United Kingdom: SEPs and FRAND – litigation, policy and latest developments
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The UK continues to be a jurisdiction where significant decisions are being made and activities are being undertaken in relation to SEPs. English courts have become a favoured jurisdiction for SEP holders following the Supreme Court decision of Unwired Planet v Huawei, and several cases filed in England over the past few years are ones where SEP holders are looking to extend the grip and power they have on licensing and implementers.Subsequent cases have come before the English courts and, for example, SEP holders have looked to take the position that injunctions should be granted unless a company is willing to agree to accept the terms of the global licence prior to there being a determination of what the global licence rate might be. Global rate setting and threats of injunctions continue to be a source of friction in UK courts and around the world following the Supreme Court decision. Courts in the US and China have, since that decision said they can also set global rates, and so it remains likely that for the foreseeable future we will see SEP holders forum-shopping to issue proceedings in the jurisdictions that will set the highest global rates.
The impact of the UK Supreme Court’s position on injunctions to date has had broad global implications and ramifications. Following proceedings in England brought by IPCOM, and with the threat of injunctions, companies such as HTC have withdrawn products from the UK market. Stakeholders have expressed concerns that this is not good for innovation, competition or consumers, and it remains to be seen whether standards setting organisations (SSOs), stakeholders and potentially regulators take the sensible position that for SEPs there should be no injunctions, and that damages (a reasonable licence fee based on the value of the patents) should always be an adequate remedy.
Attempts by the European Court of Justice (ECJ) to create a framework for the licensing of SEPs (Huawei v ZTE) have had many challenges. The ECJ has introduced the terms ‘willing licensee’ and ‘unwilling licensee’, and negotiations for SEP licences seem to have reached a place where SEP holders use the phrase ‘unwilling licensee’ when a licensee does not agree with what they say. All of this of course plays into the competition law framework and issues relating to transparency, essentiality, validity and pricing. Following Brexit, there will be opportunities in the coming years for the UK government to reset some of the ground rules and frameworks for fair, transparent and non-discriminatory licensing of SEPs, and to ensure that it is fit for purpose for ‘UK PLC’.
Recent English court cases
The number of SEP cases pending in English courts continues to increase, and there is a growing body of case law precedents to manage the ongoing conduct of new cases that are initiated. As well as procedures for the well-trodden path of technical and FRAND trials, there has been clarification on the harsh confidentiality rules sought to be imposed on defendants in SEP cases to prevent them from seeing evidence upon which claimants rely as benchmarks and allowing them to make informed decisions. In IP Bridge v Huawei, Mr Justice Mellor ordered that disclosure of licensing agreements can be made to four Huawei employees subject to confidentiality undertakings. He referred to the earlier decisions in Oneplus v Mitsubishi and the summary of Lord Justice Floyd who said: ‘An arrangement under which an officer or employee of the receiving party gains no access at all to documents of importance at trial will be exceptionally rare, if indeed it can happen at all,’ and the statement of Mr Justice Carr who considered the question of EEO designation for comparable licences inTQ Delta v Zyxel and said that ‘disclosure of the licence agreements should not be limited to external eyes only, but that the third parties [who had intervened] should be given the opportunity to vary or set aside that order before disclosure is made.’ He continued that ‘the onus must be on those who wish to limit access to key documents to external eyes only to justify that limitation, rather than on the party who is, prima facie, entitled to see the documents, to justify its entitlement to access.’ As the breadth of companies potentially involved in SEP licensing increases, it will be interesting to see if more companies seek pre-action disclosure of prior patent licences as part of the FRAND assessment, as Mr Justice Arnold (as he then was) ordered in Big Bus v Ticketogo; pre-action disclosure may be very useful for SMEs that cannot afford the costs of multiple technical trials and multijurisdictional patent infringement claims for injunctions by SEP holders.
In Philips v OPPO, the latter sought to have an ‘anti-anti-anti-anti suit injunction’ – which Mr Justice Meade conveniently called an anti-suit injunction – set aside for material nondisclosure when the injunction was obtained. Mr Justice Meade said the seeking of an anti-suit injunction in China (to prevent the English case continuing) would, in his view, be vexatious and oppressive and unconscionable given that it would prevent an English court from determining infringement of a UK patent. He made clear, however, that the relief he granted did not restrict, even indirectly via the defendants, the courts of the Peoples Republic of China (PRC) from conducting global rate-setting if the defendants initiate proceedings and if the Chinese courts consider it appropriate. He said the relief he granted simply defended the English courts’ proceedings in relation to infringement of a national patent, as was explained in theUnwiredPlanetdecision of the Supreme Court to be the nature of these SEP/FRAND cases. He said it was out of a deference to the requirements of comity, in part, that he restricted the relief sought to avoid the limitation on any Chinese rate-setting proceedings that do take place by removing the word‘interfere’ and also to make clear that enforcement of a Chinese judgment rate-setting, if one eventually emerges, is not affected.
Other ongoing SEP/FRAND cases currently in the UK system include Kigen v Thales, Optis v Apple and Ericsson v Apple. The latter litigation is part of a broader global campaign where Ericsson is seeking a declaration that their claimed US$5 rate for 5G multimode phones is FRAND, and that they have complied with all of their obligations to ETSI (European Telecommunications Standards Institute). Nokia is also suing OnePlus, who sought to challenge the UK court’s jurisdiction; their application was dismissed, as was the appeal to the Court of Appeal. IPCOM and Philips are, separately, suing Xiaomi. InterDigital is suing OnePlus, OPPO and Lenovo.
In the InterDigital v Lenovo case, the FRAND trial took place in January 2022 and judgment is pending; the parties’ submissions in the case highlighted the significant differences in announced or ‘headline’ licensing rates forced to be paid by SMEs and smaller companies compared to what is paid by others. Court-adjudicated rates are usually much lower than those that are initially claimed by SEP licensors and as Mr Justice Birss said,‘Small new entrants are entitled to pay a royalty based on the same benchmark as established large entities.’ InterDigital has sought to rely on agreements entered into with smaller players at the highest rates to establish their FRAND rate, and Lenovo, who is offering a lump sum payment, made the point that if a dealership sold 100 cars, with 97 cars sold at a ‘discounted’ price of £10,000, and three cars sold at £40,000, it is not sensible to say that the true value of each of the 100 cars is £40,000. InterDigital recently announced a settlement with Apple (2021 smartphone sales of US$196 billion) for a lump sum payment of US$134 million a year for seven years (about 0.07 per cent of Apple’s revenue from smartphone sales), and so that agreement will now form part of the analysis for InterDigital, OnePlus, OPPO, Lenovo and others in ongoing discussions and court hearings in the UK on FRAND issues.
SEP portfolio fragmentation remains a major problem in SEP licensing. Portfolio fragmentation arises when an SEP holder splits a portfolio of SEPs and the portfolio becomes ‘worth’ more; this can be described as the ‘Harry Potter®’ effect. For example, assume company A has a portfolio of 100 SEPs which it licenses to company X at £1 per widget for two years. Company A then sells off 30 SEPs to company B and 20 SEPs to company C. Each of companies A, B and C then seek SEP licences from company Y; company A still claims £1 per widget (for 50 SEPs) but now company B (30 SEPs) and company C (20 SEPs) also claim £1 per widget from company Y. Therefore, the same portfolio of 100 SEPs that was ‘worth’ £1, is now magically ‘worth’ £3, simply by dint of the portfolio having been split up into different owners. At the end of the two-year term, company A comes back to company X and demands the same £1 licence fee, when in reality company A’s portfolio is now only 50 patents.
Given the plethora of pending FRAND trials and decisions, it remains to be seen whether some consistency starts to appear across claims made by SEP holders, and whether the multiple English courts that are dealing with assessments of FRAND valuation converge in some way their decisions on valuation and the shares of individual SEP holders (including the fragmentation and splitting up of portfolios) in the overall landscape for each standard, and how that plays out when products have multiple standards. There is opportunity here for the UK government to provide some guidance and consistent policy to help UK SMEs and others who don’t have the resources to be able to litigate in the same way as major corporations.
UK Intellectual Property Office – call for views
As well as ongoing court proceedings, the UK Intellectual Property Office (UKIPO) has been conducting a detailed review into the role of SEPs. This came about as a result of the realisation that SEPs were going to be relevant issues in the development of 5G and Open RAN, and in multiple other industries such as energy, smart infrastructure and healthcare. The IPO issued a call for views and heard from more than 50 respondents; it published a detailed report in August 2022. The report captured many of the different positions that are taken by SEP holders and implementers and the challenges faced by both sets of participants in standardisation and licensing.
The UK government, as with other national governments, will need to consider the extent to which there are net outflows or inflows from or to the UK as a result of SEP licensing. With a relatively small number of SEP holders being based in the UK, there are likely to be significant royalty outflows from the UK. It will also need to consider the extent to which the SEP costs are being paid, and will be paid, by the consumer, as they are a variable cost for suppliers. The SEP costs for smart meters and smart infrastructure may well run into the tens of millions of pounds; in litigation in the US there was evidence given in a Qualcomm case that 88 per cent of SEP costs are expected to be passed on to the consumer, so with rising energy bills, any additional SEP cost is the last thing the consumer and the UK government need.
Unsurprisingly perhaps, nearly all of the issues that have been raised by courts, commentators and stakeholders were aired in the report and the UKIPO’s publication is a comprehensive summary of the various positions of the parties on both sides of the debate; congratulations should go to the UKIPO for that helpful document. The report contained many of the usual positions (depending on which side of the debate one sits) of ‘hold-up’ versus ‘hold-out’, injunctions, territoriality, quantum of pricing, valuation, transparency, competition concerns, refusal to license and abuse of market power, but perhaps this was to be expected in a call for views which was an attempt by the UKIPO, as the UK governments agency on all IP matters, to understand the issues. On one side of the debate, monetisers of SEPs submitted that there were no competition issues, no abuses of market power, the system worked well, the market functioned properly, prices were fair and reasonable and non-discriminatory (FRAND) and that they can choose who they wanted to license SEPs to and upon what terms. On the other side of the debate, companies complained of unlawful and improper injunction threats, unlawful product seizures, forced global portfolio licensing, lack of transparency, breaches of competition law, discrimination, misrepresentations and bad faith in negotiations, excessive pricing and abuse of market power. While the intent of the 1994 ETSI policy was to create a framework for SEP licensing and to ensure that any company that wanted a licence could obtain one on FRAND terms in compliance with the European Commission’s 1992 Communication on Standardisation, current positions are polarised. The only consensus seems to be that both parties reported problems to the UKIPO related to the efficiency and effectiveness of the ecosystem around SEPs – that is, the system is inefficient and ineffective!
The report’s summary stated that there was going to be ongoing liaison and consultation with the UK Department for Digital, Culture, Media and Sport (DCMS), the Ministry of Justice and with the UK Competition and Markets Authority (CMA), and the UKIPO will engage with businesses to ensure it has properly understood industries’ concerns and seek further evidence where needed. The UKIPO said it would assess the issues further and consider the merits of the proposals submitted, and is expected to update further in 2023. It is to be hoped that more companies engage with the UKIPO over the coming months.
UK Competition and Markets Authority
One impact of Brexit is that the CMA is now taking on, from a UK perspective, competition issues that for many years have been the domain of DG Comp. Competition law remains a fundamental mainstay and key element of SEP licensing as was agreed when the 1994 ETSI IPR Policy was adopted. Companies whose conduct was being reviewed by DG Comp may now be reviewed in many cases by the UK CMA in connection with the competition impact on UK businesses. For example, DG Comp was conducting an investigation into the refusal by some SEP holders to grant SEP licences to companies that wanted a licence; the issue of ‘refusal to license’ was referred to the ECJ by the Regional Court of Düsseldorf (as part of the dispute between Nokia v Daimler), but the ECJ did not hear the case because the dispute between Nokia and Daimler was settled. Following Brexit, the CMA will need to consider similar issues if a ‘refusal to license’ complaint is filed in the UK, particularly if companies doing business in the UK are refused licences to SEPs for 5G or Open RAN.
The CMA has recently published guidelines on SEPs and sustainability agreements and has been clear that licensing should be made available to all parties. It will be interesting to watch developments over the coming year to see what steps the CMA may take against companies that are failing to comply with the guidelines.
The CMA continues to conduct its own review into the Horizontal Guidelines and will be publishing its own UK guidelines about standardisation agreements and how they may impact SEPs.
UK supply chain diversification, 5G and Open RAN
The UK telecoms industry has seen major upheaval in relation to the security aspects of telecommunications networks with the UK, like America, banning Huawei from supplying networks and products. Prior to the exclusion of Huawei, the three primary vendors for networking were Huawei, Ericsson and Nokia; the impact of Huawei’s exclusion has been to create a duopoly of Ericsson and Nokia, and there will be SEP issues arising that will need to be addressed. Both Ericsson and Nokia have recently taken the position that they are entitled to refuse to grant SEP licences to companies if they choose to. If Ericsson and Nokia can pick and choose who they grant licences to, who can enter the market and who can succeed, then such dominant market power will have competition law implications and will also have a significant impact on the UK government’s aim to have an open Radio Access Network (RAN) and to encourage innovation in the use of the 5G standard. Companies may not be allowed to enter the market and will be wary of entering the market when they do not know whether they can get a licence to SEPs, or what the cost of market entry or participation will be. The fact that the current case law in the UK suggests that SEP holders can seek injunctions unless companies enter into licences on terms that SEP holders unilaterally state are FRAND will have significant implications for those companies participating in 5G and Open RAN development. SEP holders will need to consider the UK competition law impact of refusing to grant licences to all companies that want a licence and the terms upon which they are willing to license their SEPs when deciding to whom they want to grant licences.
The Telecommunications (Security) Act 2021 came into force on 17 November 2021 introducing a new regulatory framework that increases the security duties for communications providers (CPs) and requires them to identify and reduce the risks of security compromises. The provisions in the Act therefore mean that CPs, such as network operators (and mobile virtual network operators) will now need to consider the risks of an injunction being granted for an SEP, which might compromise the availability of their networks or services. In addition, they will now need to actively take steps to reduce the risk of, and prepare for, such an injunction being granted.
The UK government and its agencies will likely need to take a position to ensure that SEP licences are granted to all companies that want a licence on FRAND terms.
Internet of things claims and new industries
In the UK we are beginning to see the emergence of SEP claims in relation to connected products and the internet of things (IoT). There has been a significant push by the UK government and industry to adopt wireless smart meters and smart infrastructure such as EV chargers and EV charging stations. Once again, as with the automotive industry seven or eight years ago, we still do not know what claims are going to be made against energy companies that are selling, buying and installing smart infrastructure and smart energy products, or medical and healthcare companies using connected products.
Several SEP holders refuse to grant licences to all companies that want a licence, so suppliers of products with wireless functionality cannot obtain SEP licences and cannot pass on the SEP rights to their customers in the supply chain.
With thousands more companies buying and selling wireless products in the IoT market, it would arguably be significantly more efficient and cost effective (including for SEP holders) to license SEPs at the component level so that all companies that want an SEP licence can obtain one, including the few existing chipset suppliers, so they can pass the SEP rights along the supply chain. Absent some regulatory intervention or guidance, for companies developing, buying and selling IoT products, there will be a significant increase in the time spent dealing with SEP issues and claims, as there will need to be extensive due diligence on the SEP issues for each contract at each level of the supply chain.
In the US, there have been SEP claims made against meter companies (such as Badger Meter) and in relation to standards in smart meters such as Zigbee (Schneider Electric) and the uncertainty created by the lack of transparency around SEP pricing, and the threat of injunctions in essential facilities such as energy and healthcare, will be an important topic for the UK government to consider as the UKIPO continues with its consultation.
The impact outside of the world of IP
What is clear is that with the advent of the IoT, the issues and debate around SEPs will broaden into new industries such as energy, pharmaceuticals and healthcare. SEP issues will not be confined to IP practitioners as they will now extend into other company departments such as commercial, legal and purchasing. As with the automotive industry, claims for SEP infringement may not appear for several years, and historic claims for past infringement will increasingly become an issue, creating conflicts and disputes in the UK supply chain. The practice of many SEP holders has been to not seek licences and not disclose licensing rates until the market has seeded. Of course, by then, it is too late to challenge the technology direction as the standard has been adopted, and that leaves the SEP holders, if not regulated, to take the view that they can decide where in the value chain they want to seek licences, and at what rates. This issue is not confined to the UK, but will need to be tackled in the coming years.
For purchasing departments and in-house legal teams, the current uncertain position is going to create many issues. There will need to be significantly more due diligence undertaken by companies that are involved in buying or selling wireless products, whether these are components, sensors or wireless devices. Buyers will need to undertake supply chain due diligence to check if suppliers are licensed to SEPs and, if they are not, what risks they are taking on when buying standards compliant products. Legal and purchasing teams will need to consider whether common form warranties and indemnities are sufficient or even appropriate, for how much, for how long and what they are to cover. Companies will also need to consider whether warranties and indemnities for SEPs should be excluded altogether as part of the commercial and contract negotiation, and the delays that will cause will have a significant impact on transactional speed and innovation. M&A lawyers and in-house teams will also need to give much more detailed thought to potential claims that may be made after a sale or an acquisition.
Over the course of 2023, we expect the UK to continue to be a hotbed of activity in the SEP space. There have been calls for the UK government to consider reforms to UK legislation and, as well as the outcome of the UKIPO consultation and potential legislative activity, we expect court decisions in the UK in the cases of Optis v Apple, InterDigital v Lenovo and Ericsson v Apple as well as the CMA’s review of the Horizontal Guidelines. The GCR/IAM SEP hub will continue to be a helpful ongoing source of updates and information.
 See Huawei v ZTE: https://curia.europa.eu/juris/liste.jsf?num=C-170/13.
 See, for example: TCL v Ericsson (claimed rate of 3 per cent versus court-awarded rate of 0.45 per cent); Unwired Planet v Huawei (claimed rate of 1.44 per cent versus court-awarded rate of 0.06 per cent); In re Innovatio IP Ventures (claimed rate US$3.39 versus court-awarded rate of US$0.0956); and Realtek v LSI (claimed rate of 5 per cent of end product price versus court-awarded rate of 0.19 per cent of the chip price).
Unwired Planet v Huawei (Rev 2)  EWHC 2988 (Pat) (30 November 2017); ‘it would not be FRAND, for example, for a small new entrant to the market to have to pay a higher royalty rate than an established large entity.’
 In Re Qualcomm Antitrust Litigation 17-MD-02773-LHK at 36.
 See ‘The History of the ETSI IPR Policy: Using the Historical Record to Inform Application of the ETSI FRAND Obligation’ by Djavaherian and Pocknell.
 See note 12 above.
Nokia v Daimler – Request for a preliminary ruling from the Regional Court of Düsseldorf Case C-182/21.
 Guidance on 5G Supply Chain Diversification Strategy. ‘Following the government’s decision to remove Huawei equipment from our future networks, the UK is now reliant on just two mobile access network equipment suppliers – Nokia and Ericsson. This represents an intolerable resilience risk and absent intervention it is unlikely that the market will diversify. Therefore, it is essential that we create a more diverse and competitive supply base for telecoms networks. A more competitive and diverse supply market will increase quality, innovation and the resilience of our networks.’
Swirlate v Badger Meter, US District Court, District of Colorado (ex Panasonic patents) Civil Action No. 20-cv-1165.
Tranquility v Schneider Electric (WD Tex 6:22-cv-1012); IoT Licensing v Schneider Electric (D Mass 1:22-cv-11358).