A standard-essential patent (SEP) dispute between Philips and Xiaomi that started in 2020--and which also involved the European Telecommunications Standards Institute (ETSI)--has been put to rest. Mr. Justice Mellor of the London-based High Court of Justice entered a consent order last week as a result of "the Claimant and the Defendants having agreed to settle the proceedings on the basis of a confidential agreement dated 11 March 2022."
Arguably, the parties remain adverse to each other, but only indirectly so: Philips is one of the founding shareholders of the Access Advance video codec patent pool. While Philips's co-founders are among the HEVC Advance plaintiffs suing Xiaomi over HEVC (H.265) patents, Access Advance's pool management fees are rumored to be exorbitant (like 40%). But Xiaomi is already licensed to a large chunk of HEVC Advance patents, such as Samsung's H.265 patents. That's another story.
The primary reason this blog hasn't written much about Xiaomi's cases is that it hasn't had a large-scale high-profile dispute so far, despite being one of the world's top three smartphone makers. Relatively speaking, the spat with Philips may have been its largest one to date, with complaints brought in multiple jurisdictions. What I hear from industry sources is that Xiaomi has a business-oriented approach to licensing. For example, Sisvel president Mattia Fogliacco declared himself "impressed with the professional and effective approach of Xiaomi's licensing team." I'll take his word for it.
Haier, which took four years to make Sisvel a FRAND counteroffer, is not representative of China's leading technology companies. Companies like Huawei, Xiaomi, and OPPO (which is currently defending against Nokia) have substantial patent holdings of their own because they invest heavily in R&D, sometimes filling the vacuum left by certain European companies such as Philips. Whether their positions are FRAND must be looked at on a case-by-case basis, of course.
While there were no signs of hold-out by Xiaomi, Philips had a distinct preference for leverage from injunctions over judicial FRAND determinations and for opacity over transparency.
I'm genuinely disappointed that three really interesting legal issues raised by Xiaomi in that dispute won't come to judgment now, though I expect them to resurface in other cases:
Is an implementer a willing licensee if it takes the position that there already is a license agreement in place under French law (the law governing the ETSI FRAND pledge) with just some blanks (essentially, the license fee) to be filled out by means of judicial determination?
Xiaomi was ready to discontinue all other litigation in order to let the Tribunal judiciaire de Paris set the terms. Philips, however, was pursuing injunctions in multiple jurisdictions. The London-based High Court bought Philips's allegation that the French proceedings would take ten years or so, but it was actually Philips itself that delayed them through a jurisdictional challenge including an interlocutory appeal. For whatever reason, Philips had no faith in that neutral jurisdiction.
In the FRAND context, we all say "willing licensee" all the time. But what we mean in almost every case is that someone is "willing to become a licensee." Very interestingly, Xiaomi wasn't merely prepared to take a license: it said a license agreement was already in place. That position intuitively sounds like a "willing licensee" in the narrowest sense of the term. As a result of the settlement, we won't know how this would have played out.
Xiaomi might have had any number of valid reasons for seeking a Chinese FRAND determination. Instead, it chose to go to France. But it takes two to tango.
Philips's aversion to the French proceeding and the notion of a license agreement already being in place is typical. In the U.S. part of its dispute with Thales, Philips prefers an ITC exclusion order (with a preliminary decision scheduled for tomorrow) over a FRAND determination in Delaware, though Philips argues that Thales isn't sincere and may or may not have a point.
It strikes me as odd that not only Philips but also a UK judge thought it made more sense to resolve a question of French contract law in the UK when there was already a French proceeding pending.
Xiaomi named ETSI as a co-defendant, arguing that ETSI had a responsibility here. Thales--arguably the most important technology company in France--is doing the same now, which is going to get interesting.
While we're on the subject of ETSI: Philips objected to Xiaomi's membership in ETSI, despite Xiaomi holding tens of thousands of patents and being a major wireless device maker. As a result, the question of Xiaomi's admission had to be escalated to ETSI's General Assembly. A childish kind of retaliation by Philips if you ask me. Xiaomi won the vote (I don't even want to think about what would have happened in the other event).
Transparency in connection with the "ND" in FRAND was a major issue. Philips doggedly tried to prevent Xiaomi's licensing team from seeing any comparable license agreements. At most, Philips would have accepted that Xiaomi's in-house litigators could see those contracts, but Philips wanted to erect a Chinese wall inside a Chinese company: Xiaomi's litigators wouldn't have been allowed to tell their licensing colleagues or join in negotiations.
That issue came up in Munich, where it even reached the appeals court (with no decision prior to the settlement), the Netherlands, the UK, and possibly elsewhere. It was like the most extreme position anyone has ever taken on a "confidentiality club." I know that other industry players were watching those developments with profound concern.
That obstruction of informed negotiations also suggests to me that Philips was just seeking to unilaterally impose its terms.
From the outside it looks like Xiaomi was raising interesting legal questions in good faith. Neither did Xiaomi cave nor were there any signs of delay tactics. The fact that Philips lost two of its patents-in-suit in Germany (in one nullity proceeding it gave up, and in another there had already been a negative preliminary opinion) shows that the right of a defendant--under Huawei v. ZTE--to challenge the essentiality and validity of the SEPs in question is an important one. To exercise that right reasonably does not constitute hold-out.
Just as I'm about to finish this post, I can see that Juve Patent has already reported on the settlement. Their article lists the lawyers involved, with Simmons & Simmons interestingly having represented Xiaomi in three jurisdictions (UK, Netherlands, Germany). That firm has done similar work for Samsung. And when I read Munich-based Simmons & Simmons partner Dr. Thomas Gniadek's name, I was instantly reminded of his work--as a Bardehle Pagenberg associate at the time--on Microsoft's behalf against Motorola Mobility. For more information on the parties' outside counsel, let me just refer you to Juve Patent. Their focus is on the business of law, while mine is on the impact of the law on business, which sometimes makes us complementary.
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