Conversant Wireless Licensing S.A.R.L (a company incorporated under the laws of Luxembourg) v Huawei Technologies Company Ltd (a company incorporated under the laws of the People's Republic of China)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henry Carr |
| Judgment Date | 16 April 2018 |
| Neutral Citation | [2018] EWHC 808 (Pat) |
| Court | Chancery Division (Patents Court) |
| Docket Number | Case No: HP-2017-000048 |
| Date | 16 April 2018 |
[2018] EWHC 808 (Pat)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
PATENTS COURT
Royal Courts of Justice
7 Rolls Building, Fetter Lane
London,
EC4A 1NL
THE HON Mr Justice Henry Carr
Case No: HP-2017-000048
Mr Adrian Speck QC, Mr Colin West, Ms Isabel Jamal and Mr Thomas Jones (instructed by EIP Legal) for the Claimant
Mr Alexander Layton QC and Mr Henry Forbes Smith (instructed by Allen & Overy LLP) for the Huawei Defendants
Mr Micheal Bloch QC (instructed by Bristows LLP) for the ZTE Defendants
Hearing dates: 27 and 28 February and 1 and 2 March 2018
Judgment Approved
Introduction
This judgment is in respect of a challenge by the Defendants to the jurisdiction of the English court in relation to a claim for infringement of UK patents, where the relief sought is the determination of a global FRAND licence.
A comprehensive account of the history and purpose of FRAND and the principles which apply to it is provided in the well-known judgment of Birss J in Unwired Planet International Ltd v Huawei Technologies Co Ltd [2017] EWHC 2988 at [83] – [97]. He explained that standards exist in mobile phones so that different manufacturers can produce equipment which is interoperable. In this way, manufacturers can compete with each other, and the public can be sure that a 4G phone (for example) will work with any 4G network. The public want up to date technological developments, and the standards will therefore incorporate patented inventions. Inventors must be entitled to a fair return for use of their inventions. However, for the standards to permit interoperability, inventors should not be able to prevent others from using patented inventions incorporated into the standards. A balance is achieved by requiring implementers who use such patented inventions to take an appropriate licence and pay a fair royalty. The appropriate licence is one which is fair, reasonable and non-discriminatory (“FRAND”).
Telecommunication standards worldwide are set by standard-setting organisations (“SSOs”). The relevant SSO in this case, through which the Claimant's FRAND obligations arise, is known as ETSI. ETSI requires that holders of standard essential patents (“SEPs”) give an undertaking to license on FRAND terms if they wish to participate in standard setting.
The Defendants, although commercial rivals, advanced similar submissions in support of their applications. In this judgment, the first and second Defendants are referred to individually as “Huawei China” and “Huawei UK” and collectively as the “Huawei Defendants”. The third and fourth Defendants are referred to individually as “ZTE China” and “ZTE UK”, and collectively as “the ZTE Defendants”. The Claimant (“Conversant”) is a Luxembourg company which owns a global portfolio of patents which, it claims, includes SEPs in over 40 countries. Conversant maintains that the Defendants are and have for several years been infringing its SEPs in many different jurisdictions.
Conversant has been in discussions, over several years, with Huawei China and ZTE China, who manufacture and sell mobile telephone devices worldwide. Conversant claims to have made a number of offers for a global licence to Huawei China and ZTE China that are FRAND. Conversant alleges that no meaningful progress has been made with the Huawei Defendants or the ZTE Defendants, who continue to infringe, without taking a licence.
The Defendants dispute that Conversant has any valid SEP. They maintain that Conversant's patents are not essential or that they are invalid. On this basis, the Defendants have the option of not entering into a licence and either bringing their own proceedings for revocation or declarations of non-infringement or non-essentiality or defending such proceedings as are brought against them by Conversant. However, the Defendants' position is that if they are wrong, and they are infringing one or more valid SEPs, then they will seek to rely upon Conversant's obligation to grant FRAND licences.
On 24 July 2017, Conversant commenced these proceedings, claiming that the Defendants were infringing the UK designations of four of its European patents. It seeks, by way of relief, a determination of FRAND terms for its global SEP portfolio. Such a global licence was held to be FRAND by Birss J in Unwired Planet, following technical trials which determined that certain UK patents had been infringed. His decision is the subject of a 6-day appeal, which is due to be heard in May 2018.
At the hearing of these applications Conversant claimed that the Defendants had declined to answer the question of whether, if the English court sets a licence which it considers to be FRAND, they will enter into that licence, or whether they reserve to themselves the right to decide whether to do so. Conversant argued that the Defendants had adopted a strategy of “hold-out” by seeking to avoid or delay payment of any royalties under a FRAND licence, whilst continuing to infringe. Conversant sought permission, which I granted, to amend its pleadings to claim FRAND injunctions against the Defendants i.e. injunctions in respect of UK patents found valid and infringed which will last unless and until the Defendants enter into the licence that the court considers to be FRAND. I did so without prejudice to the Defendants' challenges to jurisdiction, which are the subject of this judgment.
The issues on these applications
The Defendants contend that:
i) The English court has no jurisdiction to decide these claims which are, in substance and effect, claims for infringement of foreign patents, the validity of which is in dispute.
ii) Alternatively, the court should decline to exercise jurisdiction to decide the claims, because England is not the proper or appropriate forum ( forum non conveniens); China is the natural forum.
iii) Huawei China and ZTE China have not been validly served in England.
iv) Applications by Conversant for permission to serve out of the jurisdiction on Huawei China and ZTE China and for substituted service should be refused.
Manufacture and sales of alleged infringements in China
At the forefront of the Defendants' arguments is the “China-centric” nature of their businesses. In the case of the Huawei Defendants, China accounts for 56% of the Huawei group's worldwide sales on which royalties are claimed by Conversant. Moreover, since China is the place of manufacture of the alleged infringements, Conversant relies on its Chinese patents to claim royalties on a further share (some 19%) of global sales made in countries where Conversant has no patents. Therefore, if the Chinese patents are not infringed, or are invalid, then (according to the Huawei Defendants) some 75% of the worldwide royalty claim would fall away. By contrast, the United Kingdom accounts for only 1% of the worldwide sales on which royalties are claimed. In the case of the ZTE Defendants, the manufacture of mobile phones takes place in China and 60% of the ZTE group's operating revenue was from China in the first six months of 2017. By contrast, the ZTE group does very little business in the UK with only 0.07% of turnover being generated in the UK.
Proceedings brought by the Defendants in China
In the circumstances, it is understandable that Huawei China and ZTE China have commenced proceedings in China against Conversant, seeking to establish invalidity and non-infringement of its Chinese patents. China has a bifurcated patents court system in which validity is determined in the Patent Re-examination Board, and infringement is determined in other intellectual property courts. Huawei China and ZTE China have brought proceedings against Conversant in the Patent Re-Examination Board, challenging the validity of all 11 Chinese patents in Conversant's portfolio. These challenges are anticipated to be heard during 2018 with a decision expected by early to mid-2019. Huawei China and ZTE China have also brought claims against Conversant for declarations of non-infringement or determinations of FRAND royalty terms in respect of the Chinese patents in the Chinese courts in Nanjing and Shenzhen, which are also expected to be decided by early 2019.
Justiciability
Putting in issue the validity of foreign patents
The Defendants' case is that:
i) the English court has no jurisdiction to declare foreign patents invalid;
ii) Conversant's claims are, in substance, claims for infringement of foreign patents, the validity of which is disputed; and/or to which the invalidity of foreign patents is a defence, and which therefore depend on the validity of foreign patents, when such validity is disputed.
In particular, the Defendants contend that:
i) because of the preponderance of sales outside the UK, and in particular in China, these claims are principally concerned with foreign patents;
ii) the global FRAND claim is the principal subject matter of the proceedings;
iii) the invalidity of the foreign patents in the portfolio, such as the Chinese patents, would provide a defence to the global FRAND claim, and the Defendants intend to advance such a defence;
iv) it would be fair and proportionate to test the validity of each of the 11 Chinese patents in the portfolio in any global FRAND proceedings in the English court, in view of their small number and overwhelming commercial significance;
v) it would also be fair and proportionate to test the validity in such...
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