Mr Justice Henry Carr has rejected the defendants’
jurisdiction challenge in a major telecoms licensing dispute, Conversant v
ZTE [2018]
EWHC 808 (Pat) (16 April 2018), instead finding that Conversant ‘has a good
arguable case for a FRAND injunction’ and that England is ‘clearly and
distinctly the most appropriate forum’ for the FRAND dispute.
The defendants had sought to challenge jurisdiction, arguing
that the case should be convened in China and that the UK was an inappropriate
forum. They had also argued that the court was wrong to find that there was an
arguable case for Conversant to claim an injunction – but on the facts before
him, the judge found there was a good arguable case.
The judge also considered the conduct of parties in
negotiations, providing useful guidance for how the conduct of FRAND
negotiations will be viewed by the English courts.
Background
This decision comes one year after Mr Justice Birss
delivered his judgment in Unwired Planet v Huawei [2017] EWHC
2988 (Pat). He found that the English High Court did have jurisdiction not
only to award a licence rate for a global patent portfolio, but also to order
an injunction in respect of unlicensed infringements for standard-essential
patents. Awarding Unwired Planet a global royalty rate for its portfolio of 4G,
3G and 2G patents, he paved the way for other patent owners to settle their
disputes before the UK courts.
Weeks later, in July 2017, Luxembourg company Conversant
Wireless took advantage of the favourable landscape, and issued proceedings
against two Chinese defendants – ZTE and Huawei – for infringement of four
standard-essential patents. These four patents represent a selection from a
global portfolio, and Conversant later amended its claim to add an
Unwired-Planet-style request for an injunction.
Jurisdiction challenge
The defendants challenged jurisdiction on two main heads:
that the English courts did not have jurisdiction; and that the UK was forum
non conveniens (ie an inappropriate place to hear the case). Both of these
challenges were rejected.
Importantly, both defendants are ‘China-centric’ businesses;
that is, they are Chinese companies, and that’s also their major sales market
and where they manufacture. Since most profits are generated in China, they
said that the Chinese patents in Conversant’s global portfolio are
disproportionately significant in value compared to the UK elements. They
argued that in asking for a licence fee for a global portfolio, Conversant’s
claim amounted to an allegation of infringement of a wide range of foreign
patents, and a request for relief in respect of those. But since the
jurisdiction of the English courts is limited to deciding on validity and
infringement of UK patents, they said that there was no jurisdiction to hear
such a claim.
Carr J applied the ‘simple and compelling’ analysis of Birss
J at [567] of Unwired Planet, where a similar issue was considered and
dispensed with. Moreover, since legal justice is jurisdictional by nature, he
considered the same arguments of the defendants could in practice be raised in
any court in the world, which would require Conversant to seek per-country
licences in each worldwide market – a consequence that would not be FRAND.
In addressing the jurisdiction challenges, Carr J remarked
on the way that the defendants had presented their arguments. Their
applications characterised Conversant’s case as a claim for infringement of
foreign patents (and worldwide royalty claims), which the judge found to be
inaccurate. He said:
‘In my judgment, the characterisation of these claims as
foreign portfolio infringement claims, or worldwide royalty claims, is
inaccurate. They are claims for infringement of four United Kingdom patents,
and the English court is clearly the appropriate forum in which these cases should
be tried. … As in Unwired Planet, the global FRAND licence sought by Conversant
sets different royalty rates for different territories, and it makes no
difference where the bulk of the sales occur.’
As to the forum non conveniens challenge, the two
UK defendants have also responded to Conversant with proceedings of their own
in China. They said that the proceedings before the Chinese courts dealt with
identical or similar issues, and the Chinese courts were therefore more
competent than the English courts to adjudicate on the dispute between the
parties.
The response from Conversant was (and the judge agreed) that
there was no clear evidence that the Chinese court would accept jurisdiction
over the determination of a global licence. He found that the totality of the
evidence established that the Chinese courts do not have jurisdiction to
determine essentiality or infringement of non-Chinese patents, nor do they have
jurisdiction to determine FRAND rates in respect of non-Chinese patents without
agreement from both parties. In summary, he took the view that China ‘plainly
is not the natural forum’ for the case.
FRAND Conduct and service out
There was an additional dispute about service on the facts
of the case. Conversant had served on two UK companies of the defendants’
groups, on the basis that they were acting as UK offices for the main head
company. Both defendants submitted evidence to dispute this; and in both cases,
the judge accepted Conversant’s criticisms that the evidence submitted was
deficient in some ways. However, absent cross-examination, he was not prepared
to dismiss the evidence and therefore accepted it, finding that service on the
UK companies was not valid service on the Chinese counterparts.
In considering whether to allow Conversant permission to
serve out of the jurisdiction, the judge looked at the parties’ negotiation
history. The defining issue for this purpose was Conversant’s claim to an
injunction, which (if accepted) would draw into it all the surrounding issues
as being closely related to the main substance, for the purposes of CPR 6B PD
3.1(4)(a). He assessed the conduct of negotiations and highlighted key issues
that, he said, supported Conversant’s case for an injunction. In particular he
referred to the following points, which will provide further guidance from the
courts about how negotiations might be handled in a ‘FRANDly’ manner:
- the length of negotiations (several years) had not led to
much progress; - the fact that no interim royalty payments had been made;
- Huawei’s position that they would not take a global
portfolio licence; and - that the defendants did not acknowledge (when requested)
that they were willing to take a licence, or that their willingness was
unconditional.
Accepting that the story was not one-sided, the judge
nevertheless considered that on the facts there was a good arguable basis for an
injunction. He therefore gave permission to serve out in accordance with CPR 6B
PD 3.1(2).
Summary
The Patents Court has made clear that it will accept
jurisdiction of patent portfolio disputes where it is tied to justiciable
issues in the UK, such as the infringement of UK patents; and that once charged
with a case it will not relinquish jurisdiction lightly without very clear
indications that another forum is more appropriate. Finally, it has also
provided helpful guidance for the proper conduct of FRAND negotiations.
Tristan Sherliker acts in high-complexity IP and technology
disputes at Bird & Bird in London. Patent cases he has worked on involve
every major brand in the smartphone space, including several high-profile FRAND
licensing disputes in the UK and overseas.
