This is the follow-up I promised at the end of the previous post, which put the recent Nokia v. OPPO "effect of the undertakings" ruling--which I called a "remedies roadmap"--into the context of the Mannheim court's holding that OPPO was an unwilling licensee because its counteroffer was a lump-sum royalty. It is disconcerting how the Mannheim and Karlsruhe courts forced OPPO out of the German market last year with unreasonable decisions, key parts of which have since been reduced to absurdity by decisions in other jurisdictions. But the proposed EU SEP Regulation is not the answer. Instead of tackling the real issues in a targeted way, it just creates different problems with a broadbrush approach to a highly complex and sensitive dispute resolution system that may be imperfect but is yet preferable over the proposed regulation.
EU policy makers should study Mr Justice Richard Meade's Nokia v. OPPO "Trial E" decision on remedies carefully as it serves as a preview of how the UK judiciary will deal with the types of FRAND rate proceedings envisioned by the European Commission's Directorate-General for the Internal Market (DG GROW). The short version is that an implementer would not be able to dissuade the High Court of Justice from granting a UK injunction by telling the court that it has already accepted to be bound by an EUIPO-led FRAND rate opinion. The London-based court would still present the defendant with only two options: make a commitment to take a global license on terms set by the High Court--or be enjoined from selling infringing products in, or importing infringing goods into, the UK.
Two SEP holders have recently been awarded royalties by the High Court that fell far short of their demands (InterDigital v. Lenovo, Optis v. Apple). In order for London to regain ground as a SEP enforcement venue, the Court of Appeal would have to move the needle in patentees' favor. I'm not taking a position on whether it should; just saying what SEP holders would want to happen. Mr Justice Meade's decision alone would not make SEP holders rich, to put it that way. But its key holding is significant at any rate:
The High Court rejected OPPO's commitment to be bound by a FRAND determination to be made by a court in Chongqing, China. Instead, Mr Justice Meade held that the only way for OPPO to avoid an injunction is to commit to a global license agreement on the terms to be set by the London-based court.
I've read the decision in detail, and various arguments made by Nokia were rejected. Mr Justice Meade noted that both parties had tactical reasons for preferring one forum over the other: Nokia wants the FRAND determination to be made in the UK while OPPO prefers China. One can't blame Mr Justice Meade for concluding that either party just does this based on its expectations of the future outcome, which in this case means that both parties believe the Chinese court will likely set a lower court than the British one.
What carried the day for Nokia was not that it could prove any fundamental deficiency of the Chinese FRAND determination process. Mr Justice Meade recognized that the risk of the outcome of the Chinese determinations not being within the FRAND range was low. It's just that any court in the world, when asked whether it believes a certain venue will make a correct decision, will naturally trust itself more than others.
That principle would also apply to hypothetical High Court decisions in situations where a defendant would have committed to be bound by an EUIPO-led FRAND determination.
In the beginning, the High Court wouldn't even have a reason to trust those EUIPO-led determinations: it would be an untested and unproven new dispute resolution mechanism.
But even at a point where those EUIPO-led determinations might have a certain track record, a patentee could still argue that a UK court should not rely on a foreign proceeding to the extent it can rely on its own FRAND determinations. Geographic and cultural proximity wouldn't make an EUIPO-led FRAND determination distinguishable from a Chinese FRAND rate-setting proceeding with a view to Mr Justice Meade's conclusions in Nokia v. OPPO. There has always been a systemic difference between British common law and continental European civil law, and the results of those EUIPO-led proceedings would not even be appealable to a court of law, a factor that in my view would even militate for considering the Chinese process a far more adequate substitute for a FRAND determination made by the London-based High Court. That deficiency has even been criticized by the President of the appellate division of the Unified Patent Court.
The idea of making a process led by an EU institution the world's FRAND arbiter is a bad one not only because the EU's international trading partners, first and foremost the United States, have concerns, but it's also just not workable:
The draft regulation that leaked in late March came with an antisuit mechanism. The EC itself complained to the WTO over Chinese antisuit injunctions.
The proposal that was put forward a month later was softened in that regard, but new flaws (such as an inconsistency between an EU-only SEP register and the determination of global royalty rates) were introduced.
The dilemma is that the EU can either try to force SEP holders to commit to its FRAND determination process, in which case the Commission would run afoul of its own interpretation of WTO rules, or SEP holders will not only retain their ability but even be strongly incentivized to enforce in non-EU venues such as the UK, which would presumably not be impressed when a defendant says it accepts to be bound by the outcome of an EUIPO-led FRAND determination. A British court will enjoin a defendant who doesn't commit to be bound by the UK FRAND determination.
EU policy makers--not only at the Commission but also at the legislative institutions (Parliament and Council)--should be realistic. There undeniably is room for improvement with the current system. But the rest of the world is not going to let the EU become the world's only FRAND forum. To improve the SEP dispute resolution system requires more international cooperation, not more antagonism.
