Context: It is arguably the most important legal question at this point as far as standard-essential patents (SEPs) are concerned: can courts in certain jurisdictions set FRAND rates for entire pools? This summer, the England & Wales High Court of Justice (EWHC) threw out, on jurisdictional grounds, a lawsuit by Tesla against Avanci and one of its 65+ licensors, InterDigital, over 5G rates (July 18, 2024 ip fray article). But shortly thereafter, it became known that China’s Supreme People’s Court (SPC) had allowed a TCL v. Access Advance case (in which TCL is seeking a pool rate determination) to go forward (July 28, 2024 ip fray article).
What’s new: Meanwhile, ip fray has had the opportunity to read a translation of the SPC decision, and it turns out that it is relatively short and far from saying that patent pools would be forced to grant licenses at particular rates. Also, Tesla has indeed appealed the jurisdictional decision in the UK (case file tracker link).
Direct impact: The Chinese decision was made by the highest court in the land, came down at an earlier procedural stage than the one in the UK, which was made in the first instance. But the two are difficult to compare because the UK decision addressed more specific questions than the one in China, which was more abstract and general. At this point it is too early to say what exactly the Chinese courts will do with respect to pool rates, and in the UK it is not going to be easy for Tesla to revive its case.
Wider ramifications: Pool administrators and their licensors must watch all these developments carefully, but at this point a court ruling forcing a pool to grant a license on court-determined terms is anything but imminent. There are important questions to be resolved concerning the merits as well as any hypothetical enforcement.
Complex legal concepts can’t be added up like 1+1=2. Chinese courts have in the past ordered SEP holders to grant licenses on certain court-determined FRAND terms. And now there is a possibility of Chinese courts making declarations on pool rates. But the combination of both facts still doesn’t mean that Chinese courts will order a patent pool to grant licenses on court-determined terms.
The SPC decision in TCL v. Access Advance does not address the substantive issues that the EWHC discussed with the parties in Tesla v. Avanci, such as whether an order to grant a license on certain terms would be enforceable, given that patent pool administrators can only do what their own agreements with licensors allow them to do. For that reason alone, it would be incorrect to assume that the Chinese SPC granted TCL what the EWHC declined to grant Tesla.
The SPC decision deals, in no small part, with a procedural question that is a non-issue in the UK case: there were two cases filed in different Chinese courts, and a large part of the discussion is about whether one of those courts should have jurisdiction over the pool-related claims at issue. It was decided that the Shenzhen Intermediate People’s Court has jurisdiction despite some other filing that had been made with the Guangzhou Intellectual Property Court.
While TCL is not seeking an injunction (which would raise exactly the enforcement question discussed further above), there is a damages claim targeting the pool administrator as well as one particular licensor. It is unclear how damages would be apportioned between the two if that was necessary.
There is a fundamental difference between the specific performance injunctions that were sought in bilateral FRAND cases and the TCL case. If a licensor is ordered by a court to grant a license on particular terms, it has to do so or it will be sanctioned. But courts can’t sanction a pool administrator not granting a license on terms on which it is simply not allowed to do so. Depending on the pool, it would require every single licensor to agree to the new rate, or maybe a supermajority, but no licensor in their right mind will ever leave the pricing decision in its entirety to the pool administrator.
A declaration of a FRAND pool rate could affect enforcement litigation, but only if the SEP holder doesn’t discharge its FRAND licensing obligation by means of a compliant bilateral offer, in which case the availability of a pool license may be the last line of defense (depending on whether a jurisdiction considers pool offers at all, as opposed to focusing completely on the FRAND compliance of bilateral offers).
Chinese courts deserve credit for having developed a sophisticated, complex set of criteria for whether a court should make a FRAND determination over the SEP holder’s objection. It’s not like anybody could just go to China and say “I want a FRAND license, please force the SEP holder to grant me one!” Instead, the connection of the case with China, concerning everything from product development to manufacturing to distribution (and obviously also the patents to be licensed) is analyzed carefully. The same will presumably happen in the pool rate context.
At that stage, and subsequently to it, some of the same questions that led to the (now appealed) dismissal of Tesla’s UK case against Avanci and InterDigital will be discussed in China.