For the first time in the UK, the High Court has assessed a fair, reasonable and non-discriminatory (FRAND) rate for a licence of standard essential patents (SEPs) under the Telecommunications Standards Institute (ETSI) rules, finding that there can only be one set of licence terms which are FRAND in a given set of circumstances.
Unwired Planet has a worldwide patent portfolio that includes numerous patents which are declared essential to various telecommunications standards. Part of its business is licensing those patents to telecommunications companies. In March 2014, Unwired Planet brought a patent infringement action against Huawei, Samsung and Google for infringement of six UK patents from its portfolio, five of which were claimed to be SEPs. The dispute consisted of a series of trials; five technical trials to decide on validity, infringement and essentiality of the six patents (in which two patents were found to be infringed), followed by one non-technical trial to address competition law and FRAND issues. The April 2016 judgment related to the non-technical trial (concerning Huawei only as the other defendants had settled with Unwired Planet), in which the High Court considered whether there could be a range of FRAND terms, and if so what principles should be applied to determine that range, or whether there could only ever be one single set of FRAND terms in any given set of circumstances.
In this case, both parties made offers of licence terms, neither of which were accepted by the other party. On the facts, the High Court found that neither offer was considered FRAND, and determined benchmark FRAND rates for a worldwide licence based on Unwired Planet’s patent portfolio. Since Unwired Planet had established at the technical trials that Huawei had infringed two valid patents, and since Huawei was not prepared to take a licence on the terms found to be FRAND, the High Court found that a final injunction to restrain infringement of the two patents by Huawei should be granted. The final injunction will be considered at a hearing in a few weeks’ time once Unwired Planet has drawn up a full set of the terms of the worldwide licence incorporating the decisions made in the judgment.
Justice Birss’ conclusions of law are summarised in paragraph 806 of the judgment, the headline points of which are recapped below:
- It is not necessary to rely on competition law to enforce the FRAND undertaking.
- The boundaries of FRAND and competition law are not the same. A rate may be above the FRAND rate but not contrary to competition law.
- There is only one set of licence terms which are FRAND in a given set of circumstances.
- The legal effect of the FRAND undertaking relating to a SEP is not that the implementer is already licensed. Its effect is that an implementer who makes an unqualified commitment to take a licence on FRAND terms (settled in an appropriate way) cannot be the subject of a final injunction to restrain patent infringement. Whereas an implementer who refuses to take a licence on terms found by the court to be FRAND has chosen to have no licence, and so if they have been found to infringe a valid patent an injunction can be granted against them.
- FRAND characterises the terms of a licence but also refers to the process by which a licence is negotiated. Although an implementer does not owe a FRAND obligation to ETSI, an implementer who wishes to take advantage of the patentee’s FRAND obligation, must themselves negotiate in a FRAND manner.
- Offers in negotiation which involve rates higher or lower than the FRAND rate but do not disrupt or prejudice the negotiations are legitimate.
- An appropriate way to determine a FRAND royalty is to determine a benchmark rate which is governed by the value of the patentee’s portfolio. That will be fair, reasonable and generally non-discriminatory. The rate does not vary depending on the size of the licensee. It will eliminate hold-up and hold-out. Small new entrants are entitled to pay a royalty based on the same benchmark as established large entities.
- A FRAND rate can be determined by using comparable licences if they are available.
- In assessing a FRAND rate, counting patents is inevitable.
- In assessing the dominant position of a SEP holder, the practical effect of the FRAND undertaking and the potential for hold out by an implementer are relevant factors and may lead to the conclusion that a SEP holder is not in a dominant position.
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