EPLAW PATENT BLOG

UK – Unwired Planet v. Huawei / FRAND

Posted: April 6th, 2017

Unwired Planet International, Huawei Technologies Co. Ltd and Huawei Technologies UK Co. Ltd v. Unwired Planet LLC, High Court of Justice, London, UK, 5 April 2017, [2017] EWHC 711 (Pat)

806. In summary, my conclusions on the law are:
(1) As a matter of French law the FRAND undertaking to ETSI is a legally enforceable obligation which any implementer can rely on against the patentee. FRAND is justiciable in an English court and enforceable in that court.
(2) It is not necessary to rely on competition law to enforce the FRAND undertaking.
(3) 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.
(4) There is only one set of licence terms which are FRAND in a given set of circumstances. The problem identified in Vringo v ZTE does not exist because there cannot be two sets of terms which are both FRAND in a given set of circumstances. That way the FRAND undertaking can be enforced.
(5) 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.
(6) 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.
(7) Offers in negotiation which involves rates higher or lower than the FRAND rate but do not disrupt or prejudice the negotiation are legitimate.
(8) 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.
(9) The non-discrimination limb of FRAND does not consist of a further “hard edged” component which would justify a licensee demanding a lower rate than the benchmark rate because that lower rate had in fact been given to a different but similarly situated licensee. If FRAND does include such a component, then that obligation would only apply if the difference would distort competition between the two licensees.
(10) A FRAND rate can be determined by using comparable licences if they are available. Freely negotiated licences are relevant evidence of what may be FRAND. A top down approach can also be used in which the rate is set by determining the patentee’s share of Relevant SEPs and applying that to the total aggregate royalty for a standard but this may be more useful as a cross-check.
(11) In assessing a FRAND rate counting patents is inevitable.
(12) 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.
(13) The principles to be derived from the decision of the CJEU in Huawei v ZTE are summarised at paragraph 744 above.

807. In summary, my conclusions on the facts are:
(1) None of Unwired Planet’s offers (April 2014, June 2014, June 2015 or August 2016) were FRAND.
(2) None of Huawei’s offers (June 2015, August or October 2016) were FRAND.
(3) The Revised MNPA overstates the value of Unwired Planet’s SEP portfolio. The HPA understates the value of that portfolio.
(4) The value R for the relative strength of Unwired Planet’s portfolio as compared to Ericsson’s for 4G is 7.69%. The values of R for 2G, 3G, and 4G range from 2.38% to 9.52%.
(5) The value S for Unwired Planet’s share of all SEPs relevant to 4G handsets is 0.70%. The values of S for 2G, 3G, and 4G for infrastructure and handsets range from 0.21% to 1.30%. Here and below handsets refers to multimode.
(6) None of: the 2014 Unwired Planet-Lenovo licence, the 2016 Unwired Planet-Samsung licence, or the 2016 Ericsson-Huawei licence, are good comparables. The Ericsson-Samsung 2014 licence is the best place to start but other Ericsson licences are relevant.
(7) The right number E to use as a royalty rate which measures the value of Ericsson’s 4G SEPs in order to scale against Unwired Planet is 0.80% for 4G. The value E for Ericsson’s 2G and 3G SEPs is 0.67%.
(8) The benchmark FRAND rates for Unwired Planet’s portfolio are:
a) 4G/LTE: 0.062% for handsets, and 0.072% for infrastructure;
b) 3G/UMTS: 0.032% for handsets, and 0.016% for infrastructure;
c) 2G/GSM: 0.064% for handsets, and 0.064% for infrastructure;
(9) As a cross-check, the value T for the total aggregate royalty burden implied by these rates for 4G handsets is 8.8%. The values of T for 2G, 3G, and 4G for infrastructure and handsets range from 3.1% to 8.8%.
(10) The fact the 2016 Unwired Planet-Samsung licence is not a good comparable does not mean it is irrelevant for hard-edged non-discrimination if that concept is applicable to FRAND. However applying the non-discrimination aspect of FRAND to that licence does not justify setting a lower rate for Huawei than the benchmark rates because a distortion of competition between Huawei and Samsung was not established.
(11) A UK portfolio licence is not FRAND. The FRAND licence between Unwired Planet and Huawei is a worldwide licence.
(12) In a FRAND worldwide licence the rates for China would be substantially lower than the benchmark rates. The rest of the world outside China would be divided into Major Markets (MM) and Other Markets (OM). The OM rates would be the same as the China rates because that is where the goods are made.
(13) The rates in a worldwide licence would be:

  Major Markets China and Other Markets
  Handsets Infrastructure Handsets Infrastructure
2G/GSM 0.064% 0.064% 0.016% 0.032%
3G/UMTS 0.032% 0.016% 0.016% 0.004%
4G/LTE 0.052% 0.051% 0.026% 0.026%

(14) The detailed terms of a worldwide licence have been settled. They are FRAND.
(15) In a UK portfolio licence the uplift on the rates relative to the benchmark would be 100%.
(16) If a proper economic analysis had been done the answer might be different but in this case, as the holder of SEPs, Unwired Planet is in a dominant position.
(17) Unwired Planet did not abuse their dominant position by issuing these proceedings for an injunction prematurely, by maintaining a claim for an injunction in these proceedings, by seeking to insist on a worldwide licence, by attempting to impose unfair prices or by bundling SEPs and non-SEPs.
(18) Since Unwired Planet have established that Huawei have infringed valid patents EP (UK) 2 229 744 and EP (UK) 1 230 818, and since Huawei have not been prepared to take a licence on the terms I have found to be FRAND, and since Unwired Planet are not in breach of competition law, a final injunction to restrain infringement of these two patents by Huawei should be granted.
(19) If Unwired Planet had issued these proceedings prematurely, in the circumstances as they now are, refusal of an injunction would have been disproportionate.
(20) The final injunction will be considered at a hearing in a few weeks’ time once Unwired Planet have drawn up a full set of the terms of the worldwide licence incorporating the decisions made in this judgment.
(21) To the extent damages should be awarded, they would be at the same rate as the appropriate FRAND rate.

A copy of the judgment can be read here.

[Further headnote follows]

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