Context: In December, Tesla filed a FRAND complaint with the England & Wales High Court (January 3, 2024 ip fray article). Tesla disclosed for the first time that it had a 4G license from Avanci, but wanted a global rate-setting decision in the UK ahead of launching its first 5G-connected car.
What’s new: Today Mr Justice Fancourt concluded a 2.5-day hearing on the jurisdictional challenges brought by InterDigital (the only Avanci licensor Tesla is suing over this) and Avanci. A decision may come down in July. Tesla claims that Avanci acts as an agent of 65+ standard-essential patent (SEP) holders and must honor their FRAND commitment. But Avanci does not prevent any of its licensors from engaging in bilateral licensing with Tesla, other automakers or even automotive suppliers.
Direct impact: Given that jurisdictional challenges in UK patent-related litigation are a low hurdle, and considering that the same judge ruled in favor of a free-standing FRAND claim in Kigen v. Thales, Tesla’s case may go forward despite serious issues discussed further below.
Wider ramifications: Far be it from ip fray to dispute Tesla’s right to seek FRAND determinations concerning the portfolios of particular SEP owners. SEP valuation is a topic on which reasonable people can reach different conclusions. Avanci’s rate won’t have resulted from everyone agreeing that one number was the right one, but represents a compromise between different positions. However, what Tesla is attempting here would pose serious risks to the concept of collective licensing programs and potentially deprive many parties of some of the benefits that they bring.
The kinds of issues that kept the UK court busy for 2.5 days would have been addressed in (most likely) a one-hour hearing in U.S. federal court. With a lot of time wasted on unimportant details, it’s important not to lose sight of the forest because of all the trees.
In a nutshell, Tesla brings patent-specific claims against InterDigital and FRAND claims against Avanci. InterDigital is only one of 65+ Avanci licensors. It was apparently not lost on Mr Justice Fancourt that Tesla’s choice of InterDigital was motivated by litigation tactics rather than an actual controversy.
There was no threat of imminent enforcement action by InterDigital against Tesla. Arguably, that was different in 2020. At the time, other Avanci licensors were already suing Tesla, and InterDigital sent Tesla a letter. Avanci didn’t have a 5G pool yet, and Avanci was the option to which InterDigital pointed Tesla for licensing, but on a bilateral basis, InterDigital would also have been prepared to include its 5G patents. For a long-term license agreement, that would have made sense. As of today, Tesla still isn’t selling any 5G-capable cars, but its counsel told the UK court that the launch of 5G-connected cars in the UK was “imminent” (at least “sufficiently imminent” for the purposes of that litigation).
It’s going to be very difficult, if not impossible, for the UK court to throw out Tesla’s declaratory-judgment claims against a couple of InterDigital patents. While the tactical motivation is transparent, Tesla is within its rights to attack those patents.
But the FRAND part should be thrown out. If they wanted a FRAND determination for InterDigital’s portfolio, that would be comparable to the Kigen-Thales situation. But they don’t. Tesla wants the UK court to order Avanci to grant global pool licenses on court-determined terms.
A licensing program like Avanci is not like a car.
If a court ordered Tesla to sell the Model 3 or Model S at a particular price, they could do that. They buy all the pieces, put them together, add their own wizardry, and then they have a product they own and control.
Avanci, however, does not own any patents. Avanci is not a joint venture of dozens of patent holders who would have assigned their patents to a new legal entity. Avanci can only do what its licensors allow it to do.
Here’s an analogy. Imagine an area in which real estate prices and rents are too high in the opinion of policy makers and courts. What good would it do to order (by law or by court ruling) all real estate agents in the area to bring down prices? It wouldn’t work. The property owners would simply look for other agents, or they would sell or rent their properties directly.
One doesn’t have to listen to partly repetitive arguments for 2.5 days to see that Avanci can’t do what Tesla wants it to do. The SEP owners themselves can grant bilateral licenses, and Tesla is free to seek FRAND determinations from any or all of them. But Avanci can’t just slash its prices by X%. It’s a complex system, a compromise that it took years to arrive at, and Avanci can only do what its contracts allow.
Suing InterDigital as an exemplary Avanci licensor doesn’t solve that problem either. You can’t sue one company as if it were a class (as in “class action”) of defendants. Suing all 65+ patent holders at once would be unreasonable, but even if they did that, there are definitely many among them against whom they could never enforce a UK FRAND judgment.
Even if Tesla wanted the UK court to bring Avanci’s license fee down by just a few percentage points (Tesla’s counsel unsurprisingly took the extreme position that they want to pay only a fraction), the court would have to force not only Avanci but also all 65+ Avanci licensors to do so. It would also have to enjoin those Avanci licensors from leaving.
It’s absolutely not workable, and it’s unclear what Tesla hopes to achieve. If they had decided to launch pre-emptive UK strikes against all those who sued them last time over 4G patents, that would have made sense. They could also have included anyone who sent them a demand letter or infringement notice at the time, such as InterDigital. But Avanci itself is part of the solution, not part of the problem. Tesla itself admits that it’s far more efficient to license all those patent portfolios from a one-stop shop. It’s just that the one-stop shop is optional. The bilateral option still exists. Some licensors may prefer to go through Avanci for efficiency reasons, and there are courts (in Germany) that require implementers to license entire pools no matter how large they are, only because they infringe one valid patent in the pool. That is not an issue in the UK.
In an attempt to show that Avanci itself recognizes to be bound by FRAND, Tesla pointed to various public statements by Avanci about different pools. But that doesn’t mean Avanci can be sued over FRAND. What it means is that Avanci wants licensees to understand they’re getting a good price. And if Avanci licensors enforce patents, it is of course best for them if they can tell a court that both their bilateral licensing terms and the Avanci rate are FRAND. It’s doubly safe. But it doesn’t mean Tesla can do with, to and against Avanci whatever it can do with, to and against a SEP holder.
There’s also an economic issue. A licensing program like Avanci already constitutes a compromise. There will always be licensors who’d like the price to be higher and licensees who’d like to bring it down. But if a compromise offer is optional, it cannot reasonably be the starting point for further downward adjustments by the courts of law. If Tesla was right that the total licensing cost should be much lower, then it has to bring down the royalty rates for all of the portfolios that are part of Avanci 5G through bilateral negotiations and, wherever necessary, litigation.
Jurisdictional challenges rarely dispose of such cases in the UK these days. This here is an exceptional case where it would be warranted to narrow the dispute, and the correct outcome would be to drop Avanci from the case because it can’t give Tesla what it wants even if Avanci wanted to.