Patents: requirement to participate in FRAND trial

By Audrey Horton

03-2020

Summary 

The Patents Court has held that defendants must participate in a FRAND trial even if they consented to a permanent injunction and did not seek a FRAND licence.

Background

The European Telecommunications Standards Institute (ETSI) sets standards for mobile telephones. Members are obliged to inform ETSI about any essential intellectual property rights (IPR) which they own, known as standard essential patents (SEPs). They must agree to license these rights to users of the standard on fair, reasonable and non-discriminatory (FRAND) terms.

In TQ Delta, LLC v Zyxel Communications UK Ltd & another, the Court of Appeal cancelled a FRAND trial because it would serve no useful purpose where an undertaking was given not to enforce the right to a FRAND licence in respect of a UK patent which had been held valid and enforceable (www.practicallaw.com/w-021-8140).

Facts 

P sued A for patent infringement in relation to certain devices (infringing devices). 

The Patents Court held that P's patents were valid SEPs and that A had infringed the patents. A appealed. 

The Court of Appeal dismissed the appeal.

The Patents Court scheduled a FRAND trial to address the issues relating to a FRAND licence for the portfolio of P's SEPs (P's portfolio). 

Relying on TQ Delta v ZyXel, A applied to be exempted from the FRAND trial on the grounds this would be a waste of time and costs, because A was not seeking a FRAND licence and would consent to a permanent injunction against infringing P's portfolio in the UK. 

A also argued that damages for its past infringement should be calculated on the basis of a royalty rate for the UK market, multiplied by the number of devices held to infringe valid P's patents in the UK. 

P argued that, unlike TQ Delta v ZyXel, A had to remain as defendants in the FRAND trial because the amount of the damages was in dispute. P challenged A's calculation of damages for past infringements on two levels:

  • The volume of sales which needed to be taken into account in order to compensate P. Although the patents were territorially limited to the UK, P argued that the measure should be a global royalty on the basis that any licence awarded by the court would have been a worldwide FRAND licence covering all companies in P's group and all devices covered by P's patents worldwide, not just the infringing devices sold in the UK.

  • The royalty rate for each infringing device that should be paid by A.

Decision

The court dismissed A's application.

There is a critical distinction between a FRAND licence whose terms are declared by the court for the purposes of a FRAND dispute, known as the declared licence, and a counterfactual licence where damages are assessed on the basis of what would have been received had a licence been taken. The declared licence settles the terms of the FRAND licence which the SEP owner has to offer to those wishing to implement the related standards. The counterfactual licence is merely intended to assist in the calculation of damages for past infringements.

A's measure of damages, which was based on a global royalty rate, ran the risk of under-compensating P. A global rate, which was based on the sales of many more devices, would normally be lower than a rate targeted only at infringing devices. 

P's measure of damages, which was based on global royalties that would be payable were A to be assumed to have entered the declared licence prior to its infringing conduct, ran the risk of over-compensating P and also allowing the English courts to pre-empt  the proper jurisdiction of other courts. The English courts were careful, when considering making FRAND declarations, to avoid obliging implementers to enter into a FRAND licence. A measure of damages based on past infringements within a specific jurisdiction, which automatically dragged in past sales in other jurisdictions, risked enabling the patent owner to recover royalties for sales in jurisdictions which, had the owner litigated there, would not have been recovered. 

The declared licence was likely to be a unitary, portfolio, worldwide, group-to-group licence. Here it was difficult to see how the award of damages in the English court could prevent the patent owner from enforcing its rights in other jurisdictions against other implementers. However, there was a clear risk of over-compensation.

The court should be cautious about using a declared licence instead of a counterfactual licence to calculate damages, where a defendant did not want the declared licence.

The process of assessing damages for infringement of UK patents was heavily fact-based. Any automatic link between the terms of the declared licence and the terms of the counterfactual licence was wrong in principle and a claim based on such an automatic link should be struck out. However, the terms of the declared licence were not irrelevant and should not be disregarded when quantifying a patent owner's loss in relation to a past infringement of its patents. The extent to which the terms of the declared licence informed the assessment of damages was a question of fact, which had to be determined at trial. Therefore, the dispute between A and P, as to the damages payable by A, had to be determined at a trial. As the terms of the declared licence were relevant to that issue, it had to be determined as part of the FRAND trial.

Comment

This decision shows the difficulty that national courts have with comity issues in relation to FRAND licences which are usually granted on an international basis. It also highlights the limits of the emerging scope of FRAND jurisdiction in the UK, especially when taken together with recent cases such as TQ Delta and associated issues that are currently before the Supreme Court in Unwired Planet v Huawei.

Case:  Koninklijke Philips NV v Asustek Computer Incorporation & Ors [2020] EWHC 29 (Ch).

First published in the March 2020 issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.