Which comes first - patent infringement or FRAND? "Patent infringement", says Birss J (Part I)
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It was a CMC earlier this month before Mr Justice Birss (who has, this week, been knighted) where the age old question of "which came first" was determined. Although not of the chicken-egg variety, the question in Vringo v ZTE (UK) Limited and ZTE Corporation [2013] EWCH 1591 was just as philosophical: Which comes first - a trial on patent infringement or a trial on FRAND issues? The answer is, of course, a trial on patent infringement.
Background
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Last year, Vringo commenced two patent infringement proceedings against ZTE(UK) Limited, who is involved in the manufacture of mobile phones primarily in Asia, for infringement of six patents (3 patents per case) relating to mobile phone and telecommunication systems which it says are SEPs. For SEPs to be declared SEPs by ETSI, the organization responsible for promulgating such standards, the patentee must be prepared to grant licences to them under FRAND terms, i.e. "fair, reasonable and non-discriminatory". Vringo is prepared to offer ZTE Corporation a global portfolio licence on the whole of its global SEP portfolio which it says is made on FRAND terms. Vringo addressed the FRAND offer to ZTE Corporation as, it argued, ZTE Corporation was the natural entity to be the licensee of the global licence and, similarly should be made a party to the proceedings in order to be bound by the court's determination.
The arguments
Cracking the egg of patent infringement, before the FRAND chicken can be hatched |
1. That the terms of its offer was an offer to licence its patents on FRAND terms and is therefore not obliged to offer to licence any of its SEPS on any other term.
2. In the alternative, it requested that the court declare that the terms of its offer complied with the Claimant's obligations to make a licence available to ZTE in respect of the patents in suit.
3. In the further alternative, Vringo requested that the court make a declaration as to what would constitute an offer to licence to the Defendants its patents on FRAND terms.
4. A declaration that in all the circumstances the Defendants had no entitlement to an individual licence to the patents in suit if they are found to be both valid and infringed by ZTE (UK) Limited.
With similar patent infringement proceedings and/or disputes commenced in Germany, France, Australia and the in the US (there against InterDigital), Vringo contended that it was the terms of the global offer that was the real dispute between the parties. If the court could determine the royalty to be paid by ZTE Corporation to Vringo for a global licence then the whole international dispute could vanish. The court should, therefore, address this first and order that the FRAND trial be heard first.
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Vringo also cited the dicta of Mr Justice Floyd (as he then was) in IPCom v Nokia [2009] EWHC 1017 where, when asked to order a trial of a preliminary issue to determine the FRAND licence terms in relation to IPCom's patent in suit, he stated that:
"...What is at stake between parties in portfolio patent litigation of this kind is usually the sum of money which will enable the grant of a worldwide licence under the entire portfolio. The preliminary issue seeks to get to the heart of that question, without the need to try the validity of 15 patents and the infringement of 3 of them, and a variety of ancillary defences."
Floyd J refused to order the preliminary issue hearing because the proceedings had already progressed sufficiently far to address validity and infringement of the patents on the merits. But, responded Vringo, the court still indicated that it was a good idea in principle had only it been raised earlier. Further, Mr Justice Kitchin (again, as he then was) in Philips v Alba did order that the issues of FRAND be tried prior to the merits of the patents in issue.
ZTE argued that structuring the case in that way would be a massive undertaking with hundreds of patents in issue in the portfolio, truckloads of evidence about the strength of the portfolio with a likely trial about the validity and infringement of the patents inside the FRAND trial and references to the Court of Justice on competition issues. The patent infringement trials should therefore come first.
With Vringo contending that the royalty due is $2.50 for smartphones, $1.50 for other handsets and 1.5% of the revenue on any infrastructure and ZTE contending that all of the six patents are invalid and/or infringed, the parties are far apart. The basis of that difference, held Birss J, was a fundamental disagreement about the validity and the relevance of the patents, i.e., "whether this portfolio has any value at all".
Continued in Part II here.