Final Unwired Planet v Huawei judgment published
On 30 November 2017 the High Court of England and Wales handed down two final judgments on confidentiality in Unwired Planet v Huawei: the final version of the substantive judgment addressing FRAND ( EWHC 2988 (Pat) (the 30 November Judgment)), and a judgment setting out the Court’s views on the various redactions requested by the parties in respect of that judgment ( EWHC 3083 (Pat) (the Confidentiality Judgment)).
By way of background, Unwired Planet v Huawei essentially decided a “Fair, Reasonable, and Non-discriminatory” (FRAND) rate for Unwired Planet’s portfolio of Standard Essential Patents (SEPs). Redactions to the (already partly redacted) public judgment, first handed down on 5 April 2017, were however requested by Unwired Planet and Huawei, as well as Ericsson (which sold the patents in dispute to Unwired Planet) and Samsung (which had settled with Unwired Planet before trial). In the final version of the judgment, the Court maintained the vast majority of the redactions protecting this confidential information, particularly where the information pertained to rates in other comparable licences. For that reason, the Court supplied an additional judgment describing the methodology and appropriateness of maintaining confidential information in public judgments.
In this note we provide a summary of:
i. The Confidentiality Judgment outlining the Court’s reasoning for maintaining certain redactions;
ii. The additional information concerning FRAND determination now made public in Unwired Planet v Huawei; and
iii. The impact of both judgments on SEP holders, licensees, and third parties.
For clarity and completeness, the summary below also includes certain information contained in the FRAND judgment as originally handed down on 5 April 2017.
Confidentiality in licensing cases
The confidentiality judgment gives the Court’s views on when judgments can and should be redacted. In the judgment, Mr Justice Birss confirms that there is a strong principle that all parts of a judgment should be publicly available. As such, making redactions requires both important reasons and cogent, specific evidence; moreover, such redactions must be kept to the bare minimum. The factors to consider are: (i) the nature of the information to be redacted; (ii) the effect of the publication of the information; (iii) the nature of the proceedings; (iv) the relationship between the information at issue and the judgment; and (v) the relationship between the person seeking the redaction and the proceedings themselves.
Applying these factors to Unwired Planet, the judge considered that all of the information that was sought to be redacted was commercial licensing information, which does not have an equal claim to confidentiality when compared to (e.g.) technical trade secrets or private information about family life. He also commented that the redactions sought would have a significant limitation on the public’s ability to understand and scrutinise the judgment, although much of the Court’s reasoning was available even with the redactions (e.g. the need to derive a benchmark royalty rate for the licensor’s portfolio).
Despite this, the judge accepted that publishing certain information from comparable licences would weaken the competitive position of the relevant licensors (namely, Unwired Planet, Huawei, Samsung, and Ericsson) as it would allow putative licensees in future to push for more favourable terms on the basis of the disclosed information. He considered, therefore, that full publication would be an unwarranted interference with the competitive position of the telecommunications market and that the potential harm to the parties was a sufficiently powerful reason to justify redactions.
As a result, Mr Justice Birss has un-redacted several parts of the judgment (discussed below), but allowed many of the redactions of confidential licence information – including the rates found in other licences – to remain in place.
The newly-public information in Unwired Planet v Huawei
Although much material remains redacted, the final version of Unwired Planet does reveal some information to further explain how the FRAND rate for Unwired Planet’s portfolio was ultimately determined.
As was clear in the originally-handed down judgment, the Court derived the FRAND rate for Unwired Planet’s portfolio by examining comparable licences of Ericsson’s portfolio and extrapolating those rates to account for the relative strength of the two portfolios.
In doing this, a central issue was determining the relative strength of Ericsson’s portfolio compared to that of Unwired Planet’s portfolio, denoted as the ratio strength, “R”. Under the Court’s approach, the strength of a portfolio is determined by examining how many patents in that portfolio are truly essential to a standard, as compared with how many truly essential patents are in the standard. The relative strength, R, of Unwired Planet’s portfolio, as compared to Ericsson’s portfolio, was calculated by comparing the number of truly essential patents in Unwired Planet’s portfolio (A) and dividing that by the number of truly essential patents in Ericsson’s portfolio (B), such that R = A/B.
The 30 November Judgment reveals more information regarding the relative strength of Ericsson’s portfolio and the transfer of patents from Ericsson to Unwired Planet via a 2013 Master Sale Agreement (MSA). It is disclosed that, before the MSA, Ericsson’s portfolio consisted of about 15,000 patent families, of which over 800 were declared essential to 2G, 3G or 4G. Unwired Planet then purchased 825 patent families in January 2013, of which 37 were declared essential. Therefore the total number of patents transferred represented about 5.5% of Ericsson’s portfolio. Alternatively, if one considers only the declared essential patents, Unwired Planet purchased 4.6% of Ericsson’s portfolio. Given that, it was argued that the relative strength of Unwired Planet’s portfolio as compared to Ericsson’s should be in the vicinity of 5%.
However, the parties differed as to how strong they believed Unwired Planet’s portfolio was relative to Ericsson’s, which involved a dispute over how many of Ericsson’s patents were truly essential to the standards. The 30 November judgment reveals that the number of truly essential patents in Ericsson’s portfolio was determined to be 67 for 4G, 42 for 3G, and 21 for 2G (the judge derived these figures by reducing to two-thirds the figures proposed by Huawei). The number of truly essential patents in Unwired Planet’s portfolio was agreed to be 6 for 4G, 1 for 3G, and 2 for 2G. The relative strength ratio R was therefore 6/67 = 8.95% for 4G; 1/42 = 2.38% for 3G, and 2/21 = 9.52% for 2G. Accounting for multi-mode devices, the strength ratio R was therefore found to be 7.69%.
The judge’s figure of 7.69% falls in-between the figures proposed by the parties, although closer to Huawei’s estimation (Unwired Planet had argued its portfolio had a strength ratio R of 10.50% for multi-mode devices. In contrast, Huawei argued that the strength ratio R was 6.75%.)
The 30 November Judgment also discloses additional information about Unwired Planet’s licence and sale to Lenovo in March 2014. As part of that transaction, Lenovo purchased 21 patent families from Unwired Planet, 18 of which were already in Unwired Planet’s portfolio, and three of which were additionally acquired by Unwired Planet from Ericsson. The Lenovo deal was viewed by Unwired Planet as a comparable licence containing rates that could be used to derive FRAND rates for Unwired Planet’s portfolio.
The 30 November Judgment states that Huawei and Unwired Planet each ascribed ratio strengths to Ericsson’s portfolio at several points in time – before the MSA, after the MSA but before the Lenovo deal, and after both transactions. In the end, the judge relied on figures derived from the post-MSA post-Lenovo Ericsson portfolio. However, he also considered that the differences at these various points were smaller than the effect of other uncertainties.
The 30 November Judgment also discloses more of the rationale for determining which licences were comparable for the purposes of deriving FRAND rates.
In this regard, one agreement that Unwired Planet put forward as providing a comparable rate was the MSA itself, which contained a prescribed floor for licensing rates, known as the Applicable Royalty Rate (ARR). According to the ARR, Unwired Planet was not free to licence its patents at a rate below 0.15% for 4G and 0.1% for 3G. It was initially argued that the ARR was anti-competitive, but as Ericsson settled out of the case that issue was not discussed at trial.
Unwired Planet argued that the percentages in the ARR provided a good comparator. Huawei argued that they were self-serving, given that Ericsson set them at that rate and benefitted from royalties paid to Unwired Planet. Mr Justice Birss held that as a tool for assessing a FRAND rate the ARR had no value.
The Court did ascribe value to a number of other Ericsson agreements and relied on them as comparable licences, specifically a 2014 Ericsson-Samsung licence, a 2009 Ericsson-Huawei licence, a 2013 Ericsson-Yulong licence, a 2011 Ericsson-ZTE licence, a 2010 Ericsson-RIM licence, and another licence from Ericsson to an undisclosed party.
Certain information regarding these comparable licences was revealed in the 30 November Judgment, although the rates found in these licences remain confidential.
For example, regarding the Ericsson-Yulong licence, Huawei argued that it was not comparable, given that Yulong’s sales are 99% in China and Yulong had brought an antitrust suit against Unwired Planet in China on the basis of this licence. Huawei also argued that relying on 2G and 3G rates (found in the Ericsson-Yulong licence) to derive 4G rates was flawed. In light of those considerations, Huawei’s expert applied a 50% adjustment to the rates found in the Ericsson-Yulong licence. However, Mr Justice Birss found that Huawei’s approach was too simplistic, and that although licences concerning 4G are preferable for deriving 4G rates, certain inferences can be drawn from the 2G/3G licences, including the Ericsson-Yulong licence.
One Ericsson licence that Unwired Planet put forward but the Court did not consider comparable was an Ericsson-Samsung licence from 2001. Mr Justice Birss viewed that a 2001 licence was too old and therefore not relevant.
The Unwired Planet Confidentiality Judgment and the 30 November Judgment are illuminating due to the information contained and the information that remains redacted. Although there was every intention to make as much information public as possible, the confidential rates derived between two parties in a given comparable licence remains confidential. Mr Justice Birss heeded the argument that revealing these rates would be anticompetitive, because all major parties would learn each other’s licence rates and could collude accordingly.
The judgments provide some clarity on which licences might be deemed comparable for deriving FRAND rates. In this case, Unwired Planet’s portfolio was purchased from Ericsson, and so Ericsson’s licences (made with parties in the litigation and non-parties) were comparable. Licences signed five years before the litigation began, although ascribed less weight, were still taken into account, whereas a 2001 licence was deemed too old to be relevant. Furthermore, licences for 2G/3G standards were examined to derive rates for 4G.
In light of the information that remains confidential, the question arises as to whether the Unwired Planet judgment (and the rates derived) will be usable by other parties. Doing so may prove difficult, given that the very rates found are based on rates that are hidden. However, the basic principles used in the judgment, such as using patent counting, comparable licences, and relative portfolio strength, will undoubtedly be relied upon by other parties in the future.