Huawei Loses U.K. Top Court Ruling Over Global Patent Rates

(Bloomberg) -- U.K. judges can set global royalty rates for the use of telecommunications technology, Britain’s highest court said in a pair of cases over how much Huawei Technologies Co. owes U.S. patent owners.

The U.K. Supreme Court on Wednesday affirmed a decision that Huawei would either have to pay Unwired Planet International Ltd. a global rate set by judges or face an order limiting its British sales. In a related decision involving another patent owner, the court rejected Huawei and ZTE Corp.’s argument that, if any court were to establish a global rate, it should be in China, where manufacturing and the bulk of sales are located.

While Huawei said it’s since settled with Unwired Planet’s parent company, the ruling could effectively make British courts a one-stop shop to set global royalty rates. It also could set off a competition should other countries, such as China, Germany and the U.S., decide they want to be the arbiter of these disputes. Since the original ruling, U.K tribunals have already become more popular with patent owners.

Companies worldwide are fighting over who will profit from fundamental technology in wireless communications. The cases have pitted the owners of patents on standardized technology, including Qualcomm Inc. and Ericsson AB, against those who use the systems in their products, including Apple Inc.

Regulators and courts around the world have grappled with how to value patents for essential technology and whether their owners have any rights to limit the use of the inventions. It’s a thorny issue that’s becoming more important as the world transitions to the next generation of wireless technology known as 5G.

Frustrations

The unclear rules have frustrated automakers and other manufacturers of so-called Internet of things devices. Patent owners want to get compensation for their research, while manufacturers want to reduce their costs.

The “decision makes the U.K. one of the leading global jurisdictions for the resolution of such disputes,” EIP, one of the law firms representing the patent holders, said in a statement.

In a statement, Huawei said it “continues to advocate a balanced position” when it comes to licensing of standard-essential patents, calling it “critical to the innovation that brings enormous benefits to our industry and society.”

The “overall feeling” on both sides is that the U.K. courts are more likely to rule in favor of owners of patents on essential technology, said Dafydd Bevan, head of the high tech group at Marks & Clerk Law. Companies may opt to limit British sales to avoid the court, he said.

It “could reshape technology licensing deals in the 5G era,” Tamlin Bason, a Bloomberg Intelligence analyst said. It “may embolden patent owners like Qualcomm, Nokia and Ericsson, while undermining leverage for Apple and other device makers.”

Legal experts debate whether this will mean more or less litigation. It could set both sides “racing to the foreign courts that they consider will set the most favorable license terms,” said Steve Baldwin, an intellectual property lawyer with Kirkland & Ellis.

The ruling also set out steps judges could take to determine an appropriate global rate. The decision assumes that not all patents in a portfolio are valid or essential to an industry standard since the potential licensees will try to knock out as many patents as they can. Still, setting one global rate is consistent with how companies decide their own disputes when litigation isn’t involved, the court ruled.

‘Prodigious’ Spending

“No rational business would seek to license products country by country if it could be avoided,” the court said. Otherwise, it would mean “the expenditure of a prodigious amount of money and effort” by both sides.

Unwired Planet and Conversant Wireless Licensing Sarl each have patents related to the 2G, 3G, and 4G telecommunications standards. Unwired Planet sought royalties on Huawei’s phones and infrastructure, while Conversant contends it’s entitled to royalties from both Huawei and ZTE. The Unwired Planet patents originated with Ericsson, and Huawei had paid licensing fees on them until the contract expired in 2012.

Huawei said it’s settled with Unwired Planet’s parent company, PanOptis Patent Management, and made payments “according to the agreement set by U.K. court,” so the ruling won’t mean any additional funds. A U.K. trial in the Conversant case is scheduled for February, it said.

Businesses that are normally competitors have come together to establish industry-wide standards so, for instance, a photo, text message or phone call from a Samsung Galaxy phone can seamlessly transfer to an Apple iPad, or a phone using a network can switch to Wi-Fi without a hiccup.

Because they have an advantage on getting their inventions included in any standard, participants pledge to license their relevant patents on “fair, reasonable and non-discriminatory terms.”

Court Shopping

The phrase, known as FRAND, has never been defined, as the standard-setting boards rely on the companies to work out contracts among themselves, sometimes through high stakes litigation. It was at the heart of billion-dollar fights such as Apple’s since-resolved efforts to lower the amount it pays Qualcomm.

Since patents are limited to national borders, judges hearing these disputes decide the appropriate rate for the inventions in their home country. Each side files lawsuits in courts they consider favorable, in hopes that a ruling will give them an advantage in negotiations.

Patent owners, such as Unwired Planet, would prefer to have issues resolved in one court, particularly if they get to choose the most patent-friendly venue.

American courts have been limiting patent rights, even though big damage awards are still possible, while Chinese courts have been criticized for having low damage awards.

Unwired Planet was part of a PanOptis group that won a $506 million U.S. verdict against Apple on Aug. 11. Apple said the company failed to follow its obligation to license its 4G patents on fair terms.

The cases are Unwired Planet International Ltd. v. Huawei Technologies Co., UKSC 2018/0214; and Huawei Technologies v. Conversant Wireless Licensing SARL, UKSC2019/0041, both U.K. Supreme Court.

Regulators and courts around the world have grappled with how to value patents for essential technology and whether their owners have any rights to limit the use of the inventions. It’s a thorny issue that’s becoming more important as the world transitions to the next generation of wireless technology known as 5G.

Frustrations

The unclear rules have frustrated automakers and other manufacturers of so-called Internet of things devices. Patent owners want to get compensation for their research, while manufacturers want to reduce their costs.

The “decision makes the U.K. one of the leading global jurisdictions for the resolution of such disputes,” EIP, one of the law firms representing the patent holders, said in a statement.

The “overall feeling” on both sides is that the U.K. courts are more likely to rule in favor of owners of patents on essential technology, said Dafydd Bevan, head of the high tech group at Marks & Clerk Law. Companies may opt to limit British sales to avoid the court, he said.

It “could reshape technology licensing deals in the 5G era,” Tamlin Bason, a Bloomberg Intelligence analyst said. It “may embolden patent owners like Qualcomm, Nokia and Ericsson, while undermining leverage for Apple and other device makers.”

The ruling also set out steps judges could take to determine an appropriate global rate. The decision assumes that not all patents in a portfolio are valid or essential to an industry standard since the potential licensees will try to knock out as many patents as they can. Still, setting one global rate is consistent with how companies decide their own disputes when litigation isn’t involved, the court ruled.

‘Prodigious’ Spending

“No rational business would seek to license products country by country if it could be avoided,” the court said. Otherwise, it would mean “the expenditure of a prodigious amount of money and effort” by both sides.

Unwired Planet and Conversant Wireless Licensing Sarl each have patents related to the 2G, 3G, and 4G telecommunications standards. Unwired Planet is seeking royalties on Huawei’s phones and infrastructure, while Conversant contends it’s entitled to royalties from both Huawei and ZTE. The Unwired Planet patents originated with Ericsson, and Huawei had paid licensing fees on them until the contract expired in 2012.

Officials with Huawei didn’t immediately return messages seeking comment.

Businesses that are normally competitors have come together to establish industrywide standards so, for instance, a photo, text message or phone call from a Samsung Galaxy phone can seamlessly transfer to an Apple iPad, or a phone using a network can switch to Wi-Fi without a hiccup.

Because they have an advantage on getting their inventions included in any standard, participants pledge to license their relevant patents on “fair, reasonable and non-discriminatory terms.”

Court Shopping

The phrase, known as FRAND, has never been defined, as the standard-setting boards rely on the companies to work out contracts among themselves, sometimes through high stakes litigation. It was at the heart of billion-dollar fights such as Apple’s since-resolved efforts to lower the amount it pays Qualcomm.

Since patents are limited to national borders, judges hearing these disputes decide the appropriate rate for the inventions in their home country. Each side files lawsuits in courts they consider favorable, in hopes that a ruling will give them an advantage in negotiations.

Patent owners, such as Unwired Planet, would prefer to have issues resolved in one court, particularly if they get to choose the most patent-friendly venue.

American courts have been limiting patent rights, even though big damage awards are still possible, while Chinese courts have been criticized for having low damage awards.

Unwired Planet is part of a Texas-based firm called PanOptis Patent Management that won a $506 million U.S. verdict against Apple on Aug. 11. Apple said the company failed to follow its obligation to license its 4G patents on fair terms.

The cases are Unwired Planet International Ltd. v. Huawei Technologies Co., UKSC 2018/0214; and Huawei Technologies v. Conversant Wireless Licensing SARL, UKSC2019/0041, both U.K. Supreme Court.

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