In a long awaited ruling relating to Standards Essential Patents (SEPs) in the mobile telecommunications sector, the English High Court has determined the FRAND royalty rates for a worldwide licence to Unwired Planet's portfolio of SEPs, which are essential to the LTE (4G), UMTS (3G) and GSM (2G) standards.
Birss J held that the English court has jurisdiction to set a FRAND royalty rate. After concluding that none of the offers made by either of the parties had been FRAND, the Court proceeded to set FRAND terms, including FRAND royalty rates. Since Huawei had not been prepared to take a licence on these terms, an injunction was granted against Huawei to prevent infringement of two of Unwired Planet's SEPs (which had previously been found to be valid and infringed).
Summary of Key Findings
The key findings of the English Court are as follows:
The English Court can set the terms of a worldwide FRAND licence and is not restricted to determining whether a given set of terms is FRAND.
The FRAND undertaking is legally enforceable by an implementer against a patentee as a matter of French law.
If an implementer of SEPs is found to infringe a valid patent and refuses to take a licence on terms found by the Court to be FRAND then an injunction can be granted against them.
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:
This benchmark rate will be FRAND, will not vary depending on the size of the patentee (i.e. small new entrants are entitled to pay a royalty based on the same benchmark as established large entities) and will eliminate any hold-up and hold-out.
This rate can be determined by using comparable licences if they are available. Freely negotiated licences are evidence of what may be FRAND.
A top down approach can also be used by determining the patentee's share of relevant (i.e. essential) SEPs and applying that to the total aggregate royalty for a standard. However, this may be more useful as a cross-check.
Offers made during negotiation which involve rates higher or lower than the benchmark rate are legitimate so long as they do not disrupt or prejudice the negotiation.
Theoretically, there is only one set of terms which are FRAND in any particular case.
In the absence of proper economic analysis to the contrary, Unwired Planet held a dominant position but it did not abuse that dominant position by:
Issuing proceedings for an injunction prematurely or maintaining a claim for injunction;
Seeking a worldwide licence; or
Bundling SEPs and non-SEPs in its licensing offers.
The rates in a worldwide licence can differ depending on territory; for example between some major markets (e.g. UK and US) and China.
The Court also considered the impact of the CJEU's judgment in Huawei v ZTE. That judgment set out a scheme that a patentee and an implementer should follow when in the context of an SEP dispute. Birss J found that this decision sets out a standard of behaviour against which both parties' behaviour can be measured to decide if an abuse of dominant position has taken place. It does not mean that an abuse has taken place if a patentee does not follow the CJEU's scheme to the letter.
The ruling confirms that the English Court has jurisdiction to set the terms of a worldwide licence to patents which are essential to ETSI standards. Although these factors are specific to the circumstances of this case, they provide useful guidance on the setting of a FRAND royalty rate.