The UK’s Supreme Court has ruled against Chinese telecommunications companies Huawei and ZTE in a landmark intellectual property case that will shape the way patent licences for technology standards are awarded and enforced.

It means that Huawei, ZTE and other companies must take out a global licence for patented technologies deemed essential to international wireless telecommunications standards.

Failure to take out a global licence risks injunctions and restricted access to the UK market.

In 2014 Unwired Planet, which holds patent licences for 2G, 3G and 4G wireless communication technology, sued Huawei for patent infringement. Years of litigation followed in which the High Court and then the Court of Appeal sided with Unwired Planet in 2017 and 2018. This left the Supreme Court as Huawei’s final legal avenue, with the trial hearing taking place in 2019.

The Supreme Court was unanimous in its dismissal of Huawei’s appeal.

A second case between Huawei, ZTE and patent holder Conversant ran in parallel. Conversant sued Huawei and ZTE for infringement of its SEPs for the long-term evolution (LTE) wireless standard in mobile handsets. The Supreme Court judgement backs the underlying legal argument being made by Conversant, but legal proceedings are set to continue in this case.

“With respect to Conversant, this decision was a preliminary ruling on jurisdiction and the proceedings will now continue with the UK FRAND trial scheduled for February 2021,” a Huawei spokesperson told Verdict.

Huawei must take out global patent licence

The disputes centre around standard-essential patents (SEPs), which are considered crucial to a technology. There are protections in place to ensure that those holding the SEPs – the ‘innovators’ – do not hold those using them – the ‘implementers’ – hostage by holding out for extortionate prices. Likewise, there are safeguards in place to ensure that the patent holders are rewarded fairly for innovating.  These conditions are known as fair, reasonable, and non-discriminatory (FRAND).

Today’s judgement means that implementors, such as Huawei, cannot insist that SEP holders, such as Unwired Planet, negotiate their patent licences on a country-by-country basis.

The court found that this would be economically prohibitive for smaller patent companies to fight legal battles across multiple jurisdictions.

Otherwise, as the Supreme Court observed, “implementers who were infringing the patents would have an incentive to continue infringing”.

The Supreme Court also found that Unwired Planet was not required to offer Huawei the same royalty rates that it had offered to Samsung.

Huawei v Unwired Planet an “epic journey”

Gary Moss, head of EIP – the law firm that represented Unwired Planet and Conversant – described it as an “epic journey”, adding that EIP and its clients have “faced significant pressures along the way”.

“Many in the industry thought that what we were attempting was crazy and hopeless,” he said. “But we and our clients have held firm; along the way we have gone through 12 major trials and appeals and innumerable interim Court hearings. We always believed in our clients’ case and seven years later we are delighted to have our belief endorsed by the Supreme Court.”

Arty Rajendra, UK head of IP disputes at Osborne Clarke and co-counsel for Unwired Planet, said: “Implementers and SEP holders should be pleased the respected and high quality English court is willing and able to determine global FRAND terms to enable implementers to sell their phones worldwide.  We can expect more SEP owners to seek to enforce their standard-essential patent rights in this country, and to see more clarity for SEP owners and implementers on the rates they should be seeking for licences.”

A spokesperson for Unwired Planet said: “We are pleased with the UK Supreme Court’s decision, which fully affirms the rulings of the UK appellate court and Mr Justice Birss. Unwired Planet and its other PanOptis related companies believe that global licensing is the most efficient and effective solution for both licensors and licensees. We look forward to continue working with other manufacturers to offer licenses to our patents under this global FRAND framework and conclude negotiations in a timely manner.”

Conversant Wireless’s CEO, Boris Teksler, said:

“We are obviously extremely pleased at the decision of the UK Supreme Court on a topic fundamental to how IP is licensed in the Telecoms sector.  The decision reflects the court’s deep understanding of the issues that affect our sector and encourages us to drive this industry forward.”

A spokesperson for Huawei said: “Huawei has already made payments to Unwired Planet according to the agreement set by UK court and has settled with Unwired Planet’s parent company, PanOptis.  As a result, no additional sums fall due as a result of this ruling.

“Huawei continues to advocate a balanced position in relation to FRAND licenses of standard-essential patents, which is critical to the innovation that brings enormous benefits to our society.”

Verdict has approached ZTE for comment.

This story was updated to include comment from Huawei.

Read more: Why Huawei’s patent showdown with Unwired Planet will send shockwaves through the tech industry