Wednesday, October 24, 2018

A Brief Analysis of the EWCA's Decision in Unwired Planet

As previously noted, the England and Wales Court of Appeal published its decision yesterday dismissing the appeal in Unwired Planet In'l Ltd. v. Huawei Techs. Co. (opinion by Lord Kitchin, joined by Lord Justice Floyd and Lady Justice Asplin).  Huawei did not appeal Mr. Justice Birss's method of calculating a FRAND royalty, so the three issues on appeal were whether Mr. Justice Birss erred (1) in concluding that a FRAND license would be global in scope; (2) in his interpretation of the "nondiscriminatory" aspect of the ETSI FRAND obligation; and (3) in concluding that Unwired Planet had not abused its dominant position, in violation of EU competition law, by instituting a proceeding for injunctive relief without following to the letter the steps set forth in the CJEU's 2015 decision in Huawei v. ZTE (e.g., "without giving any notice of which SEPs were said to be infringed or why, and without having made any licensing offer").

1.  As for the first issue, the court concludes that there was no error.  In particular, the court accepted Mr. Justice Birss's determination that a global agreement is consistent with industry practice, and that it would be inefficient (and conducive to holdout) for the parties to negotiate royalties on a country-by-country basis.  The court further concludes that awarding a global FRAND royalty does not violate comity--or unduly leverage the infringement of the two U.K. patents in suit that were expressly found to be valid and infringed--insofar as (1) Mr. Justice Birss was not adjudicating the validity and infringement of any foreign patents, but rather determining what the parties' obligations were under ETSI's FRAND obligation; (2) Huawei retained the ability to contest validity of any of these patents; and (3) Huawei did not have to accept the global FRAND resolution, but could instead choose to be bound by the U.K. injunction (applicable only within the U.K.) and continue litigating infringement and validity in other countries.

I'm inclined to think this is right--it doesn't seem very efficient to proceed on a country-by-country basis--though I do worry a bit about the potential for forum shopping/races to the courthouse.  Would it be better to have some sort of private institution for establishing global FRAND rates, as Jorge Contreras argues in a recent paper?  On the other hand, note that the court is not shutting the door on the possibility (in other cases) of staying or dismissing a request for a global FRAND agreement on the ground of forum non conveniens (though it says that in this case Huawei raised this objection too late, see para. 112). 

2.  One point on which the court disagrees with Mr. Justice Birss, though it winds up not mattering, is with regard to the question of whether there is one FRAND rate or a range.  The court concludes that FRAND is a range (see paras. 119-25), which I too think makes more sense.  

3.  On the nondiscrimination issue, the court finds no error in Mr. Justice Birss's view that a rate is FRAND if it is "generally nondiscriminatory," that is, if it is consistent with a fair and reasonable benchmark, even if some other licensees are offered a lower rate (unless the offer of a lower rate to some violates competition law, which was not the case here).  The court (and Mr. Justice Birss) rejected the "hard-edged nondiscrimination" principle, under which a rate is non-FRAND if does not treat all similarly situated licensees the same and there is no objective reason for the difference.  The court notes that its position on this issue differs from that of some decisions in Germany, China, and the U.S. (TCL v. Ericsson), but given the early stage in the evolution of this body of law it does not believe it should be bound by these other decisions.

4.  On the abuse of dominant position issue,  the court agrees with Mr. Justice Birss that the steps the CJEU established in Huawei v. ZTE issue constitute a "safe harbor" against a competition law violation.  They do not establish the only means by which a SEP owner who seeks an injunction can avoid liability for abusing its dominant position.  Thus, the fact that Unwired Planet did not follow the Huawei v. ZTE steps to a tee do not necessarily lead to the conclusion that Unwired Planet has violated competition law.  See paras. 251-85.
5. For other coverage, see the IAM Blog, IPKat (here and here), and Kluwer.  There are surely many more blog posts and papers to come . . . 

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