Huawei Technologies Company, Ltd (a company incorporated under the laws of the People's Republic of China) v Conversant Wireless Licensing S.A.R.L. (Incorporated under the laws of Luxembourg)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lord Justice Flaux,Lord Justice Patten |
| Judgment Date | 30 January 2019 |
| Neutral Citation | [2019] EWCA Civ 38 |
| Docket Number | Case No: A3/2018/1274 A3/2018/1278 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 January 2019 |
[2019] EWCA Civ 38
Lord Justice Patten
Lord Justice Floyd
and
Lord Justice Flaux
Case No: A3/2018/1274 A3/2018/1278
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
PATENTS COURT
MR JUSTICE HENRY CARR
Royal Courts of Justice
Strand, London, WC2A 2LL
Alexander Layton QC and Henry Forbes-Smith (instructed by Allen & Overy LLP) for the First and Second Appellants
Michael Bloch QC (instructed by Bristows LLP) for the Third and Fourth Appellants
Adrian Speck QC, Colin West and Thomas Jones (instructed by EIP Legal) for the Respondent
Hearing dates: 3–5 December 2018
Approved Judgment
Introduction
The four appellants (a Chinese and an English company in each of the Huawei and ZTE groups) dispute the jurisdiction of the English court to determine an action brought against them by the respondent (“Conversant”) concerning UK patents owned by Conversant. I will refer to the first and second appellants as “Huawei China” and “Huawei UK” respectively, or together as “Huawei”, and the third and fourth appellants as “ZTE China” and “ZTE UK” respectively, or together as “ZTE”.
The appellants challenge jurisdiction on two grounds. First, they say that the claim brought against them is not justiciable in the English court. That is because the dispute, in addition to raising issues concerning the validity and infringement of Conversant's UK patents in suit, also relates to the validity of Conversant's foreign patents, and the validity of foreign patents is not justiciable subject matter in the English court. Secondly, they say that the English court is not the natural or an appropriate forum for the claims against them. They contend that the Chinese court is the natural and appropriate forum, and that the English court ought to refuse service out of the jurisdiction on Huawei China and ZTE China and stay the proceedings against Huawei UK and ZTE UK on the ground of forum non conveniens.
The UK patents in suit are said by Conversant to be essential to certain telecommunications standards, such that it is not possible to sell equipment, such as a mobile phone compliant with those standards without infringing the patents. In other words, the patents are “standard essential patents” or “SEPs”. Conversant accepts that, because its patents are claimed to be SEPs, it is under an obligation to offer to grant licences to implementers such as Huawei and ZTE on terms which are fair, reasonable and non-discriminatory (“FRAND”). Thus, although it seeks all the relief appropriate to an action for infringement of a UK patent, including an injunction and damages, Conversant anticipated that Huawei and ZTE would rely on Conversant's obligation to offer to grant such a licence, the terms of which, thus far, the parties had not been able to agree. Conversant seeks, in addition, declarations from the court that the offers which it has made in the course of the negotiations with the two sets of parties are FRAND and, in addition, as to the terms on which it must offer to licence its portfolio of patents.
The judge, Henry Carr J, dismissed both limbs of the jurisdiction challenge for reasons which he gave in a judgment dated 16 April 2018. He gave permission to appeal against his subsequent order, sealed on 14 June 2018, on grounds relating to both limbs. Subsequent to his judgment and order, this court has handed down its judgment in Unwired Planet International Limited and another v Huawei Technologies Co. Ltd and another [2018] EWCA Civ 2344 (“ Unwired CA”). Unwired CA involved an appeal from a decision of Birss J in which he had decided on the terms of a global licence between the parties on terms he considered to be FRAND. Huawei and ZTE now accept that, in the light of Unwired CA, the justiciability limb of their jurisdiction challenge is no longer arguable at this level, although they reserve their position if the case goes further. We need, therefore, only deal with the jurisdiction challenge insofar as it is based on the forum non conveniens ground, a ground that was not argued by Huawei in Unwired Planet. If the appeal against the judge's decision on that ground fails, and the justiciability issue becomes determinative, the appellants ask us to refer certain questions of EU law to the CJEU.
On this appeal Mr Alexander Layton QC presented the case on behalf of Huawei with Mr Henry Forbes-Smith; Mr Michael Bloch QC presented the case for ZTE; Mr Adrian Speck QC responded on behalf of Conversant with Mr Colin West and Mr Thomas Jones.
The facts
The background to telecommunications standards, standard setting organisations, SEPs and the licensing of SEPs was set out in this court's judgment in Unwired CA at [3] to [5] as follows:
“3. It is generally accepted that the publication of such a standard supports innovation and growth by ensuring the interoperability of the digital technologies to which it relates. It leads to an increase in the range and volume of products which meet the standard and it allows consumers to switch more easily between the products of different manufacturers. Standards are set by standard setting organisations (“SSOs”). SSOs bring together industry participants to evaluate technologies for inclusion in a new standard, encourage those participants to contribute their most advanced technologies to that standard and promote the standard once it has been agreed. There are various SSOs around the world and each of them operates in much the same way. The SSO with which these proceedings are most concerned is the European Telecommunications Standards Institute (“ETSI”).
4. As the European Commission has recognised, SEPs can be of great value to their holders. These holders can expect a substantial revenue stream from their SEPs as the standard for which they are essential is implemented in products sold to millions of consumers. This revenue stream is supported by the fact that alternative technologies which do not meet the standard may well disappear from the market. But the potential for anticompetitive behaviour is obvious. The owner of a SEP has the potential ability to “hold-up” users after the adoption and publication of the standard either by refusing to license the SEP or by extracting excessive royalty fees for its use, and in that way to prevent competitors from gaining effective access to the standard and the part of the telecommunications market to which it relates. ETSI and other SSOs therefore require the owners of SEPs to give an irrevocable undertaking in writing that they are prepared to grant licences of their SEPs on fair, reasonable and nondiscriminatory (“FRAND”) terms. This undertaking is designed to ensure that any technology protected by a SEP which is incorporated into a standard is accessible to users of that standard on fair and reasonable terms and that its owner cannot impede the implementation of the standard by refusing to license it or by requesting unfair, unreasonable or discriminatory licence fees.
5. As we shall explain the negotiation of licences for SEPs on FRAND terms may be far from straightforward, however. The owner of a SEP may still use the threat of an injunction to try to secure the payment of excessive licence fees and so engage in hold-up activities. Conversely, the infringer may refuse to engage constructively or behave unreasonably in the negotiation process and so avoid paying the licence fees to which the SEP owner is properly entitled, a process known as “hold-out”.”
Conversant is a Luxembourg company which owns a global portfolio of patents which, it claims, includes SEPs in over 40 countries. It is part of a Canadian group of companies and is managed from the United States. The portfolio was purchased from Nokia in 2011 for a sum which, at least on Huawei's case, was $20,000. Conversant does not itself manufacture or sell mobile phones: its business is concerned with licensing. Conversant maintains that the appellants are, and have for several years been, infringing its SEPs in many different jurisdictions. The portfolio is said by the respondents to be an “aging” one, by which they mean that the relevant patents are approaching the end of their terms.
Huawei are part of a major telecommunications group based in China. China accounts for 56% of the Huawei group's worldwide sales on which damages or royalties are claimed by Conversant. Since China is the place of manufacture of the alleged infringements, Conversant can rely 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 Huawei's worldwide sales on which royalties are claimed.
ZTE are similarly part of a major telecommunications group based in China. The manufacture of the ZTE group's mobile phones also takes place in China and in the first six months of 2017 60% of ZTE's operating revenue was from China. The ZTE group does very little business in the UK with only 0.07% of turnover being generated in the UK.
Conversant has been in discussions, over several years, with Huawei China and ZTE China concerning the licensing of its portfolio of patents. Conversant claims to have...
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