In his latest decision in the Unwired Planet v Huawei case, Mr Justice Birss has provided guidance on the nature and scope of remedies available to Standard Essential Patent (SEP) owners in the UK, including availability of a new type of injunction called a “FRAND injunction”. This decision followed his earlier judgment involving the same parties in which he dealt with the issues of Fair, Reasonable and Non-Discriminatory (FRAND) royalty terms and abuse of dominant position by a SEP owner (the “FRAND Judgment”). These decisions demonstrate that UK Courts continue to be at the forefront in developing jurisprudence relating to FRAND terms and the availability of remedies where an SEP is found to be valid, essential and infringed.
Huawei was found to have infringed two of Unwired Planet’s SEPs in the UK that were subject to FRAND undertakings and held to be valid and essential. Huawei also failed in its attempt to rely on certain competition law defences in order to prevent Unwired Planet from obtaining an injunction and other relief, but the judge decided to defer his decision on the remedies to a later hearing. The judge delayed his decision because a fully worked out licence did not exist when the FRAND Judgment was handed down as Huawei had refused to engage with the terms of a worldwide draft licence. A draft licence was subsequently prepared and served by Unwired Planet on Huawei (the “Settled Licence”).
Hearing on relief and FRAND injunction
In this hearing, the court had to decide inter alia whether to issue an injunction, and if so, in what form. The issue was not straightforward as Huawei had subsequently offered undertakings that it would:
(i) sign the Settled Licence if no appeal was filed or if the appeal was decided against them, or sign another licence as determined by appellate courts; and
(ii) act as if the Settled Licence was in force until it files an appeal or until final determination of its appeal.
Huawei argued that its offer to provide undertakings resulted in a material change in circumstances since the FRAND Judgment and requested that the court accept them in lieu of issuing a final injunction. Huawei also pointed out that one of the SEPs will continue to be in force well beyond the duration of the Settled Licence. If an injunction were to be granted in these circumstances, it would unfairly prejudice their ability to negotiate a further licence when the Settled Licence expires.
Unwired Planet, on the other hand, pressed for a final injunction. In their view, an injunction would not prejudice Huawei as it would essentially be a prohibition of infringement by Huawei. If Huawei were to sign the Settled Licence subsequently, their relevant acts would not be infringements, and therefore the granted injunction would not adversely impact Huawei. However, Unwired Planet’s argument did not address the situation where an allegation of repudiatory breach of the Settled Licence arose while the injunction is still in force. In such a scenario, Huawei would be at risk of being held in contempt of court if they were to continue to carry out an activity that (but for the Settled Licence) would amount to an infringement during the period when the licence is argued to have come to an end.
After hearing the parties, the judge held that Huawei’s undertakings were offered too late in the day to allow him to exercise his discretion in their favour. Had Huawei offered an unqualified undertaking from the outset that they would enter into a licence determined by the courts to be a FRAND licence, an injunction would not have been appropriate at this stage. (A learning point on the basis of these comments, therefore, is that an SEP implementer must carefully consider earlier in the proceedings what form of undertakings they should provide in order to avoid the threat of an injunction at a later stage once an SEP is held to be valid, essential and infringed.)
Having decided that he would grant an injunction, Mr Justice Birss went on to consider the form of injunction to be granted in respect of an SEP subject to a FRAND undertaking and where the defendant has decided not to take a FRAND licence determined by the court. He took a pragmatic approach on the issue, particularly keeping in mind the interplay between the grant of an injunction and potential repudiatory breach of the Settled Licence, and formulated a new type of injunction called a “FRAND injunction”. According to the judge, a FRAND injunction is an injunction that automatically ceases to have effect if the defendant enters into a FRAND licence determined by the court.
The judge also acknowledged that the courts need to be flexible and alive to commercial considerations in assisting parties to resolve FRAND related disputes. In particular in certain cases, fixing a FRAND royalty rate for a long period of time might be difficult because all sorts of relevant circumstances could change and affect the calculation of FRAND royalty rate. For example, patents could expire and new patents could be granted. Even the standards themselves could change. There will, therefore, be cases where a FRAND licence could be of a shorter duration than the life of a relevant patent as in the present case.
As a result, the court went on to apply a second qualification to the newly-developed FRAND injunction to deal with such cases. It held that in such circumstances, each party is at liberty to return to court in the future to address whether the injunction should be revived at the end of the term of a FRAND licence determined by the court. This was a departure from the well-established principle of English law that when a court grants final relief, a party is not entitled to come back to court in the future even if there is a change in circumstances. In order to provide absolute certainty to the parties, Mr Justice Birss went on to hold that the FRAND injunction, should in any case, be subject to a party’s right to apply for a reconsideration of the injunction if a FRAND licence ceases to have effect for any other reason.
Mr Justice Birss also provided insight into the considerations that may be relevant when a court has to decide whether to continue with an injunction at the future date after a FRAND licence ends. In his opinion, if an SEP owner fails to commence FRAND negotiations well in advance of the expiry of the FRAND licence, or drags its feet in the negotiations, he is unlikely to obtain an injunction in the future. However, if the SEP owner has behaved reasonably and the putative licensee did not, the court’s sympathies may well lie with the SEP owner. His approach appears to be influenced by the decision of the Court of Justice of the European Union in the Huawei v ZTE case.
Another issue that arose during the hearing was that the Settled Licence had no terms dealing with appeals. Huawei was concerned that if they were to sign the licence now, they could be barred from arguing (before the Court of Appeal) their preferred position that a UK licence is the right outcome. The court said that the parties and court should consider including terms dealing with appeals when a court is called upon to settle FRAND terms in the future. Given Mr Justice Birss’ comments, it is important to include proposals to deal with appeals in the future when the terms of a licence are being negotiated by the parties. Moreover, such proposals must be made in advance so that they can be dealt with at trial.
Having considered the above issues, Mr Justice Birss granted a FRAND injunction against Huawei on the terms he had outlined, but stayed it pending appeal.
Mr Justice Birss then went on to decide issues relating to other relief such as damages, declarations, costs and permission to appeal.
As regards damages, the judge took the same position as he took in respect of the final injunction. He decided that an order for damages must be made, but it would cease to have effect if Huawei enters into the Settled Licence. He also stayed the damages pending appeal.
On the issue of declaratory relief, the judge and parties agreed that declarations should be made whether or not each party’s offers were FRAND. He also formulated an additional declaration that “the licence annexed to the judgment represents the FRAND terms applicable between the parties in the relevant circumstances.” The public availability of the Settled Licence as an annex could provide a useful starting point to third parties, who may have limited or no experience of negotiations involving SEPs and FRAND royalty terms. This step was unusual, but commendable because if other courts were to follow Mr Justice Birss’ cue, a number of FRAND licences could be publicly available and third parties and the court could rely on them without resorting to an expensive exercise of third party disclosure.
The formulation of a FRAND injunction, which is specifically tailored for disputes involving FRAND terms and enforcement of SEPs, demonstrates that the UK courts are flexible, alive to commercial considerations and willing to provide innovative and pragmatic solutions to strike a balance between the competing interests of SEP owners and implementers. The decision also raises certain practical issues (as outlined above) that practitioners and SEP owners/implementers must keep in mind while conducting negotiations and litigation involving SEPs.
Since Huawei was granted permission to appeal, it remains to be seen what future developments will occur once the Court of Appeal adds its voice to the evaluation of this innovative area of procedure.