Panasonic v Xiaomi

A. Facts

The Claimant, Panasonic Holdings Corporation (Panasonic), owns a portfolio of patents declared (potentially) essential to 3G and 4G standards. [1]

The Defendants are companies within the Xiaomi group (Xiaomi). Xiaomi manufactures smartphones and has operated in Western Europe since 2017 and in the UK since 2018. [2] The parties had been negotiating licence terms for some years without success. [3]

On 31 July 2023, Panasonic initiated proceedings against Xiaomi before the High Court of Justice in London (High Court). Panasonic sought declarations that four of its European (UK) patents are standard-essential (standard-essential patents or SEPs) and have been infringed by Xiaomi. [4] Panasonic also requested a declaration that its proposed license terms are fair, reasonable and non-discriminatory (FRAND) – alternatively that terms fixed by the English courts are FRAND. [4] Panasonic further applied for an injunction in case that Xiaomi would refuse to sign a licence on terms declared to be FRAND. [4]

On the same date, Panasonic filed infringement proceedings against Xiaomi before the District Courts of Munich and Mannheim in Germany as well as before the Unified Patent Court (UPC). [5]

In the beginning of November 2023, both parties gave unconditional undertakings to the High Court to enter a licence on the terms determined by the English courts to be FRAND [6] . The parties also agreed to proceed directly to the FRAND trial (i.e., the trial dealing with the FRAND terms determination). [7]

On 7 December 2023, Xiaomi applied to the High Court for a declaration that a willing licensor in the position of Panasonic would agree to enter an interim licence pending the FRAND trial. [8] Panasonic opposed the application.

On 5 July 2024, the High Court dismissed Xiaomi's application. [9] Xiaomi appealed to the Court of Appeal (Court).

On 13 September 2024, shortly before the appeal hearing, Panasonic filed a revised FRAND offer seeking 62% of the previously demanded lump sum. [10]

On 3 October 2024, the Court allowed Xiaomi's appeal by a majority. The Court granted the declarations sought by Xiaomi, subject to modification of the interim licence terms. [11]
 

B. Court's reasoning

FRAND undertaking / good faith

The Court found that by pursuing the infringement proceedings before the German District Courts and the UPC (European proceedings), Panasonic violated its good faith obligation under the FRAND commitment it had made towards the European Telecommunications Standards Institute (ETSI). [12]

The Court observed that FRAND extends to the process of negotiation. [13] A SEP holder must behave 'consistently with its obligation to grant a licence on FRAND terms'. [13] An implementer must behave 'consistently with its need to take a licence on FRAND terms'. [13]

The Court emphasized that a 'key factor' in the present case was the certainty that the parties will enter a global FRAND license in the 'relatively near future', given that Panasonic sought global FRAND determination by the High Court and both parties had made undertakings to accept the court-determined FRAND terms. [14]

Against this backdrop, the Court held that Panasonic's objective behind continuing the European proceedings was to obtain injunctions in order to achieve a negotiated settlement with Xiaomi on 'better terms than those determined by the Patent Court'. [15] The Court reasoned that Panasonic's substantial investment of time and money indicated it believed this strategy had prospects of success. [15]

In the view of the Court, Panasonic's conduct was 'wholly inconsistent' with the fact that it had sought English courts to set global FRAND terms and had committed to accept the respective outcome. [16]

In addition, the Court observed that '[a]ny rational SEP holder in the position of Panasonic' would agree to enter into interim licence, as it would be 'paid sooner than later'. [17] Panasonic's reluctance was only explicable as an attempt to 'compel Xiaomi to accept terms more favourable to Panasonic than the Patents Court would order'. [17]

The Court concluded that Panasonic does not comply with 'its obligation to negotiate a licence with Xiaomi in good faith'. [12] Panasonic's subjective belief in the legitimacy of its conduct would not 'compel the conclusion that, upon an objective assessment, Panasonic is acting in good faith'. [12]

Turning to the terms of an interim licence, the Court held that such licence should be based on Panasonic's proposed final licence terms with two modifications: First, the period of the interim licence should be from 2011 (i.e. start of use) until the court-determined licence takes effect (the Court assumed this would be the 31 December 2024). [18] Second, the royalty payable under the interim licence should be midway between Xiaomi's offer and the proportion of the sum suggested by Panasonic on 13 September 2023 attributable to the interim period. [18] These terms would be subject to adjustment (in both directions) once the High Court determines the final license terms. [18]

In this context, the Court highlighted that for the determination of the terms of the interim licence it was not required to choose between the terms proposed by the parties. [19] The Court was as capable of determining the terms of an interim license as it is capable of fixing the terms of the final licence. [19]
 

Useful purpose

The Court held that the declarations sought by Xiaomi would serve a 'useful purpose'. [19]

In the eyes of the Court, the declarations could force Panasonic to 'reconsider its position'. [19] Although Panasonic stated it would rather ignore a respective declaration, the Court considered there was a 'realistic prospect' that Panasonic would change its position. [19] In this respect, the Court mentioned the fact that Panasonic's intentions had already changed during the dispute, as demonstrated by its revised offer dated 13 September 2023. [19]

Furthermore, the Court opined that the declarations sought would 'safeguard the integrity' of the proceedings pending in the UK. [20] The Court assumed that Panasonic's objective is 'to ensure that no FRAND trial takes place here and no Patents Court-determined licence ever takes effect'. [20]
 

Comity

The Court rejected the argument that the declarations sought by Xiaomi should be refused on grounds of comity. [21] The Court disagreed with the High Court's premise that the only useful purpose of the declarations would be to influence the European Proceedings. [22]

On the contrary, the Court held that if the declarations induced Panasonic to grant an interim licence, this would promote comity, as it would relieve the German courts and the UPC of 'a great deal of burdensome and wasteful litigation'. [23]

What is more, should Panasonic ignore the declarations and pursue the European Proceedings, there would be no impact on foreign proceedings. The foreign courts involved would still assess the parties' conduct themselves (including Panasonic's conduct in the proceedings pending in parallel in the UK) and decide what relief to grant. [24]
 

Anti-suit injunction

Although the possibility of an anti-suit injunction (ASI) was debated, the Court did not rule on its merits, since Xiaomi had not applied for such relief. [25] Nevertheless, the Court noted that Panasonic's pursuit of the European Proceedings could be argued as vexatious or oppressive, which is a recognised basis for granting an ASI. [25]

Having said that, the Court distinguished the declarations sought from an ASI. [26] Unlike an ASI, these declarations would provide the restrained party with substantial royalties while regulating the parties' commercial positions pending determination. [27] The Court further clarified that the declarations did not constitute 'back-door' anti-suit relief, as they did not prevent Panasonic from pursuing the European Proceedings. [28] Thus, the declarations were 'much less intrusive than an ASI, but also designed to promote the overall resolution of the dispute'. [27]
 

C. Other issues

Although agreeing with the finding that Panasonic's behaviour was 'indefensible', Phillips LJ disagreed with the grant of the final declaration. [29]

Phillips LJ argued that the FRAND undertaking according to ETSI's Intellectual Property Rights Policy does not give rise to an obligation to grant an interim licence during the negotiation or determination of FRAND terms. [29]

What is more, even if an interim license would be granted, it would have only a 'transitory' effect, considering that adjustments would be needed upon final determination. Accordingly, in the view of Phillips LJ, the 'real purpose and effect' of the declaration only to influence foreign proceedings, a goal that 'smacks of jurisdictional imperialism'. [29]

Finally, Phillips LJ stressed that there is no support for establishing that the English courts have jurisdiction to set 'a global interim FRAND' prior to trying the issue'. [29]

• [1] Panasonic v Xiaomi [2024] EWCA Civ 1143, para. 1.
• [2] Ibid, para. 32.
• [3] Ibid, para. 33.
• [4] Ibid, para. 34.
• [5] Ibid, para. 43.
• [6] Ibid, para. 36.
• [7] Ibid, paras. 38-40.
• [8] Ibid, paras. 41.
• [9] Ibid, para. 1.
• [10] Ibid, para. 60.
• [11] Ibid, paras. 101,104 and 111.
• [12] Ibid, para. 86.
• [13] Ibid, para. 21.
• [14] Ibid, para. 81.
• [15] Ibid, para. 82.
• [16] Ibid, para. 83.
• [17] Ibid, para. 84.
• [18] Ibid, para. 100.
• [19] Ibid, para. 99.
• [20] Ibid, para. 92.
• [21] Ibid, para. 94.
• [22] Ibid, para. 95.
• [23] Ibid, para. 96.
• [24] Ibid, para. 97.
• [25] Ibid, para. 66.
• [26] Ibid, paras. 67 and 68.
• [27] Ibid, para. 68.
• [28] Ibid, para. 67.
• [29] Ibid, para. 104.