Recent appellate decisions coming out of the United States and the United Kingdom relating to global FRAND terms for standard essential patents will likely increase the possibility of forum shopping by patent owners and technology implementers seeking an advantage. The US decision is still pending appeal to the Supreme Court, but as things stand now, a jury has a primary role in setting royalty rates in the US, while it seems that jury trials in civil cases in the UK are all but unavailable.

The Supreme Court of the United Kingdom recently issued its judgment in the Unwired Planet International Ltd. v. Huawei Technologies (UK) Co. Ltd.; Huawei Technologies Co. Ltd. v. Conversant Wireless Licensing SÀRL; and ZTE Corp. v. Conversant Wireless Licensing SÀRL cases.

The Supreme Court’s central holdings are that English courts may (i) determine fair, reasonable, and non-discriminatory (FRAND) terms, including royalty rates, of a global license to a standard essential patent (SEP), even without the consent of the parties; and (ii) enjoin a party from infringing the UK counterpart of an SEP unless that party enters into such a global license. The Supreme Court based its opinion in part on the parties’ contractual obligations as members of the European Telecommunications Standards Institute (ETSI), a standard setting organization (SSO) based in France, as well as certain commercial realities of patents and technical standards in the telecommunications industry. Importantly, the approach to setting royalties that was affirmed by the Supreme Court involved different rates for the world’s various “major markets” and “other markets.” The approach also included a mechanism to adjust royalty rates in the event an SEP was invalidated or found not to be infringed by a national court in those markets.

As background, SEPs are patents that would inevitably be infringed through the practice of a standardized technology. Standardized technologies are valuable in numerous industries, including the telecommunications industry, where a piece of technology may be made in one country, sold in many different countries, and used in practically every country. SSOs are formed by industry participants to promote standards and to put in place contractual arrangements by which patent owners and implementers of standardized technology are obligated to license SEPs on FRAND terms.

Unwired Planet and the Conversant cases involved telecommunication technologies. In particular, the 2G, 3G, and 4G telecommunications standards for mobile phones that were established by ETSI. ETSI’s members and their affiliates are contractually bound by the terms of ETSI’s intellectual property rights policy (“IPR Policy”).

The trial court in Unwired Planet held that an ETSI member’s obligations under the IPR Policy are enforceable in English courts and that an implementer who refused to take a license on terms that the court held to be FRAND could be enjoined from infringing a UK patent that was held to be valid and infringed. On the facts of Unwired Planet, the trial court also concluded that a willing patent owner in Unwired Planet’s place and a willing implementer in Huawei’s place would reasonably agree to a worldwide license to Unwired Planet’s patent portfolio instead of negotiating licenses country by country or patent by patent. Accordingly, the trial court held that a FRAND license would be worldwide, and determined royalty rates and other license terms, including that:

1. “[O]n a FRAND approach the royalty rates for China would be 50% lower than the rest of the world”;
2. The “rest of the world” should be divided “into major markets and other markets” and “that the rate applicable in the latter markets would be the same as in China”;
3. There should be “a mechanism for the adjustment of royalties payable in major markets if successful challenges to the validity or infringement of SEPs reduced the number of declared SEPs in any of those markets.”

The trial court further held that the royalty rates that it determined were FRAND even though they were higher than the royalty rates that Unwired Planet gave to another global implementer.

In reaching those conclusions, the Unwired Planet court “did not purport to determine the validity of any non-UK patent.” Instead, the court sought “to value [Unwired Planet’s patent] portfolio as a whole, recogni[z]ing that it was likely to include patents which were not valid and patents which although valid were not infringed and so were not SEPs.” The court “relied principally on the analysis of comparable licen[s]es,” already in place in the telecommunications industry, “and used the top down method as a cross-check.” The “top down method” assesses “what the total aggregate royalty burden would be for all the intellectual property relating to the standardi[z]ed telecommunications technology” and then “share[s] out the aggregate royalty” to each patent owner in proportion to the value of the owner’s “patent portfolio as a share . . . of the total relevant patent portfolio essential to the standard.”

The trial courts in the Conversant cases similarly held that English courts had jurisdiction to enforce ETSI’s IPR Policy and to determine disputed FRAND terms. The trial courts reasoned that enforcing the IPR Policy and determining FRAND terms did not involve English courts weighing the validity or infringement of foreign patents and, thus, did not cause English courts to intrude on the jurisdiction of foreign courts. The trial courts further reasoned that any FRAND term an English court established could be adjusted to reflect the rulings of foreign courts and that the onus would be on an implementer to challenge foreign patents if an English court found a UK SEP to be valid and infringed.

The Supreme Court began its analysis by recognizing “(a) that questions as to the validity and infringement of a national patent are within the exclusive jurisdiction of the courts of the state which has granted the patent,” and “(b) that in the absence of the IPR Policy an English court could not determine a FRAND licen[s]e of a portfolio of patents which included foreign patents.” The contractual obligations in ETSI’s IPR Policy give English courts jurisdiction to determine a FRAND license in these cases. The Supreme Court later stated that if national courts imposing worldwide FRAND licenses creates “a risk of forum shopping, conflicting judgments and applications for anti-suit injunctions” that it is because of SSO policies like ETSI’s IPR Policy:

Those policies, which either expressly or by implication provide for the possibility of FRAND worldwide licen[s]es when a SEP owner has a sufficiently large and geographically diverse portfolio and the implementer is active globally, do not provide for any international tribunal or forum to determine the terms of such licen[s]es. Absent such a tribunal it falls to national courts, before which the infringement of a national patent is asserted, to determine the terms of a FRAND licen[s]e. The participants in the relevant industry, which have pragmatically resolved many disputes over SEPs by the practice of agreeing worldwide or international licen[s]es, can devise methods by which the terms of a FRAND licence may be settled, either by amending the terms of the policies of the relevant SSOs to provide for an international tribunal or by identifying respected national IP courts or tribunals to which they agree to refer such a determination.

The Supreme Court went on to reject Huawei’s submission that “the English courts have no jurisdiction to determine the terms of a licen[s]e involving disputed or potentially disputed foreign patents.” The lower courts “looked to the commercial practice in the industry of agreeing to take a licen[s]e of a portfolio of patents, regardless of whether or not each patent was valid or was infringed by use of the relevant technology in the standard,” which was consistent with the purpose of ETSI’s IPR Policy.

The Supreme Court also rejected Huawei’s submissions that English courts are (i) “out of step with foreign courts in requiring an implementer to enter into a global licen[s]e in order to avoid an injunction for infringement of a national patent and in being prepared to determine the disputed terms of a global FRAND licence,” and (ii) “uniquely setting themselves up as a de facto global licensing tribunal.” The Supreme Court did, however, agree that the Unwired Planet trial court “ha[d] gone further than other courts have done thus far in [its] willingness to determine the terms of a FRAND licen[s]e which the parties could not agree, but that d[id] not involve any difference in principle from the approach of courts in other jurisdictions,” including the Federal Circuit in the United States, as well as courts in Germany, China, Japan, and the European Commission.

The Supreme Court further rejected ZTE’s submission that “if a global licen[s]e is FRAND, a FRAND process would identify the courts of China as the appropriate courts to fix the terms of such a licen[s]e.” The Court identified the dipositive issue in the lower courts as being how these cases are framed: whether these cases are “in substance a dispute about the terms of a global FRAND licen[s]e” or whether they are “both in form and in substance about the vindication of the rights inherent in English patents, and therefore about their validity and infringement, with FRAND issues arising only as an aspect of an alleged contractual defen[s]e.” The Court noted that both lower courts agreed with the second framing:

At the heart of the analysis which has thus far prevailed is the recognition that the owner of a portfolio of patents granted by different countries is in principle entitled to decide which patents (and therefore in which country or countries) to seek to enforce, and cannot be compelled to enforce patents in the portfolio granted by other countries merely because a common FRAND defen[s]e to the enforcement of any of them raises issues which might more conveniently be determined in another jurisdiction than that which exclusively regulated the enforcement of the chosen patents.

The Court went on to conclude, however, that even if the substance of the dispute centered on the terms of a global FRAND license, that England would still be the appropriate forum because it has jurisdiction to determine such terms and, as the trial court found, “Chinese courts do not, at present, have jurisdiction to determine the terms of a global FRAND licen[s]e, at least in the absence of agreement by all parties that they should do so.” The Supreme Court rejected the parties’ remaining submissions and dismissed the appeal.

While the Supreme Court of the United Kingdom did not expressly exclude the possibility that an English jury could determine the terms of a FRAND license, it seems that jury trials in civil cases in the UK are all but unavailable. See Mark Stephens, Arbitraging Between the U.K. and the U.S. Differences in the Legal Playing Field, 43 No. 2 LITIGATION 44 (2017) (“Jury trials in civil cases in the United Kingdom are for all intents and purposes extinct . . . .”); Antoinette Plogstedt, Citizen Judges in Japan: A Report Card for the Initial Three Years, 23 IND. INT’L & COMP. L. REV. 371, 374–75 (2013) (“In the United Kingdom (England and Wales), jury trials are now very rare and almost non-existent in civil cases.” (citing Neil Vidmar, A Historical and Comparative Perspective on the Common Law Jury in WORLD JURY SYSTEMS 1, 7 (Neil Vidmar ed., 2000))).

As a point of contrast to the UK decisions, the Federal Circuit in late 2019 decided TCL Communication Technology Holdings Ltd. v. Telefonaktiebolaget LM Ericsson, which also touched on issues related to global FRAND licenses of SEPs. TCL’s petition for certiorari was filed in May 2020 and is still pending.

Similar to the UK cases, at issue in TCL was “a portfolio of SEPs owned by Ericsson incorporated into 2G, 3G, and 4G [telecommunication] standards.” Also as in the UK cases, the relevant standard-setting organization was ETSI. Unlike the UK cases, however, the parties in TCL “agreed to engage in a binding court adjudication of terms for a worldwide portfolio license.” The district court conducted a bench trial and determined that the terms of such a license included “(1) a prospective FRAND royalty rate for practicing each standard, and (2) a ‘release payment’ computed based on a closely related, retrospective FRAND rate for ‘TCL’s past unlicensed sales.’ ”

The chief issue in the TCL appeal was “whether Ericsson had a Seventh Amendment right to a jury trial on the adjudication of the ‘release payment’ term.” The Federal Circuit concluded that “the release payment is in substance compensatory relief for TCL’s past patent infringing activity” and held that “Ericsson was entitled to a jury trial on the calculation of the release payment amount.”

The Federal Circuit vacated the district court’s release-payment determination and other aspects of its decision, including its determination of prospective FRAND royalty rates. The Court reasoned that those other determinations “were predicated on common issues to the improperly decided release payment.”