Panasonic Holdings Corporation v. Xiaomi Technology UK Limited and others, UK Court of Appeal, 3 October 2024, Case no. [2024] EWHC 1733 (Pat)
The United Kingdom Court of Appeal has issued a judgment in SEP/FRAND proceedings between Panasonic and Xiaomi, which promises to be very significant for the future conduct of FRAND litigation in the United Kingdom and, indeed, in other jurisdictions worldwide.
In essence, the UK court has held that, once the parties to a FRAND dispute have agreed that the UK court should determine the fair, reasonable and non-discriminatory (FRAND) terms for a global licence for the relevant standard essential patents (SEPs), it is not consistent with the patentee’s FRAND obligations for the patentee to pursue separate proceedings and seek injunctions against the same implementer in other jurisdictions. Instead, pending the final determination of the global FRAND terms, a willing licensor should agree to enter into an interim licence agreement of its SEP portfolio, on terms that can be adjusted in line with the court’s final determination of the FRAND terms, in particular, as regards the royalty payments.
The background to this dispute was that on 31 July 2023 Panasonic commenced proceedings in the UK Patents Court seeking declarations that four European (UK) patents were essential to the 3G and/or 4G standards and were infringed by Xiaomi, that the licence terms offered by Panasonic were FRAND or, alternatively, that the terms to be determined by the court were FRAND. On the same date, Panasonic also commenced proceedings against Xiaomi in the German national courts and in German divisions of the UPC.
At the case management hearing of the UK proceedings, held in November 2023, both Panasonic and Xiaomi gave unconditional undertakings that they would enter into a licence agreement on terms that were determined by the UK court to be FRAND. They also agreed that the parties would proceed to a “FRAND Trial”, at which the FRAND terms would be determined, rather than first holding one or more technical trials, to consider the validity, essentiality and infringement of the patents in suit.
It appears that Panasonic also initially indicated that they were willing to provide an undertaking not to enforce any injunctions it obtained in the parallel German/UPC proceedings. Panasonic subsequently stated that it would not give this undertaking, which resulted in the UK trial being expedited – it is now due to take place in late October 2024.
Panasonic’s refusal to give this last undertaking led Xiaomi to bring the current application for a declaration that Panasonic’s pursuit of injunctions in the German / UPC proceedings was not consistent with Panasonic’s obligations as a SEP holder under the applicable ETSI IPR policy. At first instance the judge of the UK Patents Court declined to provide the declarations sought by Xiaomi, for a number of reasons, including that it would serve no useful purpose to provide the declarations and that, to provide the declarations would be an unwarranted interference in the German/UPC proceedings amounting to “judicial imperialism”.
The Court of Appeal, in a majority decision, allowed Xiaomi’s appeal. The lead judgment was given by Lord Justice Arnold. He provided a useful background explanation of the SEP/FRAND system and the general state of UK jurisprudence on this topic. He stressed that he was not criticizing the approach of the German courts to FRAND disputes, or seeking to influence them: their system was different but Germany had a sophisticated legal system and Arnold LJ had no doubt that the German courts considered their approach to be consistent with the FRAND obligations of the parties.
However, in the circumstances of this case, Panasonic (and Xiaomi) had expressly submitted to the jurisdiction of the UK courts for the determination of global FRAND terms and it was inevitable that in a few months both Panasonic and Xiaomi would enter into a global licence on those terms. It followed that the purpose of Panasonic in pursuing the parallel German/UPC proceedings could only be to seek, with the threat of injunctions, Xiaomi’s agreement to licence terms that would be more favourable to Panasonic that the terms likely to be decided upon by the UK courts. In Arnold LJ’s judgment, this course of action was not consistent with Panasonic’s FRAND obligations and amounted to a breach of Panasonic’s obligation of good faith. Rather a willing licensor in such circumstances would agree to enter into an interim licence, pending determination of the final FRAND terms by the court. Although Panasonic had asserted that they would simply ignore any declaration made by the UK court, Arnold LJ considered that making the declarations would still serve a useful purpose – in particular, Panasonic might change its position once the declarations had been made.
Lord Justice Moylan agreed that the appeal should be allowed, for the reasons given by Arnold LJ. Lord Justice Phillips dissented: in his view, although Panasonic’s conduct was indefensible, he did not think the UK court should sanction that conduct by granting the declarations sought by Xiaomi. It was not clear why the terms of the interim licence would be FRAND and the purpose of granted the declarations was not clear. In Phillips LJ’s view, a more appropriate remedy would have been to grant an anti-suit injunction against Panasonic, to prevent Panasonic pursuing proceedings in Germany and in the UPC that appeared to be unconscionable, vexatious and oppressive.
This decision of the UK Court of Appeal accordingly reinforces the view that “FRAND” governs not just the terms of the licence to be agreement between the holder of a SEP portfolio and an implementer but also the process by which the licence terms are negotiated. It also promises to make the UK courts increasingly popular as a forum for FRAND disputes, in particular, for SEP implementers. However, it will be interesting to see whether Panasonic does not grant Xiaomi and interim licence in line with the declarations that the Court of Appeal has made.
A copy of the judgment can be read here.