Case Law post CJEU ruling Huawei v ZTE

Conversant v Huawei and ZTE, [2018] EWHC 808 (Pat)

16 April 2018 - Case No. HP-2017-000048

http://caselaw.4ipcouncil.com/english-court-decisions/conversant-v-huawei-and-zte-2018-ewhc-808-pat

A. Facts

The claimant, Conversant, is a licensing firm incorporated in Luxembourg. The defendants are two major Chinese telecoms equipment and handset manufacturers, Huawei and ZTE, and their English affiliates. After years of negotiations that failed to result in licenses for claimant’s portfolio of Standard Essential Patents (SEPs) reading on ETSI wireless telecoms standards (and comprising inter alia Chinese and UK patents),Conversant v. Huawei and ZTE[2018] EWHC 808 (Pat) para 5. the claimant filed an action for infringement of four of its UK SEPs before the High Court of Justice (Court), and requested the Court to define Fair, Reasonable and Non-Discriminatory (FRAND) terms for its global SEP portfolio. [530] The defendants in separate proceedings initiated in China disputed the validity, essentiality and infringement of claimant’s Chinese patents. Since the defendants failed to unequivocally commit to conclude licenses on FRAND terms decided by the Court, the plaintiff amended its pleading to include injunctive relief, unless and until the defendants comply with the Court’s FRAND determination. [531]

The judgment at hand involves the defendants’ challenge to the Court’s jurisdiction to decide upon the terms of a global portfolio license. According to the defendants, a UK court has no jurisdiction to decide on the validity and infringement of foreign (in the present case: Chinese) patents. [532] Furthermore, the defendants claim that the jurisdiction most closely connected to the case is China which is the centre of the defendants’ manufacturing activities as well as the jurisdiction where the bulk of their sales takes place. [533]

B. Court’s Reasoning

The court dismissed the defendants’ challenge of jurisdiction. Following the reasoning of Birss J in Unwired Planet,Unwired Planet v. Huawei[2017] EWHC 711 (Pat) paras 565-67 Carr J held that, although issues of validity of patents granted in foreign jurisdictions are not justiciable in the UK, nevertheless the issue of validity should be distinguished from the issue of the determination of a global portfolio license on FRAND terms. According to Carr J, the defendants are free to challenge the validity, essentiality, and infringement of claimant’s Chinese patents in separate proceedings before Chinese courts; the pending issues of validity, essentiality and infringement do not preclude, however, the Court from determining FRAND terms for a global license and providing a mechanism of adjusting the royalty rate according to the validity and infringement decisions of courts in other jurisdictions.Conversant v. Huawei and ZTE(n. 1) paras 17 et seq. Furthermore, the defendants’ justiciability defense, were it to be accepted, would make it impossible for patent holders with a global portfolio of SEPs to obtain relief in the form of court-determined FRAND terms for a global license, since they would need to commence litigation on a country-by-country basis. [536] Forcing the patent holder to seek separate licenses for every individual country where it held SEPs could be characterized as a ‘hold-out chater’, in the eyes of the Court. [536]

Moreover, the Court seized jurisdiction over the case on the ground that the plaintiff’s claim concerns four patents granted in the UK; the issue of relief for patent infringement, and in particular whether such relief will take the form of setting FRAND terms for a global license, is to be decided in the context of a ‘FRAND trial’, after a decision on infringement is reached. [537] Were the defendants’ argument to be accepted, the Court would, in effect, be barred from deciding on the infringement and the proper relief for patents granted in the UK. [533] Besides that, the Court also held that the defendants’ failed to establish that the Chinese courts would be the appropriate forum for the dispute. [538] In this respect, given that royalty rates for telecommunication SEPs are usually lower in China than in other countries, the Court particularly pointed out that no holder of a global SEP portfolio would voluntarily prefer to submit to determination of a FRAND license for the entirety of portfolio in a country, where the rates applied would be lower than the rest of the world. [539]

  • [529] Conversant v. Huawei and ZTE[2018] EWHC 808 (Pat) para 5.
  • [530] ibid, para 7.
  • [531] ibid, para 8.
  • [532] ibid, paras 9, 12 and 13.
  • [533] ibid.
  • [534] Unwired Planet v. Huawei[2017] EWHC 711 (Pat) paras 565-67
  • [535] Conversant v. Huawei and ZTE(n. 1) paras 17 et seq.
  • [536] ibid, para 28.
  • [537] ibid, para 69.
  • [538] ibid, paras 72 et seq.
  • [539] ibid, para 63.