Tesla’s UK FRAND claim against Avanci was overreaching even for a sympathetic judge

Jurisdictional challenges in the UK are somewhat similar to motions to dismiss in U.S. court in the sense that they provide defendants with a means of getting rid of obviously meritless litigation, but they are limited to claims against parties who must be served out of jurisdiction.

Even some exceedingly ambitious claims have survived jurisdictional challenges in the UK, and Mr Justice Fancourt had previously expanded the scope of UK FRAND jurisdiction (in Kigen v. Thales), which is why ip fray wrote after the jurisdictional hearing that the case might go forward despite some major issues (June 4, 2024 ip fray article). But what Tesla wanted from the EWHC was just too much. It went too far beyond what the law permits, apart from purely technical claims concerning three InterDigital patents, which Tesla is presumably not even interested in pursuing without the “grand prize” of a FRAND determination concerning the Avanci pool. Mr Justice Fancourt’s judgment, which has meanwhile been published on bailii.org, makes any attempt by Tesla to appeal the decision more of an uphill battle than the average appeal.

At the hearing, Tesla’s counsel attempted to portray the claim as a logical combination of the same court’s holdings in other cases, particularly Kigen v. Thales (proactive FRAND claim by implementer; settled before any meaningful clarification was obtained) and Unwired Planet v. Huawei (global rate-setting; affirmed by the two courts above the EWHC). But one thing was clear: so far, the UK courts have not made a FRAND determination for an entire patent pool. They have only made a very few such determinations on a bilateral (one licensor, one licensee) basis.

If the applicability of UK SEP case law to patent pools (in a scenario where an implementer claims that only a pool license is a FRAND option, which is Tesla’s unprecedented position) was a non-issue, Mr Justice Fancourt would have been happy to take the case to trial. In fact, his jurisdictional decision reflects a fair amount of sympathy for Tesla’s interest in judicial guidance on the question of whether Avanci’s 5G licensing terms (above all, the $32 per-car rate, which apparently every non-Chinese car maker incorporating 5G connectivity modules into its cars has accepted so far) are FRAND. It’s just that he couldn’t help but dismiss the case due to serious concerns. Paragraph 123 contains a passage that shows Mr Justice Fancourt would actually have been happy to provide the judicial guidance Tesla is seeking:

“It may seem odd that a claim which Tesla has a legitimate interest in pursuing and which would in principle serve a proper purpose cannot be pursued here. The conclusion that it cannot has given me some concern. It would be very odd indeed if Tesla could not obtain a decision on its claim in any jurisdiction that is reasonably suitable.”

The concerns are so fundamental that it’s going to be hard for Tesla to address them through an amended complaint.

All parties are Delaware corporations, none of them is a UK company

Mr Justice Fancourt struggled with the notion of assuming jurisdiction over a dispute between three Delaware corporations (with Avanci and Tesla being headquartered in Texas, and InterDigital just being an exemplary Avanci licensor that Tesla picked).

Tesla argued that a Delaware-based court would not make the global FRAND determination that it’s seeking, at least not over Avanci’s objection. Mr Justice Fancourt is, at this point, not fully convinced of that.

At the hearing it already came up that there are UK-based Avanci licensors such as BT, which Tesla did not elect to sue. Given the multiplicity of issues that Tesla is facing here, it’s unlikely that just simply adding one or more UK-based defendants would be sufficient to address the problem and persuade the EWHC to hear the case.

Only 7% of the 170K patents in Avanci 5G are enforceable in the UK

That doesn’t mean they’re UK patents per se, but most (if not almost all) of them will be “bundle” patents granted by the European Patent Office (EPO) that were also registered in the UK.

This percentage is less of a problem for Tesla than some other facts. In the end, it never stopped a UK judge from making a bilateral FRAND determination, where the percentages of UK patents in the portfolios in question won’t have been (much) higher.

Tesla did not plead (and show) that each and every Avanci licensor holds at least one patent that is enforceable in the UK

UK courts have jurisdiction over UK patents, including the UK parts of EPO-granted patents. That’s why the only part of the case that has survived so far is the one in which Tesla is challenging three handpicked UK patents belonging to InterDigital.

But there may be companies among Avanci 5G’s 65+ licensors who don’t hold a single 5G SEP that is under the jurisdiction of British courts.

Maybe this is deficiency that Tesla could cure with more research and amended pleadings. But if not, then that’s going to be a serious issue.

Tesla has a bilateral 5G SEP license in place with one (unnamed) Avanci licensor

Whatever company that may be (ip fray doesn’t know the name), whoever has already licensed Tesla but is an Avanci licensor would be put in an awkward position if the UK court made a FRAND determination for the pool. Tesla has no claim against someone from whom it already has a license. But somehow that party would be affected.

What the judgment doesn’t spell out like this, but which is also a major issue: the existence of such a bilateral 5G SEP license undermines Tesla’s argument that only a pool license is acceptable. (That argument also rings hollow when considering that a very high percentage of all 5G SEPs are in the Avanci 5G pool, but there are and likely will always be companies that remain outside the pool.)

No breach by Avanci licensors (with Avanci’s involvement) pleaded

Tesla originally argued that Avanci was an “agent” of its licensors, but later gave up on that theory and then brought a tort claim. The problem here is described in para. 76 of the judgment:

“Instead, there is now a pleaded case that Avanci, as an appointed agent, is jointly liable for ‘any failure to effect good faith performance of the FRAND Commitment’ – which is the performance by the Patentees. At best, therefore, there may be a contingent claim for any involvement by Avanci in culpable failures by the Patentees to grant FRAND licences in good faith. No such culpable failure or absence of good faith is pleaded, nor is any loss resulting from any failure to act in good faith. Although Tesla still claims a declaration (declaration (8)) that Avanci is ‘required’ to enter into a 5G Platform licence on the terms determined by the Court to be FRAND, no independent basis (apart from the ETSI declarations of the Patentees) on which Avanci is so ‘required’”‘ is identified by Tesla.”

Enforceability

Some Avanci licensors would not be bound by a UK court ruling. So even if the court said Avanci had to grant Tesla a license at $X per car, some licensors would not have to participate.

FRAND claim against InterDigital

Tesla sued InterDigital alongisde Avanci, but does not want a bilateral license from InterDigital: it only wants a pool license.

Tesla failed to make full and proper disclosure

Mr Justice Fancourt notes that Tesla actually could and should have anticipated some of Avanci’s and InterDigital’s defenses, and should have stated them upfront as it must under UK law. They could have been sanctioned for failure to do so, but the issue is moot here because the jurisdictional challenge succeeds anyway and Tesla’s case is thrown out.

Too many hurdles to overcome

What Tesla tried was simply too ambitious. It’s not impossible that one or two of the above defects can be cured, but there are problems that Tesla is very unlikely to solve. For example, they probably can’t just get out of that bilateral license agreement with one Avanci 5G licensor.

There is an abstract parallel between Tesla’s failure in the UK and Conti’s (definitive) failure in the U.S.: both plaintiffs thought there was favorable case law, but went to countries with which their claims lacked a sufficiently strong connection. Conti wanted to use U.S. litigation to get a group-wide license that was actually required by one of its Eastern European subsidiaries (that makes the relevant components). Tesla wanted a global FRAND determination from a UK court, but neither Avanci nor InterDigital are UK companies, and there may be Avanci licensors who don’t even hold a single UK patent.

Tesla’s counsel told Mr Justice Fancourt at the hearing (late May/early June) that the launch of a 5G-capable Tesla car was imminent, at least sufficiently imminent for the purposes of that litigation. If Tesla really is about to make and sell cars with 5G on board (which is perfectly credible, knowing about customer expectations and considering technological benefits that even the Alliance for Automotive Innovation recognizes), it may now opt to just take the Avanci license in order to have freedom to operate. The other route is to try to somehow defibrillate that UK lawsuit. That’s not very likely to work, and in the meantime, if Tesla indeed does launch a 5G vehicle soon, it may become ineligible for the early-bird discount of $3 per car.

The hearing on whether Tesla gets permission to appeal will provide an indication. If it takes place, Tesla may be determined to keep fighting, no matter the odds. If it is canceled, Tesla may just have decided to make a simple and pragmatic business decision.