UK court’s denial of interim SEP license requested by Xiaomi due to specific deficiencies, next case could have different outcome

It would not be unprecedented in High Court SEP litigation for one implementer to fail but for the next one to succeed with an improved argument. It happened before with respect to the extremely closely related question of whether an implementer has a free-standing FRAND claim, meaning that it can enforce its entitlement to a FRAND license even outside the remedies proceedings related to a SEP infringement action. Vestel didn’t get it until Access Advance and Philips, and appealed unsuccessfully, but in Kigen v. Thales, Mr Justice Fancourt deemed the requirements satisfied.

“Jurisdictional imperialism” is a very strong, and it appears five times in Mr Justice Leech’s decision, quoting Lord Justice Floyd. Here, the argument is that if Xiaomi wants to raise a FRAND defense to Panasonic’s request for injunctive relief over German patents, it should do so in the German courts in which it is sued.

Arguably, it is also “jurisdictional imperialism” that UK and other courts set worldwide rates even if the patents-in-suit before them are valid in only one jurisdiction (or, in the UPC, a set of European jurisdictions) and then force implementers at the threat of a UK injunction into licenses on those terms (or, if Kigen v. Thales had not been settled, might have forced a SEP holder to conclude a license agreement). One could also argue that it’s “jurisdictional imperialism” to order antisuit injunctions, and indeed, Mr Justice Leech also explains in his decision that what Xiaomi was seeking would have a similar effect as an antisuit injunction. In the SEP context, there is no shortage of examples of court decisions that could be called “jurisdictional imperialism” with the sole laudable exception being U.S. courts. They’re the only non-hypocrites in this regard.

Mr Justice Leech wants to leave it to the German courts and/or the UPC to decide “whether the Reciprocal Undertakings [made by Panasonic and Xiaomi in the UK] provide a defence in the German Proceedings.” They won’t if the German courts have a basis to conclude that Xiaomi was an unwilling licensee, and in Munich, every single implementer to date (some of them for very good reasons, to be fair) has been deemed unwilling.

A key part of the debate was over whether Panasonic was (potentially) using the German proceedings to force Xiaomi into a license on supra-FRAND terms. Both parties provided expert testimony, but Xiaomi didn’t drive this key point home:

“(5) Professor Ann’s [a Munich professor and Xiaomi’s expert] evidence that an offer which was “not obviously un-FRAND” might in fact be a “supra-FRAND offer” was tentative only and I attach limited weight to it. He did not provide any evidence or statistics to support his conclusion or attempt to assess the risk that the German Courts might grant an injunction if a SEP Holder made a supra-FRAND offer and the implementer rejected it. I also accept the qualifications in Professor Meier-Beck’s [the retired presiding judge who was responsible for Sisvel v. Haier and now unsurprisingly again supports a SEP holder] reply report. The Court scrutinises the SEP holder’s offer to consider whether it is a serious and credible proposal and, if it is, then there is an obligation upon the implementer to engage.”

Three things played out in Panasonic’s favor:

• They had a retired high-ranking judge (who is also a professor) as an expert witness, while Xiaomi’s expert was only a professor. One of the most basic things in high-stakes litigation is that you don’t want to give your adversary that kind of psychological advantage. Here it was even a dual advantage: a judge is more likely to consider another judge competent, and a judge is more likely to be sympathetic to what another judge writes. When Microsoft and Motorola had to present expert testimony on German law in a U.S. dispute, either party had an appellate judge on its side: parity. In this Panasonic-Xiaomi case, with comity (deferene to foreign courts) in play, that was all the more important. Xiaomi wanted something (an interim license) and had to show that it was entitled to it. Panasonic’s expert merely had to cast doubt on what Xiaomi’s said. In that situation, it really hurts when your expert testimony bears less weight with the judge.
• As the passage quoted above shows, Mr Justice Leech was not prepared to base his decision on the simple logic that if German courts only take a cursory look at a SEP holder’s offer to check whether it’s obviously not FRAND, it does mean that injunctions may issue in the corridor between FRAND and “insanely supra-FRAND.” The judge’s reluctance to accept that simple proposition is debatable. Other judges may very well view it differently.
• But the judge would have liked to see some hard evidence. There actually would have been such evidence, but it wasn’t easy to find because one would always have to combine two cases, often with one cases being from another jurisdiction. There was one German case in which the same division of the same court first granted an injunction and later the judge-rapporteur said in open court that in the panel’s opinion, the SEP holder’s demand was irreconcilable with any comparable license agreement presented. There would have been cases where FRAND determinations were made in other courts. But the judgment indicates that Xiaomi merely pointed to, for instance, a European Commission antitrust decision that wasn’t as meaningful as some fundamentally better evidence would have been, evidence that existed even with respect to that same Motorola-Apple dispute if Xiaomi’s lawyers and experts only had known how to obtain it.

Panasonic outlitigated Xiaomi here, but there is also a fundamental issue that wasn’t easy to overcome (and that other implementers won’t find easy to overcome): the question of utility with a view to the UK. If and when the parties have already reached the stage where they are only waiting for the court to set the FRAND terms, a declaration that an interim license exists has no bearing on UK injunctive relief as there won’t be a UK injunction anymore at that stage. That is a hurdle other litigants than Xiaomi should also find difficult to surmount. Still, there is a caveat here, and it was spelled out by Mr Justice Jonathan Richards when he allowed a Lenovo claim for an interim license from Ericsson to go forward (judgment):

“[I]t does not follow from the fact that I refused the application in Lenovo v InterDigital that the claim for Interim Declarations fails the merits test. The jurisprudence in this area is developing. Moreover, over the past few months a number of cases have come to the court in which implementers complain that SEP holders are using the threat of foreign injunctions as a means to secure supra-FRAND rates. I make no finding as to whether those complaints are justified in this or any other case. However, the fact that implementers are making these complaints suggests that there is some demand for a court-sponsored interim regime to regularise the position until FRAND licences or cross-licences are determined. Even though valid criticisms can be made of the Interim Declarations that Lenovo seeks, it is, in my judgment, too early to say that they fail the merits test.”

Xiaomi is now in Vestel’s position with respect to free-standing FRAND claims, but there still is a risk that someone else could achieve what Kigen did. UK SEP case law is presently a bit of a moving target.