Unwired vs. Huawei: the Real Impact?

https://www.bailii.org/uk/cases/UKSC/2020/37.html

What was delightful about the earlier Unwired vs. Huawei decision is that it got the FRAND rate almost correct. It was too high maybe only by a factor of something like 2-3X or so. And, thus, certainly at the saner end of the FRAND litigation outcome spectrum. Its methdology and approach were, you know, near perfect, but some of the data inputs were a little off. It happens.

Maybe the biggest reason it missed the mark a little is that it failed to account, at all, for the Qualcomm pass through rights. Interestingly, Huawei did actually plead and invoke those early on, but when Judge Birss offered to have a separate hearing on those, Huawei let the issue drop. Obviously due to some combination of them having increasingly their own chipsets, rather than those of Qualcomm, in use and perhaps having similar Qualcomm pass through issues for their own patent portfolio. Put differently, we cannot blame Judge Birss for missing the mark some, if both parties are intentionally blowing smoke on perhaps the biggest value impacting aspect in the whole case. Instead, he deserves to be congratulated for what was still maybe the most sophisticated FRAND litigation outcome thus far in the world. Respect for that!

Anyhow, it now stands clear that a UK court can get set a global rate that needs to be paid so as to avoid a UK injunction. This will have some quite funky repercussions. First, the convenience rate set by the court demands payments even for jurisdictions with no patent coverage. It is increasingly common in this day and age that both sales and manufacturing of licensed products take place in countries with no patent coverage or no meaningful rule of law to enforce the patents. Just the way the world is.

Second, if the courts of other countries will start doing the same, then it will potentially get quite strange. What if, say, a UK court says that to sell in the UK one needs to pay royalty at the level 5X in Germany, while a Chinese court says that to sell in China one needs to pay royalty at the level 1X in Germany? And then maybe a US court joins the fray and says that the rate should be 3X for Germany, but without the threat of a US injunction, as injunctions are fiction in the US. All rates for the one and same portfolio in Germany. And does it even matter what the German courts think? It gets quite bizarre, quite quick.

A more likely scenario is perhaps that a Chinese court says that one should pay the rate 1X in China in order to be able to sell in China, while a UK court says that one should pay at the rate 5X in China in order to be able to sell in the UK. What happens then? Comity between the courts is out of the window.

I think what happens then is the following. The impact of the UK ruling will turn on the following: a) how sane is the outcome in the ruling?; and b) how important is the UK as a standalone post-Brexit market? As to B, the UK is really quite small as a standalone market for something like smartphones. It will be surprisingly easy for many companies just to exit, if the outcomes start to be too strange.

Why, you may ask? Well it already happened, for example, in the Netherlands, where the local courts issued clearly biased rulings in favor of the local Philips. Notably, Philips pretty much lost all its litigations everywhere else (rightly so), save for its home domicile the Netherlands. Many defendants just left the market as enjoined by the Dutch courts. Really just doing what the court ordered them to do. I have been part of similar exercises. Both technical and commercial design arounds become attractive, if the alternative is some bizarre supra-FRAND rate.

And leaving a market is the most straight forward commercial design around. Not hard to do, if the math compels it. In a globalized world, the impact of the UK as a standalone market is so small that the UK courts have to get things really right for there to be no exits from the UK market. If they fail at that, the UK consumer will just suffer through enjoying a more fringe product offering and maybe higher prices. We shall see.

That then begs the question what kinds of companies are trying to dovetail off of Unwired? Looks rather alarming. It is the more fringe crowd with the likes of InterDigital and Sisvel with highly dubious FRAND track records (if any) just based on information in the public domain. The royalty levels they target must be so far removed from what sophisticated defendants can regard as FRAND that the UK courts cannot please everyone. If they side with the demands by the fringe plaintiffs, well then UK may just balkanize as a smartphone market. If however they side with the more sophisticated OEM defendants, then the fringe crowd will just do something else, like sue in India or something. Whatever is in fashion.

Net net, the UK courts just made their lives really difficult. It will be interesting to see whether they are up for the task. Judge Birss certainly seems to be. It would be helpful in that regard, if the parties stop behaving like Huawei did by dropping the most important angle out of its entire case. Finally, and on a more positive note, this outcome is probably yet another black eye for the fringe crowd at the other end of the spectrum, the polar opposites of Unwired, Sisvel and InterDigital, if you will, namely the SSPPU/"Thou shalt license all" crowd. That's certainly a bonus.

https://www.bailii.org/uk/cases/UKSC/2020/37.html