On Friday 27 May, the Court of Appeal handed down an important judgment on the interplay between competition law and the licensing of essential patents.
This is part of a landmark patent infringement case where Unwired Planet, a “patent assertion entity” that has acquired from Ericsson certain “standard essential patents” (“SEPS”) used in smartphones and network equipment, has sued Samsung, Google and Huawei for infringing the SEPS (Google has largely settled out).
Ericsson continues to derive licensing income from the patent assertion entity, on an ongoing basis. Among other things, it is contended that Ericsson is seeking to circumvent its own obligations to license its patents on Fair Reasonable and Non Discriminatory (“FRAND”) terms by using a “privateer”. Ericsson has been joined to the action. Samsung and Huawei have raised various competition law defences, under Articles 101 and 102 TFEU.
In the High Court, Birss J. struck out one of Samsung’s Article 101 TFEU defences. This related to the complaint about the effectiveness of the transfer from Ericsson of its obligation to license essential patents on FRAND terms. Samsung argued, among other things, that the content of Ericsson’s original “non-discrimination” obligation would be circumvented by Ericsson transferring the patents to the patent assertion entity, without the new entity needing to have regard to Ericsson’s duty of non-discrimination. The High Court ruled that this contention should be struck out: it was enough for Unwired Planet to make a fresh FRAND declaration of its own.
The Court of Appeal has overruled the High Court on this issue. It has accepted that Samsung has an arguable case that the arrangement whereby Ericsson transferred the SEPs to Unwired Planet is in breach of Article 101 TFEU and void because of the failure to ensure that Unwired Planet would respect the non-discrimination aspect of Ericsson’s FRAND obligation. It upheld the Judge on another aspect of the complaint, however, which related to whether the transfer of the patents had given prospective licensees the same enforceable rights to insist on FRAND terms as such persons used to have against Ericsson, when Ericsson owned and licensed the patents directly.
In his judgment, Lord Justice Kitchin (with whom Lord Justice Tomlinson and Sir Timothy Lloyd agreed) recognised that this is a developing area of the law which has received recent attention from the Court of Justice of the EU and the European Commission. He accepted Samsung’s argument that it has a realistic prospect of persuading the trial judge that it would be anti-competitive for Unwired Planet to be able to charge licence fees which are significantly higher than those which Ericsson itself charged and which would have been discriminatory having regard to Ericsson’s existing licensees had Ericsson sought to charge them directly. He recognised that these higher licence fees could distort or restrict competition in downstream markets to the detriment of consumers.
Lord Justice Kitchin also accepted the inter-relationship between Samsung’s non-discrimination argument and its other competition law defences, in particular the argument that Ericsson strategically sold part of its portfolio of essential patents to Unwired Planet, while keeping a close ongoing involvement in the monetization of those patents. He considered that Samsung has an arguable case that Ericsson has sought to circumvent its own FRAND obligation and simultaneously benefit from the increased licence fees.
Samsung’s various competition law arguments will be considered at the 13 week trial, due to commence in October 2016.
The full judgment is available here.