Infringement of a UK Standard Essential Patent does not justify global damages

Hogan Lovells has secured an important victory for its client HTC against IPCom in a long-running patent litigation battle. In its judgment handed down yesterday, the UK Patents Court has struck out a claim that damages for infringement of a UK standard essential patent (SEP) should be calculated by reference to sales of devices outside of the UK, because the foreign sales were not caused by the UK infringement. 

This decision provides important clarification that SEP damages are not approached on the same basis as FRAND licence terms (where the UK Supreme Court has recently confirmed that the patent holder's ETSI undertaking empowers the UK Courts to determine FRAND licence terms of a portfolio of patents including foreign patents).

Background

IPCom sued HTC in 2011 for infringement of IPCom’s '100a' patent (EP (UK) 1 841 268).  In 2017, the Court of Appeal found the 100a patent to be valid, essential, and infringed by HTC's original devices, but not by devices that implemented a workaround (that had been Court-approved in earlier litigation between IPCom and Nokia). 

IPCom finally pursued damages in 2019, shortly before expiry of the 100a patent in February 2020.  UK damages aim to compensate for the patent holder's loss.  IPCom characterised its loss resulting from infringement of the UK 100a patent as the value of the royalties it would have received under a notional licence entered into by a willing licensor and a willing licensee in 2007.  It argued that the only licence such parties would have agreed would have been a global, portfolio licence.    

IPCom’s claim for damages was summarised by Mr Justice Birss (the Judge) as being for “a very substantial sum …  [amounting to] hundreds of millions of US dollars” because “it represents every phone sold as a 2G or 3G phone all over the world, regardless of whether those phones infringe the patent or infringe any patent held by IPCom within its portfolio.”  Phones that did not infringe the 100a patent included (i) phones that were never imported into the UK, (ii) phones that implemented the approved workaround from 2012 onwards, and (iii) 2G-only phones that could not infringe the 3G-limited patent claims. The inclusion of non-infringing phones within the scope of IPCom’s damages claim increased the relevant number of phones by approximately 100 times. HTC therefore sought strike out / summary judgment of IPCom’s claim for damages calculated by reference to these non-infringing devices.

Strike out of ex-UK devices

The Judge granted HTC’s application in part, noting that it had a compelling logic and simplicity - he struck out IPCom’s claim relating to phones that were not imported into the UK.  This had the effect of reducing the value of IPCom’s damages claim by two orders of magnitude.  Key findings made by the Judge included:

  • A question of law not fact: The central problem with IPCom's case came down to a legal question of causation.  The central issue was that IPCom's claim included sums in respect of phones sold abroad, and the only way to justify such payment in a claim for damages for infringement of a UK patent was if the foreign sales were somehow caused by the UK infringement.  But they were not and IPCom didn't attempt to suggest that they were.  IPCom had sought to resist strike out on the basis that the notional licence’s terms should be determined by reference to facts and evidence that could only be dealt with at trial (such as the global and portfolio scope of such licence, the devices it would cover, and the relevant royalty rate).  However, the Judge concluded that, while IPCom's view of the potential licence scope was not “inherently incredible”, these issues only went to quantum, but did not change the central issue that IPCom first had to show causation.
  • Departure from previous cases: This decision departed from recent Judgments in the Philips v Asustek and Philips v TCL proceedings.  In the former case Mr Justice Marcus Smith had refused a similar strike out application on the basis that assessment of damages is heavily fact based and therefore not susceptible to summary determination.  In explaining his different approach the Judge stated that “even assuming IPCom proves everything it says it wishes to prove, the claim still fails.  It is not failing on the facts, it fails on a point or points of principle and law.” 
  • Not convoyed goods: Ex-UK sales were not in any sense convoyed goods of the type dealt with in Gerber Garment Technologies v Lectra Systems Ltd (which established that loss - and therefore damages - for infringement of a patent may arise from acts which were not themselves infringements).  Any argument that HTC’s failure to take a license was caused by infringement of the UK patent was “hopeless”. 
  • ETSI undertaking not relevant: The Supreme Court’s recent decision in Unwired Planet v Huawei (summarised in our article here) explained the difference between the scope of patent infringement proceedings as firmly UK based, and the scope and effect of the patent holder's undertaking to ETSI, which was not. IPCom was explicitly not claiming global damages on the basis that either party still owed any FRAND obligation.  The Judge thus confirmed that any claim based on infringement of foreign patents should be struck out (and IPCom had “no basis for making such a claim by the back door”).  IPCom’s argument that its claim was not based on infringement of foreign patents did not help because “there is no other way of maintaining a claim like this”. 
  • Damages too remote: The damages sought by IPCom were too remote - the test for remoteness is not limited to narrow causation (which had already been found to be lacking) but includes policy issues as well.  The Supreme Court's Unwired Planet judgment made clear that damages for infringement should not be equated to royalties under a worldwide licence, a point said to be reinforced by IPCom having “singularly failed in its attempt to enforce the equivalents of this patent abroad”
  • Damages different to past-release under FRAND licence: Whilst a FRAND licence might include a payment in relation to past infringements, such payment was not for back damages and had no bearing on whether infringement of a UK patent could lead to a global damages award.

No strike-out of non-infringing UK devices

The Judge did not strike out IPCom’s claim with respect to non-infringing UK devices (i.e. workaround phones and 2G-only devices).  Significantly, the Judge did not think that damages could be awarded on more than the individual infringed patent without a concession or agreement from the parties.  However, he refused to strike out this part of IPCom's claim because in his first instance Unwired Planet judgment he had approached damages on a UK portfolio basis rather than only on the basis of the individual patents found valid and infringed.  While this might have been on the basis of a concession (in fact Huawei had conceded that for procedural reasons a UK portfolio licence was inevitable in that case), the Judge thought that it did not emerge from the case that this was so.

Stay and Appeal

Following the Judge’s announcement that he would strike out the global aspect of IPCom’s case, IPCom applied to stay the proceedings pending any appeal.  The trial listed for May 2021 has therefore been vacated.

At a further hearing on 4 November 2020 both IPCom and HTC sought permission to appeal those parts of the judgment which went against them.  Mr Justice Birss granted IPCom permission to appeal on three of the four grounds of appeal it advanced but made clear that he did not believe any of IPCom’s grounds had any real prospect of success.  The Judge explained that he was nonetheless granting IPCom permission because of the issue’s wider significance to other pending proceedings and the importance of enabling the Court of Appeal to set precedent on the point. 

Mr Justice Birss also granted HTC permission to appeal.  The Judge stated in the  judgment that "Free from authority I would hold that the portfolio approach to damages described would only be appropriate by agreement or concession".  In granting permission he reiterated that his partial refusal of HTC’s application was due to his own earlier judgment in the Unwired Planet case but that that authority could not bind the Court of Appeal. 

Comment

This decision provides welcome clarification that damages for SEP infringement do not follow the global, portfolio approach of FRAND licensing.  The judgment is a victory for common sense, avoiding the possibility that a single instance of UK patent infringement will necessarily result in damages liability for global sales for the life of that UK patent, even though no infringement of foreign patents has been proven.  The judgment is a welcome reflection of the fact that, in over 10 years of litigation, IPCom has only successfully asserted a single patent in a single country, and relief should be limited accordingly.    

It is hoped that in due course the Court will also confirm that UK damages are similarly limited to infringing phones, and do not extend to UK workaround devices that the Court has expressly found do not infringe.

The full judgment is available here. The full Hogan Lovells team advising HTC included Katie McConnell (partner), Paul Brown (partner), Ian Moss (senior associate), James Gray (associate), and Raina Hayles (trainee), instructing Tom Hinchliffe QC of 3 New Square and Colin West QC of Brick Court.

Authored by Katie McConnell and Ian Moss

 

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