Global ‘FRAND’liness (license) over a standardized technology: is it a reality?

The German court (Mannheim) recently allowed an injunction in favor of Nokia to prevent Daimler from the unauthorized use of their SEP in Germany. The decision (briefed here), powerful enough to change the conventional licensing arrangement between the SEP holders and the implementers, has come as a blow for the automakers in these heavy economic downs, who are already striving to transform the global car trend with the sale of the e-connected cars. Nevertheless, Daimler would now feel slightly better after knowing that the injunctions imposed do not have any extra-territorial effects unlike the recent UK Supreme court’s decision on August 26, 2020, in the case of Unwired Planet (UP) v Huawei started in 2014.

The above-referred case is a potentially landmark decision in SEP licensing with global implications. In simple words, the Unwired Planet, an SEP holder wanted Huawei, an implementer, to obtain from them, a global license to use the SEP whereas Huawei was interested only in obtaining a license on the basis of the use of the SEP limited to UK.

The incoherent views originated because the European Telecommunication Standard Institute (ETSI), a Standard Setting Organization (SSO) for the telecommunication technology in Europe, has an IPR policy to allow the SEP holder (like Unwired Planet) and the implementer (like Huawei) to license an SEP on FRAND (Fair, Reasonable and Non-Discriminatory) terms. The ETSI’s IP policy under clause 6.1 requires that the SEP holder should license their technology on FRAND basis and consequently, the clause 6.2 gives an international effect to FRAND licensing. The objective behind these clauses is to maintain a balance between the interest of the SEP holder and an implementer, and it tries to reduce the probability of possible holdouts and holdups.

Th excerpts of the ETSI IP policy are as follows:

“an undertaking pursuant to clause 6.1 with regard to a specified member of a patent family shall apply to all existing and future essential IPRs of that patent family unless there is an explicit written exclusion of specified IPRs at the time the undertaking is made. The extent of any such exclusion shall be limited to those explicitly specified IPRs.”

The questions on how to interpret the SEP licensing agreements in view of the FRAND obligations and what are the necessary steps on FRAND licensing negotiations have been addressed by the European courts in past as in the CJEU’s decision on the orange book case and Huawei v ZTE. However, the present case is of peculiar importance, as understandable from the title of the post itself, for answering whether:

1. A court in one jurisdiction is empowered to set a FRAND licensing rate for global market; and
2. Whether it can even grant injunctions in its country (UK) for failing to practice the global FRAND license.

The UK Supreme Court addressed other issues as well in the hearing; however, the present post is more focused on the aforesaid issues.

The court decided the first issue in the affirmative. The reasoning behind the decision was that the contractual agreement on FRAND signed by the ETSI empowers the court to decide the global FRAND licensing rate. The court clarified however that the validity and infringement actions relating to the SEP is a matter of territorial jurisdiction.

In respect of the second issue, the court clarified that if both the licensor and the licensee wish to act willingly and reasonably, as per the requirement of SEP negotiation, then deciding the licensing rate for each country would be ‘madness’. Therefore, only a global license would be FRAND.

Further, Huawei also argued that the global FRAND licensing rate offered by Unwired Planet is `Non-Discriminatory’ in view of the global licensing rate offered by them to Samsung. The court rejected Huawei’s submission and stated as follows – ‘competition law does not seek to prohibit different prices being charged to different customers’.

Huawei’s final contention was based on Unwired planet’s step to file a pre-mature injunction action in UK claiming an abuse of dominant position in light of the article 102 TFEU and the CJEU’s “Huawei Vs ZTE” decision. The court decided that the steps on SEP licensing given in the quoted case allow the court to take into consideration actual circumstances of the case to decide the conduct as abusive. Accordingly, the conduct of UP in the present case was not found to be abusive per se.

Hence, the court ordered an injunction against Huawei and allowed the use of the SEP by Huawei only if the offer of global FRAND licensing rate is accepted.

In light of the decision favoring the SEP holder, UK jurisdiction is now being predicted as one of the home grounds for SEP holders to bring about cases relating to SEP infringement against the implementers. The far-sighted nature of the decision ordering the global SEP license rates as FRAND appears consistent with the approach of the German courts.

Nevertheless, some questions that can be answered here are as follows:
a. Has any court previously gave a similar decision holding the global SEP license as FRAND’?
Yes, in 2008, the German courts were of the similar opinion. Hence, this decision may not be considered as surprising in Germany.
b. Would this decision give the UK a better forum for deciding the SEP issue?
Yes, the UK courts would mostly become a preferred jurisdiction for SEP holders seeking to impose a global FRAND license rate on implementers.
c. What can an implementer do to avoid paying the global FRAND rate?
This may sound practically poor but if the UK is not a place of high business for implementers, they can avoid their operation in the UK altogether to avoid the global FRAND licensing rate.
d. Can this approach of the UK court influence other courts to take a similar step?
Yes, the chances are very high. As mentioned earlier, German courts might take a similar approach to decide such cases in the future. However, the mode of calculating the FRAND licensing rate might not be influenced.
e. What about the validity of the national patents in the SEP holder’s portfolio?
Patents are always territorially restricted. Therefore, the validity of a patent could always fall under the jurisdiction of local courts. The present case has no effect on the validity of the national patents and it can he challenged before the national courts.

There are some other influential SEP cases decided in the last few weeks in Germany, we will come up with them soon.
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About Krishnam Goyal 19 Articles
Krishnam is an LL.M. student at Munich Intellectual Property Law Center (MIPLC), Germany. He is an engineer, advocate and a patent agent in India. He holds around three years of working experience in the field of patent drafting and prosecution in the fields of ICT, electronics, computer-implemented inventions, mechanical engineering and green technology. The area of research that interests him is patenting of AI, SEPs, Green technology and climate change issues

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