California judge hands down FRAND licence in Ericsson case

A US judge has handed down a fair, reasonable and non-discriminatory (FRAND) licence for standard-essential patents (SEPs) in a high-profile quarrel between telecoms company Ericsson and TCL, a China-based smartphone maker.

District Judge James Selna handed down his 115-page opinion on December 21, followed by a 25-page final judgment and injunction order the following day.

There were approximately 100 to 150 Ericsson patents at issue, each of which covers technology essential to the implementation of the 2G, 3G and 4G wireless telecoms standards published by the European Telecommunications Standards Institute (ETSI).

Under ETSI’s policy, the holders of SEPs must be ready to grant a licence for the patent under FRAND terms.

In 2007, TCL took a seven-year licence under Ericsson’s patents covering ETSI’s 2G standards and the parties began to negotiate a licence for Ericsson’s 3G SEPs in 2011. Two years later, the negotiations expanded to cover the 4G SEPs.

But the parties weren’t able to reach an agreement and, in March 2014, TCL initiated the action against Ericsson.

There were three main tasks before the court: whether Ericsson met its FRAND obligation, whether its two offers before litigation were FRAND and, if not, what terms can be considered FRAND.

Two schemes for determining the proper royalty rate were presented.

TCL advocated a “top-down” approach, which begins with an aggregate royalty for all patents in the standard, then determines a company’s portion of that aggregate.

Ericsson advanced existing licences it had negotiated to determine the appropriate rates, while also offering an “ex ante” approach, which seeks to measure in absolute terms the value which Ericsson’s patents add to a product.

Selna concluded that Ericsson had negotiated in good faith and that its conduct didn’t violate its FRAND obligation.

The court found it unnecessary to determine whether the failure to arrive at an agreed FRAND rate violated Ericsson’s obligation.

On the second point, Selna noted that Ericsson’s offers were not FRAND rates and then went on to determine FRAND rates.

He fixed a global five-year licence agreement and set global royalty rates. The licence extends to TCL and any entities controlled by TCL.

The court’s final judgment took the form of an injunction, as opposed to a “fully integrated licence agreement”, so certain terms and conditions must be modified or removed to give effect to the injunction.

Selna also determined that the FRAND amount to compensate Ericsson for TCL’s unlicensed past sales is $16.5 million.

Richard Vary, partner at Bird & Bird, explained that the decision will not be bringing “tidings of comfort and joy” to the holders of SEP portfolios.

“Although adopting a similar methodology to that used in Unwired Planet v Huawei, on many points Judge Selna has adopted TCL’s arguments over Ericsson’s. As a result, the numbers generated are favourable to implementers,” he said.

Eight months before this decision, the English High Court backed licensing company Unwired Planet in its FRAND dispute with Chinese technology business Huawei.

In June, Huawei was slapped with a new form of injunction—a FRAND injunction—after failing to accept a licence that the court found to be fair and reasonable.

A spokesperson for Ericsson said the company “respectfully” disagreed with key parts of the decision and has appealed.

“We agree with the decision that infringers must pay for all owed royalties, no matter how long they hold out,” they said.

However, the company disagrees with the findings on how to calculate a FRAND royalty rate, noting that the decision “deviates substantially” from other rulings determining what a FRAND royalty is.

Ericsson has also implemented patent infringement lawsuits against TCL in the Eastern District of Texas and in Brazil.

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