The High Court has refused to summarily dispose of an action for a declaration that a number of patents owned by the defendant were not essential to the 3G telecommunications standard, despite a declaration by the defendant to the standard-setting body stating that the patents were technically essential to the implementation of the standard.
The European Telecommunications Standards Institute (ETSI) is involved in setting standards for, among other things, mobile telephony. Standards are set by participating members of the body, who are mainly manufacturers of devices covered by such standards. In order to prevent a participating manufacturer, during discussions about adopting a standard, from concealing that it had intellectual property rights (IPRs), including patents and patent applications, which would cover that standard, the ETSI requires that such IPRs are revealed as early as possible in the standards-setting process. Members are obliged to inform the ETSI of "essential" IPRs which they own, and to agree to licence these rights to users of the standard on "fair, reasonable and non-discriminatory terms" (FRAND terms). The term "essential" is defined in paragraph 15 of the ETSI IPR Policy as follows:
"'ESSENTIAL' as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardisation, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing that IPR. For the avoidance of doubt in exceptional cases where a STANDARD can only be implemented by technical solutions, all of which are infringement of IPRs, all such IPRs shall be considered ESSENTIAL."
The ETSI does not check the validity of information supplied to it by its members, or the relevance of the identified patents and applications, and is unable to confirm whether these patents and applications are, in fact, essential.
In an earlier action relating to patents that were owned by InterDigital Technology Corporation (InterDigital) relating to the 2G standard for mobile telephony, Nokia Corporation (Nokia) had brought an action for revocation of four patents which InterDigital alleged were, along with others, "essential" to comply with the 2G standard for the Global System for Mobile Communications (GSM). Nokia was permitted by the Court of Appeal to amend its pleadings to include a request for a declaration that the patents in issue were not essential to the 2G standard (see Legal update, Court of Appeal allows amendment in patent revocation proceedings ()). The trial of that action has now taken place but judgment has yet to be given.
Nokia then commenced an action seeking a similar declaration in respect of a number of patents which InterDigital had notified to the ETSI as being "essential" to the 3G standard for mobile telephony. Nokia is currently licensed under InterDigital's 3G patents, but this licence expires on 31 December 2006. InterDigital applied to have service of this action set aside on the ground that the court had no jurisdiction to decide the whole of the claim; alternatively it applied to have this action struck out or for summary judgment.
Pumfrey J refused the application. This was decided on the following basis:
In applications under rule 3 of the Civil Procedure Rules (CPR) to strike out and under rule24 of the CPR for summary judgment, where there was a genuine dispute of fact, it had to be assumed that the respondent's factual allegations were true. Summary judgment would be given where the outcome of the proceedings was known, not merely predictable.
Counsel for InterDigital had asserted that there were material differences between this case and the 2G case as it came before the Court of Appeal; Nokia disagreed. However, examination of the grounds of appeal and InterDigital's skeleton argument showed that the same points were raised in the 2G appeal, and the argument in front of the Court of Appeal and its judgment did not clearly support InterDigital's contentions as opposed to those of Nokia, and so this factual dispute had to be decided in the respondent's favour.
The statement in the ETSI IPR Policy that members had to declare patents that were "potentially" essential as well as those that were essential did not make a declaration of essentiality of uncertain scope. A patent, or patent application, was "potentially" essential only while either the form of the claims or the content of the standard remained so uncertain that the technical content of the question "essential or not" could not be formulated. Thereafter, there was no ambiguity and the word "potentially" was no longer appropriate. Either the standard insisted the invention was used, or it did not.
The two-fold purpose of making a declaration of essentiality to the ETSI in this form was clear from the evidence: the ETSI had to be confident that its members had announced their intention to grant licences in respect of potentially essential patents to users before the standard was fixed. If the ETSI's members did not reveal their hands, then the standard was potentially vulnerable to a blocking patent. Users of the standard, once it was adopted, still wished to know if they needed the licence that was on offer: the degree of "essentiality" affected the price. The form of the declaration of essentiality plainly suggested that these were the patents under which a licence needed to be taken. If the patentee was unwilling either to affirm or deny that these patents were in the present state of things essential, that fact alone indicated the existence of a relevant issue.
In any event, an assertion that meant "may well be essential" was sufficient to found a properly constituted action for declaratory relief. This derived from a line of authority running from Guaranty Trust Company of New York v Hannay & Co. (1915) 2 KB 536 through to Messier-Dowty Limited v Sabena SA (2001) 1 All ER 275, culminating in the judgment of Neuberger J in Financial Services Authority v Rourke (unreported), 19 October 2001, which established three relevant principles:
The correct approach to the question of whether to grant negative declarations was one of discretion rather than jurisdiction;
The use of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose, but where such a declaration would help ensure that the aims of justice were achieved, the court should not be reluctant to grant a negative declaration; and
Before a court could properly make a negative declaration, the underlying issue had to be sufficiently clearly defined to render it properly justiciable.
While the last of these principles caused the Court of Appeal concern in the 2G case, having heard the trial of that action and having been taken through one of the 3G patents together with the relevant part of the standard, the judge was satisfied that the issues were sufficiently defined in Nokia's particulars of non-essentiality to enable a proper determination to be done.
InterDigital had relied on a reference in Unilever v Proctor & Gamble  FSR 344 to a brief dictum of Hoffman J in Barclays Bank v Homan  BCLC 680 that a party against whom no claim was formulated could not sue for a declaration of non-liability.
While section 71 of the Patents Act 1977 provided for declarations of non-infringement, InterDigital's counsel would not accept that a copy of relevant parts of the standard would amount to an adequate description for the purposes of this section. If this was correct, this route could not be used to answer the question "essential to 3G or not?", and the distinction drawn by the ETSI's own definition between technical and commercial essentiality was deprived of much of its content.
A declaration of essentiality to an international-standards body necessarily involved a "formulated claim" against users of the standard. It was wrong to assume that the degree of specificity that might be appropriate in a statement of case was what was meant by "formulation" for those purposes. The existence of a formulated claim was reinforced by evidence of presentations made by InterDigital to Nokia during previous licensing negotiations, demonstrating an assertion of essentiality, together with the necessary analysis.
The possibility was urged by InterDigital's counsel that a finding of non-essentiality would not preclude the possibility that Nokia might still infringe. This was not a real possibility; the fact that these patents had been notified as technically essential to the standard implied an assertion that avoiding their infringement was not possible. These patents had to relate to required features of the standard, and nothing could be notified as technically essential if it related only to an "implementation-specific" feature of a compliant system.
None of the discretionary grounds for allowing the application advanced by InterDigital were appropriate to be decided at this stage in the action, and were similar to grounds advanced to, and rejected by, the Court of Appeal in the 2G case for staying that action.
The judge said:
"In my judgment, it is wrong for a member of the ETSI who has made a declaration of essentiality to suggest that it is either unprepared or unwilling to have the substance of the declaration tested. There is no clear evidence that any investigation of the kind to which Hoffmann J referred is necessary in this case: the technical issues must by now be known to the technical people, even if they are not known to the lawyers involved. I do not think that this is a case of forcing an unwilling plaintiff who has not formulated his case into court. On the contrary, the case is formulated."
While the failure of the ETSI and other standard-setting bodies to verify claims that patents are technically essential to the practice of a standard is understandable, given the very large number of patents that are so notified for important standards such as GSM 2G and 3G, it makes life very difficult for manufacturers of devices using the standard. Although licensing of notified patents must be on FRAND terms, the existence of large numbers of holders of "essential" patents can mean that becoming fully licensed is expensive, which is reflected in the cost of the product. The UK Court of Appeal judgment in the 2G case between these parties led the way in making available an approach to challenging such assertions of "essentiality", particularly in cases where a declaration of non-infringement is either unavailable or unsuitable, which is reinforced by this decision.
Case: (Pumfrey J; Roger Henderson QC and James Abrahams (instructed by Bird & Bird) for the claimant, and Anthony WatsonQC, Colin Birss and Geoffrey Pritchard (instructed by Wragge & Co) for the defendant).
- PLC Reference: 8-202-2586
- Law stated as at: 12-Apr-2006
- Publication date: 13-Apr-2006
- Access granted
PLC IP and IT Law -
Published in Practical Law Company, April 2006