UPC & SEPs: jurisdictional limits concern free-standing FRAND claims, antisuit injunctions while U.S. and UK courts enjoy greater powers

This article has three sections:

1. The UPC’s jurisdictional competences have limits that particularly affect SEP cases
2. The UPC appears ever less likely to adopt the extremist German Sisvel v. Haier approach to Huawei v. ZTE
3. UPC and SEPs are topics of primary interest to 94% of ip fray‘s readers

1. The UPC’s jurisdictional competences have limits that particularly affect SEP cases

Kirkland & Ellis is the first law firm to have won, in practical terms, some UPC cases through a decision obtained outside of UPCland. Their spectacular appellate win on Xiaomi’s behalf in the UK disposed of all of Panasonic’s UPC and German cases. A license is a full defense to any infringement claims. Formally, those UPC and German cases have been or will be stayed, but practically they will never come back.

Could it work the other way round, meaning that the UPC could make an impact on UK proceedings? The UPC may soon be able to order remedies against defendants based in UPCland with respect to the UK parts of patents granted by the European Patent Office (EPO), subject to the outcome of BSH Hausgeräte v. Electrolux in the ECJ (May 31, 2024 ip fray article). But there are three things that UK (and U.S.) courts can do, at least in principle, but the UPC – in ip fray‘s assessment, taking into account what was discussed in Mannheim this week – apparently can’t:

• (1.1) It can’t impose an obligation on a SEP holder to extend a license, on court-determined terms, to an implementer. At most it can deny an injunction due to a meritorious FRAND defense.
• (1.2) It can’t put a stopper on foreign patent enforcement actions by means of an antisuit injunction (ASI).
• (1.3) It can’t order an anti-antisuit injunction (AASI) to prevent a UPC litigant from seeking a foreign ASI targeting UPC proceedings.

Different observers of this week’s Mannheim proceedings feel that Judge Prof. Tochtermann was not a fan of the EWCA’s decision in Xiaomi’s favor. It wasn’t great timing to move for a stay right after the court made an introduction at the start of the trial. But those observers think his problems with that decision went further. And at a recent conference he merely acknowledged the receipt of a letter from Mr Justice Richard Meade (EWHC) about a forthcoming FRAND determination (July 31, 2024 ip fray article), but the general perception was that he didn’t like it. But it is now up to him and his colleagues to show that the UPC can make its own FRAND determinations, and where a case is not crystal clear based on a set of representative comparable licenses, that may mean extensive proceedings where expert witnesses will be heard. If the UPC doesn’t want to do that in any circumstance, a “not invented here” syndrome is not the answer.

1.1 Free-standing FRAND claims

OPPO would like the UPC to make a FRAND determination with respect to certain target markets. But the UPC’s jurisdiction is limited. It’s not a general court of law. Article 3 of the UPC Agreement (UPCA) defines the scope of application, which effectively comes down to “anything that the EPO granted and the patentee hasn’t opted out.” The UPC’s competences as defined in Art. 32 UPCA involve injunctions, but only within the scope of Art. 3.

Under EU antitrust law, SEP holders have an obligation to grant licenses on FRAND terms. Alternatively, one could try to make an argument under contract law, claiming to be a third-party beneficiary of the SEP holder’s commitments to a standard-setting organization. But contract and competition law are not among the UPC’s competences, plain and simple. It’s a pure patent court.

That’s why the Mannheim LD’s position appears logical: what OPPO wants (a FRAND determination) may or may not be a procedural option if the court identified an infringement of a valid SEP, but it certainly isn’t in the absence of such background. There must be an anchor in patent law itself.

Whether the UPC would be enthusiastic about making full-blown FRAND determinations is another question. The UPC wants to keep its timelines. But a free-standing FRAND claim based in contract or antitrust law is not going to fly.

By contrast, U.S. federal and state courts can hear cases involving contract claims relating to a third-party beneficiary’s rights and the duty of good faith and fair dealing. Depending on the specifics of a case, that can lead to a FRAND determination, though U.S. courts are reluctant to make decisions involving foreign patents unless both parties ask for it. In the UK, FRAND determinations used to be part of the Unwired Planet v. Huawei process, i.e., one last chance for an implementer to avert the enforcement of an injunction by committing to take a license. Since Kigen v. Thales, however, even free-standing claims may be entertained.

Implementers should be realistic and accept that free-standing FRAND claims in the UPC are not an option. But there may be circumstances, depending on the facts in a given case, where even the UPC, regardless of its objective of swiftly adjudicating patent disputes, may have to engage in rate-setting. A strictly sequential application of Huawei v. ZTE (see section 2 of this article) may sometimes necessitate it.

It’s important to note that the Xiaomi-Panasonic pattern was unusual. In that case, both parties had made a commitment to the UK as their FRAND dispute resolution forum. Panasonic walked back, but Xiaomi and ultimately the EWCA wouldn’t let them do that. That said, even in a situation where the UPC would engage in rate-setting, it will probably never be able to force someone into a contract. It can just deny a patent injunction.

1.2 No antisuit injunctions

Before the Xiaomi-Panasonic decision came down (October 3, 2024 ip fray article) and Panasonic indeed offered an interim license that Xiaomi accepted (October 7, 2024 LinkedIn post by ip fray), it was a possibility that the High Court of Justice (EWHC) would enter an antisuit injunction. It was, in fact, the instrument one of the three appellate judges would have preferred, and the question of whether there should be a declaration nof an interim license or an antisuit injunction was arguably the most important question at the appellate hearing (September 22, 2024 ip fray article).

U.S. courts have entered ASIs, notably in Microsoft v. Motorola (preventing the enforcement of two Mannheim injunctions) and Huawei v. Samsung (though it might have been lifted on appeal if they had not settled between the Federal Circuit hearing and a decision).

The UPC, however, doesn’t have that authority under the UPCA as it stands. It can enter injunctions against infringement, but not against the pursuit of vexatious and oppressive foreign litigation. And outside of EPOland, Art. 3 would clearly rule out any jurisdiction anyway.

It is also a corollary of the previous item (1.1, no authority to force SEP holders into license agreements) that there wouldn’t even be a basis to argue that a UPC proceeding disposes of cases in other jurisdictions because it would be certain to result in a global license agreement.

1.3 No anti-antisuit injunctions (AASIs)

If the UK appeal had resulted in a formal recommendation to seek an ASI, Panasonic couldn’t have tried to prevent or defuse one by seeking an AASI in the UPC. The UPC can order injunctions only against the infringement of EPO-granted patents.

That does not necessarily mean that the UPC would be completely defenseless against foreign ASIs. German courts decided to enter AASIs even though they wouldn’t have jurisdiction over ASI motions. They argued that it was necessary to defend foreign interference with patents that were enforceable in Germany. They also made a self-defense argument at times.

It could be that the UPC, instead of a formal injunction, would try to achieve the effect of an AASI by imposing or threatening sanctions on a party seeking foreign antisuit relief in order to derail UPC proceedings. Whether (and if so, how) they would do that remains to be seen. Someone will try, sooner or later.

Theoretically, a SEP holder could also try to ask national courts for help, but their jurisdiction would be limited to a given country. So a German court might be able to order an AASI to the extent that the targeted ASI would impact the German parts of EPO-granted patents, but not beyond.

2. The UPC appears ever less likely to adopt the extremist German Sisvel v. Haier approach to Huawei v. ZTE

Judge Prof. Tochtermann was sitting on the Mannheim Regional Court when a different panel of the same court departed from a strictly sequential application of Huawei v. ZTE, and he, to his credit, disagreed with those colleagues. The European Commission’s amicus curiae brief in VoiceAge EVS v. HMD (August 4, 2024 ip fray article) vindicates him.

While ip fray considers Sisvel v. Haier intellectually dishonest and unbelievably bad policy, it’s not that Huawei v. ZTE is perfect. The notion that either party gets one opportunity to make an offer, as opposed to the ability to come back with a better proposal, appears exceedingly stiff and strict. It means each party has only one silver bullet, and if it misses, the consequences can be severe. The problem is just that the way Sisvel v. Haier works in practice is “heads, SEP holder wins, tails, implementer loses.”

The UPC should become a strong SEP enforcement venue. But the German state of affairs is a disgrace. If 100% of all implementers who get sued end up being enjoined after a SEP has been deemed valid and infringed, there practically is no FRAND defense except in outlier scenarios where someone refuses to put some license agreements on the table or where a court disagrees with a pool’s duplicative-royalty mechanism. If, for example, 75% of all SEP holders prevailed, that percentage would not be implausible (August 5, 2024 ip fray article). The explanation might be that unwilling licensees get sued, and decide to defend themselves at trial, more frequently than willing ones. But when you have a wide range of defendants from different industries and countries, and every single one loses over the course of several years, something must be fundamentally broken. Just like it would be unrealistic to assume that all implementers act in good faith, it would also be utterly obtuse to think that 100% of all SEP holders act in good faith. If there is a system in which every implementer loses, it’s common sense that sooner or later some bad actors (and over time, more and more of them) will abuse it for the purpose of hold-up.

ip fray takes centrist views on these issues and does not take any claims seriously according to which there is no hold-up (or hold-out) or that no hold-up (or hold-out) has ever been proven. Both phenomena exist, and both can be witnessed unless one is just one particularly company’s or lobbying group’s representative or hack and turns a blind eye to reality.

The next two UPC SEP trials will take place in Munich as mentioned above. Without knowing the exact numbers that the parties demand, one can only make an educated guess based on what is publicly known about the parties’ behavior:

• Huawei is known to be much less demanding than other major SEP holders. Relative to portfolio strength, Huawei’s demands have a reputation in the entire technology industry for being moderate when compared to what others seek. That’s why it concludes many license agreements without litigation, and has even been held by a court to have overcomplied with its FRAND obligations. It’s not even a question of ethics: they are also a major implementer of standards, a fact that simply forces them to be reasonably balanced. By contrast, Netgear started litigation in the U.S. (Central District of California) hoping to capitalize on geopolitical tensions. This looks like a case where the outcome may not hinge on whether or not Huawei v. ZTE is sequential.
• What the EWCA found doesn’t reflect favorably on Panasonic. There were signs of hold-up based on what the judges said and wrote. At the same time, OPPO is also known to go very far, including that they left the German market in 2022 because of Nokia’s SEP enforcement. That makes it harder to form an opinion on that case.

By coincidence, one litigator will be on the enforcing side this month (representing Huawei) and on the defending side (representing OPPO) next month: Dr. Tobias Hessel of Clifford Chance.

3. UPC and SEPs are topics of primary interest to 94% of ip fray‘s readers

In recent days, ip fray conducted a LinkedIn poll (link) to find out about what topics the esteemed readership prioritizes:

Considering that ip fray doubled down on UPC coverage only in the late spring, it’s remarkable that the UPC is the #1 topic with 51% of the votes. But SEPs are a strong second with 43%. And even the 5% of readers who are interested in patent policy are not that few when considering that there are far fewer patent policy professionals than people working in litigation or licensing.

Only 1% chose “None of the above,” which means for ip fray that there is room for greater diversity and different options are being explored in that regard. But that will not come at the expense of ip fray‘s coverage of UPC and SEP topics.

The exact delineation between premium subscription (announced in a June 23, 2024 ip fray article) and free content in 2025 has not been determined yet. The poll was also conducted with a view to that editorial decision. Rest assured there is still going to be a fair amount of free content in any event. One major objective is definitely to make ip fray the undisputed leader among subscription services serving in-house and outside counsel with a strong interest in the UPC. The information needs of that community are huge, and it will remain so for some time. The UPC is also poised to keep growing.

This present article should be of interest to pretty much the entire readership (as it’s also relevant to policy professionals) based on the result of the poll.