Standard essential patents

Standard essential patents (SEPs) are, as the term would suggest, those patents which cover subject matter that is essential for devices that operate in accordance with a particular technical standard. For technology companies innovating and operating in standards-driven fields, such as telecommunications and video coding, obtaining and holding SEPs is of huge benefit. This is because any party aiming to manufacture, sell, or import devices that adhere to such standards will need to pay royalties to SEP holders.

Parties contributing to a technical standard are typically required to declare any patents which are essential for implementing that standard to the standards setting body. These SEPs are then recorded against that standard. If a patent holder does not declare any patent as essential when that patent should have been declared as such, then arguably the party has acquiesced to any enforcement of that patent. Further, any party declaring a patent as essential also agrees to license that patent on terms that are fair, reasonable, and non-discriminatory (FRAND). FRAND terms are often difficult in practice to identify in order to balance a fair reward to the SEP holder against potentially anti-competitive actions. Enabling any party to obtain a license for an SEP on FRAND terms allows the continued development of standards and the technologies that adhere to them as well as enabling SEP holders to be justly compensated for their innovations.

Because licensing terms are generally set by the licensor, courts may be asked by a current or potential licensee during disputes to assess whether those terms are FRAND or not. FRAND terms are thus typically set on a SEP-by-SEP basis, though there have been attempts – including that by the UK Patents Court in Unwired Planet v Huawei – to provide guidance on how such terms may be determined by SEP holders.

SEP actions at the UPC

The UPC has now been open for over a year and a half. On 13 September 2024, the first decision was issued by the UPC on an SEP when a permanent injunction was ordered against Belkin in respect of the infringement of Philips’ European patent EP 2 867 997 directed to power transmitters for an inductive power transmission system for Qi wireless charging of portable devices.

No FRAND disputes arose during the Philips v Belkin case due to Qi wireless charging being only one of various ways portable devices may be charged, thus Philips’ SEP did not provide Philips with a dominant market position.

Proposed EU SEP Regulation

On 28 February 2024, the European Parliament voted to approve the proposed regulation on SEPs. This regulation would require SEPs to be registered within six months of grant to be enforceable at a competent court, although this requirement is not dissimilar from the notion of acquiescence mentioned above. SEPs already declared for other technical standards would be admitted on to the register. The register would be public, and the regulation may also require the publication of FRAND terms and conditions set by the SEP holders or determined by competent courts.

While some doubt remains as to whether such a regulation would be workable, and if so, when it would come into force, it is clear that the EU is keen for the UPC (which would likely be the competent court referred to above) to have a role in shaping the framework relating to SEPs and the FRAND terms on which they are offered within the single market.

Panasonic files actions against OPPO and Xiaomi at the UPC

On 09 August 2023, Panasonic announced that it had initiated actions against both Xiaomi and OPPO for the alleged infringement of its cellular communications patents across multiple jurisdictions. Such actions were filed in Germany, the UK, China, and at the UPC. This followed the failure of negotiations between the parties in respect of a license for Panasonic’s patents on FRAND terms. In at least some of these infringement actions, counterclaims for revocation and for FRAND rate determination have been lodged.

The first of the cases to be heard was in the German courts, where the Munich Regional Court found that OPPO infringed Panasonic’s European patent EP 2 019 559, and at this time, this perhaps would have been seen as what would likely be the first of many decisions handed down in the actions between Panasonic and OPPO and Xiaomi.

In the UK, Xiaomi appealed orders issued by the High Court on 05 and 22 July 2024 to dismiss an application for an interim license for the time until the UK Patents Court determined a FRAND rate for a number of Panasonic’s SEPs which Xiaomi were found to be infringing.

On 03 October 2024, the UK Court of Appeal found that Panasonic was not acting in good faith, as it was seeking injunctions in other jurisdictions (particularly Germany and the UPC) despite already having already invoked the jurisdiction of the English courts to determine FRAND terms for a global licence. Because of both this and the prior negotiations between Panasonic and Xiaomi in respect of entering a license agreement, Lord Justice Arnold decided to allow the appeal, and grant an interim license to Xiaomi until the license and FRAND terms determined by the UK Patents Court takes effect.

Following this, Panasonic reached settlements with both Xiaomi and OPPO. It could thus reasonably be expected that this lengthy and wide-ranging battle was over, and that the UPC (whose Mannheim Local Division had recently heard the infringement action between Panasonic and OPPO in respect of Panasonic’s patent EP 2 568 724) would now not need to issue any ruling in respect of the disputes between these parties.

First FRAND decision at the UPC?

However, this was not the case. In keeping with the UPC’s stated aim of issuing decisions within 12 months of actions being filed, the Mannheim Local Division issued a decision in respect of this action on 22 November 2024, in which it found that OPPO had infringed EP 2 568 724. Furthermore – and somewhat surprisingly – the Mannheim Local Division determined that the award of an injunction against OPPO in Germany, France, the Netherlands, Italy, and Sweden was a suitable remedy for infringement of an SEP, along with the payment of €250,000 in damages.

This was despite Panasonic having reached an agreement with OPPO following the granting of the interim license to Xiaomi by the UK Court of Appeal, and the dispute between all parties seemingly coming to an end.

Furthermore, the Mannheim Local Division dismissed OPPO’s FRAND defence, and counterclaim for a determination of a FRAND rate. This was because the court believed that OPPO had not behaved in a FRAND-compliant manner; in that it was not deemed to have been acting like a willing licensee due to its resistance to agreeing a single, global, FRAND rate. Any FRAND rate agreement in this case would therefore have to be made between the parties, and without the involvement of the UPC.

Given the settlement between Panasonic and OPPO, it may be that this decision is ultimately of relatively little significance; at least to the parties involved. It is possible that the decision may still be appealed by OPPO.

Future of SEP litigation at the UPC?

It therefore seems, given the Mannheim Local Division’s decision in Panasonic v OPPO, that the position of the UPC in respect of FRAND disputes is perhaps a little more favourable towards SEP holders than in the UK for example. Although the Mannheim Local Division in this case declined to allow OPPO’s FRAND counterclaim, the door is very much still open for FRAND issues to be heard, and rates set, at the UPC.

For now though, it seems that, particularly for SEP holders, the UPC is a very attractive option for the enforcement of SEPs.