The Supreme Court has held that the English courts do have jurisdiction to determine the FRAND terms of a global license to standard essential patents (SEPs).
Tell us more about Standard Essential Patents. What does this ruling mean for SEP holders?
The Supreme Court of England and Wales and lower Courts before, have done their best to issue a multifaceted and rich judgment. But there may be a couple of issues with this judgment. For me, this judgment once more emphasizes the need to come to grips with the novel market dynamics presented by international economic integration. The borderless world is a business reality, but the law has yet to catch up with it.
The standards, which this ruling addresses, are core to the telecom industry. 3G, 4G/LTE but also WiFi (which this judgment does not address) have paved the way for real time interaction across the globe. Where the further evolution of such standards will take us, remains yet to be seen. For sure, 5G will be instrumental for next generation technologies such as the Internet of Things.
Patents that read on standards, also called standard essential patents, are subject to the FRAND commitment. This is because they can be prone to anticompetitive behavior. FRAND stands for ‘fair, reasonable and non-discriminatory.’ In the case at hand, the IPR policy of ETSI, the European Telecommunications Standards Institute played an important role. This policy seeks to set out how patents that read on ETSI standards are to be treated.
In this case, the Court adequately recognized the commercial tensions that prevail in this sector. As such, the Court argued that FRAND is a balancing mechanism. On the one hand side adequate access to standards need to be assured, on the other hand side patented inventions should also be incentivized. Royalty stacking was also recognized as a key aspect of FRAND. Royalty stacking can be described as the risk of a cumulative royalty payment a downstream innovator may be faced with. This is explained by the fact that there are many different patent owners who claim their stake on a standard.
I tend to think that the ruling will attract litigation into the U.K. This will be good news for the local litigation industry, but may have adverse effects on the larger economy. In the difficult times we currently face, the UK needs to assure it does its best for its consumers, its start-ups and scale ups, SMEs and local industry. The UK also cannot neglect its international trade position.
What are the repercussions for the licensing of intellectual property in the telecoms sector?
This sector has experienced a lot of litigation over standard essential patents. The press has labelled these disputes as ‘patent wars.’ For both the licensor and the licensee, the commercial stakes are significant. After all, these standards formed the baseline of a novel way of doing business around the world. It comes hence as no surprise that Court awarded damages have been significant.
How will this jurisdiction affect consumers?
Consumers in the UK may be faced with less choice. This is because technology companies may be carefully considering whether to expose their global licensing requirements to the scrutiny of the UK.
What would have been the implications if the decision went the other way?
The decision rightly points to a host of unresolved issues. It points out how highly complex today’s international business relations are. Had the British Courts decided that they can only issue a national licensing rate, existing market practice of pursuing legal disputes in a couple of key jurisdictions would have continued.
How will the decision impact implementors?
Downstream innovators need to be able to adequately access standards. Patents should not be an obstacle. The decision shifts the burden of proof and this is very expensive. Also, the decision sanctions a global FRAND licensing rate with an injunction in the U.K. Downstream innovators may carefully weigh risks and benefits against each other.
How will the ruling help turn the UK into a global hub for patent litigation?
That the UK is in a position to issue global FRAND rates, is an important value proposition for a patentee. It appears that this will now not be necessary as the UK is in a position to issue global FRAND rates. If and to what extent other countries will accept this remains to be seen.
Do you think technology companies will be prompted to reconsider their market position in the U.K?
This may be a possibility. In TQ Delta vs Zyxel, the defendant declared it would rather accept an injunction and exit the UK market than accept a global FRAND rate set by the English Court. (See: TQ Delta vs Zyxel. Case No: HP-2017-000045. http://www.bailii.org/ew/cases/EWHC/Ch/2019/562.html, Skeleton Argument on behalf of Zyxel. Claim Numbers: HP-2017-000045 and HP-2019-000009, p. 11 as well as hearing on April 17 2019, p. 97-99 and hearing on March 18, p. 51- 52)
How will this affect negotiations over Brexit?
There are 25 European countries that are trying to set up a Common Court for cross border patent enforcement, called the UPC (Unified Patent Court). The UK left UPC in July 2020. If and to what extent the UK will need to find its own governance structures once it has rejected the acquis communautaire remains to be seen. I foresee here a potential for conflict. I await with interest the further evolution on this topic.
Do you see more FRAND litigation on the horizon?
I do not expect this sector to come to peace any time soon. The commercial stakes are important and the sector is traditionally very litigious. Unless the underlying business SEPs protect diminishes significantly, I see no end in sight to the disputes over standard essential patents.