This is my seventh post on this week's UK Supreme Court hearing in Unwired Planet v. Huawei, after which I'll focus (until there's further news from the London case) on some other topics, such as a couple of filings in the Northern District of California (one of which, like Unwired Planet v. Huawei, involves leveraged financial engineering behind patent lawsuits) as well as the Munich I Regional Court's 10-year anniversary, and forthcoming SEP-related extension, of its Local Patent Rules.
For your convenience, here's a list of the six previous posts on the UK hearing:
This case has worldwide implications for two separate reasons: not only does it involve the adjudication of patent-related questions (validity, infringement, exhaustion, valuation) in other jurisdictions by UK courts but affirmance would, besides bringing the UK as a jurisdiction into disrepute, likely set off a global race to the bottom, in which other countries might offer even more patentee-friendly decisions. Throughout the hearing, Lord Briggs most actively asked questions and made remarks. Initially, one could see that he wasn't too familiar with the intricacies of patent and particularly standard-essential patent law, but he demonstrated unparalleled intellectual curiosity and understood some key issues--including the one of a potential race to the bottom (he noted that affirmance would only attract a lot of patent infringement cases to the UK on the assumption that other countries wouldn't "follow suit."
The combination of that realization with Deputy President Lord Reed's acknowledgement of the international ramifications and diplomatic dimension of the matter are two of the reasons for which I expect some kind of reversal. Also, I believe it will bear significant weight with the UK justices that U.S. judges wouldn't adjudicate foreign patents unless both parties consent to it, and some U.S. judges even declined to do so at the parties' joint request. But the UK Supreme Court's attention to detail suggests they are looking for a way to identify maybe just one seemingly small disagreement with the lower courts in order to clean up the mess without having to be too harsh on Lord Kitchin, who authored the opinion of the Court of Appeals and has meanwhile been promoted to the Supreme Court. A finding of forum non conveniens would be possible, though the fundamental issues raised by imperialistic judicial overreach weigh in favor of a broader holding than that.
That said, I don't expect the ruling to be quite so narrow that the lower courts' efforts to read the "ND" (non-discriminatory) out of "FRAND"--by letting Unwired Planet get away with a fundamentally higher royalty demand from Huawei than what Samsung once agreed to pay--would become outcome-determinative. But what the trolls' lawyer and Qualcomm's submission said about the non-discrimination part of FRAND is disconcerting, and appears likely to resurface in other cases in various jurisdictions--for an example, the Dusseldorf Higher Regional Court places great emphasis on the non-discrimination aspect of the FRAND licensing requirement. That's why I wish to express just a few thoughts on that part. In previous FRAND cases I commented on, the focus was on the FR in FRAND, but in Unwired Planet v. Huawei, discriminatory pricing is an issue.
The trolls and Qualcomm try to gut the ND part of FRAND in two ways:
They argue that the ND requirement is not a hurdle in its own right, but merely a factor to be considered when looking at a set of licensing terms as a whole.
In any event, the trolls argue that FRAND has its origins in antitrust law, so the ND part can only be violated if there is competitive harm as defined in that field of law.
The most natural way to understand the "A"("And") in FRAND is that it's a logical connective--as a programmer, I'd call this a logical operator (which means the same). Therefore, a licensing offer by a SEP holder to an implementer must be fair AND reasonable AND non-discriminatory. Each requirement must be satisfied; a failure to satisfy one of them is a failure to meet the FRAND requirement. Whether the "fair" adds anything (as the more common term in the U.S., prior to this decade, was "RAND") or is duplicative of "reasonable" in this context is the subject of academic debate. At least I'm not aware of any case in which a court held terms unreasonable but nevertheless fair, so I assume that "fair" sounds nice (it also gives the acronym a better flow) without raising the bar.
Not so for FR vs. ND. Those elements are distinct. There can be discrimination within a range of fair and reasonable terms; and if a party licenses some implementers at a rate below the fair and reasonable range, but then starts to demand fair and reasonable terms from others, such a behavioral change may result in discrimination. Also, terms can be applied in a non-discriminatory way, yet be too high to be deemed fair and reasonable.
No proposal was made in the course of that hearing for how a conflation of FR and ND should work without simply letting a SEP holder argue that reasonableness alone can satisfy the FRAND requirement.
Conflation is counterintuitive when considering that FR protects an implementer against overcharging while ND protects against being put at a disadvantage. Neither effect would be acceptable.
Should the court decline the invitation to read the ND out of FRAND, the trolls would at least like the justices to apply the competition law standard: there would have to be competitive harm in terms of, more or less, forcing an implementer out of the market.
While it is true that FRAND (or its syonym RAND) is an antitrust term. Professor Rafal Sikorski has looked at the origins of that concept, and found that it goes back a very long time. The first time I made a FRAND argument was not even related to patents, but at the intersection of sports governance and the commercialization of soccer broadcasting rights. Without a doubt, it's not SEP-specific terminology.
The idea that a single royalty demand is not discriminatory short of forcing someone to exit a market must be rejected for two reasons:
The FRAND licensing commitments made by participants in standard-setting are a proactive/pre-emptive remedy because otherwise standard-setting would be anticompetitive (as it is about powerful players sitting at a table and effectively excluding competing technologies). The standard for competition remedies is not that the failure to comply with a remedy must be proven to constitute a new antitrust violation. Implementers have a contractual right to non-discriminatory treatment. I understand that some believe this makes the ND part of FRAND more or less identical to a "most favored nation" clause, but that may just be an inevitable consequence of respecting the requirement.
Where (as in the vast majority of all cases) a standard is set by a group of companies, there will typically be multiple--possibly even numerous--SEP holders (even more when companies like Nokia and Ericsson engage in privateering). Whether one views the effects through the lens of competition law or that of contract law, one must not lose sight of royalty stacking. A single discriminatory royalty rate may not cause competitive harm in a strict antitrust sense--but in the combination of several license agreements that disadvantage one company, that effect may arise, and the only way to prevent discriminatory royalty-stacking is to ensure that every single license agreement is non-discriminatory.
There are situations when one particular market participant, or a group of similarly-situated market participants, will be disadvantaged repeatedly. While FRAND-pledged SEPs weren't involved at the time, I remember how HTC was most patent holders' favorite first target among Android device makers earlier this decade. HTC was first to take an Android patent license from Microsoft--but I guess that if they hadn't, they (and not Motorola Mobility) would have been sued first. HTC was the first Android device maker Apple chose to sue (in March 2010). And there were countless other patent infringement actions others brought against HTC at the time. In my recollection they were almost always one of the defendants when patent holders brought complaints against multiple alleged infringers.
HTC was an attractive target because it had a very significant share in the market for Android devices, but hardly any patents to defend itself (unlike Samsung--the world's #1 patent holder according to some statistics-, Motorola, which was acquired by Google shortly after threatening to leverage its patents against rival Android OEMs, or LG, which has asserted patents against others on a variety of occasions).
If--in an alternative universe--the license deals that resulted from this had all involved SEPs (in reality, they were about non-SEPs), HTC could have ended up paying discriminatory rates in several cases. No single instance of discrimination might have satisfied the requirement of competitive harm in a strict sense, but in the aggregate HTC could have been forced out of the market.
The trolls' lawyers argue that Unwired Planet simply offered Samsung a sweet deal at the time because Unwired Planet was tight on cash--and, obviously, signing deals with major players like Samsung helps to build credibility for a portfolio. But the circumstances of the party that has to meet a FRAND obligation don't count (while different pricing may be justifiable if one licensee is financially more--or less--stable than another). It's easy to see why commercial operators like Unwired Planet would want to enjoy the flexibility to offer better deals when they need a cash infusion and then charge others more. However, if they want to do that, they need to play that game with patents that are not FRAND-encumbered. Their dire straits or their greed cannot serve to justify FRAND violations--just like one can't drive through a red traffic light only because one's car is running out of fuel.
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