How to win FRANDs and influence people

In an eagerly-awaited decision[i], the UK Supreme Court has confirmed that owners of “standard essential” [ii] patents relating to the technology needed to implement telecoms industry standards, may insist on mobile phone makers entering into global licences rather than negotiating licences on a country-by-country basis.

The court may also settle the terms of such licences. For the SEP owner, the Supreme Court’s positive approach provides a welcome alternative to multi-jurisdictional proceedings dealing with each country separately. The decision is likely to reduce the ability of powerful licensees to indulge in “hold-out”, i.e. to delay licensing negotiations in order to put pressure on licensors. Mobile phone makers may argue, however, that the English court is exceeding its jurisdiction by attempting to impose a global solution based on the UK patent alone.

Global licensing is industry practice

Mobile phone makers need technology licences under telecoms industry standards in order to make products that can talk to other users and networks. Under agreements with the standard setting organisations (in this case the European Telecommunication Standards Institute, ETSI), owners of standard essential patents (SEPS) are obliged to license them on fair, reasonable and non-discriminatory (FRAND) terms, but exactly what constitutes FRAND in any particular case is often disputed. In practice, most such licences are global.

The court can settle FRAND terms

In its decision, on 26 August 2020, the UK Supreme Court confirmed that owners of SEPs (in this case Unwired Planet and Conversant Wireless Licensing) may apply to the English court for an injunction against phone makers (“implementers”) using the standard-essential technology in the UK if they are not willing to accept a FRAND licence. Furthermore, the court may itself set the terms of the licence if the parties cannot agree; in most cases this is likely to be a global licence under the SEP owner’s relevant global patent portfolio as this reflects industry practice. If the implementer does not wish to accept the terms of the licence set by the court then this is likely to result in an injunction preventing them from using the technology in the UK and forcing them to withdraw from the UK market as they will be unable to comply with the standard there.

UK patent v global licence

One of the key objections raised against the court’s approach is that the English court should only be entitled to settle the licence terms for the English patent: by settling the licence terms for the global portfolio on the basis of a dispute about the UK patent only it has, effectively, claimed global jurisdiction. However, the Supreme Court took the view that although the English court only had jurisdiction in relation to the validity and infringement of the English patents, the contractual arrangements in relation to FRAND put in place by ETSI enabled it to determine the terms of the licence of a portfolio of patents that included foreign patents. The idea of settling terms separately for each country was unrealistic in practice.

Aiding settlement

Given the large number of patents involved and the high stakes in terms of value, it is not surprising that licensing negotiations between the big players in the mobile telecoms sector can become long drawn out and can lead to complex and extensive multi-jurisdictional litigation. The ability to set global FRAND terms can be seen as a way of achieving a “one stop” solution in appropriate cases. It does not, of course, remove all the obstacles. Among other things, challenges may arise in multiple jurisdictions in relation to the validity or essentiality of some patents, which the licensee may argue should affect the royalty rate. The Supreme Court indicates that in such circumstances, rather than delaying the licence, the licensee should reserve the right to challenge relevant patents and to require that the royalties under the licence should be reduced if the challenge is successful. The implementer may feel, however, that their negotiating position in relation to such reductions in royalties may be compromised by the fact that the licence has already been entered into.