In Vringo Infrastructure Inc v ZTE (UK) Ltd [2013] EWHC 1591 the High Court of England and Wales rejected an application by the patent holder to have fair, reasonable and non-discriminatory (FRAND) licensing issues determined before the issues of patent validity and infringement in respect of standard essential patents are tried.

BACKGROUND

Vringo Infrastructure Inc issued two claims against ZTE (UK) Ltd for infringement of six patents (the patents). The patents all relate to mobile telecommunication systems and have been declared by Vringo to be essential to the relevant European Telecommunications Standards Institute (ETSI) standards. Vringo offered ZTE a worldwide licence in respect of the entirety of its global SEP portfolio (the portfolio), which incorporates over 500 patents, asserting that this offer was FRAND-compliant. Vringo subsequently applied for an order that the FRAND issues be decided before the patent issues.

DECISION

Vringo contended that the fundamental dispute between the parties is the value, if any, of the portfolio to be licensed. It would therefore, argued Vringo, save time and money if the FRAND issues were adjudicated before the patent issues, especially considering the high likelihood of settlement after the FRAND determination. Vringo referred to existing case law in which courts had determined FRAND issues at the outset, for example by scheduling the determination of FRAND questions at a preliminary trial, or at least acknowledged the possibility of doing so. ZTE opposed the application on the grounds that FRAND issues are peripheral (the core of ZTE’s case was that it challenged the validity of the patents and denied infringement) and that a preliminary FRAND trial in respect of the portfolio represented a huge task for a potentially small royalty payment.

The High Court acknowledged that it is possible to resolve FRAND issues before deciding matters of patent validity and infringement, but agreed with VTE that is was not appropriate in this case. Vringo’s proposals to license the portfolio, rather than the individual patents, would require a complicated consideration of the rate and terms of the FRAND licence. The High Court would therefore need to consider the potential invalidity and non-infringement of a section of the portfolio. Besides, ZTE was not willing to be bound by any such determination, and intended to challenge the validity of the patents and infringement allegations regardless.

Since ZTE was, however, willing to take a FRAND licence of the patents found to be valid and infringed, the Court could not accept the argument that ZTE’s challenge to the patents meant that it was not a willing licensee.

The Court commented that Vringo overstated the extent of its patent rights. There is no right that could be exercised to force ZTE to enter into a licence arrangement as ZTE was entitled to challenge validity. Raising FRAND issues distracted from this point and also had the potential to give the false impression that ZTE owed an amount that had been determined on a willing licensee basis.

Birss J refused the application, determining that the patent issues should be heard prior to FRAND concerns, and ordered that any remedies and FRAND issues be stayed pending the outcome of the patent cases.

COMMENT

As a side issue, Vringo sought a declaration that ZTE was only entitled to the portfolio licence offered, and not to an individual licence under any of the patents. This led to a question of competition law, concerning whether or not Vringo could legitimately refuse to negotiate individual licences. The Court side-stepped this issue, finding it impossible to make a determination in the abstract. A decision on this point would require careful examination of the full licence proposal, which was an option the Court had already rejected.