Friday, November 5, 2021

In Nokia v. OPPO jurisdictional decision, UK court affords limited deference to Chinese determination of global patent portfolio licensing terms

In a decision that came down yesterday, Judge Hacon of the England and Wales High Court (EWHC) denied OPPO's request to stay the UK proceedings regarding Nokia's assertions of a couple of standard-essential patents pending the resolution of a Chinese case in which OPPO is seeking a global portfolio license from Nokia. After Nokia brought its infringement cases against OPPO in multiple jurisdictions, OPPO raised various FRAND issues with the No. 1 Intermediate People's Court of Chongqing Municipality of the People's Republic of China, with the ultimate objective of obtaining a global portfolio license on terms to be set by the Chongqing court.

At first sight, the outcome is simply consistent with the UK Supreme Court's jurisdictional decisions in Unwired Planet v. Huawei/Conversant v. ZTE: the UK judiciary has no qualms about setting global portfolio rates and forcing implementers, under the threat of allowing the enforcement of patent injunctions, to take worldwide licenses on terms set in the UK. But Nokia v. OPPO is not just a rehash of Unwired, and while the High Court lets the infringement case (and any potential FRAND determination resulting from it) go ahead, OPPO has raised issues that distinguish the case from the Unwired situation, including but not limited to

It would be interesting to see OPPO appeal Judge Hacon's decision, as it would provide the higher courts in the UK with an opportunity to adjust their SEP case law. Yesterday's Nokia v. OPPO jurisdictional judgment acknowledges that the current situation leaves a lot to be desired:

"116. The current unevolved framework for the settlement of a global licence between owners of SEPs and implementers is plainly not satisfactory. It is not a recipe for commercial chaos as the defendants would have it, but it does encourage expensive parallel litigation in several jurisdictions and more uncertainty than is necessary. I doubt that it can be sustained in the long term. As the Supreme Court indicated, one potential solution would be the establishment of an internationally recognised tribunal to which patentees and implementers must refer their disputes. But until that or an alternative mechanism for settling global licences is internationally agreed, national courts must deal with circumstances as they are." (emphasis added)

Judge Hacon then basically goes on to say that patentees will try to have global licensing terms determined in a jurisdiction where they expect to get the highest royalty rates (race to the top), while implementers will naturally prefer lower rates (race to the bottom). "A race to the top would not be an attractive prospect for the telecommunications industry as a whole, or for any other industry," Judge Hacon notes. But he also holds that "a race to the bottom is no more attractive than a race to the top."

Enthusiasm is something else.

While concluding that OPPO had not convinced him of the need to stay Nokia's UK case, Judge Hacon steered clear of China-bashing. In fact, he "fully endorse[d]" the parties' agreement that "the Chongqing Court, if and when it rules on royalty rates, will do so justly" and that "the rates will therefore be FRAND." This recognition that substantial justice (that's the standard here) will be done in China is of quite some significance, such as in connection with the questions raised by the EU at the WTO level.

I see a couple of issues here that, at least potentially, come down to the tail wagging the dog:

  1. Paragraph 63 notes that "[o]ver 50% of sales of the devices proposed to be licensed are in China, compared to less than 0.5% in the UK." That is a factor of more than 100--even more extreme than in Unwired. UK politicians are looking at the possibility of SEP-specific legislation, and some members of parliament as well as government officials may not consider it a good use of UK resources (and British taxpayers' money) to provide the service of global FRAND determinations even when the UK portion of a dispute is so tiny.

  2. The trickier tail-or-dog question is whether it makes sense to determine a global royalty rate when the infringement allegations at issue are specific to UK patents (or, most of the time, the UK parts of patents granted by the EPO).

    In quantitative terms, it definitely is another case of the tail wagging the dog: the FRAND part is way bigger in economic terms and more complex than the technical merits of a single patent assertion. But the UK courts' logic is that patentees must remain free to enforce their UK patent rights--and when those patents are SEPs, then the enforcement of an injunction depends on FRAND considerations, which the UK courts so far consider to be all about global portfolio licensing terms.

    The combination of single-country infringement decisions and worldwide rate-setting is not without contradiction. In Conversant v. ZTE, the UK Supreme Court noted that Chinese patents asserted in a global dispute may even be from different patent families than the relevant UK patents, "give rise to wholly different technical issues from the issues which would arise on the essentiality of the UK patents," and different prior art may apply. Based on those differences, the UK courts do not wish to restrict a patentee's ability to bring UK infringement cases--but those differences actually cut both ways and also counsel against setting the rates for Chinese patents in the UK.

How can SEP holders efficiently enforce their rights so they get compensated for the use of their global portfolios while not depriving implementers of their defenses? The Nokia v. OPPO decision is most likely not the last word--not even in that particular dispute. And while Nokia has so far avoided a stay of its UK SEP actions against OPPO, it continues to face OPPO's Chinese FRAND claims.

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