ZTE Corporation and another (Appellants) v Conversant Wireless Licensing Sarl (Respondent)

[2020] UKSC 37

On appeals from: [2018] EWCA Civ 2344

and [2019] EWCA Civ 38

Unwired Planet International Ltd and another (Respondents) v Huawei Technologies (UK) Co Ltd and another (Appellants) Huawei Technologies Co Ltd and another (Appellants) v Conversant Wireless Licensing SÀRL (Respondent) ZTE Corporation and another (Appellants) v Conversant Wireless Licensing SÀRL (Respondent)

before

Lord Reed

JUDGMENT GIVEN ON

26 August 2020

Heard on 21, 22, 23 and 24 October 2019

Appellants (Huawei)	Respondents (Unwired)
Mark Howard QC	Adrian Speck QC
Daniel Alexander QC	Sarah Ford QC

Henry Forbes Smith

Thomas Jones

James Segan

LLP (London) & Powell

Osborne Clarke)

Gilbert LLP)

Appellants (ZTE)	Respondent (Conversant)
Michael Bloch QC	Adrian Speck QC

Sarah Ford QC

Colin West

Isabel Jamal

Thomas Jones

Hugh Mercer QC

(Instructed by Wilmer Cutler

Pickering Hale and Dorr LLP)

2nd Intervener (Ericsson)

(written submissions only)

James Marshall (Solicitor)

Xuyang Zhu (Solicitor)

(Instructed by Taylor Wessing

LLP (London))

3rd Intervener

(Qualcomm Inc)

(written submissions only)

Nicholas Saunders QC

(Instructed by Quinn Emanuel Urquhart & Sullivan UK LLP

(London))

Appellants:-

Respondents:-

JUDGMENT OF THE COURT:

1. These appeals raise several matters which are important to the international market in telecommunications. The first (in all three appeals) is whether a court in

the United Kingdom (“UK”) has jurisdiction and may properly exercise a power,

without the agreement of both parties, to (a) grant an injunction to restrain the infringement of a UK patent where the patented invention is an essential component in an international standard of telecommunications equipment, which is marketed, sold and used worldwide, unless the implementer of the patented invention enters into a global licence of a multinational patent portfolio, and (b) determine royalty rates and other disputed terms of such a global licence. Secondly, there is a dispute (in the Conversant appeals: para 17 below) whether England is the appropriate forum to determine those matters. Thirdly, (in the Unwired appeal: para 16 below) there is a question as to the nature of the requirement that the licence, which the

owner of a Standard Essential Patent (“SEP”) must offer to an implementer, be non-

discriminatory. Fourthly, (again in the Unwired appeal) there is a question whether the court should refuse to grant the owner of such a SEP an injunction on the ground that it has breached EU competition law because it has not complied with the guidance given in the judgment of the Court of Justice of the European Union (“CJEU”) in Huawei v ZTE (Case C-170/13) EU:C:2015:477; [2015] 5 CMLR 14;

[2016] RPC 4. Fifthly, the appeals raise a more general question as to the circumstances in which it is appropriate for an English court to grant a prohibitory injunction or to award damages instead. Each member of the panel has contributed to this judgment which addresses those matters.

Patents: the legal background

1. The starting point is the “patent bargain” which promotes innovation and

justifies the monopoly which a patent gives an inventor. The patent bargain is this: an inventor receives the reward of a time-limited monopoly of the industrial use of its invention in return for disclosing the invention and dedicating it to the public for use after the monopoly has expired. See for example Actavis Group PTC EHF v ICOS Corpn [2019] UKSC 15; [2019] Bus LR 1318, para 53. The patents conferring such monopoly rights are national in scope and are usually conferred by national governments. Legal questions as to their validity and their infringement are determined by the national courts of the state which has conferred the patent right or, in the case of a European patent, in a designated state. An inventor has to protect its invention by applying for patents to the national authorities of each of those states in which it seeks to obtain a monopoly (unless it obtains a patent from the European Patent Office under the European Patent Convention which creates a nationally enforceable patent within each designated state). It is not unusual for a national patent for an invention to be upheld by the courts of one state and another national patent for what in substance is the same invention to be invalidated by the courts of another state. Within Europe, the same European patent can on occasion be upheld by the courts in one signatory state but be invalidated in another. Much may depend on the differing evidence led and arguments advanced in national legal proceedings.

3. In English law, once a patent owner has established that a patent is valid and has been infringed, it is prima facie entitled to prevent further infringement of its property rights by injunction. In Scots law an interdict provides a similar remedy. We discuss this matter (the fifth issue) in more detail in paras 159-169 below. This

prima facie entitlement and the patent owner’s entitlement in other jurisdictions to

obtain similar prohibitory remedies form part of the backdrop to the contractual
arrangements which lie at the centre of these appeals.

4. To promote the development of global markets for telecommunications products, including mobile phones, the infrastructure equipment and devices produced by competing manufacturers need to communicate and inter-operate with one another and the phones need to be available for use internationally by consumers who travel with their phones from one jurisdiction to another. Two attributes of patent law have militated against this development. First, the prima facie entitlement of the owner of a patent to prohibit by injunction the use of its invention within a national jurisdiction has the potential to disrupt a global market for equipment using that invention. Secondly, the national nature of patent monopolies, which forces the patent owner seeking to protect its monopoly to raise proceedings in individual national courts, makes it very difficult, if not wholly impracticable, for a patent owner to protect an invention which is used in equipment manufactured in another country, sold in many countries and used by consumers globally. The first attribute may give owners of patents included in an agreed standard excessive power to disrupt an otherwise global market to the prejudice of manufacturers of equipment

using such inventions (“implementers”) and to exact excessive royalties for the use

of their inventions. The second attribute may enable implementers to avoid paying an inventor a proper price for the use of its invention internationally. There was therefore potential for the alternative evils of the abuse by a patent owner of its

monopoly rights and of the denial by implementers of the patent owner’s legitimate

rights. Organisations involved in the telecommunications industry have sought to

address those evils by establishing Standard Setting Organisations (“SSOs”) to

which they bring their most advanced technologies, promoting standards using those technologies, and putting in place contractual arrangements to which we now turn. SSOs aim to promote both technological innovation, which is made available to the public, and competition between manufacturers, and thereby to benefit consumers through more convenient products and services, interoperability, lower product costs and increased price competition.

Standard Setting Organisations

5. Telecommunications SSOs have been established in China, Europe, India, Japan (two), South Korea and the United States. The first telecommunications SSO

was the European Telecommunications Standards Institute (“ETSI”), which is a

French association formed in 1988 and which has adopted an intellectual property

rights (“IPR”) policy and contractual framework governed by French law. ETSI is

recognised as the SSO in the European Union telecommunications sector. It has over 800 members from 66 countries across five continents. Its purposes, as set out in

article 2 of its Statutes (5 April 2017), include the production of “the technical

standards which are necessary to achieve a large unified European market for

telecommunications [etc]” and “to contribute to world-wide standardization” in that

field. SSOs bring together industry participants to evaluate technologies for inclusion in a new standard. ETSI is the relevant SSO as the patents which are the

subject of these appeals are the UK designations of European patents (“UK patents”)

which have been declared to ETSI as essential. The relevant standards in these appeals are telecommunications standards for 2G (GSM), 3G (UMTS) and 4G (LTE) telecommunications equipment and devices. The seven SSOs have cooperated to form the 3rd Generation Platform Partnership (3GPP) to develop and oversee those standards. ETSI through its secretariat manages the process by which its members contribute to the development of international standards. Participants in SSOs have an incentive to put forward their technology as a component of a proposed standard as inclusion in the standard ensures a market for the technology. Alternative technologies which are not included in a standard may well disappear from the market. Participants also accept obligations to declare IPRs which might potentially have an effect on the implementation of standards developed by the SSOs.

6. Although it is necessary to examine the arrangements in more detail below, it may be useful to give an overview of how ETSI deals with “Essential IPRs”, a

term which we equate with SEPs, when it devises those standards. Owners of patented inventions which might be used in a telecommunications industry standard, which is under preparation, declare their patents to ETSI. When considering whether to include a technology in a standard, ETSI requires the patent owner to enter into an irrevocable undertaking or contract with it to allow implementers of the standard to obtain a licence to use the relevant patented technology on fair, reasonable and

non-discriminatory (“FRAND”) terms. If the declared patented invention is included

in a standard and it is not possible to make, sell, use or operate etc equipment or methods which comply with the standard without infringing that IPR, it is treated as

an “Essential IPR”. The irrevocable undertaking to give a licence on FRAND terms

to implementers applies to any such Essential IPRs. But ETSI is not under an obligation to check whether patents declared to be essential are in fact essential. Nor does ETSI make any binding judgment on the validity or status of any such patents:

ETSI Guide on IPRs (19 September 2013) (“the Guidance”) para 3.2.1. Those are

matters for the relevant national courts. ETSI leaves it to the relevant parties, if they so wish, to resolve those questions by court proceedings or alternative dispute resolution: the Guidance para 4.3.

7.         The purpose of the ETSI IPR Policy is, first, to reduce the risk that technology

used in a standard is not available to implementers through a patent owner’s

assertion of its exclusive proprietary interest in the SEPs. It achieves this by requiring the SEP owner to give the undertaking to license the technology on FRAND terms. Secondly, its purpose is to enable SEP owners to be fairly rewarded for the use of their SEPs in the implementation of the standards. Achieving a fair balance between the interests of implementers and owners of SEPs is a central aim of the ETSI contractual arrangements.

The ETSI IPR Policy

1. The ETSI IPR Policy (“the IPR Policy”) is a contractual document, governed

by French law. It binds the members of ETSI and their affiliates. It speaks (clause 15(6)) of patents which are inevitably infringed by the sale, lease, use, operation etc

of components which comply with a standard as “Essential IPR”. By requiring an

IPR holder whose invention appears to be an Essential IPR to give an irrevocable

undertaking to grant a licence of the IPR on FRAND terms, it creates a “stipulation

pour autrui”, in other words an obligation which a third-party implementer can

enforce against the IPR holder. The IPR Policy falls to be construed, like other contracts in French law, by reference to the language used in the relevant contractual clauses of the contract and also by having regard to the context. In this case, that context is both the external context and the internal context of the IPR Policy document itself, such as the policy objectives declared in the document.

9.         The external context includes (i) the Guidance (above) which ETSI has

produced on the operation of the IPR Policy, (ii) ETSI’s statutes (above), (iii) the

globalised market which ETSI and other SSOs were and are seeking to promote, which we have discussed in para 4 above, and (iv) the fact that ETSI is a body comprising experts and practitioners in the telecommunications industry who would be expected to have a good knowledge of the territorial nature of national patents, the remedies available to patent owners against infringement of their patents, the need to modify by contract the application of patent law to promote the development of a globalised market in telecommunications products, and the practice of the industry in negotiating patent licensing agreements voluntarily.

10. The policy statements which provide the internal context include the

objectives set out in clause 3 of the IPR Policy. They include the statement in clause
3.1 that the IPR Policy:

“seeks to reduce the risk to ETSI, MEMBERS, and others applying

ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being

unavailable.”

That statement clearly reveals a policy of preventing the owner of an Essential IPR

from “holding up” the implementation of the standard. But that policy is to be

balanced by the next sentence of clause 3.1 which speaks of seeking a balance, when

achieving that objective, “between the needs of standardization for public use in the

field of telecommunications and the rights of the owners of IPRs.” The importance

of protecting the rights of the owners of IPRs is declared in the second policy

objective (clause 3.2) in these terms:

“IPR holders whether members of ETSI and their AFFILIATES or

third parties, should be adequately and fairly rewarded for the use of their IPRs in the implementation of STANDARDS and TECHNICAL

SPECIFICATIONS.”

This objective seeks to address the mischief of “holding out” by which

implementers, in the period during which the IPR Policy requires SEP owners not to enforce their patent rights by seeking injunctive relief, in the expectation that

licence terms will be negotiated and agreed, might knowingly infringe the owner’s

Essential IPRs by using the inventions in products which meet the standard while failing to agree a licence for their use on FRAND terms, including fair, reasonable and non-discriminatory royalties for their use. In circumstances where it may well be difficult for the SEP owner to enforce its rights after the event, implementers might use their economic strength to avoid paying anything to the owner. They may unduly drag out the process of licence negotiation and thereby put the owner to additional cost and effectively force the owner to accept a lower royalty rate than is fair.

11. Having looked at context, we turn to the operative clauses of the IPR Policy. A member of ETSI is obliged to use its reasonable endeavours to inform ETSI in a timely manner of Essential IPRs during the development of a standard or technical specification. If a member submits a technical proposal for a standard or technical specification it is obliged to inform ETSI of its IPRs which might be essential (clause 4.1). Clause 4.3 confirms that this obligation of disclosure applies to all existing and

future members of a “patent family” and deems the obligation in respect of them to

be fulfilled if an ETSI member has provided details of just one member of the patent family in a timely manner, while also allowing it voluntarily to provide information

to ETSI about other members of that family. A “patent family” is defined as “all the

documents having at least one priority in common, including the priority

document(s) themselves” and “documents” in this context means “patents, utility

models, and applications therefor” (clause 15(13)). The patent family thus extends

to patents relating to the same invention applied for and obtained in several jurisdictions. It shows an intention for the arrangement to apply internationally. This is important because the undertaking to grant a licence under clause 6, to which we now turn, extends to all present and future Essential IPRs in that patent family.

12. The key to the IPR Policy is clause 6, which provides the legal basis on which an owner of an Essential IPR gives an irrevocable undertaking to grant a licence and

thereby protects both ETSI and implementers against “holding up”. Clause 6.1

provides so far as relevant:

“When an ESSENTIAL IPR relating to a particular STANDARD or

TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-

discriminatory (‘FRAND’) terms and conditions under such IPR …”

It provides that the licences must at least cover the manufacture of equipment, the sale, lease or other disposal of equipment so manufactured, and the repair, use or operation of such equipment. FRAND licensing undertakings made pursuant to clause 6 are intended to bind all successors-in-interest in respect of a SEP, and upon transfer of a SEP the SEP owner is required to take steps to ensure that this is achieved (clause 6.1bis). The undertaking made in respect of a specified member of a patent family is applied to all existing and future Essential IPRs of that patent family unless specified IPRs are excluded in writing when the undertaking is made (clause 6.2). It is envisaged in the IPR Policy that this process will usually take place while ETSI is working to create a standard because clause 6.3 provides that, if the IPR owner does not grant the requested undertaking, relevant office-bearers in ETSI will decide whether to suspend work on the relevant parts of the standard or technical specification until the matter is resolved, or to submit any relevant standard or technical specification for adoption. Similarly, if, before a standard or technical specification is published, an IPR owner is not prepared to license an IPR, clause 8.1 provides for the adoption of a viable alternative technology for the standard or technical specification if such a technology exists. If such technology does not exist, clause 8.1 provides an option for work on the standard or technical specification to cease. If the refusal to grant a licence occurs after ETSI has published a standard or a technical specification, clause 8.2 provides the option of modifying the standard so that the relevant IPR is no longer essential.

13. Clause 6bis instructs members of ETSI to use one of the declaration forms annexed to the Policy. So far as relevant, the licensing declaration is an irrevocable declaration by the declarant and its affiliated legal entities that, to the extent that disclosed IPRs are or become and remain Essential IPRs, they (a) are prepared to grant irrevocable licences in accordance with clause 6.1, and (b) will comply with clause 6.1bis.

14. It appears from this brief review of the IPR Policy in its context that the following conclusions may be reached. First, the contractual modifications to the general law of patents are designed to achieve a fair balance between the interests of SEP owners and implementers, by giving implementers access to the technology protected by SEPs and by giving the SEP owners fair rewards through the licence

for the use of their monopoly rights. Secondly, the SEP owner’s undertaking, which

the implementer can enforce, to grant a licence to an implementer on FRAND terms

is a contractual derogation from a SEP owner’s right under the general law to obtain

an injunction to prevent infringement of its patent. Thirdly, the obtaining of undertakings from SEP owners will often occur at a time when the relevant standard is being devised and before anyone may know (a) whether the patent in question is in fact essential, or may become essential as the standard is developed, in the sense that it would be impossible to implement the standard without making use of the patent and (b) whether the patent itself is valid. Fourthly, the only way in which an implementer can avoid infringing a SEP when implementing a standard and thereby exposing itself to the legal remedies available to the SEP owner under the general law of the jurisdiction governing the relevant patent rights is to request a licence from the SEP owner, by enforcing that contractual obligation on the SEP owner. Fifthly, subject only to an express reservation entered pursuant to clause 6.2, the undertaking, which the SEP owner gives on its own behalf and for its affiliates, extends to patents in the same patent family as the declared SEP, giving the implementer the right to obtain a licence for the technology covering several jurisdictions. Finally, the IPR Policy envisages that the SEP owner and the implementer will negotiate a licence on FRAND terms. It gives those parties the responsibility to resolve any disputes as to the validity of particular patents by agreement or by recourse to national courts for determination.

Industry practice in negotiating licensing agreements

15. The parties do not dispute that SEP owners, which have a large portfolio of patents covering many countries, and implementers, which market their products in many countries, would as a matter of practice voluntarily negotiate worldwide licences, or at least licences from which a given territory is carved out while the rest of the world is licensed. Implementers in the telecommunications industry are often also owners of many SEPs and negotiate cross-licences with other implementers. As Birss J explained in his judgment at first instance ([2017] EWHC 2988 (Pat); [2017] RPC 19, para 544), no rational business would seek to license products country by country if it could be avoided. This is, as Birss J said, in part because of the effort required to negotiate and agree so many different licences and thereafter to keep track of so many different royalty calculations and payments. It is also, as he recognised, because businesses and consumers will move mobile handsets across borders and an implementer would want to be able to bind the SEP owner into allowing the entry of otherwise unlicensed handsets into the jurisdictions in which the SEP owner had a valid SEP or valid SEPs. The Court of Appeal in its judgment in the Unwired appeal ([2018] EWCA Civ 2344; [2018] RPC 20, paras 55-56) also referred to the prohibitive cost of litigating the validity and essentiality of patents territory by territory. These obvious considerations must have been part of the factual background of which the expert framers of the IPR Policy were aware when they devised that Policy.

The parties to the appeals

16.       In this judgment the court addresses three appeals. In the first, the appellants

are Huawei Technologies Co Ltd (“Huawei (China)”), a Chinese company which

develops telecommunications technology and also implements the technology of

others, and Huawei Technologies (UK) Co Ltd (“Huawei (UK)”), a UK subsidiary of Huawei (China) (collectively “Huawei”). The respondents are Unwired Planet International Ltd and Unwired Planet LLC (collectively “Unwired”) which are

registered in Ireland and the United States of America respectively. They are both

intellectual property licensing companies (sometimes called “Patent Assertion Entities”) which obtain income from the licensing of patents to companies which

make and sell telecommunications equipment. In 2013 Unwired acquired a portfolio of patents and patent applications from Ericsson, which was a major developer of telecommunications technology and a participant in standard setting. At the time of trial, the portfolio covered 42 countries and comprised 276 patents and applications declared as essential, of which 29 were UK patents or applications. Each of Ericsson and Unwired made an ETSI IPR Licensing Declaration and a Specific IPR Licensing Declaration in respect of patent families which encompass five of the UK patents on which Unwired sued Huawei in England. Ericsson had licensed patents to Huawei, including the UK patents which are the subject of these proceedings, but the licence

expired in 2012. Huawei’s continued use of the technology covered by the patents

in suit forms the backdrop to its appeal.

17.       In the second and third appeals the appellants are respectively (i) Huawei and

(ii) ZTE Corporation (“ZTE (China)”), a Chinese company, and its UK subsidiary

ZTE (UK) Ltd (“ZTE (UK)”), collectively “ZTE” and both part of the ZTE group,

which is a global supplier of telecommunications and information technology equipment. The respondent in both appeals is Conversant Wireless Licensing SÀRL

(“Conversant”), a company registered in Luxembourg and part of a Canadian group

of companies which is managed from the United States. It is an intellectual property licensing company or Patent Assertion Entity, which licenses patents for royalty income. Conversant acquired a portfolio of about 2,000 patents and patent applications, covering over 40 countries, from Nokia in 2011. Conversant pleads that the portfolio includes 28 patent families which are essential. It also pleads that it and/or Nokia have given an ETSI IPR Licensing Declaration and a Specific IPR Licensing Declaration in respect of its portfolio, which include the UK patents in suit, and that Conversant gave a General IPR Licensing Declaration on 22 July 2014.

18. We also received short written interventions from Apple Inc, Ericsson and Qualcomm Incorporated, in which three important players in the telecommunications industry set out their views on industry practice and on the principal issues of these appeals, including the interpretation of the IPR Policy. We are very grateful for their assistance.

The legal proceedings

(i)        Unwired v Huawei

19. Unwired commenced proceedings in England on 10 March 2014 against Huawei, Samsung and Google, alleging infringement of the UK designation of six

European patents (“EP”), and requesting, among other remedies, an injunction to

prevent further infringement. Unwired began parallel proceedings in Germany at the same time. Before the proceedings commenced, Unwired and Huawei had discussed

the possibility of Huawei buying some of Unwired’s patents but Huawei did not do

so. We discuss the further exchanges between Unwired and Huawei, both before the proceedings commenced and during the course of those proceedings, when we address the fourth issue (whether the court should refuse an injunction because of any failure to comply with the guidance of the CJEU in Huawei v ZTE) in paras 128- 158 below.

20. In 2015 and 2016 three trials were held to determine whether the UK patents in suit were valid and infringed. After a seven-day trial, Birss J held that one patent

(EP ‘744) was both valid and essential. His findings were upheld on appeal. In the

second trial, after a hearing over eight days, two patents (EP ‘287 and EP ‘514) were

held to be invalid, permission to appeal was granted, and the appeal was stayed in

July 2017. In the third trial, after a five-day hearing, a patent (EP ‘818) was held to

be valid and essential. Permission to appeal was granted and the appeal was stayed

in July 2017. The equivalent technical trial on the remaining UK SEP (EP ‘991) has

been postponed indefinitely.

21. At the same time Unwired brought proceedings in Germany, in which it had mixed success and from which appeals are pending. In particular, the German

designation of EP ‘744 has been held to be valid but not infringed and an appeal on infringement is pending. The German designations of EP ‘287 and EP ‘514 have

been held to be infringed but the Opposition Division of the European Patent Office has held those patents to be invalid and appeals from those decisions to the EPO

Technical Board of Appeal are pending. The German designation of EP ‘818 has

been held to be valid and infringed and those judgments have been upheld on appeal.

The claims of EP ‘991 which were alleged to be infringed were revoked for the

German designation and an appeal against that judgment is pending, as is a proceeding relating to the infringement of that patent.

1. Huawei (China) challenged several of Unwired’s patents in China. The Patent

Re-examination Board (“PRB”) has held that two Chinese family members of Unwired’s European patents (EP ‘287 and ‘514) are invalid but those findings are

under appeal. The PRB has held the Chinese family member of EP ‘744 to be valid

and Huawei (China) has appealed. Huawei (China) has also challenged five other patents, which Unwired declared to be SEPs; three have been upheld, one upheld in part and one invalidated. Appeals from those decisions are pending.

23. As matters currently stand, and subject to continuing appeal proceedings in Germany and China, Huawei has been held to be infringing one or more of

Unwired’s SEPs through its use of patented technology in both the UK and Germany

and in China challenges to two patents have failed.

24. Unwired settled with Google in 2015 and with Samsung in July 2016, after the technical trials of the UK patents but before Birss J held the trial to determine remedies for infringement of its UK patents, in an arrangement in which it granted Samsung a global licence for its portfolio. Unwired was sold to the PanOptis group of companies in July 2016. It was in serious financial trouble and was close to insolvency. We address in more detail the Samsung settlement when we discuss the third issue, namely what is required to make the licence offered by a SEP owner non-discriminatory, in paras 105-127 below.

25.       Between October and December 2016 Birss J held a trial to determine the

remedies for the infringement of Unwired’s valid SEPs. In his judgment of 5 April

2017 ([2017] EWHC 711 (Pat)), later reissued with revised redactions on 30 November 2017, [2017] EWHC 2988 (Pat)) he concluded, among other things, that the FRAND undertaking was justiciable and enforceable in the English courts and that an implementer who refused to take a licence on terms which the court held to be FRAND exposed itself to an injunction for infringing a UK patent which the court

held to be valid and infringed. He held that a willing licensor, with Unwired’s

portfolio of patents, and a willing licensee, with almost global sales, acting reasonably and on a willing basis would agree a worldwide licence. He concluded that such parties would regard the negotiation of licences country by country as

“madness”. Having been presented with detailed expert evidence, Birss J determined

the rates of royalty and other terms of the licence, so far as they were in dispute, that he considered to be FRAND. He held that in the circumstances a UK portfolio licence, for which Huawei had argued, would not be FRAND but that a FRAND licence between Unwired and Huawei had to be a worldwide licence.

26. In case he was wrong in his conclusion that only a worldwide licence was FRAND, he also determined the rates and terms of a UK-only licence covering

Unwired’s UK portfolio.

27. The judge also made findings which are relevant to the third and fourth issues which we discuss below. He held that the royalty rates which he settled for the global licence were FRAND notwithstanding that they were higher than those in the licence which Unwired gave to Samsung. He also held that Unwired had not breached article

102 of the Treaty on the Functioning of the European Union (“TFEU”) and that the

Huawei v ZTE case did not give Huawei a defence if it decided not to enter into the global licence which he had settled.

28. In a hearing on 7 June 2017 Birss J granted an injunction to restrain infringement of the relevant UK patents with a proviso that the injunction would cease to have effect if the defendant entered into the FRAND global licence which he had settled. He stayed the injunction pending appeals: [2017] EWHC 1304 (Pat); [2017] RPC 20. Huawei has given certain undertakings to the court and has sought to conduct itself according to those undertakings pending the determination of all appeals in the English proceedings.

29. Huawei appealed against Birss J’s orders. On 23 October 2018 the Court of Appeal (Lord Kitchin, and Floyd and Asplin LJJ) handed down a judgment dismissing the appeal: [2018] EWCA Civ 2344; [2018] RPC 20. The court disagreed

with the judge’s conclusion that in any particular case there could only be one set of

FRAND terms. Ifa circumstance were to arise in which either a local or a global licence would be FRAND, it would be for the SEP owner to choose which it preferred because the SEP owner performed its obligation by offering a licence on

FRAND terms. But this aspect of the judge’s reasoning had no material effect on

the conclusion which he had reached because he had not erred in deciding that, in
the circumstances of this case, only a global licence would be FRAND.

(ii)       Conversant v Huawei and ZTE

30. Conversant commenced proceedings against Huawei and ZTE in England in July 2017. It seeks among other things a declaration that the global licence which it offered the defendants is FRAND, alternatively, if that is not granted, a determination of FRAND terms. It also seeks, after amending its pleadings, injunctions in respect of UK patents found to be valid and infringed which will last until the defendants enter into a licence which the court determines is FRAND. Huawei and ZTE challenged the jurisdiction of the English courts on the grounds of (a) a lack of jurisdiction to determine the validity of foreign patents and (b) forum non conveniens. Conversant sought permission to serve the Chinese defendants out of the jurisdiction. In a judgment handed down on 16 April 2018, Henry Carr J

dismissed the jurisdiction challenges and granted Conversant’s application to serve

out of jurisdiction: [2018] EWHC 808 (Pat); [2018] RPC 16. Commenting on Birss

J’s judgment, he held that the English courts had jurisdiction to enforce the contract

contained in the IPR Policy and to determine such terms of a licence as were in dispute. Enforcing the contract and determining the terms of a FRAND licence did not involve the English courts intruding on the jurisdiction of foreign courts in relation to the validity or infringement of foreign patents. The licences determined by the English courts could be adjusted to reflect the rulings of foreign courts on such matters. The effect of this jurisdiction was to put the onus on an implementer to challenge foreign patents once the court had found a UK SEP to be valid and infringed. The royalty rates which the court could adopt would be based on evidence of comparable real-life licences which could be expected to take into account the competition policies of foreign states. He concluded on the basis of expert legal evidence led before him that the Chinese courts did not have jurisdiction to determine FRAND royalty rates in respect of non-Chinese patents without the agreement of the parties. He regarded it as no more than speculative whether the Chinese courts would have such jurisdiction, even if the parties consented, and he rejected the plea of forum non conveniens.

31. Before the hearing in England on the jurisdiction challenges, Huawei and ZTE raised proceedings in China to challenge the validity of Conversant’s declared

Chinese patents. After Henry Carr J handed down his judgment on the jurisdiction challenge in England, Conversant raised proceedings in Germany against Huawei (China) and ZTE (China) and their German subsidiaries claiming infringement of its German patents.

32.       In England, four UK patents were in suit but trials of two of them were stayed

once they had expired. After a technical trial of EP (UK) ‘659 Arnold J handed down

a judgment on 4 July 2019 in which he held that the patent was infringed but that the patent was invalid for added matter. Conversant was given permission to appeal

and that appeal has now taken place. The technical trial of EP (UK) ‘177 and its divisional family members (EP (UK) ‘722 and EP (UK) ‘206) took place in the

autumn of 2019. Birss J handed down a judgment on 8 January 2020 in which he

held that EP (UK) ‘177 and EP (UK) ‘722 were partially valid and infringed and

that EP (UK) ‘206 was invalid. An appeal is scheduled to take place in November

2020. A FRAND trial was listed for April 2020 with a time estimate of 15 days but was adjourned due to the Coronavirus pandemic and to await the outcome of these appeals.

33. Huawei and ZTE appealed the judgment of Henry Carr J on jurisdiction. On 30 January 2019, the Court of Appeal (Patten, Floyd and Flaux LJJ) handed down judgment, dismissing the appeal: [2019] EWCA Civ 38; [2019] RPC 6. In the

Conversant appeals to this court therefore, Huawei’s and ZTE’s cases relate to the

preliminary questions of jurisdiction and forum non conveniens.

34. In the Chinese proceedings Huawei (China) and ZTE (China) challenged 11 Chinese patents. As at the date of the chronology which the parties provided, the PRB had ruled that of those 11, eight are invalid, two are valid and one is partially valid. Those decisions are under appeal. None of the Chinese patents held to be valid are of the same families as the UK patents in suit. Huawei (China) and ZTE (China) have raised separate proceedings in China with the aim of obtaining a determination

of FRAND royalty rates for Conversant’s Chinese patents if they are found to be

valid and essential. Huawei and ZTE have offered Conversant to allow the Chinese

courts to address global FRAND terms and rates for Conversant’s non-Chinese

patents in its portfolio. Conversant did not accept those offers and Henry Carr J held
that it acted reasonably in so doing.

35.       In the German proceedings Conversant has claimed infringement of the

German designations of EP ‘177, EP ‘659 and EP ‘986. Hearings on those claims

took place on 18 June 2020 and Conversant has given undertakings which seek to address the possibility of conflict between judgments of the English courts and the German courts.

(iii)      Overview of the markets and the proceedings

36. It is clear from the UK, German and Chinese proceedings that ascertaining the validity, essentiality and infringement of national patents within a portfolio by legal proceedings in several different jurisdictions involves the expenditure of a prodigious amount of money and effort by both claimants and defendants, although the proceedings in China are significantly less costly than those in the West. It is not disputed that it would be impracticable for the parties to litigate these matters in each of the countries which the portfolio covers. It also appears to be clear and it is not disputed that within a substantial portfolio of patents there may be many patents, which (if subject to examination in proceedings) would be found to be invalid in whole or in part or not infringed by the technology used in the standard. These are in our view relevant facts when one addresses the fair balance between the interests of the SEP owner and the implementer which the IPR Policy seeks to achieve.

37. At the same time, Huawei and ZTE point out that only a very small proportion of their worldwide sales are made in the UK. Huawei manufactures in China and its principal market is in China. It asserts that 64% of its relevant sales occur in China or in countries in which Unwired has no patent protection and is dependent on the validity and infringement of Chinese patents for its claim for royalties. In relation to the Conversant claim, Huawei asserts that the Chinese market accounts for 56% of

its group’s worldwide sales on which Conversant makes claims, and a further 19%

of such sales occur in countries in which Conversant has no patents, so that

Conversant’s claims in those countries depend on the Chinese patents. The UK

market comprises only 1% of Huawei’s sales of those products. Similarly, ZTE

manufactures in China and in the first six months of 2017 60% of the group’s

operating revenue was from China. At that time only 0.07% of its turnover was generated in the UK. Thus, Huawei and ZTE submit that questions as to the validity and infringement of Chinese patents, which are within the jurisdiction of the Chinese courts, are of central importance to the value of a global licence of declared SEPs.

38. The force of this contention can be seen from the current state of play in litigation which Huawei commenced in China, seeking declarations that

Conversant’s Chinese patents were invalid or were not essential. Of the 15 patents

which Conversant put forward for trial from its portfolio of Chinese patents, 14 were held to be either invalid or not infringed and only one was found to be essential but the trial of its validity has yet to take place.

39.       In China, the Nanjing Intermediate People’s Court of Jiangsu Province in a

judgment dated 16 September 2019 in actions raised by Huawei ((2018) Su 01 Min Chu No 232, 233 and 234) criticised Conversant for seeking to obtain a global rate for its patents from a foreign judge without obtaining the view of the Chinese courts on the validity and infringement of its Chinese patents.

40. As we have said, many of the foreign judgments have been appealed, but they

nonetheless show what is in fact common ground between the parties, that declared
SEPs within a portfolio are often invalid or not essential.

41. Before turning to the challenges raised in these appeals we set out briefly the methodology which Birss J adopted in determining what was a FRAND licence between Unwired and Huawei. An understanding of the nature of the exercise which he undertook is important to an analysis of the relationship between the determination of the terms of a FRAND licence on the one hand and, on the other, the exclusive right of foreign courts to adjudicate on the validity and infringement of their national patents.

(iv)       Birss J’s methodology in the Unwired case

42. Birss J did not purport to determine the validity of any non-UK patent or to find that any such patent was or was not a SEP. What he sought to do was to value the portfolio as a whole, recognising that it was likely to include patents which were not valid and patents which although valid were not infringed and so were not SEPs.

One possible method, called the “top down” method, was to take a view on what the

total aggregate royalty burden would be for all the intellectual property relating to the standardised telecommunications technology in a product such as a handset. We

refer to that aggregate burden as “T”. Various companies in the industry had made

public statements as to the value of T. The task was then to share out the aggregate

royalty - T - across all licensors in proportion to the value of each licensor’s patent portfolio as a share - “S” - of the total relevant patent portfolio essential to the

standard. By this method the FRAND rate for a portfolio was the product of T and
S (ie T x S).

43. The second method was to use comparable licences. These are licences which parties engaged in the telecommunications industry had already agreed and operated. As the experts who gave evidence recognised and Birss J accepted, many patent licences including cross-licences may have different terms, including different ways of calculating royalties, which make comparison difficult. The experts had to adopt methods of unpacking the licences in order to make them comparable and this introduced uncertainty into the exercise of comparison. Unwired had obtained most of the patents in its portfolio from Ericsson. Thus,

Ericsson’s licences in the past had included all the SEPs in issue. That made

Ericsson’s licences particularly relevant as comparables. As Birss J explained (para

180), if the rate for Ericsson’s portfolio was E and the relative value of Unwired’s

portfolio to Ericsson’s portfolio was R, the Unwired rate is E x R.

44. Birss J accepted evidence that parties when agreeing licences of a substantial portfolio of declared SEPs did not evaluate the importance of individual patents but adopted methods involving patent counting. While it may be possible sometimes to identify a patent which is a keystone invention underpinning the technical approach

on which a standard is based, none of Unwired’s patents were in that category.

Patent counting therefore involved identifying from among the declared SEPs those

which were to be treated as essential, which he described as “Relevant SEPs”. There

is a problem that more patents are declared to be essential than in fact are essential. This problem of over-declaration is in part the result of the IPR Policy process which requires patent owners to declare SEPs in a timely manner when a standard is being prepared, as it encourages patent owners to err on the safe side by making a declaration. In part, there are difficulties in interpreting both the patents and the standards. In part also, patent claims are amended over time; different national patents within a patent family will vary in scope around the world; and standards themselves will vary over time. Further, the process of negotiating rates by counting patents within a portfolio creates a perverse incentive to over-declare. This phenomenon must be recognised and be taken into account when identifying Relevant SEPs and calculating shares and ratios - S and R above. Significantly, Birss J held, on the evidence led before him, that no-one in counting Relevant SEPs takes account of the validity of the patents.

45. Much of Birss J’s impressive judgment involved an analysis of the competing methods by which the parties sought to carry out this exercise. He also analysed a number of licences which Unwired and Ericsson had agreed and identified those licences to which Ericsson was a party on which he was prepared to place any weight (para 462) in determining a rate for E in relation to each of the standards for handsets and infrastructure.

46. Birss J also looked for guidance to decisions of courts in Japan and China (paras 472-474). The Intellectual Property High Court in Japan used the top down method described above (ie looking to the total royalty burden) in Apple Japan v Samsung Electronics (Case No 2013 [Ne] 10043). In China, the Guangdong High People’s Court in Huawei v Interdigital (2013), Guangdong High Ct Civ. Third

Instance No 305, fixed a FRAND rate for Interdigital’s portfolio in China by unpacking other Interdigital licences. The Chinese court’s judgment supported

Huawei’s case that rates in China were low in comparison with rates elsewhere. But

of more significance for present purposes is the fact that the Japanese and Chinese courts used methods similar to those presented to and adapted by Birss J, who relied principally on the analysis of comparable licences and used the top down method as a cross-check.

47.       Birss J, having heard the evidence, including that of the parties’ experts, and

having analysed comparable international licences, concluded that on a FRAND approach the royalty rates for China would be 50% lower than the rest of the world. He divided the rest of the world into major markets and other markets and held that the rate applicable in the latter markets would be the same as in China. He provided a mechanism for the adjustment of royalties payable in major markets if successful challenges to the validity or infringement of SEPs reduced the number of declared SEPs in any of those markets (paras 582-592).

48. In deciding that a worldwide licence was FRAND Birss J had regard to practice in the telecommunications industry to agree portfolio licences and observed that every patent licence which the parties had produced in the trial bundles was a worldwide portfolio contract, although some licences carved out a particular

territory while licensing the rest of the world (paras 524-534). Unwired’s portfolio

covered 42 countries and was large enough that it would not be practicable to fight over every patent. A willing licensor of such a portfolio and a willing licensee such as Huawei with global sales would agree on a worldwide licence (paras 538-543). He recorded that it was common ground that the industry assessed patent families rather than individual patents within a family (para 546). He thus drew on industry practice in deciding that a FRAND licence would be a worldwide licence.

49.       Against that background we turn to address the first issue.

Issue 1: Whether the English courts have jurisdiction and may properly exercise a power without the agreement of both parties (a) to grant an injunction restraining the infringement of a UK SEP unless the defendant enters into a global licence on FRAND terms of a multinational patent portfolio and (b) to determine royalty rates and other disputed items for a settled global licence and to declare that such terms are FRAND.

50.       The principal arguments which Huawei advances against the finding that it

must take a worldwide licence of the SEP owners’ relevant patents on FRAND terms

fixed by the English court in order to avoid an injunction restraining the
infringement of a UK SEP are as follows.

51. First, the English courts are not entitled to grant an injunction for the infringement of a UK patent unless an implementer agrees to take a licence of disputed foreign patents because this involves the implementer having to compromise foreign rights, including the right to challenge (a) the validity of those foreign patents and (b) the assertion that they are SEPs in the use of the standards in the foreign jurisdictions. The validity or infringement of disputed foreign patents is not justiciable in the courts of England and Wales. If the declared SEPs were foreign patents, the relevant national courts alone can determine validity and infringement. Foreign patents should be exposed to proper scrutiny by the national courts which determine their validity and infringement. An English court cannot compel a company to take a licence in respect of rights which may not exist. Thus, once an implementer disputes the validity or infringement of a foreign patent, the English courts have no jurisdiction to require the implementer to take a global licence to avoid an injunction.

52. Secondly, the English courts in so acting are fixing the terms and the royalty rates on which foreign patents are to be licensed without regard to what the foreign courts with jurisdiction over the foreign patents would decide. English judges were,

in Mr Howard QC’s words, setting up the English jurisdiction as “a de facto

international or worldwide licensing tribunal for the telecommunications industry”.

In so acting the English courts were out of step with the approach of other national

courts.

53. Thirdly, a clear distinction falls to be drawn between what two global telecommunications companies might do voluntarily in a commercial negotiation to license patents to enable the conduct of a global business and what a national court may impose on such companies. Companies may choose to compromise rights which otherwise might be enforced and challenges to validity and infringement which might otherwise be made; national courts cannot or should not impose such compromises.

54.       Fourthly, the IPR Policy, when properly construed, removes the SEP owner’s

right to obtain an injunction and limits its remedy to monetary compensation for infringement of such patents as the SEP owner has established or the implementer has agreed are valid and infringed. Once a SEP owner has established that a national patent was valid and infringed, a national court can determine the terms of a licence of such a patent if the parties cannot agree on those terms. The IPR Policy does not overturn the legal right of an implementer to challenge the validity of a patent or to seek to establish that the patent was not infringed. The IPR Policy, it is submitted, is not focussing on an international portfolio of patents but addresses particular SEPs, the validity and infringement of which, if challenged, would have to be established in national courts. In construing the IPR Policy it is important to note that ETSI has not established an international tribunal or forum to determine the terms of global licences of portfolios of patents. This points against a construction which would allow a national court to determine a global licence.

55. Fifthly, Huawei also submits that it is improper for an English court to exclude the products of implementers, both handsets and infrastructure, from the UK market as the result of an infringement of a SEP. Such a remedy is said to be disproportionate. It is also said to be anomalous that an implementer should be liable only for damages for infringing the established UK SEP if it chose to withdraw from the UK market but that infringement of that patent should entitle the SEP owner to receive global royalties if the implementer wished to market its products in the UK. Huawei also argues that there is a fundamental difference between what commercial parties may choose to do in their own interests and what an intellectual property court can impose on them. It also expresses concern about the role of Patent Assertion Entities in litigation to enforce SEPs.

56. Huawei also argues, based on general principles of English equity, that the only appropriate remedy which the English courts should consider is to address only the UK rights and to require an implementer to enter into a licence to pay in the future the same royalty as it has awarded as damages for past infringement. This is an argument which we address under Issue 5 in paras 159-169 below.

1. ZTE generally supports Huawei’s submissions but accepts that patent by

patent licensing is unlikely to be FRAND. It focusses its case on jurisdiction on questions of comity and as a fall back argues forum non conveniens. It submits that the determination by one national court of a worldwide FRAND licence raises issues of comity as it amounts to interference with the patent regimes of other states which adopt different approaches to the licensing of their national patents and as to what

terms would be FRAND. Such a licence could also impair a party’s ability to comply

with foreign law such as the competition law of a country in which it was active. Mr Bloch QC submits that the English courts have placed themselves out on a limb through their willingness to determine the terms of a compulsory licence of foreign patents. We discuss in more detail his arguments on forum non conveniens under issue 2 below (paras 92-104).

58. In addressing the submissions set out above, we recognise, as is undisputed, (a) that questions as to the validity and infringement of a national patent are within the exclusive jurisdiction of the courts of the state which has granted the patent and (b) that in the absence of the IPR Policy an English court could not determine a FRAND licence of a portfolio of patents which included foreign patents. It is the contractual arrangement which ETSI has created in its IPR Policy which gives the court jurisdiction to determine a FRAND licence and which lies at the heart of these

appeals. We therefore address first the fourth of Huawei’s submissions concerning

the interpretation of the IPR Policy.

59.       In our view, the submission attaches too much weight to the protection of

implementers against “holding up”, which is the purpose stated in clause 3.1, and

fails to give due weight to the counterbalancing purpose of clause 3.2, which seeks to secure fair and adequate rewards for SEP holders and which requires protection

against “holding out”. The suggestion that the IPR Policy removes a SEP owner’s

right to exclude implementers from a national market while requiring the SEP owner to establish the validity and infringement of each of its alleged SEPs, in the absence of a concession by the implementer, runs counter to the balance which the IPR Policy seeks to achieve.

60. The submission also fails adequately to take into account the external context which we have discussed. Operators in the telecommunications industry or their assignees may hold portfolios of hundreds or thousands of patents which may be relevant to a standard. The parties accept that SEP owners and implementers cannot feasibly test the validity and infringement of all of the patents involved in a standard which are in a sizeable portfolio. An implementer has an interest in taking its product to the market as soon as reasonably possible after a standard has been established and to do so needs authorisation to use all patented technology which is comprised in the standard. The implementer does not know which patents are valid and infringed by using the standard but needs authority from the outset to use the technology covered by such patents. Similarly, the owner who declares a SEP or SEPs does not know at this time which, if any, of its alleged SEPs are valid and are or will be infringed by use pursuant to the developing standard. The practical solution therefore is for the SEP owner to offer to license its portfolio of declared SEPs. That is why it is common practice in the telecommunications industry for operators to agree global licences of a portfolio of patents, without knowing precisely how many of the licensed patents are valid or infringed. It is a sensible way of dealing with unavoidable uncertainty. It ought to be possible for operators in an industry to make allowance for the likelihood that any of the licensed patents are either invalid or not infringed, at least in calculating the total aggregate royalty

burden in the “top down” method. By taking out a licence of an international

portfolio of generally untested patents the implementer buys access to the new standard. It does so at a price which ought to reflect the untested nature of many patents in the portfolio; in so doing it purchases certainty. The IPR Policy was agreed against that background and the undertaking required from the SEP owner likewise needs to be interpreted against that background.

61. We therefore do not construe the IPR Policy as providing that the SEP owner is entitled to be paid for the right to use technology only in patents which have been established as valid and infringed. Nor do we construe the IPR Policy as prohibiting the SEP owner from seeking in appropriate circumstances an injunction from a national court where it establishes that an implementer is infringing its patent. On the contrary, the IPR Policy encourages parties to reach agreement on the terms of a licence and avoid litigation which might involve injunctions that would exclude an implementer from a national market, thereby undermining the effect of what is intended to be an international standard. It recognises that if there are disputes about the validity or infringement of patents which require to be resolved, the parties must resolve them by invoking the jurisdiction of national courts or by arbitration. The possibility of the grant of an injunction by a national court is a necessary component of the balance which the IPR Policy seeks to strike, in that it is this which ensures that an implementer has a strong incentive to negotiate and accept FRAND terms

“From at least the early 19th century, courts have granted injunctive

relief upon a finding of infringement in the vast majority of patent

cases. This ‘long tradition of equity practice’ [Weinberger v Romero-

Barcelo, 456 US 305, 320 (1982)] is not surprising, given the difficulty of protecting a right to exclude through monetary remedies

that allow an infringer to use an invention against the patentee’s
wishes”. (Emphasis in original)

163. In the present case, the courts below were not invited to consider the possibility of awarding damages in lieu of an injunction. We are not in any event persuaded that there is any basis on which this court could properly substitute an award of damages for the injunction granted by Birss J and upheld by the Court of Appeal.

164. There are, in the first place, no grounds in this case for a concern of the kind expressed by Kennedy J in the eBay case. The threat of an injunction cannot be employed by the claimants as a means of charging exorbitant fees, or for undue leverage in negotiations, since they cannot enforce their rights unless they have offered to license their patents on terms which the court is satisfied are fair, reasonable and non-discriminatory.

165.     This point was clearly in the mind of Birss J. He stated at para 562:

“If a worldwide licence is not FRAND then a putative licensee should

not be coerced into accepting it by the threat of an injunction in one state. However, if a worldwide licence is FRAND then the situation changes. The logic of the FRAND undertaking applied in the context of patent rights is that the remedy of an injunction to restrain infringement, granted in respect of a patent found valid and infringed/essential, should present the licensee with a simple choice

either to take a FRAND licence or stop dealing in the products.”

He returned to this point at the end of his judgment, when explaining at para 793 why an injunction was appropriate:

“The relevant patents have been found valid and infringed. Unwired

Planet wish to enter into a worldwide licence. Huawei is willing to enter into a UK portfolio licence but refuses to enter into a worldwide licence. However a worldwide licence is FRAND and Unwired Planet are entitled to insist on it. In this case a UK only licence would not be FRAND. An injunction ought to be granted because Huawei stand before the court without a licence but have the means to become

licensed open to them.”

166. Secondly, in a case of the present kind, an award of damages is unlikely to be an adequate substitute for what would be lost by the withholding of an injunction. The critical feature of a case of this kind is that the patent is a standard technology for products which are designed to operate on a global basis. That is why standard technology is essential, and why the patent-holders whose patents are accepted as SEPs are required to give an undertaking that licences will be made available on FRAND terms. Once the patents have been accepted as SEPs, it may well be impractical for the patent-holder to bring proceedings to enforce its rights against an infringing implementer in every country where the patents have been infringed. That

is because, as Huawei’s witness Mr Cheng accepted in evidence, the cost of bringing

enforcement proceedings around the world, patent by patent, and country by

country, would be “impossibly high”.

167. In those circumstances, if the patent-holder were confined to a monetary remedy, implementers who were infringing the patents would have an incentive to continue infringing until, patent by patent, and country by country, they were compelled to pay royalties. It would not make economic sense for them to enter voluntarily into FRAND licences. In practice, the enforcement of patent rights on

that basis might well be impractical, as was accepted in the present case by Huawei’s

witness, and by the courts below. An injunction is likely to be a more effective remedy, since it does not merely add a small increment to the cost of products which infringe the UK patents, but prohibits infringement altogether. In the face of such an order, the infringer may have little option, if it wishes to remain in the market, but to accept the FRAND licence which ex hypothesi is available from the patent-holder. However, for the reasons explained in paras 164-165, that does not mean that the court is enabling the patent-holder to abuse its rights.

168. This point was understood by the courts below. In the Court of Appeal, Lord Kitchin observed at paras 55-56:

“It may be wholly impractical for a SEP owner to seek to negotiate a

licence of its patent rights country by country, just as it may be prohibitively expensive for it to seek to enforce those rights by litigating in each country in which they subsist. This latter point was accepted by Mr Cheng in the course of his evidence: he agreed that

the costs of such litigation for [Unwired] would be impossibly high …

[I]t seems to us, at least as a matter of principle, that there may be circumstances in which it would not be fair and reasonable to expect a SEP owner to negotiate a licence or bring proceedings territory by territory and that in those circumstances only a global licence or at

least a multi-territorial licence would be FRAND.”.

Lord Kitchin also noted at para 111 the implications of accepting Huawei’s

contention that country-by-country licensing was appropriate:

“The patentee must then bring proceedings country by country to

secure the payment of the royalties to which it is entitled. But unlike a normal patent action, where an unsuccessful defendant faces the prospect of an injunction, the reluctant licensee would know that, on the assumption it could only be required to take licences country by country, there would be no prospect of any effective injunctive relief being granted against it provided it agreed to pay the royalties in respect of its activities in any particular country once those activities had been found to infringe. So it would have an incentive to hold out

country by country until it was compelled to pay.”

169. That reasoning was criticised by Huawei, but far from being erroneous, it

identifies the central reason why an injunction is necessary in order to do justice,
and why damages in lieu would not be an adequate substitute.

Conclusion

170. Before concluding we would like to record our appreciation of the high quality of the judgments of the courts below and the help which we gained from the judgments of the Court of Appeal in each of these cases. It follows from what we have discussed above that the appeals must fail.

171.     We therefore dismiss the appeals.