Context: In the summer, Mr. Justice Timothy Fancourt of the High Court of Justice for England & Wales (EWHC) threw out, at the earliest procedural stage, Tesla’s FRAND complaint against Avanci and InterDigital for failure to raise a serious triable issue (July 18, 2024 ip fray article). The electric vehicle maker appealed.
What’s new: The England & Wales Court of Appeal (EWCA) just concluded a two-day hearing. The three-judge panel will probably not be able to hand down a decision before yearend, making January the most likely month. The three parties reiterated their positions, with Avanci’s counsel spending the least time and making the easiest-to-understand points, such as that a “colloquial” question of whether a license fee is FRAND must be distinguished from whether there is any legal right to such a determination.
Direct impact: Especially one member of the panel, Lord Justice Stephen Phillips, expressed clear and strong skepticism of Tesla’s request for a FRAND determination against a patent pool that makes an optional one-stop licensing offer and does not itself own any patents. Lord Justice Richard Arnold appeared more sympathetic to Tesla’s desire, while Lady Justice Philippa Whipple was less outspoken about how she viewed the case. It is key to understand that even if Tesla, rather surprisingly, revived its case at this stage, there would still be significant hurdles ahead of it. At this juncture, the only question is whether the case is so clearly meritless that defendants based outside the UK should not even be deemed ever to have been served the complaint.
Wider ramifications: Other legal attacks failed to get traction. Continental lost in federal court against Avanci and brought a somewhat similar case, formally against Nokia, in Delaware state court, but withdrew it (July 18, 2024 ip fray article). Typically, such cases get settled as implementers prefer licensing over litigation.
The hurdle for jurisdictional challenges in complex UK commercial litigation is high. In case of doubt, the courts tend to let cases go forward, which may nevertheless mean that they are likely (or even doomed) to fail later on. Here, however, even a judge who was generally sympathetic to Tesla’s wish to obtain a judicial opinion on whether Avanci’s 5G license fee is FRAND (and, if not, what the FRAND rate should be) decided to throw out Tesla’s case at the earliest procedural juncture.
While there is no question that LJ Arnold, who presided over the hearing, has already forgotten more about standard-essential patent (SEP) litigation than many others will ever know, LJ Phillips impressed with his clear take on the mechanics (and the limitations) of collective-licensing programs. And LJ Whipple was an attentive listener who did not miss a beat and asked only a few, but targeted questions that did not reveal a strong inclination.
There are various issues surrounding Tesla’s FRAND claim against Avanci, and they all came up during the two-day hearing. For instance, Avanci itself neither owns patent nor ever made a FRAND pledge to a standard-setting organization. And even if one simply ignored everything else and imagined, for a moment, that a court said the rate should be $X per car, what would that mean in practice? Avanci can grant licenses only on the terms on which its licensors have authorized it to do so.
But above all, Avanci’s offer is optional. As Brian Nicholson KC stressed on Avanci’s behalf, Avanci makes a commercial offer, but if Tesla doesn’t like it, it is free to pursue bilateral licensing instead. Any one of the 70 SEP holders who have contributed their patents to the Avanci pool could negotiate and enter into a direct license agreement with Tesla. And if any of them refused to do so, Tesla could try to resolve that problem with a given unwilling licensor, potentially also by means of UK FRAND litigation.
InterDigital’s focus was, naturally, on whether Tesla made the right choice to pick that company of all (70) Avanci licensors. LJ Arnold made a remark that SEP holders can also choose which implementer they sue. But symmetry is not always the answer.
What became clear at the hearing is that those 70 licensors (it is irrelevant that slightly numbers, typically 67, were mentioned) differ from each other in some ways. For example, 10 or so of them may not even own any UK 5G patent. And, as Avanci’s counsel noted, they haven’t all made a pledge to the European Telecommunications Standards Institute (ETSI), but there are also other standard-setting organizations in the world.
It was already a topic of discussion in the High Court of Justice that it would be problematic to make a FRAND determination against a pool with dozens of licensors when only one of them (here, InterDigital) is actually a party to the proceedings. There still is no satisfactory answer to that question.
Another problem with Tesla’s reverse-class-action approach is the assumption that if a court sets a rate for the Avanci pool, all licensors will take the necessary steps so that Avanci will offer a pool license at that rate does not appear realistic. Some might simply leave in those circumstances. Some others might be fine with changing the pool rate, but might then not be able to work out a new internal agreement (on how to split the licensing income) with other contributors.
One point that LJ Arnold made cannot be disputed: German courts have sometimes thrown out FRAND defenses by implementers on the basis that a pool license (but not a bilateral one) was available. That, however, is not Avanci’s fault. And the same German judges would most likely not be persuaded by a UK FRAND determination (which would not be binding on them) in any German patent infringement cases that any Avanci licensors might hypothetically bring against Tesla.
As ip fray has discussed in a recent article, it may not be a good idea to engage in judicial rate-setting for pools that already have broad market acceptance (November 15, 2024 ip fray article). Another recent article talked more generally about the right scope of judicial FRAND determinations (November 27, 2024 ip fray article).
Sometimes courts provide clear indications at a hearing as to where they are leaning. Here, there are such fundamental differences in the judges’ statements and questions that it is impossible to offer a prediction. That is, however, a surprise, given that what Tesla is seeking goes beyond what any UK court has ever done. In fact, it goes beyond what any court in the world has ever done (while China’s Supreme People’s Court held that a lower court had jurisdiction over a case that also involved a pool-level FRAND determination, the matter settled and it is unclear whether TCL would ever have obtained a rate-setting decision against Access Advance).
Should Tesla surprisingly revive its case, then the trial court would still have to make various important decisions in the further process. This is an appeal of an earliest-stage dismissal of a case, as opposed to an appeal of a judgment that came down after a trial. At this point, the SEP ecosystem just has to await a ruling that could create considerable legal uncertainty for the entire patent pool ecosystem. And instability is not what the vast majority of implementers of standards want.