High Court rules in favour of the SEP holder and narrows the scope of competition law defence in Unwired Planet vs. Huawei

On 5 April 2017 the High Court of Justice of England and Wales (Hon. Justice Birss) issued its long awaited judgment in the patent dispute between Unwired Planet and Huawei. The ruling is of high relevance, as it is the first decision adopted by a judge in the UK after the CJEU’s judgment in Huawei.

The facts

The trial began in March 2014 when Unwired Planet sued Google, Huawei and Samsung for infringement of five SEPs (and one non-essential patent). Later, Unwired Planet settled with Google and Samsung.

Ultimately, the UK judge found Unwired Planet’s patents valid and infringed, and concluded that Unwired Planet was entitled to enter into a worldwide licence (rather than limited to the UK, as asked by Huawei). The judge assigned a short term to Unwired Planet to draw up a full set of FRAND worldwide licence terms as determined by the judgment, allowing Huawei to escape the injunction.

This ruling enriches the existing case law on standard-essential patents (“SEP”) in many regards (i.e.: enforceability of FRAND commitments under contract law), but in this post I will only address Justice Birss’ remarks on the competition law defence.

Less room for competition law defence in the UK

As a defence against Unwired Planet’s claims, Huawei argued that the plaintiff had abused its dominant position by (i) seeking an injunction, (ii) charging excessive royalties and (iii) bundling SEPs and non-SEPs.

In the first place, Justice Birss confirms that each SEP gives rise to a relevant market (para. 670).

On the existence of a dominant position, Justice Birss takes into account (i) the circumstance that FRAND commitments limit SEP holders’ freedom on the market and (ii) the fact that there is evidence that licensees sometimes engage in “holding out”. However, in absence of a proper economic analysis, he concludes that SEP owners hold 100% of the market and that, subsequently, Unwired Planet is in a dominant position.

1. Abuse of litigation

In order to check whether Unwired Planet abused its dominant position by seeking an injunction, Justice Birss applies the principles set by the CJEU in Huawei to the case under exam.

With regard to the first condition (the SEP holder shall alert the counterpart of the alleged infringement before bringing an action), Justice Birss notes that although Unwired Planet did not explicitly inform Huawei of the infringement, it had offered some of the infringed SEPs to Huawei for sale already in 2013. Furthermore, in November 2013, the parties agreed for Unwired Planet to provide Huawei with its claim charts under an NDA, but Huawei did not reply to the draft NDA terms until 10 March 2014, when the litigation started (para. 74). In light of the above, the judge concludes that, Huawei, “a sophisticate organisation well versed in technology and patenting” had been given “sufficient notice that Unwired Planet held particular SEPs and they knew or ought to have known that if the declared SEPs held by Unwired Planet were indeed valid and essential, then a licence was required” (para. 750).

With regard to the second condition (if the alleged infringer is willing to negotiate, the SEP holder shall submit a written offer), Justice Birss notes that Unwired Planet provided the key terms of a licence offer to Huawei a few weeks after commencing proceedings and this is enough to indicate that the SEP owner was willing to license. The circumstance that Unwired Planet sued Huawei before finalizing the offer does not imply an infringement of article 102 TFEU, as this interpretation would entail a narrow reading of Huawei. Furthermore, Justice Birss took into account the countervailing power owned by the licensee, who can retaliate against the patentee by denying essentiality of the SEP and challenging its validity.

With regard to the third condition (the defendant has to respond diligently and to make a specific counteroffer), Huawei argued that Unwired Planet had never given them a chance to respond to an offer before the proceeding commenced (not having submitted a timely offer). However, Justice Birss observes that the conditions set in Huawei can’t be interpreted as a “mandatory protocol which must precede issuance of a claim form” (para. 732).

2. Excessive pricing

On the excessive pricing claim, Justice Birss acknowledges that Unwired Planet’s offers were above FRAND, but he also notes that “a rate can be higher than the FRAND rate, without being abusive” (para. 757). More specifically, he considers that Unwired Planet’s offers were made (i) in the context of good faith negotiation, (ii) they were not significantly above FRAND and (iii) no detailed economic analysis has been carried out by Huawei to prove that Unwired Planet’s offer distorted competition. Moreover, the judge notes that the plaintiff lowered its initial offer once it realised that the rates in the industry were lower than its expectations (Unwired Planet was a new comer on the market, having bought a SEP portfolio from Ericsson).

In general, according to Birss, an offer in the context of a negotiation is to be considered abusive only if it is “so outrageous that you cannot expect there to be a process of convergence in the negotiation” (para. 763). The judge acknowledges that it is “a high standard to reach but otherwise it would be too easy for the recipient of an offer to throw up their hands and refuse to negotiate” (para. 765).

3. Bundling SEPs and non-SEPs

Ultimately, Huawei claimed that Unwired Planet had attempted to bundle its SEPs and non-SEPs portfolios.

On this issue, Justice Birss states that although a patentee subject to a FRAND undertaking cannot insist on a licence which bundles SEPs and non-SEPs together, this does not mean that a first offer which puts the two categories together is contrary to competition law (para. 787). Indeed, there is clear evidence that, in some cases, the parties agree to a licence which includes both SEPs and non-SEPs together, so this is a move that, at least at the begin of the negotiation, can be left to the parties. Moreover, Unwired Planet clarified already in their first offer that they were “willing to discuss any such arrangement upon request”, and after Huawei asked them to separate out SEPs from non-SEPs, Unwired Planet did so.

Conclusion

There is no  magic rule to handle the interplay between IP and competition. While some judges (i.e. the Court of Appeal of Dusseldorf in Sisvel v. Haier) apply Huawei strictly, others keep into account specific features such as the defendant’s sophistication and its countervailing buyer power. Therefore, in spite of Huawei, lack of legal certainty across different jurisdictions continues to be a  concern for companies active in SEP licensing.

marco.lobue@belex.com

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