Vringo Infrastructure, Inc v ZTE (UK) Ltd & Anor

In standards-essential patent litigation, the court may determine a royalty on the assumption that the patents are valid and infringed, or assess the outcome of a hypothetical negotiation before the merits are tried. Those exercises produce different results. A defendant which is willing to take a licence for patents found valid and infringed is entitled to maintain a contingent position and require validity and infringement to be determined first. It cannot be compelled to accept terms assessed on the assumption that it would licence untested patents. Whether a global portfolio offer is anti-competitive depends on its terms and cannot be decided in the abstract. Where the proposed FRAND exercise would be non-binding and would require extensive investigation of disputed patent strength, the patent trials should precede the FRAND issues.

The claimant brought two patent actions concerning six patents said to be essential to telecommunications standards. It sought to determine FRAND issues first, including declarations concerning a proposed global portfolio licence and whether the offer complied with competition-law obligations. It also sought to join the parent company of the existing defendant as a party.

The defendant maintained that the patents were invalid and/or not infringed, but that it would accept a FRAND licence for any patent found valid and infringed. It opposed a preliminary FRAND trial and sought determination of validity and infringement first. The issues were whether the proposed FRAND exercise was suitable for early determination, whether the global-versus-per-patent licensing question could be decided separately, and whether the proposed second defendant should be joined.

1. Nature of the proposed exercises. There are two materially different approaches. The court may determine a royalty on the assumption that the patents are valid and infringed. Alternatively, it may assess what a willing licensor and licensee would have agreed before validity and infringement were determined. The latter assessment would ordinarily produce a discounted rate and was the exercise sought by the claimant.
2. Contingent position. A defendant accused of infringing a standards-essential patent is entitled to require a judicial determination of validity and infringement before taking a licence. A willingness to licence patents found valid and infringed is sufficient. Such a contingent position is not evidence that the defendant is an unwilling licensee. The court cannot compel the defendant to accept a licence assessed on the basis that it would negotiate without first resolving the merits.
3. Authorities. Microsoft v Motorola (10-CV-01823-ORD) illustrated that a court can determine portfolio licence terms where the determination resolves the dispute. IPCom v Nokia ([2009] EWHC 1017 (Pat)) did not justify ordering the proposed trial here, particularly because the role of validity, infringement and essentiality could not be separated from the proposed assessment. The other examples relied upon involved materially different assumptions, including willingness to be bound or an assumption that the patents were valid and infringed.
4. Order. The global-versus-per-patent competition question could not be resolved in the abstract because its answer depended on the terms of the proposed licence. The FRAND trial was therefore refused. The patent trials were to come first, with remedies or FRAND issues deferred until at least the first patent case. The proposed second defendant was not an appropriate party at that stage because the relevant issue was not ripe. The claimant’s application was refused.