HTC v Nokia: licence defence may be narrow

In the event, the judge held the patent both valid and infringed but perhaps the most important aspect of the case concerned a licence and/or exhaustion of rights defence to infringement raised by HTC. In particular, HTC relied upon the existence of an agreement between Nokia and Qualcomm which contained a covenant from Nokia not to sue Qualcomm for infringement of various patents. The details of this agreement are confidential and not available to the public but it apparently contained a number of limitations which appear to have been relevant to the facts of the case and which meant there could be no express consent from Nokia to HTC’s acts. HTC therefore relied on two legal principles to try to imply consent from Nokia: English law relating to implied licence; and the US law relating to the first sale doctrine.

The English legal position hinged on two cases from the nineteenth century. In Betts v Willmott, it was held that where a patentee sells a product abroad, an English patent cannot be used to prevent subsequent importation and sale in the UK. This is not because of international exhaustion of rights but through the granting of an implied licence to the purchaser in the foreign sale to do with the patented product as he pleased. Being a licence however, it can be limited by express terms provided these are made known to the purchaser but absent that it is unrestricted.

The situation with express licensees is different, however. In Société Anonyme des Manufactures de Glaces v Tilghman’s Patent Sand Blast Company, the Court of Appeal then considered the situation where a patentee had licensed a foreign manufacturer but limited those rights to the overseas market. In those circumstances, any licence to a subsequent purchaser must necessarily be similarly limited because the first licensee could not pass on greater rights than had been granted under the express licence. It was therefore held that the patentee could use the English patent to prevent products manufactured by the overseas licensee from being imported into the UK.

HTC tried to discredit the conclusion in Tilghman’s patent by suggesting that it was illogical for the situation to be different between implied and express licensees. Although Mr Justice Arnold acknowledged this argument was not without merit, he found he was bound by the Court of Appeal decision in Tilghman’s Patent. Applying English law, HTC could not have acquired greater rights than had been granted to Qualcomm under the agreement, and these rights did not include what HTC was doing in the UK.

The US first sale doctrine was relevant because the licence agreement was governed by Delaware law. The first sale doctrine is part of US federal patent law, not state law, so the judge had to consider whether US federal patent law would be regarded as part of Delaware contract law for the purposes of interpreting the agreement in litigation before a non-US court concerning a non-US patent. Mr Justice Arnold held that it would not be. Nevertheless, the judge considered the applicability of the first sale doctrine just in case he was wrong. Having heard expert evidence on the main US authorities, he held that the first sale doctrine is limited to sales made in the US, and accordingly HTC’s licence defence failed.

This case may have relevance to parties who negotiate or rely upon patent licence agreements for components such as the one between Nokia and Qualcomm. For example, it seems that the judge would have been prepared to apply the first sale doctrine of US federal patent law had this been explicitly recited in the licence agreement. In addition, although many licence agreements are worldwide in scope, the same is clearly not true in general for the exhaustion of rights and analogous legal doctrines.

And finally, we understand that shortly before going to press there will be a hearing to determine whether Nokia should be granted an injunction against HTC (which would cover significant HTC products) pending an appeal. This is an interesting point given some of the debates surrounding remedies in the Unified Patent Court and we will post an update on the result of that hearing on our website as soon as we are able.