FRAND trial necessary to decide damages

In Koninklijke Philips NV v Asustek Computer Inorporation [sic] & Ors [2020] EWHC 29 (Ch) (17 January 2020), Marcus Smith J dismissed the defendant 's application in which it sought to get out of a trial (due later this year, listed for five days) to determine the terms of a FRAND licence. Asus had earlier been held to have infringed the Philips patent, which had been declared essential to a telecommunications standard. Asus had decided to consent to a permanent injunction and did not want a FRAND licence, so one can understand why they would rather like to save the trouble and expense of five days in court.

Asus proposed that the correct measure of damages would be the royalty rate in the FRAND licence (when that was settled) times the number of devices that infringed. Simple!

The judge did not see it that way, though. That could under-compensate Philips, which was probably why it appealed to Asus.

On the other hand, he didn't like Philips's argument either. They said that damages should take into account that the FRAND licence would be worldwide, covering all their relevant patents and all the companies in the Asus group. That, to the judge's mind, risked usurping the jurisdiction of other courts, and over-compensating Philips. Working out the damages was something that could only be done at the FRAND trial, so Asus's application failed.

Abuse of dominant position by SEP owner not a matter for summary treatment

Standards Essential Patents and FRAND licences are in fashion, it seems - and so perhaps they should be. In Optis and Unwired Planet v Apple [2014] EWHC 3538 (Pat) (17 December 2019 ) the Patents Court (Nugee J) considered Apple's application to strike out, and rejected it .

The claimants had brought the action to compel Apple to take a FRAND licence from Optis. Apple answered that with an allegation that Optis had abused its dominant position, contrary to Article 102 TFEU.

Ownership of a Standards Essential Patent puts the patentee in a dominant position as a licensor of that patent, that much is clear, but whether that is the same as a dominant position in the relevant market depends on an analysis of substitute technologies. Life is rarely simple where competition rules are involved .

There has been a lot of judicial consideration of FRAND licensing and Article 102 recently. The Court of Justice looked at the matter in Huawei v ZTE  (Case C170/13) ECLI:EU:C:2015:477, [2016] RPC 4, and the English courts in Unwired Planet Unwired Planet International Ltd v Huawei Technologies Co Ltd) (Birss J) [2017] EWHC 2988 (Pat) and a lengthy decision of the Court of Appeal given by Lord Kitchin at [2018] EWCA 2344 (not yet on Bailii, and if not yet will it ever be?); and Conversant Wireless Licensing SARL v Huawei Technologies Co Ltd  (Henry Carr J) [2018] EWHC 808 (Pat), and [2019] EWCA Civ 38 (judgment given by Floyd LJ). Unwired Planet v Huawei is currently awaiting a ruling from the Supremes.

The EU case law sets out two requirements for an SEP owner to avoid committing an abuse: they must alert alleged infringers and, if the alleged infringer is willing to conclude a FRAND licence, the patentee must offer one, in writing.

According to the Patents Court, UK case law tells ut that these two requirements are not both mandatory. (When is a requirement not mandatory? Isn't it an inherent part of the definition?) The first one is, but the second is more of a safe harbour, not itself determinative of an abuse. Making the offer means you aren't behaving abusively, but not making it doesn't mean you are abusing a dominant position. Beware the logical fallacy of the undisthtuted muddle, as Lord Diplock warned us in Catnic.

Apple contended that negotiatious had been going on for a long time, indicating presumably that the allegedly requered offer had . nor really been made . But to strike the claim out summarily was not on: the court was not in a position to say that the claimants had no reasonable prospect of avoiding a finding of abuse (excuse the plethora of negatives).

The court also explained that English practice is to establish whether there has been an infringement, them to assess whether ang terms put forward qualified as FRAND. Until the court reached that stage, it would not be granting injunctions.

Remedies for infringements of Standards-Essential Patents

In a nicely-balanced judgment in Case C‑170/13, Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH (judgment here) (16 July) the Court of Justice held that the holder of a Standards-Essential Patent (or SEP, a term of art that is gaining currency very rapidly in this SEP-reliant age) can only have an injunction against an infringer if it has previously offered a licence on FRAND (a better-established term of art) terms. If the patentee has given an irrevocable undertaking to grant such a licence, it is not an abuse of a dominant position to seek an injunction and that would be prohibited by Article 102 TFEU, but the patentee has to get over a few hurdles before it is in the clear, to make sure that the right balance is struck between the interests of the patent owner and the would-be user.

First, the patentee has to alert the alleged infringer to the alleged infringement, and then it has to present a FRAND licensing proposal. If the alleged infringer carries on regardless, it will not be regarded (in the court's phrase) as having responded diligently to the proposal. It can only claim that there is an abuse of the patentee's dominant position if it has responded with a counter-proposal, offering FRAND terms (or, you might say, terms which are more FRAND, or FRANDER - there's a nice neoligism) of its own - because, of course, the only matter that can be in dispute is whether the purported FRAND terms qualify as such. Although that makes it sound far easier than it is: FRAND is not a binary, yes-or-no, matter - a wide range of terms might fall within the scope of what is fair, reasonable and non-discriminatory.

The court's approach, within its limits, nevertheless makes perfect sense: if your patent becomes the basis for a standard that everyone has to use, you have to accept that it is no longer a right to stop others from using it, merely a right to remuneration (which may be substantial). Everywhere in the IP field you can observe this shift from exclusive rights to a right to be paid for use: it happened in copyright even before the 1988 Act, when collective licensing suddenly took off with the creation of the CLA, and it was built into design right under Part III of the 1988 Act right from the start.

However, like all references to the Court of Justice, it leaves questions unanswered (usually because the questions weren't posed in the first place, which in turn is usually because they didn't arise in the case concerned so the referring national court had no reason to ask them). Can (as Laëtitia Bénard of Allen and Overy in Paris said to WIPR, that astonishingly inaccurate publication mis-spelling her surname) an injunction be blocked merely because the alleged infringer challenges the FRAND-ness (my word, not Ms Bénard's) of the offer? Will holding an SEP always place the patentee in a dominant position (a point made to WIPR by Axel Walz of King and Wood Mallesons, Munich)? How detailed does that "irrevocable undertaking" have to be (my own thought)? Given the growing frequency with which patents are already becoming standard-essential, which is likely to accelerate rapidly in the future, these are probably questions that we will see coming up before very long.

'via Blog this'