Case Law post CJEU ruling Huawei v ZTE

Unwired Planet v Huawei, EWHC

2 October 2015 - Case No. HP-2014-000005

http://caselaw.4ipcouncil.com/english-court-decisions/unwired-planet-v-huawei-ewhc

Dates: 2 October 2015, 19 November 2015, 23 November 2015, 7 December 2015, 16 December 2015, 28 January 2016, 29 January 2016, 12 February 2016, 22 March 2016, 29 April 2016, 27 May 2016

  1. Facts
    The overall dispute can be separated into five technical trials (A-E), three of which have been completed, each dealing with one patent and relating to technical issues such as validity, infringement and essentiality. Still uncompleted is the fifth trial, concerning the only non-SEP in the portfolio, and one trial relating to competition law and FRAND issues, scheduled to start on 20 October 2016 and to last for approximately thirteen weeks.
    Claimant (Unwired Planet Int. and Unwired Planet LLC) is the proprietor of European patents EP 2 229 744 whose standard-essential character has been confirmed in Trial A; EP 2 119 287 and EP 2 485 514 who have been revoked in Trial B; and EP 1 230 818 whose standard-essential character has been confirmed in Trial C. All patents were originally granted to Ericsson and are part of a patent portfolio Claimant obtained from Ericsson, purportedly encompassing patents essential to various ICT standards. Defendants (in particular Huawei and Samsung) produce and market GSM- and LTE 4G-based devices.
    In the decision of interest here, the court had to decide on the application of Defendant Samsung to transfer competition law as well as FRAND issues to the Competition Appeal Tribunal (CAT). The application was rejected because it appeared not to be feasible to decide these issues separately from the rest of the case. [61]
    With regard to competition law the court has, so far, examined three competition law defences pursuant to Article 101 TFEU raised by Defendant Samsung against the claim for patent infringement. This claim is based on, inter alia, the Master Sale Agreements (MSA) concluded as of 10 January 2013 between Claimant and Ericsson. The MSA entitles Ericsson to a share in the patent royalties and contains the option to transfer a substantial number of additional patents to Claimant in the future. On 14 June 2013 and 6 March 2014 respectively, Claimant and one of its subsidiaries made FRAND commitments towards ETSI. Defendant’s first defence contends that the MSA generally failed to transfer the FRAND commitments made by Ericsson towards ETSI to Claimant, because (a) it does not require Claimant to give any FRAND undertaking, (b) even if there were such an obligation, it cannot be enforced by third parties and (c) the MSA does not prohibit Claimant from obtaining licensing terms more favorable than those Ericsson could obtain. The second defence alleges that Claimant and Ericsson could, as an effect of the patent portfolio’s division by the MSA, demand excessive royalties. Moreover, by means of its third defence, Defendant argues that particular clauses of the MSA have the object or potential effect of restricting competition under Article 101 TFEU because they define minimum royalties and exclude alternative royalty schemes.
  2. Decision of the court of first instance
    The court of first instance let the second defense go to trial because it held that the MSA is not a straightforward agreement for the sale of patents since Ericsson retains a share in the royalties to be earned and can transfer a substantial further body of patents if it chooses to do so. Moreover, the acquirer, as a non-practicing entity, does not compete in the downstream market in the way that Ericsson does. In these circumstances the court of first instance considered it was arguable that the MSA has as its object or would have as its effect the distortion or restriction of competition.
    The court of first instance reached the same conclusion in relation to the third defence. It considered it arguable that the pertinent clauses would contribute to the creation of an anti-competitive incentive to charge higher royalties.
    However, the court of first instance rejected all elements of the first defense. As for the first aspect, it recognised that the acquirers acknowledged (1) that the SEPs were subject to existing encumbrances, including FRAND commitments to ETSI; (2) that all encumbrances would continue after assignment; and (3) that within a reasonable time after closing they would provide declarations to ETSI including FRAND undertakings in accordance with the ETSI IPR Policy. Such FRAND undertakings were indeed provided. Turning to the second element, the court of first instance considered that it was unarguable because once a FRAND undertaking had been given any third party could require to license the patents on FRAND terms. As for the third element, the judge rejected as unarguable the contention that Ericsson’s own FRAND obligations should have been assigned to and become binding on Unwired Planet.
    Defendant appealed against the findings regarding the second and third elements of the first defence.
  3. Court’s reasoning
    Having regard to the second element of the first defence the court, considering the fact that Claimant made commitments towards ETSI shortly after the conclusion of the MSA, found that the undertaking to grant licences on FRAND terms is equally binding for Claimant irrespective of the fact whether it is a member of ETSI and rejected Defendant’s submission that the obligations under the MSA cannot be enforced by third parties. [62]
    Contrary to the findings of the court of first instance regarding the third element of the first defence, the court states that Article 101 TFEU may require an effective transfer of Ericsson’s FRAND obligation to Claimant to the effect that the latter cannot obtain more favorable terms from its licensees than Ericsson could itself have obtained. It therefore let this aspect go to full trial as well.
  • [61] HP-2014-000005, 29 April 2016, para. 30 et seq., 46
  • [62] HP-2014-000005, 27 May 2016, para. 38-40