Last week, the High Court issued its judgment on interim FRAND licences in Samsung v ZTE. The decision continues the English court’s willingness to grant interim licence declarations in FRAND disputes (following Panasonic v Xiaomi and Lenovo v Ericsson – covered in our article here) and also seemingly expands the circumstances in which they are willing to do so at the expense of the SEP licensor. The latter point in particular has caused some to accuse the court of ‘judicial imperialism’, something the judgment itself addresses head on.
Interim licence declarations – i.e. a declaration that willing licensors and licensees in the position of the parties would enter into an interim FRAND licence pending final determination of the FRAND terms by the court – are an increasingly used tactic by SEP licensees in the face of foreign injunctions obtained by the SEP licensor. Though ‘only’ a declaration, any interim licence subsequently agreed by the parties would have the effect of lifting those injunctions.
Takeaways
Context and nuance are always important with these judgments, but key takeaways are:
- The English courts are willing to grant interim licence declarations against SEP licensors even when parallel FRAND determination proceedings initiated by the licensor are ongoing in a foreign court (here, before the Chongqing court in China); but
- Whether the English court is the one first seised of the FRAND determination proceedings is likely key. In this case, ZTE (the SEP licensor) brought their FRAND proceedings before the Chinese court 2 working days after Samsung (as licensee) brought theirs before the English court.
- The view of the English court is that it is bad faith for a SEP licensor to use foreign injunctions to pressure a licensee to agree to the SEP licensor’s preferred FRAND determination venue. This is likely to be a point of contention for some.
- In cases where a SEP licensee invokes the jurisdiction of the English court, and that jurisdiction is accepted by the SEP licensor, it is the court’s view that it is not an act of judicial imperialism to exercise the jurisdiction conferred on it by the Supreme Court in Unwired Planet.
- Recent decisions show the strategic value of the UK to both SEP licensees and licensors – the availability of interim licence declarations for the former, and the potentially high FRAND royalty awards for the latter (see e.g. the $700m FRAND licence in Optis v Apple).
Background and summary
Samsung are seeking from the English court determination of terms for a global FRAND cross-licence with ZTE. The judgment grants Samsung’s request for a declaration that a willing licensor in ZTE’s position would enter into an interim FRAND licence with terms to be determined by the English court and subject to adjustment upon final determination of the global FRAND terms (crucially, again by the English court). By failing to offer Samsung such a licence, ZTE have been declared unwilling licensors.
Advancing jurisprudence for interim licence declarations
What distinguishes this case from the earlier decisions of Panasonic and Lenovo is that, here: (1) there is a parallel action seeking global FRAND terms between the same parties in a foreign court (in Chongqing, brought by ZTE). There were no such parallel actions in the previous cases; (2) ZTE have offered Samsung an interim licence on the terms Samsung sought, with the exception that any adjustment in royalties is made in accordance with the final FRAND determination by the Chinese court in Chongqing.
ZTE argued that, in effect, the parties are in mirrored positions and so any decision by the court to grant Samsung declaratory relief is tantamount to the English court saying its FRAND determination takes precedent over that of the Chinese Court. The court rejected this argument, and in doing so looked closely at the sequence of events and the parties’ conduct in the global dispute. Key seemed to be that ZTE were the party who initiated the series of national injunctive actions after each side had brought their FRAND determination actions. According to the judge, Samsung only brought their national injunctive actions in retaliation, and would not have done so were it not for ZTE’s actions as they had already indicated they were seeking a FRAND determination from the English court.
Though the judge accepted that ZTE’s motive for bringing these actions was to pressure Samsung to agree to accept the Chinese court’s global FRAND terms (rather than to achieve supra-FRAND rates as Ericsson were accused of), this was still deemed bad faith conduct. In essence, the court have said it is bad faith for a SEP licensor to apply commercial pressure through national injunctions to have global FRAND terms determined by its court of choice and to “sideline” the English court’s jurisdiction. In my view, it is this aspect of the decision that those who have questioned this judgment will take umbrage with.
Importance of court first-seised
Strategically, this judgment highlights the importance of timing when there are multiple parallel global FRAND determinations. Samsung initiated the FRAND determination proceedings before the English courts two working days before ZTE initiated theirs before the Chinese court. The judge said that which court was first seised may be a “tie-breaker” in an appropriate case, and acknowledged in his concluding remarks that this judgment “enhances the significance of the Court first seised of a claim to determine FRAND terms”.
As a consequence, the judgment further cements the importance first-strike advantage can have in these disputes and, in the context of interim licences, the likelihood of successfully obtaining declaratory relief from the court. This continues the reasoning of the Court of Appeal (CoA) developed in Lenovo v Ericsson, where they acknowledged that the “principled answer” to the question of jurisdictional conflict “might be that the court first seised should determine what terms are FRAND”. Though in that particular case the court found there were no parallel FRAND determination proceedings afoot, in our article reviewing that judgment we identified that in making this observation the court was leaving open the possibility that it would not grant an interim licence declaration in circumstances where the SEP licensor first initiated FRAND determination proceedings in a foreign court. Because in this case Samsung (as net licensee) initiated determination proceedings in the UK first, that scenario is still one the English courts have yet to consider.
Conclusion
This judgment further expands the scenarios in which the English court is willing to grant interim licence declaratory relief in FRAND disputes at the expense of SEP licensors. It also marks the first time the court has granted this relief when there are parallel FRAND determination proceedings (initiated by the SEP licensor) before a foreign court, leading some to criticise the English courts for exercising ‘judicial imperialism’.
The court’s response to this is defiant, with their view being that it is not judicial imperialism to exercise the jurisdiction conferred on it by the Supreme Court in Unwired Planet to set global FRAND rates. The court’s opinion is that any complaint – if there is one – is about the Supreme Court’s decision, and that interim licence declarations are less intrusive into the jurisdictions of foreign courts than a global FRAND determination. The court also reiterated its views that any tension or risk of conflicting decisions between different courts is a consequence of ETSI’s IPR policy and the lack of any inbuilt dispute resolution procedures.
Regardless of whether one agrees or disagrees with the court’s position here, the outcome is that interim licence declarations have been granted under a variety of factual circumstances. For net licensees, this keeps the UK as an important strategic jurisdiction in global FRAND disputes. However, the decision of the Court of Appeal in Optis v Apple – in which the FRAND royalty payable by Apple to Optis was uplifted to roughly $700m – is a reminder that SEP licensors can also be the beneficiaries of global FRAND determinations in the UK.
