Analysis
The UK Supreme Court (UKSC) hearing in Tesla v. InterDigital & Avanci is still ongoing. Day 1 was reserved exclusively for Tesla, which finished slightly ahead of time; Day 2 for the two defendants; and the morning of Day 3 for Tesla’s rebuttal.
Tesla’s position that only a pool rate is appropriate is obviously wrong: practically the same cellular standard-essential patent (SEP) portfolios that Tesla would have to license bilaterally for its cars (if it disagrees with the Avanci rate) must already be licensed by all smartphone makers, among them small companies selling about one million phones each (examples: Doro, Emporia, Fairphone, Nothing). Tesla cannot seriously argue that it cannot afford to do what Doro or Fairphone can handle.
No matter how far the UK judiciary may or may not go in its desire to attract SEP-related cases,
- Avanci is not the right platform to sue because it explicitly allows bilateral licensing (and examples of bilateral deals exist, one of them being a deal between Tesla and an unnamed Avanci licensor covering 5G patents), and
- InterDigital is not the right SEP holder to sue because it has made it clear that it is prepared to grant bilateral licenses.
During this litigation, which is already in its third round, Tesla gave up on the idea of a specific-performance injunction forcing Avanci to grant a license on court-determined terms (which it couldn’t anyway as it doesn’t own the patents in the pool). At this stage, it is about a declaration. Declarations are not unharmful in this wider context. But that is not the issue now. The question is on what basis Tesla could seek a FRAND declaration for a pool in what would be the realistic best-case outcome for Tesla.
That realistic best case for Tesla still comes with significant requirements. The UKSC judges would have to conclude that
- the patentee’s FRAND licensing obligation under its pledge to the European Telecommunications Standards Institute (ETSI) can be discharged through a collective licensing offer, and
- on that basis, an implementer might end up being enjoined as an unwilling licensee who rejected such an offer.
That involves some big IFs, but let’s not worry about that. Let’s just assume that the above is the standard. Not only is there no plausible path to Tesla saving a single dollar in license fees but it remains very difficult to imagine a UK rate-setting proceeding taking place at all.
One point that was raised today was that InterDigital had said it was willing to grant a bilateral license, but that it had not given an undertaking (a formal commitment to the court). So, what would InterDigital have to do for this case to go away? Presumably, InterDigital could solve the problem by formalizing its preparedness to grant a bilateral license, and by furthermore waiving any right to point to the Avanci licensing option (because that is all it is: an option) in a FRAND compliance dispute. Put differently, InterDigital would not prevent Tesla from taking an Avanci license, but it would not seek an injunction against Tesla and argue that Tesla’s rejection of the Avanci licensing option is dispositive of a FRAND defense raised by Tesla.
All of this is hypothetical. There is no decision for now. It will likely take months. Everything will depend on the exact wording of a decision. But based on what the judges focused on today, a pool could probably avoid any UK rate-setting action by ensuring that its licensors are prepared to grant bilateral licenses (as opposed to merely retaining the option) and that they will not point to a pool licensing offer when seeking to overcome an implementer’s FRAND defense.
That might have some practical implications for the Huawei v. ZTE process. For example, a letter from a pool administrator to an implementer might have to include an address list of all licensors with contact data for requesting bilateral licenses, and an assurance that in the event of infringement litigation, none of the pool licensors will base any FRAND argument on the implementer’s hypothetical rejection of the pool licensing offer or the conduct in pool negotiations.
That would involve an additional administrative effort. But it might (again, speaking in the hypothetical) make it impossible for a company like Tesla to bring a claim for a pool rate-setting action that would survive a jurisdictional challenge.
The most fundamental problem with Tesla’s position and with whatever the UKSC may or may not do for Tesla is not legal. Even if the UKSC identied a “serious issue to be tried” and a “useful purpose” from a legal point of view, that does not mean that Tesla would save any money (it might end up spending a lot more, turning it all into a counterproductive exercise). And that is just based on what pool administrators and SEP holders could do. Another question is how such jurisdictions as the Unified Patent Court would react if the UK made another hostile, imperialist move.
What is Tesla’s end game? What is its exit strategy? What is the point in fighting a fight that won’t be commercially fruitful even if, in formal legal terms, Tesla won something that its lawyers could be proud of? It is far easier to see the potential harm than any realistic bottom-line gain.