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Will Ericsson’s master sale agreement to unwired planet come unstuck?


28th Jul 2016

As reported in our earlier blog, Samsung and Huawei are defending themselves in the UK courts against Unwired Planet’s claims of patent infringement. As the patents are standards-related, Samsung and Huawei have raised a number of defence arguments based on competition law, as well as based on the typical considerations of patent invalidity.

The competition law defences relate to: a) the legitimacy of the transfer of rights from the original patent holder Ericsson to Unwired Planet (a patent assertion entity, which has a cooperation agreement with Ericsson), b) the effect of dividing Ericsson’s portfolio on the license fees payable by licensees, and c) the terms of the agreement itself which contains for example a clause for a minimum percentage royalty payment to be made to Ericsson by Unwired Planet.

As noted in our earlier blog, the arguments are essentially that:

  1. Ericsson’s initial FRAND obligation (to license its standard-essential patents on fair, reasonable and non-discriminatory terms) was not properly transferred to Unwired Planet, the new holder of the standard-essential patents.
  2. The division of Ericsson’s portfolio causes an infringer / licensees to have to pay higher royalties than would otherwise have been the case and that this therefore distorts competition.
  3. The Master Sale Agreement from Ericsson to Unwired Planet contains terms which could constitute price fixing infringements of Article 101 of the Treaty on the Functioning of the European Union.

Ericsson’s application to summarily strike out these defences has, for the most part, failed. Although the judge held that the first argument was “hopeless and should be struck out”, the second and third arguments were considered to form a properly arguable case that should go to trial. The full judgment can be found here.

Samsung appealed the judge’s rejection of the first competition law defence to the Court of Appeal, which in its judgment of 27th May 2016 has now overturned that part of the earlier decision. As a result, Ericsson and Unwired Planet will now have to answer all three competition law arguments in court.

The Court of Appeal judgment agrees with Samsung, in the sense of saying that it could be argued as objectionable that Master Sale Agreement conferred on Unwired Planet an ability “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”.

Further, the Court of Appeal agreed with Samsung again, holding that it is arguable that the assignment of standard-essential patents from a first entity to a second should involve the assignment of the terms of the original patent holder’s FRAND obligation, rather than allowing the new patent holder to make a new FRAND declaration on new terms.

In reaching this conclusion the Court of Appeal judges took particular notice of the decision of the European Commission in its review of Google’s acquisition of Motorola Mobility’s patent portfolio. In that case, Google had taken pains to honour the terms of Motorola Mobility’s existing FRAND obligations, issuing a letter to the relevant standard settings organisations (also published on their own website) confirming that they would honour Motorola’s royalty rates, and be bound irrevocably by Motorola Mobility’s FRAND commitments.

The battle between Ericsson / Unwired Planet and Samsung and Huawei continues in the UK courts, raising timely questions about how monopolies afforded by patents on standard-essential technologies should be balanced against the need for fair competition between companies. Further, at the heart of these cases, is how should the concepts of fair, reasonable, and non-discriminatory be interpreted in real world negotiations between parties, and how far will the courts go in defining these concepts for the benefit of future negotiations between licensor and licensee.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.

Author
Nick Reeve
Partner
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