18/07/2024

Pooling FRAND: Patents Court dismisses jurisdiction over Tesla claims against US patent platform about 5G licensing for the automotive industry

Fancourt J has this week handed down an interesting judgment on the application of FRAND principles to patent platforms and the court’s jurisdiction to hear claims for determination of worldwide FRAND licensing terms in the context of patent platforms.

The judgment in Tesla, Inc & Anor v Idac Holdings, Inc & Ors [2024] EWHC 1815 (Ch) (15 July 2024) is the fullest analysis since Vestel v Advance of jurisdiction over FRAND licensing claims and will be of interest to all litigators dealing with FRAND.

Background

Patentees who participate in standards setting are obliged generally by the rules of standards setting organisations, such as the European Telecommunications Standards Institute (ETSI), to offer to license their standards-essential patents (SEPS) on ‘fair, reasonable and non-discriminatory’ (FRAND) terms to unconditionally willing licensees. But market players do not always agree what is FRAND or where it should be determined. There has been major litigation as to whether the English courts have jurisdiction to set worldwide FRAND terms, and the terms that are FRAND, in cases such as Unwired Planet v Huawei and Optis v Apple. FRAND trials however are highly expensive affairs, with costs upwards of £10 million being commonplace.

There are numerous patentees who own part of the patent stack for the main telecommunications standards, such as 2G to 4G and now 5G. In the automotive sector, most of the major patentees have agreed to become members of a patent platform run by Avanci, a Texas corporation, which offers a single standard licence to the SEPS of all its members, for 2G to 4G, and now separately to 5G.

Tesla cars need internet connectivity, and Tesla has a 2G to 4G licence from the Avanci platform. Tesla claimed it needed a 5G licence from the Avanci platform for the worldwide use of 5G connectivity. However, there are disagreements between Tesla and Avanci as to the appropriate rate. Tesla argued, but Avanci disagreed, that Avanci had to license on FRAND terms. Avanci’s position is that while a patentee’s FRAND undertaking applies to bilateral licensing between individual patentees and licensees, provided that the individual patentee offers a FRAND licence, the platform licence is a commercial alternative which does not itself have to be FRAND – although Avanci’s position is that the rate itself offers is in fact FRAND.

Tesla commenced a new form of litigation before the English courts, against Avanci and InterDigital, which is one of over 65 platform members. Tesla sought declarations against Avanci and InterDigital as to the worldwide FRAND terms for an Avanci platform licence for 5G. Tesla attempted to sue InterDigital as a representative defendant for the other platform members and also on its own, in its own right, without also suing the other platform members. InterDigital and Avanci challenged the courts’ jurisdiction to hear the claim, and in the alternative (and without prejudice to jurisdiction) InterDigital applied to strike out the claim to the extent there was jurisdiction over it.

Judgment

Fancourt J concluded that Tesla’s claims failed. The combined effect of his decisions was the court did not have jurisdiction over the licensing claims or that they should be struck out. Collateral patent claims against InterDigital were unlikely to proceed and were stayed.

The core finding with regard to Avanci was that there were no real prospects of success for contractual claim against Avanci to determine FRAND rates, and that in turn the claim against Avanci did not fit within jurisdictional gateways.

The core findings with regard to InterDigital were, first, that there were no real prospects of showing that a claim against InterDigital on its own, without Avanci and the other platform members being defendants, would be a useful and appropriate declaration. InterDigital could not fairly engage with the platform rate affecting the patents of the other platform members, and a declaration against it would not bind the other platform members or Avanci; it was inappropriate to make a declaration capable of affecting the other platform members and Avanci without them being parties. InterDigital simply cannot grant the licence that Tesla are seeking.

Second, to deal with some of these problems, Tesla had sought to claim against InterDigital that it could be sued as a representative of the other platform members, but Fancourt J concluded that InterDigital could not be appropriately sued as a representative. The interests of the platform members were different; InterDigital could not effectively defend the interests of the other platform members; it was unfair on InterDigital to impose on it the burden of a FRAND trial; and it was not clear that any judgment against InterDigital on a representative basis would be effective as against other platform members (or Avanci). The representative basis was therefore being used inappropriately as “bootstraps”.

Fancourt J also held that the USA and in particular the Delaware Court of Chancery provided a more appropriate forum for the litigation, as all the parties were in the US, and it concerned licensing by a US-based platform and the terms of a US-law-governed licence. Tesla’s arguments that the US was not available and appropriate because it might not determine a worldwide FRAND rate were not accepted, in particular because the US courts would determine claims for breach of FRAND obligations, and because “there can be no real suggestion that Tesla would not receive justice in the US” and “the fundamental focus of the litigation is not this country.”

The effect of the judgment is that the FRAND licensing claims will not be proceeding in England.

Fancourt J also decided other relevant issues, including that Gateway 11 and CPR 63.14 could apply to worldwide FRAND licensing claims.

Finally he concluded that there had been a serious breach of full and frank disclosure by Tesla who had not made a fair presentation of the difficulties of their claim to the court when seeking permission to serve out of the jurisdiction.

Thomas Raphael KC, leading Maxwell Keay of 8 New Square, represented the successful InterDigital defendants, instructed by Alexandra Brodie of Gowling WLG.