What is the impact of the recent UK Supreme court Unwired Planet judgement? What is the current status of the component level licensing debate in Europe? How do courts currently construe the non-discriminatory prong of the FRAND undertaking and what is the role of such element from an economic perspective?
These are some of the topics discussed in a recent online seminar held by Bocconi University, in the framework of their LL.M. in Law of Internet Technology, and introduced by Professor Laurent Manderieux. The high-profile panelists included Pat Treacy, Partner at Bristows and Deputy Judge at the High Court of England and Wales, Christian Donle, Partner at Preu Bohlig, and Kai-Uwe Kühn, Professor at the Centre for Competition Policy, University of East Anglia, and former Chief Economist of DG Competition of the European Commission.
The panel was moderated by Vittorio Cerulli Irelli, Partner at Trevisan & Cuonzo, who led the conversation on the various topics and started the discussion by addressing with Pat Treacy the impact on the standard essential patent (SEP) licensing environment of the recent UK Supreme Court Unwired Planet judgment ( UKSC 37), which confirmed that the English courts have jurisdiction and may properly exercise the power to (a) grant an injunction restraining the infringement of a UK standard essential patent (SEP) unless the defendant enters into a global licence on FRAND terms of a multinational patent portfolio of SEPs and (b) determine royalty rates and other disputed items for such global licence of the SEP portfolio and declare that such terms are FRAND.
The discussion noted that the jurisdictional basis identified by the UK Supreme Court rests on the contractual arrangement of the SEP holder with ETSI (“it is the contractual arrangement which ETSI has created in its IPR Policy which gives the court jurisdiction to determine a FRAND licence” – Paragraph 58). As was noted, this may support standalone FRAND declaratory actions, at least on the part of those that are intended to benefit from the contractual arrangement of the SEP holder with ETSI, and at least to the extent of seeking a useful declaration as to FRAND terms in a particular commercial context (for further details, see also here).
This jurisdictional basis also potentially exacerbates the risk of overlapping proceedings and jurisdictional gaming, as we are already seeing with the mounting wave of anti-suit and anti-anti-suit injunctions across the globe (for an overview of recent major cases, see here and here). Also, it is likely that we will soon experience an increase of races to the court even within the jurisdictions of the Brussels (or, after Brexit, the Lugano) system, as it is to be expected that parties wishing to avoid the FRAND setting jurisdiction of the UK courts might seek declaratory FRAND declarations before other jurisdictions within the Brussels (or Lugano) system with the aim of preempting and requesting the stay of the subsequent UK proceedings.
As noted by Vittorio Cerulli Irelli, initial indications of the possibilities for challenges under Article 29 and 30 of the Brussels Regulation (recast) have been popping up in recent years, the most recent being the judgment of Mr. Justice Mann in Philips v. TCL (see here) and the only stay so far being the one granted by the Irish High Court in Vodafone v IV ( IEHC 160), with a reasoning that interestingly mirrors the one given in obiter by Mr Justice Briss in IPCom v Vodafone ( EWHC 1255: “The argument that the issues were related seemed to me to be a strong one. […] The point is that, in essence, the FRAND obligation operates as an international contract enforceable by any relevant implementer — let us say, Vodafone — against the party giving the undertaking. Part of the problem is that the contract has no choice-of-forum clause, so it is at least possible for closely related actions to arise in different courts around the world. After all, the FRAND obligation itself is entirely international. There is, therefore, an obvious potential risk of irreconcilable decisions”).
The relevance of such issues will only increase after the UK Supreme Court decision in Unwired Planet and this should further advise the parties wishing to secure a favourable FRAND jurisdiction to act pre-emptively, including within Europe.
The discussion then moved to the major issue of whether the FRAND undertaking generates an obligation for SEP holders to licence their portfolio upstream, to component manufacturers. Christian Donle provided an overview of the current litigation landscape in Germany, where the issue of component level licensing is currently being debated before the infringement and antitrust courts (with the Mannheim and Munich courts having excluded such a duty and the Düsseldorf court soon to decide whether the issue should be referred to the CJEU).
Kai-Uwe Kühn also joined the discussion, assessing possible theories of competitive harm in the context of refusals to licence at component level under Article 102 TFUE, with a particular focus on the potential for exploitative abuses, in particular when the refusal to licence upstream is shown to generate excessive returns for the SEP holder – with a related risk of a reduction of innovation incentives for the companies operating in the affected value chain – and to increase transaction costs.
The discussion then moved to the last topic addressed in the seminar, regarding the relevance of non-discrimination in a FRAND setting, in particular from an economic perspective. The debate with Kai-Uwe Kühn revolved around the recent case law decisions dealing with the interpretation of the contractual FRAND obligation that excluded a “hard edge” approach to non-discrimination (i.e. similar situations must be treated alike and different situations differently, with the practical consequence that a SEP owner would be required to grant licence terms equivalent to the most favourable licence terms to all similarly situated licensees) in favour of a “general” non-discrimination obligation (where the non-discrimination element is to be read as part of a single, unitary obligation to licence on terms which are “fair, reasonable and non-discriminatory”, and to comply with that obligation, the licensor would simply be required to offer a royalty rate set by reference to the true value of the SEPs being licenced). The issue of whether there is a need for further guidance under Article 102 TFUE in respect of non-discrimination in a SEP environment was also explored at length, with interesting deviations on the problems that will increasingly be faced in IoT industries. In this latter respect, the role for valuation mechanisms that focus on use patterns in the various sectors (e.g. shared data volumes, etc.), rather than end pricing, was also discussed.
As often occurs when discussing SEPs and FRAND issues, the debate was lively and sparked more questions than it answered, confirming that there is still a long way to go for legislators and courts to resolve all open issues.