Today, 5 April 2017, the UK High Court handed down the much anticipated judgment in the Unwired Planet v Huawei FRAND trial. Mr Justice Birss held that a UK portfolio licence is not FRAND. The FRAND licence between Unwired Planet and Huawei is a worldwide licence. Huawei’s refusal to take a licence in respect of two patents found valid and infringed means that a final injunction to restrain infringement of these two patents by Huawei should be granted. The parties will make additional submissions concerning the injunction prior to the May hearing, at which the issue will be decided.
A full version of the judgment is not yet available, as it contains information that is confidential to the parties, Samsung and Ericsson. Whether all of these items remain confidential will be determined at the May hearing. A redacted version of the judgment has been made available and our outline below is based on this.
In summary, Mr Justice Birss held as follows:
- As a matter of French law the FRAND undertaking to ETSI is a legally enforceable obligation which any implementer can rely on against the patentee. FRAND is justiciable in an English court.
- It is not necessary to rely on competition law to enforce the FRAND undertaking. The boundaries of FRAND and competition law are not the same, a rate may be above the FRAND rate by not contrary to competition law.
- There is only one set of FRAND licence terms in a given set of circumstances.
- FRAND concerns the terms of the licence but also the process by which it is negotiated. An implementer does not owe a FRAND obligation to ETSI but must themselves negotiate in a FRAND manner if they wish to take advantage of the patentee’s FRAND obligation. The CJEU judgment of Huawei v ZTE addresses this process. However, the legal circumstances of this case differ from the circumstances assumed by the CJEU; as FRAND is justiciable and the undertaking can be effectively enforced at the suit of the defendant irrespective of Art 102. The defendant does not need Art 102 to have a defence to the injunction claim.
- An appropriate way to determine a FRAND royalty is to determine a benchmark rate which is governed by the value of the patentee’s portfolio. That rate does not vary depending on the size of the licences. It will eliminate hold-up and hold-out. Small new entrants are entitled to pay a royalty based on the same benchmark as established large entities. FRAND rate can be determined using comparable licences if they are available, freely negotiated licences are relevant. A top down approach can also be used in which the rate is set by determining the patentee’s share of Relevant SEPs and applying that to the total aggregate royalty for a standard, but this may be more useful as a cross check.
- None of UP’s offers (April 2014, June 2014, June 2015 or August 2016) were FRAND. None of Huawei’s offers (June 2015, August 2016, October 2016) were FRAND.
- UP’s valuation methodology (MNPA) overstates the value of UP’s SEP portfolio. Huawei’s valuation method understates the value of UP’s portfolio.
- The value R for the relative strength of UP’s portfolio as compared to Ericsson’s for 4G is 7.69%
- The value S for Unwired Planet’s share of all SEPS relevant to 4G handsets is 0.70%. The values of S for 2G, 3G, and 4G for infrastructure and handsets range from 0.21%-1.30%.
- None of the 2014 UP/Lenovo licence, the 2016 UP/Samsung licence, or the 2016 Ericsson/Huawei licence are comparable. The Ericsson/Samsung 2014 licence is a comparable and the best place to start, but other Ericsson licences are relevant.
- The benchmark FRAND rates for UP’s portfolio are: a. 4G/LTE: 0.062% for handsets, and 0.072% for infrastructure; b. 3G/UMTS: 0.032% for handsets, and 0.016% for infrastructure; c. 2G/GSM: 0.064% for handsets, and 0.064% for infrastructure.
- The T value for the total aggregate royalty burden implied by these rates for 4G handsets is 8.8%. The values for 2G, 3G, and 4G for infrastructure and handsets range from 3.1% to 8.8%
- The FRAND rate between UP and Huawei is worldwide. In a worldwide licence the rates for China would be substantially lower than the benchmark rates. The rest of the world outside China would be divided into Major Markets (MM) and Other Markets (OM). The OM rates would be the same as the China rates because that is where the goods are made
Rates for a world wide licence would be: a. For 4G/LTE Major Markets: 0.052% for handsets, 0.051% for infrastructure. In Other Markets: 0.026% for handsets, 0.026% for infrastructure.b. For 3G/UMTS: Major Markets: 0.032% for handsets, 0.016% for infrastructure. In Other Markets: 0.016% for handsets, 0.004% for infrastructure.c. For 2G/GSM: Major Markets: 0.064% for handsets, 0.064% for infrastructure. In Other Markets: 0.016% for handsets, 0.032% for infrastructure.
- In a UK portfolio licence the uplift on the rates relative to the benchmark are 100%.
- UP did not abuse their dominant position by issuing proceedings, maintaining a claim for injunction, or seeking a worldwide licence.
- To the extent damages should be awarded, they would be the same rate as the appropriate FRAND rate.