FRAND: Improved outlook for implementers in the U.K. and U.S. | Allen & Overy LLP
The licensing of Standard Essential Patent (SEP) portfolios is a global business and the question of how to resolve disputes over those licenses is one that courts all over the world are grappling with.
Implementers often feel that the deck is stacked against them in SEP litigation, with allegations of hold-out being levelled at them in every available forum, but an interesting new development promises to give them more power to bring matters to a head when negotiations have reached a stalemate.
- The best way for an implementer to obtain a license, and to do so on good commercial terms, is by commercial negotiation. However the parties often cannot agree and so a deadlock is reached. The implementer’s options in these circumstances are quite limited, especially when the SEP-holder is a non‑practicing entity. However the U.K. Court has recently added a weapon to the implementer’s arsenal: the defensive, or free-standing, FRAND action.
- In a recent decision (Kigen v Thales [1]) the High Court in London considered a claim brought by Kigen, a UK‑based producer of eSIM and iSIM technology, against Thales which is the owner of a portfolio of SEPs which are declared to be essential to the GSM Association standards. Thales wrote to Kigen and accused it of infringing some of its SEPs. Under the GSM IPR Regulations Thales undertook to grant licenses for its declared patents on Fair, Reasonable and Non-Discriminatory (FRAND) terms and it made license offers to Kigen on confidential terms. 14 months after the negotiations started no agreement had been reached and Kigen sued Thales in the UK courts, seeking the following declarations:
- that the two UK essential patents asserted by Thales were invalid;
- that Kigen is entitled to licenses to the Thales portfolio on FRAND terms; and
- establishing the terms of those licenses.
- Neither infringement nor essentiality were an issue before the Court and Thales challenged the Court’s jurisdiction to make a FRAND declaration without making a prior finding of infringement of a SEP.
- Crucially, the judge expressly confirmed that the Court did have jurisdiction, saying that:
“…the pleaded case raises a proper basis to bring the disagreement on terms of a FRAND licence before the court. The terms of the licence have to be determined by the national court if the parties cannot agree otherwise. It is not only following a determination of infringement and an undertaking by the implementer to take a licence that a dispute about terms can be brought before the court.”
- This route provides a promising new avenue for implementers looking to seize the initiative and to break the deadlock of SEP negotiations. No longer must they simply wait to be sued; now they can bring matters to a head and seek a judicial determination of FRAND terms themselves. However if they do so, as Kigen found out, they would be best advised to undertake upfront actually to sign a license on those terms once it has been determined by the Court.
- While we have not yet seen defensive or free-standing FRAND actions in the U.S., there have been some potentially implementer friendly changes. For example, the June 2022 withdrawal of the Trump-era policy 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments, a policy statement that was supportive of a patent holder’s right to pursue an SEP-related injunction and was perceived by many as being too patent owner-friendly, is a win for implementers, even though it remains unclear whether the Biden administration will ultimately issue a replacement statement.
- That said, not all of the recent changes in the U.S. are implementer friendly. For example, the IEEE’s updates to its Patent Policy for standards development includes a new language associate with injunctions. This new language includes an analysis of “good faith” as to the implementers licensing behavior, while the previous IEEE language indicated that the implementer must fail to participate or comply with the outcome of a RAND adjudication in order for an injunction to be appropriate. The subjective nature of the “good faith” analysis is likely to make this a hot area for litigation going forward and lead to uncertainty for implementers given that different judges, jurisdictions, and national courts may view the “good faith” requirement differently.
[1][2022] EWHC 2846 (Pat).
