In one of the most important recent judgments for FRAND and SEP issues, the Supreme Court’s has strongly backed the High Court’s assessment of Unwired Planet’s multi-national portfolio of SEPs as being fair, reasonable and non-discriminatory (FRAND) and upheld the lower court’s determination of a royalty rate. The Supreme Court had considered two appeals by manufacturers (Huawei and ZTE) of wireless devices, who had sought rejection of the FRAND finding and the determined rate.

In a judgment which is likely to make the UK more attractive to SEP owners considering court action, the Supreme Court strongly supported the concept of a global portfolio licence and a global royalty rate. In the ongoing debate between patent owners and implementers, the judgment appears to have shifted the equilibrium somewhat in favour of SEP owners and may be persuasive in other jurisdictions. Various jurisdictional challenges by the implementers to the lower court’s findings, including claims that UK courts had no jurisdiction over a licence to a portfolio with non-UK components and that the UK court had made findings on validity of non-UK patents, were rejected by the Supreme Court.  

Background

Standard Essential Patents are those patents which may be mapped on to sections of global standards, such that devices that conform to the standard necessarily operate within the patent. Manufacturers of such devices, eg implementers of wireless technologies, which, for reasons of interoperability, must conform to the standard, may find themselves unable to avoid using the patent-protected technology, making SEPs extremely valuable. The commercial success of smartphones and the complexity of the standards has reinforced their value.

As cellular phones became widespread in the nineties the wireless industry recognized the risk that the SEP owners could, unless safeguards were installed, abuse the position inherent in such powerful patents. SEPs represent the interface between competition law, designed to restrict monopolies and eliminate abuse, and intellectual property under which a limited monopoly is registered and supported by a state.

The industry response was the introduction of the so-called “FRAND obligation”: owners of patents registered as SEPs with the relevant standard-setting body (such as ETSI or IEEE), had to offer a licence on terms which were fair, reasonable and non-discriminatory (FRAND). Since then there have been many disputes around the globe, but most notably in USA and Germany, between SEP owners and implementers about whether offered licence terms, including the royalty rate, were FRAND. The complex relationship between IP rights and competition law was highlighted in the 2015 case Huawei v ZTE, C‑170/13, the CJEU ruling that an SEP owner was not abusing a dominant position (arising from the SEP) if it followed specified guidelines. The willingness of the parties to agree a licence played a crucial role.

The Supreme Court judgment re FRAND

The Supreme Court made considerable reference to the CJEU guidelines, noting that these set a fair balance between the rights of SEP owners and those of the implementers. It appeared to confirm the view that the CJEU guidelines represent a safe harbour for SEP owners. The High Court decision appealed by the implementers, in determining a global royalty rate (actually two rates: one for China, and one for ex-China), had used a methodology which relied on comparative licences. The implementers claimed the price differentials among these comparators showed that the methodology was not non-discriminatory and therefore not FRAND, a claim which the rejected by the Supreme Court. The Supreme Court upheld the lower court decision that the licence terms offered by Unwired Planet were FRAND: Unwired Planet had discharged its duties under the FRAND obligation and had not acted abusively.

The Supreme Court judgment re jurisdiction

The implementers’ second appeal related to jurisdictional issues. Huawei and ZTE claimed that English courts were not an appropriate forum for hearing the dispute and had no jurisdiction to decide on the validity of non-UK patents or to issue an injunction. Unwired Planet’s patent portfolio contained both UK and non-UK elements.

The Supreme Court ruled that UK courts did have jurisdiction with respect to determination of a royalty rate and in accordance with the ETSI rules were entitled to issue injunctions. It agreed that UK courts had no jurisdiction on the validity of non-UK patents, but pointed out that the lower court had only adjudicated on and issued injunctions in respect of the UK components of Unwired’s portfolio, confirming that it was entitled to do so. Moreover, there was still scope for the implementers to seek revocation of the non-UK components in the relevant foreign courts, and the Unwired licence terms could be adjusted according to the outcome. The appeal was dismissed.

Possible consequences

The Supreme Court has delivered a message to owners of portfolios of Standard Essential Patents (SEPs) that UK courts will adjudicate on global SEP portfolios and related FRAND issues, including determining global rates thereof, and are willing to issue injunctions in respect of UK patents which they deem to be both valid and infringed, even when they form part of a wider multi-national portfolio of patents. The High Court ruling appealed to the Supreme Court now joins a relatively small group of FRAND rate-determining judgments around the world, including the notable US ruling in 2013 by Judge Robart in Microsoft v Motorola. Observers monitoring the interplay between IP and competition law may consider that UK courts have demonstrated their willingness to support FRAND licence offers on SEPs. The UK’s status as an SEP/FRAND dispute venue seems likely to have been enhanced by the Supreme Court’s judgment.

The full Supreme Court judgment is available here: https://www.supremecourt.uk/cases/docs/uksc-2018-0214-judgment.pdf 

The new UK government has announced that the UK will not participate in the future Unified Patent Court (UPC) thereby abandoning the policy of Theresa May’s government to play a key role in the UPC. The Johnson government stated that its decision was based on the UK’s need to establish itself as a self-governing state, and the role of the CJEU in UPC proceedings.

The proposed UPC was set to be a vital component of a major reform of the European patent system, the goal of the reforms being to reduce costs for users and harmonise patent law. The participating states, among which the UK was a key player, recognized the need for a unified court to adjudicate over patent disputes in Europe, and eliminate expensive forum shopping. The UPC would also form a counterweight to USA which currently attracts the lion’s share of international patent disputes.

The Unified Patent Court Agreement, an international agreement outside EU structures, was signed in 2013. It foresees a supranational institution with premises across Europe and its own governance framework independent of Brussels. The Cameron government obtained the agreement of the participating states that London would host one of the UPC’s important divisions, which would handle biotech patent disputes.

The agreement was ratified by the UK parliament in April 2018 and a few months later the government lauded the UPC for providing businesses “with a streamlined process for enforcing patents through a single court, rather than through multiple courts”, which, it stated, “can be costly to enforce in multiple jurisdictions.”

Theresa May’s approach has now been abandoned in favour of establishment of the UK’s credentials as a sovereign state in the post-Brexit era. While this approach may, given the UK’s referendum on membership of the EU, combined with the recent Johnson electoral success, appear inevitable, many figures in industry, which had shown widespread support for the UPC, may be disappointed by the decision.

The future of the UPC was already in the balance in the light of a still pending decision by the German constitutional court on the constitutionality of the proposed UPC. Even if Germany dismisses the constitutional complaint and does ratify the UPC in 2020, as expected by many, the British decision puts the viability of the UPC again in some doubt.

The remaining UPC participating states have yet to react to the UK decision: it is uncertain if the UPC project will advance, with some amendments, without the UK’s participation or if the decision by the UK will definitively end the UPC project.

If the UPC project does survive, the pull-out by the British will give Europe’s patent jurisdictional landscape a different complexion: the UK and the UPC area will be two distinct jurisdictions, subject to different rules and procedures. The two jurisdictions (the UPC area and the UK) will be quite different, the UK national courts having jurisdiction only over UK patents and the UPC jurisdiction being considerably larger than the UK in terms of size, population and market value. Litigants may decide to start proceedings in only one of the two jurisdictions, which may compete with each other as dispute venues, in a sort of renewed forum rivalry. Alternatively, litigants may adopt sophisticated strategies in which one remedy is sought from the UPC and another remedy is simultaneously sought from the UK court. The role of cross-border enforcement of judgements is currently unclear. It is too early to predict, but there may be consequences for the UK as a centre for international dispute resolution, as a result of the UK’s decision on the UPC and other Brexit policies.

Case: Shanks v Unilever (UK Supreme Court)

The UK Supreme Court has overturned earlier decisions by the Patent Office, the High Court and the Court of Appeal, ruling that an inventor-employee was entitled to the £2m of the benefits which his employer, Unilever, had obtained from a patent on his invention.

The law requires that, where an employee’s invention leads to an outstanding benefit, having regarding inter alia to size and nature of the employer’s undertaking, then the court may award the employee a compensation reflecting a fair share of that benefit. In an appeal by Prof Shanks against his employer, Unilever UK Central Resources Ltd, the Supreme Court overturned previous decisions by the Patent Office, the High Court and the Court of Appeal and made Prof Shanks an award of compensation.

The decision is important because it clarifies the meaning of “outstanding benefit” and the circumstances when such an employee award is due, and how the compensation may be determined, as well as the meaning of “employer’s undertaking”.

Lord Kitchin, for the Supreme Court, found that the benefit of the Shanks patent should be assessed in relation to other Unilever patents, rather than in relation to Unliver’s overall turnover, as this would include income unrelated to patents, and found the Shanks’ patent “stood out” from the other patents, provided an outstanding benefit to Unilever. The Supreme Court rejected Unilever’s claims that such an approach would lead to a “too big to pay” scenario. On "employer's undertaking", it said the benefit was that derived to the whole Unilever group and not just Prof Shanks’ immediate employer. On these bases Lord Kitchen adopted the £24m figure originally used by the patent office as a measure of the Unilever group’s total earnings from the Shanks patent.

The fair share due to Prof Shanks should be 5%, as originally suggested by the Patent Office, but reduced, without proper basis, by the High Court to 3%. Lord Kitchin said the time value of money should be taken into account. Applying an annual inflation rate of 2.8%, he assessed the Prof Shanks’ fair share to be £2m.

While the 5% level for the fair share may cause some concern to employers, the Supreme Court decision does confirm that, in order for a fair share award to be contemplated, any employer benefit needs to be outstanding.

Full judgment may be found here: Shanks v Unilever Plc & Ors [2019] UKSC 45 (23 October 2019)

 

Angel IP is pleased to announce its main practitioner's success in obtaining revocation by the UK High Court of RegenLab’s UK patent EP(GB)2073862 in the case RegenLab SA v Estar Technologies Limited et al [2019] EWHC 63. Angel IP’s founder, David Sant, who (as lead solicitor at his previous firm) successfully acted for the three Defendants, Estar Technologies, Medira Limited and Lavender Medical Limited, and obtained the court’s declaration of invalidity of the patent.

The invalidity case hung primarily on prior disclosure by the Claimant without any burden of confidentiality.

In a judgment published on 18 January 2019 His Honour Judge Hacon held that all claims of the patent lacked novelty due to prior disclosure of the invention in Japan in June 2005 and would have been obvious to a skilled team on receipt of the Claimant’s product with instructions for users. The judge held that the patent as applied to be amended by the Claimant would also be invalid.

The decision is also noteworthy for its treatment of the patent in respect of the doctrine of equivalence set out in the Supreme Court’s case of Actavis UK Ltd v Eli Lilly & Co [2017] UKSC 48; [2017] RPC 21.

The full judgment is available at https://www.bailii.org/ew/cases/EWHC/IPEC/2019/63.html

 

 

At the time of writing this article it is not only the form of a future Brexit that is uncertain, but also whether the UK does actually leave the EU. Nearly two years after the UK’s referendum on EU membership, the UK parliament ratified the UPC Agreement, on 26 April 2018. However, the UK’s future participation in the UPC is uncertain. On the assumption that the UK does ceases to be an EU member state, this article considers the likelihood of the UK nevertheless participating in the UPC.