Samsung Electronics Co Ltd & Anor v Telefonaktiebolaget LM Ericsson & Ors

A transferee of standard-essential patents may be practically bound by the transferor’s FRAND commitment even if it is not an ETSI member, particularly where it has given an equivalent undertaking. Third parties may require licensing on FRAND terms. However, it is realistically arguable under Article 101 of the Treaty on the Functioning of the European Union that an effective transfer must preserve the non-discrimination aspect of the transferor’s FRAND obligation. Relevant prior licensing conduct and portfolio circumstances may therefore matter. Commercial difficulties in identifying comparators do not justify striking out the defence where the questions are not necessarily unanswerable.

Ericsson transferred a portfolio of telecommunications patents, including standard-essential patents, to companies in the Unwired Planet group under a master sale agreement and related agreements. Samsung, defending patent infringement proceedings, alleged that the arrangements infringed Article 101 TFEU because they failed fully to transfer Ericsson’s FRAND obligations and enabled anti-competitive royalty demands.

Birss J struck out the second and third elements of Samsung’s first competition-law defence, while holding its separate second and third defences arguable: [2015] EWHC 2097(Pat). Samsung appealed. The central issues were whether the FRAND obligations were enforceable by third parties and whether the non-discrimination obligation required the transferee to take account of Ericsson’s previous licensing position.

Disposition. The appeal was allowed to the extent explained. The strike-out was upheld insofar as Samsung relied on the absence of third-party enforceability, but the non-discrimination aspect of its first defence was held arguable and could proceed to trial. The separate second and third defences remained arguable.

1. Third-party enforceability. ETSI’s policy did not distinguish between transferees that were members of ETSI and those that were not. UP LLC and UP were required to give FRAND undertakings and did so shortly after acquiring the patents. Their non-membership of ETSI did not prevent the undertakings from operating as practical constraints. The court therefore upheld the judge’s conclusion that a third party could require UP to license the standard-essential patents on FRAND terms.
2. The Court of Justice’s guidance in Huawei Technologies Ltd v ZTE Corp & anor (re Smart Phone Standard Essential Patents) [2015] 5 CMLR 14 supported the conclusion that a proprietor refusing to honour a FRAND commitment could risk infringing Article 102 TFEU. The later undertakings were therefore relevant to the practical enforceability of the obligation.
3. Non-discrimination. It was realistically arguable that Article 101 required an effective transfer of the non-discrimination aspect of Ericsson’s FRAND obligation. UP might otherwise charge materially higher royalties than Ericsson could have charged without discriminating against Ericsson’s existing licensees. The continuing royalty interest and involvement of Ericsson, together with UP’s status as a patent assertion entity, strengthened the arguability of the case.
4. The judge’s concerns about repeated assignments, historic portfolio composition, access to licensing information and an acquirer’s existing portfolio were legitimate but not necessarily unanswerable. Those matters could be addressed at trial. The related arrangements might operate together to circumvent FRAND obligations, restrict downstream competition and render the agreements anti-competitive and void.

1. Court of Appeal (Civil Division): The appeal was allowed to the extent explained, restoring the non-discrimination aspect of the first defence for determination at trial.
2. High Court of Justice, Chancery Division: Birss J struck out the second and third elements of Samsung’s first competition-law defence, while allowing its separate second and third defences to proceed: [2015] EWHC 2097(Pat).