s are considering ways of coordinating with the European Patent Office to make prior art searches more efficient. On the database front, SSOs are making their offering comprehensive and information retrieval simpler.
One SSO, the Motion Picture Experts Group (MPEG) is designing a Video Compression Codec which includes tools that can dynamically enable/disable functionality in case of a patent dispute (MPEG5 EVC).
New AI-based, IP management technologies using blockchain or more generically DLT (distributed ledger technology), based IP tracking technologies are being touted as having the capability to promise greater transparency.
Take the Transportation Vertical as an example. Earlier this year the International Transportation Forum at the Organisation for Economic Co-operation and Development published a report, Governing Transport in the Algorithmic Age. This report outlines how DLT based technologies may shape the future of transportation.
It describes an age of automated transportation where the regulatory code is machine-readable, and those algorithmic systems are used to regulate transportation flows more dynamically and efficiently. For these systems to work requires 5G or better connectivity.
How will Europe’s SSOs plan for the future use and licensing of IP in this age of automation where the algorithmic operational control of transport vehicles and systems relies upon telecom technologies?
Last week’s appeal of the Unwired Planet case is shining a spotlight on an issue impacting on the digital transformation of vertical markets.
Determining what constitutes fair, reasonable and non-discriminatory licensing terms for international patent portfolios that may include hundreds or thousands of standard essential patents covering complex technologies is extremely challenging.
This complexity arguably has just gone up a notch with the ingress of 5G technologies into markets ranging from automotive to agriculture, finance to food and beverage, retail to religion.
Ideally, these vertical markets will embrace 5G. But that means trusting them, which will mean reducing the uncertainty surrounding the determination of what constitutes FRAND.
The Unwired Planet v Huawei appeal will have an important impact on developing this trust.
At the same time, a consensus seems to be developing at a global level between stakeholders. Germany, UK, EU, US, China, Japan and South Korea are all aware that change is necessary in order to provide standards-based global communications systems with more transparent, responsive and predictable legal underpinnings.
Perhaps at this stage, the best course of action for the UK Court of Appeal is to refer this important question to the CJEU for clarification and ensure consistent application of Article 102. But Brexit might block this route.
The good news is that the law covering the area between SEP holders and implementers is evolving in a way to provide more certainty and transparency. The courts in various jurisdictions are now grappling with the issues, looking for practical legal accommodations that will instil trust in the technologies being developed, increasing transparency in the processes.
The patent system exists to promote innovation, providing SMEs with the licences they need with certainty and clarity. The UK Supreme Court has an opportunity to help the inventors and innovators by not requiring them to enter into worldwide licensing negotiations.
Let’s hope they take it.
Jim Beveridge is a fellow of the Innovators' Network, an independent Foundation supported by ACT | App Association
Brexit, Unwired Planet, Huawei Innovators Network, trade deal, SEPs, patent licence, infringement, FRAND, Court of Appeal, 5G, IoT, big data, telecom, CJEU