Long read

The global SEP race

After the UK Supreme Court's ruling in the Unwired Planet and Conversant cases, the European patent community were discussing whether the UK courts are now the number one jurisdiction for SEP claims. But only eight days later things have already changed. The Conversant vs. Huawei case could now become a global battle of jurisdictions.

3 September 2020 by Mathieu Klos

SEP, FRAND, UK Supreme Court, Huawei, Conversant, ZTE Fair reasonable and non-discriminatory: UK Supreme Court judges confirmed UK courts have the jurisdiction to determine global FRAND rates. Now, there could be a global battle of jurisdictions. © DisobeyArt/ADOBE STOCK

The bomb had already exploded in 2018. The London patent courts calculated a global licence rate. But it was still a good three years until the patent world and the mobile phone industry received final certainty. London’s patent courts have been confirmed as an important, if not the most important, place for lawsuits concerning standard-essential patents (SEP).

As of 26 August 2020, London patent courts became the place to get a licence for a global SEP portfolio plus a global FRAND rate. On that day, the UK Supreme Court finally published its long-awaited judgment in the disputes Unwired Planet vs. Huawei, and Conversant vs. Huawei and ZTE (case IDs: UKSC 2018/0214; UKSC 2019/0041; UKSC 2019/0042).

The court upheld the first-instance decisions made by presiding judges Colin Birss and Henry Carr in 2017 and 2018 in the dispute between Unwired Planet and Huawei. Birss was formerly a judge at the High Court but has now been appointed to the Court of Appeal.

Judge Colin Birss, IPEC, UK High Court

Colin Birss

In the Conversant case, the Supreme Court granted jurisdiction to the London High Court.

The Supreme Court judges unanimously confirmed that the courts of England and Wales have the jurisdiction to determine global FRAND terms and rates. In his judgment in the Unwired Planet vs. Huawei dispute, former High Court judge Colin Birss was the first judge worldwide to set a fee for a global licence (case ID: HP-2014-000005). If the infringer does not accept the licence ordered by the court, they face a potential injunction.

Good climate for SEP holders in Europe

SEP owners now hope London courts will grant them a licence for a global SEP portfolio based on a UK patent and that the court will calculate the licence fee. Initially, most experts agreed that this ruling is very SEP-holder-friendly.

“We welcome the decision of the UK Supreme Court and the clarity it brings regarding the position of the English Courts,” says Oliver Scherenberg, General Counsel Legal & Business at Sisvel. “This clarity will certainly make the UK an increasingly attractive jurisdiction for standard-essential-patent-related litigation.”

Oliver Scherenberg

Richard Vary, London partner of Bird & Bird and former in-house lawyer at Nokia says, “The Supreme Court has entirely upheld the lower courts in a carefully reasoned decision, following detailed, thorough and skilful argument from both sides.” He adds, “This draws an end to a long debate and brings a degree of certainty that will be welcomed by SEP owners around the world.”

Finnish company Nokia is frequently involved in litigation concerning SEPs in the UK and Germany. In the latter, the company is currently involved in a large series of patent disputes with Daimler over connected cars. Nokia’s global head of dispute resolution, Clemens Heusch, says of the ruling, “It is of course gratifying for SEP holders that the UK Supreme Court has confirmed the SEP-friendly case law and the possibility of having the court calculate a worldwide FRAND rate.”

“I would like to see a more nuanced approach from the UK judges”

One head of litigation at a large SEP holder says, “The Supreme Court’s ruling is beneficial to SEP holders. However, we don’t like the way Colin Birss has calculated the FRAND rate. Simply taking the middle ground according to the top-down principle is too easy and does not reflect economic reality. So I would like to see a more nuanced approach from the UK judges.”

While SEP holders are mostly delighted over the ruling, the implementers, which regularly face litigation over SEPs, have remained more or less silent. Requests for comment have been declined or gone unanswered.

However, a spokesman for The App Association, which represents more than 5,000 app makers and connected device companies, said, “We are disappointed in the judgment from the UK Supreme Court. We are particularly concerned that our small and medium-sized member companies will be subjected to ever-more litigation and forced into licence contracts that are unfair and unreasonable.”

A memorable year

Overall, 2020 seems to be a good year for SEP holders. In May, the German Federal Court of Justice ruled that Haier had infringed an SEP owned by Sisvel. The judges found Haier was an unwilling licensee because the company had not submitted a FRAND offer quickly and concretely enough.

With their two landmark decisions, the UK Supreme Court and the German Federal Court of Justice established Europe as an SEP-friendly jurisdiction.

Then, at the beginning of August, the Regional Court Mannheim ruled in favour of Nokia for the first time in a dispute against Daimler over connected cars patents. The court ruled Daimler was an unwilling licensee and ordered an injunction against the auto giant.

Finally, last week Düsseldorf Regional Court ruled in favour of Conversant in the German SEP cases against ZTE and Huawei.

UK the top SEP hub?

British lawyers in particular are jubilant about the Supreme Court ruling. Brexit and the British government’s withdrawal from the Unified Patent Court had recently put pressure on their business model. Many British firms were facing an uncertain future. The Supreme Court ruling is a positive signal in a long series of setbacks.

“The ruling does not necessarily make the London patent court the world’s number one for SEP claims”

“The decision is likely to further cement the English Court as a global centre for the determination of worldwide FRAND disputes, and to attract SEP holders to the jurisdiction, regardless of the contribution of the UK to the overall sales of the relevant implementer’s products,” says Brett Shandler, IP attorney at Kirkland & Ellis.

David Knight, patent partner at Fieldfisher in London, says, “This decision means that the UK can make decisions about worldwide licences.” He adds, “It has essentially turned the UK into a very selfish one for the IP industry in the UK, as it could become a very good forum to bring a separate infringement claim that would have global implications.”

Clemens-August Heusch, Nokia, patent

Clemens Heusch

According to Clemens Heusch, “The ruling does not necessarily make the London patent court the world’s number one for SEP claims. An implementer may be able to avoid a global FRAND licence by discontinuing its distribution in the UK.”

Pio Suh, the new CEO of IPCom adds, “We hope that the latest Supreme Court ruling will send a strong signal to courts in other major European jurisdictions. However, against the background of England’s withdrawal from the Unified Patent Court, this will also depend on whether the English courts can establish themselves as the preferred forum for patent owners.”

The NPE has already litigated against Nokia and HTC in the UK. IPCom obtained a positive ruling against the latter last year. As a result, HTC has stopped selling its headsets in the UK. IPCom is currently suing Vodafone, Lenovo/Motorola and Xiaomi at the London High Court.

The NPE sees its FRAND licensing policy fully confirmed by the Supreme Court ruling. “In addition to the comparison with license agreements already concluded, IPCom’s licensing calculations are also based on the calculation method used by judge Birss in the Unwired Planet vs. Huawei case,” says Suh. “An important factor here is the global portfolio licence.”

Nothing special

In Germany, on the other hand, the reactions are somewhat more restrained. The general attitude among German patent holders seems to be that the ruling is fine for SEP holders, but what the UK courts are now officially allowed to do, German courts have been doing for a long time. That said, the UK courts’ ability to calculate a global FRAND rate remains their USP.

“The Düsseldorf Regional and Higher Regional Courts made it clear in 2008 that only calculations of global portfolio licences make sense,” says a Düsseldorf patent litigator. “In this respect, the positions between London and Düsseldorf do not differ.”

Sisvel’s Oliver Scherenberg agrees, “We particularly note the convergence between the highest courts in the UK and Germany on three very important aspects: global portfolio licences are FRAND; the non-discrimination part of FRAND does not translate to a most favoured licensee term; and lastly, unwilling implementers not taking an SEP licence offered to them on FRAND terms will face injunctions.”

“The UK and German courts come to almost the same results using different methods”

Nokia’s head of litigation, Clemens Heusch, does not see a big difference between the UK and German case law either. “The courts in both countries come to almost the same results using different methods. If a German court finds that an SEP is infringed and the owner’s offer is FRAND, the parties to the dispute also know where they stand without the court having to charge a specific FRAND licence rate.” He adds, “If the offer is not FRAND, the SEP holder can readjust their offer and come to a FRAND-compatible rate relatively easily.”

The fact that German patent judges have not yet calculated a rate for a global FRAND licence is also due to the fact that their hands are tied by the German Code of Civil Procedure (ZPO), explains an in-house lawyer. “As an SEP holder, you tend to shy away from including licence agreements with other companies in proceedings so as to avoid disclosing them to the public and the potential infringer. As an SEP holder you don’t want that.”

One Düsseldorf patent litigator says, “So far, German courts have lacked the basis for calculating a FRAND rate. If they could, they would do it.” However, German judges have yet to prove this is the case.

Clemens Heusch points out, “Let’s not forget that the ruling doesn’t change anything about the very complex procedure and the high costs of the UK proceedings compared to Germany. SEP owners will continue to think very carefully about where to file their lawsuits.”

Jurisdictional race

Although important SEP cases are currently being heard in the Netherlands and France, the majority of European SEP cases are playing out at the German and UK patent courts. But the Supreme Court ruling could change this.

Pat Treacy, Bristows, London, patent litigation

Pat Treacy

“The UK may, with this decision, have fired the starting gun for other courts to start making FRAND determinations, as the logic behind the decision could equally be said to apply elsewhere,” says Pat Treacy, Head of Competition at Bristows.

Stephan Baldwin, IP partner at Kirkland, notes, “Going forward, we may see other courts seeking to set global FRAND licences even in the absence of the parties’ agreement to a global determination.”

He continues, “We may also see SEP owners and implementers racing to the foreign courts that they consider will set the most favourable licence terms and/or that they consider most relevant and appropriate, given the geographical distribution of sales of the relevant implementer’s products.”

“This judgment sets a dangerous precedent that will precipitate a race to the bottom”

But competition between patent courts around the world is what worries The App Association. A spokesman emphasises, “This judgment sets a dangerous precedent that will precipitate a race to the bottom between national courts’ jurisdictions vying to offer favourable conditions for patent-holders seeking injunctions to leverage greater licensing rates from potential licensees.”

The spokesman concludes, “This threatens and undermines the consensus principles that have built up FRAND over the course of the last twenty years.”

Role model

Nevertheless, patent experts are certain that the London FRAND principle is gaining ground.

Myles Jelf, co-head of patent litigation at Bristows, says, “The court confirmed that where no other court had been shown to be available to make a global FRAND determination, the UK court could step in. In the future, however, should other international courts start making such determinations, we will very likely see a rise in jurisdictional challenges debating which of the competing courts is best placed to rule.”

Daan de Lange, Brinkhof

Daan de Lange

Daan de Lange, partner at Amsterdam IP firm Brinkhof, says, “The decision affirms the position of the UK courts as the primary European forum for setting a FRAND rate.” He adds, “This may also attract SEP litigation in other jurisdictions since those disputes tend to be multijurisdictional. The UK Supreme Court decision can also inspire other European courts.”

De Lange further explains, “For example, the Dutch courts would in principle also have jurisdiction to calculate a global FRAND rate for the same reasons as the UK courts have jurisdiction. However, it will be required that the Dutch courts continue to allow limited disclosure so that the necessary economic analyses can be carried out in full.”

A partner at Allen & Overy’s Paris office, David Por, says “The ruling of the Supreme Court will certainly lead some litigants to choose the UK as a forum to litigate their SEPs.”

“The recent trend of increased anti-suit and anti-anti-suit proceedings is likely to continue”

“But,” he adds, “those very reasons will probably lead other litigants to take steps to avoid a UK determination. In particular, we may see more proactive or reactive litigation in a range of countries, including China, but also France or the Netherlands.”

Indeed, French patent lawyer Denis Monégier du Sorbier of Hoyng ROKH Monégier says, “It is not certain that this ruling will revolutionise the relationship between the owners of SEPs and their future licensees. While it may change the balance of power by giving the SEP owners more leverage in their negotiations, it may also divert licensees away from the UK market and away from the jurisdiction of UK judges. In other words, the ruling may lead the licensees to review their strategies to the detriment of the UK.”

Furthermore, the ruling may not necessarily be universally accepted. “It is questionable whether the implementation of this ruling could be challenged in countries other than the UK: some practitioners are questioning this, particularly in the US and China,” adds Monégier du Sorbier.

David Por elaborates, “We have already seen this litigation in recent times, either to entirely block off a potential UK lawsuit, or to limit its effects. The recent trend of increased anti-suit and anti-anti-suit proceedings is likely to continue.”

China vs. Germany

Shortly after the Supreme Court’s landmark ruling on 26 August, this development gained momentum. Just one day after the court declared the UK patent courts competent for Conversant’s lawsuits against Huawei and ZTE, Düsseldorf Regional Court found the two Chinese mobile phone companies have infringed two of Conversant’s SEPs.

David Por, Allen & Overy, Paris, patent litigation

David Por

The German court prohibited both companies from selling UMTS-enabled devices in Germany. For Huawei it was mobile phones and tablets and for ZTE it was mobile phones. However, this is conditional on Conversant enforcing the judgments.

Although ZTE filed an immediate appeal, Huawei chose a further defense strategy and applied to the Supreme Court of China for an anti-suit injunction against the decisions of Düsseldorf Regional Court. JUVE Patent understands the Chinese court prohibited Conversant from enforcing the Düsseldorf judgments (case ID: 2019 Zui Gao Fa Zhi Min Zhong No.732, 733, 734 Part I).

This could lead to another anti-anti-suit injunction between a German and foreign court. This happened for the first time between the Regional Court Munich and US courts. In the dispute between Nokia and Daimler, its co-litigant Continental had applied to a US court for an anti-suit injunction. The Regional and the Higher Regional Courts of Munich declared it to be incompatible with German law.

As such, recent events have shown that anti-suit injunctions are currently en vogue in SEP cases. (Co-author: Konstanze Richter)