Context: On December 2 and 3, 2024, the England & Wales Court of Appeal (EWCA) will hear Tesla v. InterDigital & Avanci. Tesla wants the UK judiciary to set a FRAND license fee for Avanci’s standard-essential patent (SEP) pool. Another case (TCL v. Access Advance) in another jurisdiction (China) where an implementer asked for a similar determination has recently been settled (October 30, 2024 ip fray article).
What’s new: The purpose of this article is to reflect on the implications of broad market acceptance of a pool for cases in which an implementer asks for judicial intervention.
The official UK case file tracker (link) lists Tesla’s EWCA appeal for hearing on December 2. ip fray reached out to the UK judiciary’s press office and was told that the hearing has in fact been scheduled for two consecutive days.
This is an appeal from a judgment by a judge who was actually very sympathetic to the appellant’s desire to obtain a judicial FRAND determination (July 18, 2024 ip fray article) and had previously decided in favor of another implementer’s request for a free-standing FRAND ruling, but in different circumstances (Kigen v. Thales).
Tesla and TCL were the first – but probably won’t be the last – implementers to ask courts to set FRAND pool rates. Also, there are sometimes infringement cases in which implementers raise a FRAND defense relating to a pool rate. HP (against Dolby) was an example, but also settled (October 30, 2024 ip fray article).
Like Mr Justice Fancourt, ip fray believes that pool rates should be FRAND. But the question is how to get there. Implementers who disagree with a pool rate may, in practice, simply have to work out bilateral license agreements. That is not just a theoretical option. It has happened before. The optionality of patent pools was demonstrated particularly well by smart meter giant EDMI’s decisions that led to license agreements with Avanci and Huawei, but not with Sisvel (April 11, 2024 ip fray article). That is the essence of choice.
Two serious issues with court-determined FRAND rates when pools already have market acceptance
It would be a different thing if someone started a whole new pool, or if a pool was universally rejected by the market, and if a court then made a FRAND determination. That is not to say that there would be a legal basis for it in any particular jurisdiction, but there are two reasons for which it is far more difficult to support FRAND rate-setting decisions if a pool has already been licensed by large parts of the market:
- Wide market acceptance is, at minimum, one of the indicia of a rate being FRAND. Only if someone could show that (to oversimplify the issue through illustrative exaggeration) all those agreements were signed at gunpoint would there be a basis to ignore the decisions of the market.
- There is also the practical question of what should happen if, say, a court determined a rate that differs from the actual pool rate. It could be less; it could even be more. Should all of the existing license agreements then be declared null and void? What consequences should the decision have?
TCL wanted a court review of Access Advance’s HEVC pool rate at a point where almost all of its significant competitors had already taken that license. Tesla wants a court review of Avanci’s automotive pool rate at a time where virtually every non-Chinese automaker with 5G products on the market has accepted the rate.
Those are additional issues that ip fray would like to flag. It has previously been said, on this website and elsewhere, that a patent pool administrator is simply not authorized to grant licenses at any other rate than the one agreed with its licensors. Depending on the contractual structure, changing the rate requires either unanimity (in terms of having to obtain the consent of each and every licensor) or, in practice, at least a qualified majority (or “supermajority”). Moreover, licensors might just decide to leave a pool after an unfavorable rate determination by a court, and it is hard to see how the same court could order them to remain in the pool. But even if one ignored the fact that a pool can only do what its licensors support, one could still oppose a court determination when a given pool already has wide market acceptance, for the reasons stated above.