Poor reception for jurisdiction challenge to global FRAND licence relief
Does the English Court have jurisdiction to grant relief in the form of a global FRAND licence in relation to a claim for infringement of UK patents, where UK sales account for only 1% or less of worldwide sales on which royalties are claimed? This was the subject of the decision of Carr J. in the Patents Court on Monday in Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Ors [2018] EWHC 808 (Pat). The answer - on the facts of this case as explained below - was "yes".
Background
Conversant claimed to have made a number of offers for a global FRAND licence to the Defendants Huawei and ZTE (who manufacture and sell mobile devices worldwide) in relation to Conversant's patents declared essential to various ETSI standards. Conversant alleged that no meaningful progress had been made with Huawei or ZTE in discussions over several years, who it said continued to infringe without taking a licence. Huawei and ZTE disputed that Conversant had any valid SEP - maintaining that the patents were not essential or invalid. Conversant commenced proceedings in July 2017, claiming that the Defendants were infringing 4 EP(UK) patents, and sought a determination of FRAND terms for its global SEP portfolio. Conversant's global portfolio of patents includes SEPS in over 40 countries.
Huawei and ZTE have commenced proceedings in China seeking to establish invalidity and non-infringement of Conversant's Chinese patents, with decisions on validity and infringement expected by mid 2019. In relation to Huawei, China accounts for 56% of its worldwide sales, and Conversant relies on its Chinese patents to claim royalties on a further share (19%) for sales in countries where it has no patents, since China is the place of manufacture of the alleged infringements. The UK accounts for only 1% of worldwide sales on which royalties are claimed. For ZTE, 60% of operating revenue was from China in the first 6 months of 2017, whereas only 0.07% of ZTE's turnover was generated in the UK. The Defendants' jurisdiction challenge was premised on the "China-centric" nature of their businesses and can be summarised as follows:
1. The English Court has no jurisdiction to decide these claims which are, in substance and effect, claims for infringement of foreign patents, the validity of which is in dispute.
2. Alternatively, the Court should decline to exercise jurisdiction to decide the claims, because England is not the proper or appropriate forum - China is the natural forum.
Justiciability
It was common ground that Art 24(4) (validity of IP rights) and 27 (court first seised) of the Recast Brussels Regulation would require the English Court to declare of its own motion that it had no jurisdiction to adjudicate upon cases concerning the validity of (non-UK) European patents. The Court also assumed that the English Court had no jurisdiction to adjudicate upon cases in which the dispute concerned validity of non-European patents. The Defendants however maintained that Conversant's claims are in substance claims for infringement of foreign patents - which therefore depend on the validity of foreign patents, which the English Court has no jurisdiction over.
Although Huawei did not formally challenge jurisdiction in Unwired Planet [2017] EWHC 711 (Pat), it did rely upon some jurisdictional arguments to support its argument that a global licence was not FRAND, including that a worldwide FRAND determination in the English Court would undermine existing infringement and validity proceedings in Germany. Carr J. referred to the "simple" and "compelling" analysis of the judge in that case, where it was held that the Brussels Regulation and CJEU case law has nothing to do with what the terms of a FRAND licence should be.
"If a worldwide licence is FRAND then requiring Huawei to take and pay for one would not amount to determining questions of validity in relation to which courts of other Member States have exclusive jurisdiction under Art 22(4) [now 24(4)]. Taking Huawei’s example of the on-going German proceedings, the German courts would remain free to determine the relevant patents’ validity. A FRAND licence should not prevent a licensee from challenging validity or essentiality of licensed patents and should have provisions dealing with sales in non-patent countries. So if the German courts decide all the relevant patents are invalid (or not essential), that would simply result in whatever consequences the worldwide licence provided for. Since the licence is a FRAND licence those consequences are FRAND too. The binding nature and clarity of Art 22(4) are not thereby undermined and, most importantly, there is no risk of the decisions in England and Germany conflicting." (para 567 of Unwired Planet)
Applying that reasoning to the present case, there was nothing to prevent Huawei and ZTE continuing with their validity challenges in China. The English Court could take the decisions of the Chinese Courts into account in setting the global FRAND licence terms, and further, the English non-technical trial was not scheduled until 2020, after the Chinese trials would be concluded. Any licence would contain a mechanism for dealing with patents held to be invalid after the licence had been settled - the effect would be lower royalty rates.
Other
There were also issues regarding the purported service of the Defendants' Chinese entities in England (service was invalid - see paragraphs 76 to 97)), and applications for service out of the jurisdiction (permission to serve out was granted and an alternative method of service was agreed - see paragraphs 98 to 116).
Finally, a footnote - Birss J's FRAND judgment in Unwired Planet is the subject of a 6-day appeal due to be heard in May 2018. The IPKat will keep you updated.
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Background
Conversant claimed to have made a number of offers for a global FRAND licence to the Defendants Huawei and ZTE (who manufacture and sell mobile devices worldwide) in relation to Conversant's patents declared essential to various ETSI standards. Conversant alleged that no meaningful progress had been made with Huawei or ZTE in discussions over several years, who it said continued to infringe without taking a licence. Huawei and ZTE disputed that Conversant had any valid SEP - maintaining that the patents were not essential or invalid. Conversant commenced proceedings in July 2017, claiming that the Defendants were infringing 4 EP(UK) patents, and sought a determination of FRAND terms for its global SEP portfolio. Conversant's global portfolio of patents includes SEPS in over 40 countries.
Huawei and ZTE have commenced proceedings in China seeking to establish invalidity and non-infringement of Conversant's Chinese patents, with decisions on validity and infringement expected by mid 2019. In relation to Huawei, China accounts for 56% of its worldwide sales, and Conversant relies on its Chinese patents to claim royalties on a further share (19%) for sales in countries where it has no patents, since China is the place of manufacture of the alleged infringements. The UK accounts for only 1% of worldwide sales on which royalties are claimed. For ZTE, 60% of operating revenue was from China in the first 6 months of 2017, whereas only 0.07% of ZTE's turnover was generated in the UK. The Defendants' jurisdiction challenge was premised on the "China-centric" nature of their businesses and can be summarised as follows:
1. The English Court has no jurisdiction to decide these claims which are, in substance and effect, claims for infringement of foreign patents, the validity of which is in dispute.
2. Alternatively, the Court should decline to exercise jurisdiction to decide the claims, because England is not the proper or appropriate forum - China is the natural forum.
Justiciability
It was common ground that Art 24(4) (validity of IP rights) and 27 (court first seised) of the Recast Brussels Regulation would require the English Court to declare of its own motion that it had no jurisdiction to adjudicate upon cases concerning the validity of (non-UK) European patents. The Court also assumed that the English Court had no jurisdiction to adjudicate upon cases in which the dispute concerned validity of non-European patents. The Defendants however maintained that Conversant's claims are in substance claims for infringement of foreign patents - which therefore depend on the validity of foreign patents, which the English Court has no jurisdiction over.
Although Huawei did not formally challenge jurisdiction in Unwired Planet [2017] EWHC 711 (Pat), it did rely upon some jurisdictional arguments to support its argument that a global licence was not FRAND, including that a worldwide FRAND determination in the English Court would undermine existing infringement and validity proceedings in Germany. Carr J. referred to the "simple" and "compelling" analysis of the judge in that case, where it was held that the Brussels Regulation and CJEU case law has nothing to do with what the terms of a FRAND licence should be.
"If a worldwide licence is FRAND then requiring Huawei to take and pay for one would not amount to determining questions of validity in relation to which courts of other Member States have exclusive jurisdiction under Art 22(4) [now 24(4)]. Taking Huawei’s example of the on-going German proceedings, the German courts would remain free to determine the relevant patents’ validity. A FRAND licence should not prevent a licensee from challenging validity or essentiality of licensed patents and should have provisions dealing with sales in non-patent countries. So if the German courts decide all the relevant patents are invalid (or not essential), that would simply result in whatever consequences the worldwide licence provided for. Since the licence is a FRAND licence those consequences are FRAND too. The binding nature and clarity of Art 22(4) are not thereby undermined and, most importantly, there is no risk of the decisions in England and Germany conflicting." (para 567 of Unwired Planet)
Applying that reasoning to the present case, there was nothing to prevent Huawei and ZTE continuing with their validity challenges in China. The English Court could take the decisions of the Chinese Courts into account in setting the global FRAND licence terms, and further, the English non-technical trial was not scheduled until 2020, after the Chinese trials would be concluded. Any licence would contain a mechanism for dealing with patents held to be invalid after the licence had been settled - the effect would be lower royalty rates.
The Court noted that there were other fundamental objections to the Defendants' jurisdiction challenge - they argued that the entire claim was not justiciable, whereas the claims for infringement of UK patents were properly justiciable in the English Courts. Further, the judge recognised the commercial importance in having a forum whereby a global FRAND licence could be determined.
Forum Conveniens
Forum Conveniens
The Defendants also contended that the most appropriate forum for the dispute was China. The Court referred to the basic principle in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 that "a stay will only be granted on the ground of forum non conveniens when the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice."
The Defendants submitted that the primary commercial driver for Conversant bringing the proceedings in the UK was to obtain a declaration for a global FRAND licence, and that the UK patents were merely a convenient hook upon which to hang the enforcement of a global FRAND licence. They also offered to have a global FRAND rate determined in China.
On the other hand, the CJEU in Owusu v Jackson [2005] QB 801 held that an English Court could not apply the doctrine of forum non conveniens to decline jurisdiction over a claim against a European domiciliary on the ground that the natural forum for the claims was outside Europe (albeit the CJEU in that case did not state whether this doctrine applied in cases concerned with the subject matter of Art 24). The Claimant pointed out that the claim regarding the UK patents would therefore remain in the UK and result in bifurcated proceedings. Further, there was significant doubt that the Chinese Courts would have jurisdiction to decide the terms of a global FRAND licence and/or infringement of non-Chinese patents.
The Court came firmly down on the side of the Claimant. A key factor in the Court's reasoning seems to have been that the Chinese Courts did not have jurisdiction to grant a global FRAND licence. The Claimant's expert stated that the Chinese Courts cannot take action unless empowered to do so by an explicit provision, and there is no provision enabling the Chinese Courts to make a finding as to FRAND on a global basis. Following a review of expert evidence on both sides, the judge concluded that "China is not an alternative available forum in which infringement of the UK patents can be determined, nor in which the terms of a global FRAND licence can be set". Further, the claims were properly characterised as claims for infringement of four UK patents, notwithstanding that the object of the proceedings was either a global FRAND licence or FRAND injunction. The global FRAND licence sought by Conversant sets different royalty rates for different territories "and it makes no difference where the bulk of sales occur".
So overall, a resounding defeat for the Defendants in their jurisdiction challenge. If Conversant were able to establish jurisdiction in these proceedings against ZTE with 0.07% of turnover in the UK, it is difficult to conceive of many scenarios where jurisdiction would be refused - provided of course you have a UK patent in play.
The Defendants submitted that the primary commercial driver for Conversant bringing the proceedings in the UK was to obtain a declaration for a global FRAND licence, and that the UK patents were merely a convenient hook upon which to hang the enforcement of a global FRAND licence. They also offered to have a global FRAND rate determined in China.
On the other hand, the CJEU in Owusu v Jackson [2005] QB 801 held that an English Court could not apply the doctrine of forum non conveniens to decline jurisdiction over a claim against a European domiciliary on the ground that the natural forum for the claims was outside Europe (albeit the CJEU in that case did not state whether this doctrine applied in cases concerned with the subject matter of Art 24). The Claimant pointed out that the claim regarding the UK patents would therefore remain in the UK and result in bifurcated proceedings. Further, there was significant doubt that the Chinese Courts would have jurisdiction to decide the terms of a global FRAND licence and/or infringement of non-Chinese patents.
The Court came firmly down on the side of the Claimant. A key factor in the Court's reasoning seems to have been that the Chinese Courts did not have jurisdiction to grant a global FRAND licence. The Claimant's expert stated that the Chinese Courts cannot take action unless empowered to do so by an explicit provision, and there is no provision enabling the Chinese Courts to make a finding as to FRAND on a global basis. Following a review of expert evidence on both sides, the judge concluded that "China is not an alternative available forum in which infringement of the UK patents can be determined, nor in which the terms of a global FRAND licence can be set". Further, the claims were properly characterised as claims for infringement of four UK patents, notwithstanding that the object of the proceedings was either a global FRAND licence or FRAND injunction. The global FRAND licence sought by Conversant sets different royalty rates for different territories "and it makes no difference where the bulk of sales occur".
So overall, a resounding defeat for the Defendants in their jurisdiction challenge. If Conversant were able to establish jurisdiction in these proceedings against ZTE with 0.07% of turnover in the UK, it is difficult to conceive of many scenarios where jurisdiction would be refused - provided of course you have a UK patent in play.
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Other
There were also issues regarding the purported service of the Defendants' Chinese entities in England (service was invalid - see paragraphs 76 to 97)), and applications for service out of the jurisdiction (permission to serve out was granted and an alternative method of service was agreed - see paragraphs 98 to 116).
Finally, a footnote - Birss J's FRAND judgment in Unwired Planet is the subject of a 6-day appeal due to be heard in May 2018. The IPKat will keep you updated.
