Court of Appeal reaffirms English Court as forum for SEP disputes
This morning, the Court of Appeal handed down its judgment in Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Ors [2019] EWCA Civ 38. As regular Kat readers will know, the appeal concerns the English court's jurisdiction to grant a global FRAND licence where UK sales only account for 1% or less of the sales on which royalties are claimed. The Kat's correspondents, Jane Mutimear and Richard Vary, send this report:
On 30 January 2019 the Court of Appeal handed down its judgment in Huawei and ZTE's appeal against Carr J's refusal to dismiss the case brought against them by Conversant on jurisdictional grounds. The Court of Appeal dismissed the appeal, with Lord Justice Floyd setting out the reasons with which Lord Justices Flaux and Patten agreed.
Background
Conversant sued both companies on patents it claims are standard essential, seeking injunctive relief and damages, together with a declaration that it had made FRAND offers or a determination of the FRAND terms. Huawei and ZTE challenged jurisdiction on two grounds: 1) that the case would raise validity and infringement of foreign patents which is not justiciable subject matter in the English Court and 2) that the Chinese court is the natural and appropriate forum so the Court should refuse permission to serve the Chinese entities out of the jurisdiction on forum non conveniens grounds. Following the CoA judgment in Unwired Planet v Huawei, the appellants accepted that the justiciability point was no longer arguable before the Court of Appeal, so the Court only had to deal with the forum non conveniens ground (which Huawei had not argued in Unwired Planet). The appellants also proposed that if the appeal failed on this point, questions should be referred to the ECJ. The judgment goes through the background of licensing in the SEP area, quoting from the Court of Appeal's judgment in Unwired Planet, and explained briefly the wider fight between the companies, which includes proceedings commenced in China by Huawei China and ZTE China against Conversant seeking to invalidate Conversant's Chinese patents and seeking a FRAND determination.
Jurisdiction over UK defendants
The Court addressed the position as against the two UK domiciled appellants, turning to the Brussels Recast Regulation Article 4, which provides that "persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State" and relied on the CJEU judgement in Owusu v Jackson [2005] for authority that the English court could not apply forum non conveniens to decline jurisdiction over a claim against a person domiciled in a contracting state on the ground that the natural forum for the claims was the courts of a non-contracting state. The question was whether this reasoning applied to cases involving Article 24 (giving Member States exclusive jurisdiction over proceedings involving registration or validity of patents). The Court concluded that it was a matter of discretion for the court whether to assume jurisdiction under Article 4 when the subject matter fell within Article 24 (relying on the judgment of Andrew Smith J in Ferrexpo v Gilson [2012]).
Service out of the jurisdiction on Chinese companies
Turning to service on the Chinese entities, there was no dispute that the first two hurdles were met: 1) the claim falls within a gateway (CPR 6 PDB) and 2) there is a serious issue to be tried. The dispute related to the third hurdle i.e. whether England and Wales is the proper forum to hear the case. The "case" for this analysis is not just what the Claimant has pleaded; the court must have regard to the totality of the dispute, including the likely defence and the case must be characterised in a way which does not pre-judge the appropriate forum.
The evidence before the judge at first instance had caused him to conclude that the Chinese courts did not have jurisdiction to determine essentiality or infringement of non-Chinese patents, nor did they have jurisdiction to determine FRAND rates without agreement from both parties. Conversant had not agreed to accept the Chinese court's jurisdiction for such determination and the judge had concluded that their refusal was reasonable. It was on this basis that the judge had concluded that China was not an alternative available forum.
The appellants sought to adduce new evidence before the Court of Appeal to introduce the Guangdong Court Guidelines, which had been issued 10 days after Carr J had handed down judgment, but before the order was sealed. These guidelines stated that where the territorial scope of the SEPs in question exceeded the territorial scope of the court and the other party did not object (or the objection was deemed unreasonable), the court could determine the royalty. The Appellants sought to rely on this as evidence that the Chinese court would now exercise jurisdiction to determine essentiality, infringement and FRAND for a global portfolio in circumstances where both parties consented and their expert claimed that if the facts were analogous to this case, the court would take the view that the refusal to agree was unreasonable. Conversant's expert disagreed and pointed out that there was no case law on the circumstances in which it would be "unreasonable" for one party to object. The Court of Appeal agreed with Conversant's expert. The Guidelines had been introduced for a trial period and it was speculative to interpret them in the way the appellants' expert was seeking to do.
In reaching its decision the Court of Appeal stated that it was clear that you could get different answers to the forum conveniens questions, depending on the level of generality at which the dispute is characterised. If you just look at the relief which would be granted in the English court, that would be too specific. But if you ended up making the claimant pursue a claim on a different property right with different underlying facts in the foreign forum, that meant it had been defined too broadly. Conversant's claim was closely analogous to the claim advanced in Unwired Planet and accepted by the Court – (i) the UK patents are essential to the standard; (ii) that the claimant has complied with its ETSI undertaking in making FRAND offers; (iii) that the defendants have not so complied without any reasonable ground for so doing; and (iv) that it is entitled to enforce its UK SEPs and obtain the usual relief for infringement, including a FRAND injunction and damages, and a determination of the FRAND terms. If Conversant were made to seek a remedy in China, they would have to advance their case based on different patents, relying on different facts. Floyd LJ pointed out that that it was not legitimate to characterise the claim as one for the enforcement of a global portfolio right, as no such right exists. It is a dispute involving determination of infringement, validity and essentiality of UK patents. The FRAND element is embedded in the determination of whether Conversant is entitled to the relief for infringement of their UK SEPs. The FRAND element cannot be considered separately for the purpose of the forum conveniens analysis.
Relevance of the new evidence
Although the new evidence in relation to the Chinese Court Guidelines would be admissible under the first Ladd v Marshall test (couldn't have been submitted at first instance trial) it did not meet the second criteria of having an influence on the outcome of the case. There was no guidance on how the court would apply the test of when refusal by one party was reasonable, and even Huawei's letter to the Supreme Court in relation to its petition to that Court for leave to appeal in Unwired Planet stated "[T]here is no decided case in which the Chinese courts have gone further, as the English courts did in these proceedings, by conducting a global royalty-setting exercise without the consent of the parties and then imposing the result thereof as a condition of avoiding a territorial injunction."
Rejecting reference to CJEU
Finally the Court refused the CJEU reference on the basis that first, the Court of Appeal in Unwired Planet was able to reach a decision on justiciability without a reference. Secondly, Huawei had never suggested that a reference was necessary in that case, and now accepts that the Unwired CoA decision precludes any justiciability argument before the Court of Appeal in this case. Thirdly, despite a lengthy draft produced by Huawei's counsel, Floyd LJ was not persuaded that there is any lack of clarity in the relevant EU law.
On 30 January 2019 the Court of Appeal handed down its judgment in Huawei and ZTE's appeal against Carr J's refusal to dismiss the case brought against them by Conversant on jurisdictional grounds. The Court of Appeal dismissed the appeal, with Lord Justice Floyd setting out the reasons with which Lord Justices Flaux and Patten agreed.
A Kat, eagerly awaiting the CoA's judgment earlier today
Background
Conversant sued both companies on patents it claims are standard essential, seeking injunctive relief and damages, together with a declaration that it had made FRAND offers or a determination of the FRAND terms. Huawei and ZTE challenged jurisdiction on two grounds: 1) that the case would raise validity and infringement of foreign patents which is not justiciable subject matter in the English Court and 2) that the Chinese court is the natural and appropriate forum so the Court should refuse permission to serve the Chinese entities out of the jurisdiction on forum non conveniens grounds. Following the CoA judgment in Unwired Planet v Huawei, the appellants accepted that the justiciability point was no longer arguable before the Court of Appeal, so the Court only had to deal with the forum non conveniens ground (which Huawei had not argued in Unwired Planet). The appellants also proposed that if the appeal failed on this point, questions should be referred to the ECJ. The judgment goes through the background of licensing in the SEP area, quoting from the Court of Appeal's judgment in Unwired Planet, and explained briefly the wider fight between the companies, which includes proceedings commenced in China by Huawei China and ZTE China against Conversant seeking to invalidate Conversant's Chinese patents and seeking a FRAND determination.
Jurisdiction over UK defendants
The Court addressed the position as against the two UK domiciled appellants, turning to the Brussels Recast Regulation Article 4, which provides that "persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State" and relied on the CJEU judgement in Owusu v Jackson [2005] for authority that the English court could not apply forum non conveniens to decline jurisdiction over a claim against a person domiciled in a contracting state on the ground that the natural forum for the claims was the courts of a non-contracting state. The question was whether this reasoning applied to cases involving Article 24 (giving Member States exclusive jurisdiction over proceedings involving registration or validity of patents). The Court concluded that it was a matter of discretion for the court whether to assume jurisdiction under Article 4 when the subject matter fell within Article 24 (relying on the judgment of Andrew Smith J in Ferrexpo v Gilson [2012]).
Service out of the jurisdiction on Chinese companies
Turning to service on the Chinese entities, there was no dispute that the first two hurdles were met: 1) the claim falls within a gateway (CPR 6 PDB) and 2) there is a serious issue to be tried. The dispute related to the third hurdle i.e. whether England and Wales is the proper forum to hear the case. The "case" for this analysis is not just what the Claimant has pleaded; the court must have regard to the totality of the dispute, including the likely defence and the case must be characterised in a way which does not pre-judge the appropriate forum.
The evidence before the judge at first instance had caused him to conclude that the Chinese courts did not have jurisdiction to determine essentiality or infringement of non-Chinese patents, nor did they have jurisdiction to determine FRAND rates without agreement from both parties. Conversant had not agreed to accept the Chinese court's jurisdiction for such determination and the judge had concluded that their refusal was reasonable. It was on this basis that the judge had concluded that China was not an alternative available forum.
The appellants sought to adduce new evidence before the Court of Appeal to introduce the Guangdong Court Guidelines, which had been issued 10 days after Carr J had handed down judgment, but before the order was sealed. These guidelines stated that where the territorial scope of the SEPs in question exceeded the territorial scope of the court and the other party did not object (or the objection was deemed unreasonable), the court could determine the royalty. The Appellants sought to rely on this as evidence that the Chinese court would now exercise jurisdiction to determine essentiality, infringement and FRAND for a global portfolio in circumstances where both parties consented and their expert claimed that if the facts were analogous to this case, the court would take the view that the refusal to agree was unreasonable. Conversant's expert disagreed and pointed out that there was no case law on the circumstances in which it would be "unreasonable" for one party to object. The Court of Appeal agreed with Conversant's expert. The Guidelines had been introduced for a trial period and it was speculative to interpret them in the way the appellants' expert was seeking to do.
In reaching its decision the Court of Appeal stated that it was clear that you could get different answers to the forum conveniens questions, depending on the level of generality at which the dispute is characterised. If you just look at the relief which would be granted in the English court, that would be too specific. But if you ended up making the claimant pursue a claim on a different property right with different underlying facts in the foreign forum, that meant it had been defined too broadly. Conversant's claim was closely analogous to the claim advanced in Unwired Planet and accepted by the Court – (i) the UK patents are essential to the standard; (ii) that the claimant has complied with its ETSI undertaking in making FRAND offers; (iii) that the defendants have not so complied without any reasonable ground for so doing; and (iv) that it is entitled to enforce its UK SEPs and obtain the usual relief for infringement, including a FRAND injunction and damages, and a determination of the FRAND terms. If Conversant were made to seek a remedy in China, they would have to advance their case based on different patents, relying on different facts. Floyd LJ pointed out that that it was not legitimate to characterise the claim as one for the enforcement of a global portfolio right, as no such right exists. It is a dispute involving determination of infringement, validity and essentiality of UK patents. The FRAND element is embedded in the determination of whether Conversant is entitled to the relief for infringement of their UK SEPs. The FRAND element cannot be considered separately for the purpose of the forum conveniens analysis.
Relevance of the new evidence
Although the new evidence in relation to the Chinese Court Guidelines would be admissible under the first Ladd v Marshall test (couldn't have been submitted at first instance trial) it did not meet the second criteria of having an influence on the outcome of the case. There was no guidance on how the court would apply the test of when refusal by one party was reasonable, and even Huawei's letter to the Supreme Court in relation to its petition to that Court for leave to appeal in Unwired Planet stated "[T]here is no decided case in which the Chinese courts have gone further, as the English courts did in these proceedings, by conducting a global royalty-setting exercise without the consent of the parties and then imposing the result thereof as a condition of avoiding a territorial injunction."
Rejecting reference to CJEU
Finally the Court refused the CJEU reference on the basis that first, the Court of Appeal in Unwired Planet was able to reach a decision on justiciability without a reference. Secondly, Huawei had never suggested that a reference was necessary in that case, and now accepts that the Unwired CoA decision precludes any justiciability argument before the Court of Appeal in this case. Thirdly, despite a lengthy draft produced by Huawei's counsel, Floyd LJ was not persuaded that there is any lack of clarity in the relevant EU law.
