BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
The Rolls Building
7 Rolls Buildings
Fetter Lane, London
B e f o r e :
| CONVERSANT WIRELESS LICENSING S À R.L.
(A COMPANY INCORPORATED UNDER THE LAWS OF LUXEMBOURG)
|- and -
|(1) HUAWEI TECHNOLOGIES CO. LTD
(a company incorporated under the laws of the People's Republic of China)
(2) HUAWEI TECHNOLOGIES (UK) CO. LTD
(3) ZTE CORPORATION
(A COMPANY INCORPORATED UNDER THE LAWS OF THE PEOPLE'S REPUBLIC OF CHINA)
(4) ZTE (UK) LIMITED
1st Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP.
Telephone No: 020 7067 2900. Fax No: 020 7831 6864 DX 410 LDE
MR ALEXANDER LAYTON QC and MR DANIEL ALEXANDER QC (instructed by Allen & Overy LLP) for the Huawei Defendants
MR MICHAEL BLOCH QC (instructed by Bristows LLP) for the ZTE Defendants
Crown Copyright ©
MR. JUSTICE HENRY CARR:
Permission to appeal
Stay pending appeal
"39. The claimants seek to meet this concern by offering an undertaking that they will not contend that, by filing fresh acknowledgements of service and defences, the non-domiciled
defendants have submitted to the jurisdiction. They have also offered, and remain willing, to consent to an order that such further steps by the non-domiciled defendants are subject to and without prejudice to their appeal.
40. The non-domiciled defendants respond that, whatever may have been the position before CPR Part 11, the position now is clear. Both under the Brussels Convention and CPR Part 11, once a challenge to jurisdiction has been considered and rejected by the court, the original acknowledgement of service lapses and the defendant has a further period in which to choose whether to file a fresh one. If he does so then, under CPR 11(8), he is to be treated as having accepted that the court has jurisdiction to try the claim. That is the end of the matter and the claimants' proposed undertaking is therefore worthless.
41. I am satisfied that there is, at the least, a very real risk that the concerns of the non-domiciled defendants are well founded. In my judgment they have established solid grounds for a stay in the form of irremediable harm if a stay is not granted. Moreover, I am satisfied that a stay would not cause any material prejudice to the claimants. I recognise that they are concerned that the litigation should be progressed as expeditiously as possible. However, I must also have regard to the fact that they waited almost six years from the date of the Commission decision before issuing proceedings."
"Apart from jurisdiction derived from other provisions of this Convention, a court of a state bound by this Convention before which a defendant enters an appearance shall have jurisdiction. This rule shall not apply where appearance was entered to contest the jurisdiction, or where another court has exclusive jurisdiction by virtue of article 22."
CPR Part 11 provides as follows:
"(1) A defendant who wishes to (a) dispute the court's jurisdiction to try the claim; or (b) argue that the court should not exercise its jurisdiction may apply to the court for an order declaring that it has no such jurisdiction or should not exercise any jurisdiction which it may have.
(2) A defendant who wishes to make such an application must first file an acknowledgment of service in accordance with Part 10.
(3) A defendant who files an acknowledgment of service does not, by doing so, lose any right that he may have to dispute the court's jurisdiction.
(4) An application under this rule must (a) be made within 14 days after filing an acknowledgment of service; and (b) be supported by evidence.
(5) If the defendant (a) files an acknowledgment of service; and (b) does not make such an application within the period specified in paragraph (4), he is to be treated as having accepted that the court has jurisdiction to try the claim.
(6) An order containing a declaration that the court has no
jurisdiction or will not exercise its jurisdiction may also make further provision including (a) setting aside the claim form; (b) setting aside service of the claim form; (c) discharging any order made before the claim was commenced or before the claim form was served; and (d) staying the proceedings.
(7) If on an application under this rule the court does not make a declaration (a) the acknowledgment of service shall cease to have effect; (b) the defendant may file a further acknowledgment of service within 14 days or such other period as the court may direct; and (c) the court shall give directions as to the filing and service of the defence in a claim under Part 7 or the filing of evidence in a claim under Part 8 in the event that a further acknowledgment of service is filed.
(8) If the defendant files a further acknowledgment of service in accordance with paragraph (7)(b) he shall be treated as having accepted that the court has jurisdiction to try the claim."
"It is therefore to national procedural rules that one must look, in the first instance, to determine whether an appearance has been entered. Once one has determined that question as a matter of national procedural law, it is necessary to ask whether the result is consistent with the effective operation of the Convention."
"The danger inherent in the defendant doing anything further after [the defendant] has issued a summons to set aside, lies in the risk that he may be taken to have waived his right to challenge the writ or the court's jurisdiction. It is necessary in each case to determine whether any step taken, looked at objectively, falls into this category. A useful test is whether a disinterested bystander with knowledge of the case, would regard the acts of the defendant (or his solicitor) as inconsistent with the making and maintaining of a challenge to the validity of the writ or to the jurisdiction."
"35. I cannot accept these submissions. The language of CPR
r 11(8) is clear, and it is unlikely in the extreme that the draftsman intended the words in paragraphs (5) and (8) to have different meanings. The correct course for a defendant who has failed in a jurisdiction challenge and who wishes to appeal is to ask for an extension of time for filing the acknowledgement of service sufficient to enable his application for permission to appeal, or his appeal, to be determined. It is quite unrealistic to suppose that a sensible claimant, or if not the court, would refuse such an extension when the effect of such a refusal would be to render the appeal nugatory. It is unnecessary therefore to read qualifying words into rule 11(8).
"36. In my judgment, the words he shall be treated as having accepted that the court has jurisdiction to try the claim in paragraphs (5) and (8) of CPR Pt 11 are to be given the same construction, namely that preferred by this court in the Hoddinott case. The disinterested bystander test has no application to what I have called statutory submission to the jurisdiction. Thus, where the conditions of those paragraphs are met, the defendant is to be treated as having submitted to the jurisdiction. The rigour of such a construction is mitigated by the fact that it remains possible to withdraw an acknowledgement of service with the permission of the court: see paragraph 5.4 of the Practice Direction supplementing CPR Pt 10. The effect of the withdrawal, if permitted, would no doubt be that there is no longer a submission to the jurisdiction. No such application was made at first instance in the present case, although, as I shall explain, one is
informally launched in Mr Choo-Choy's skeleton before us."
"52. The course to be followed by a defendant, who wishes to appeal from a judge's decision that the English court has jurisdiction to try a claim and does not wish a judgment in default to be entered while it is appealing, is to ask the judge to extend the time for acknowledgement of service pending an appeal or (if she refuses permission to appeal) pending an application for permission to this court and thereafter, if permission is given, the appeal."
"(a) where a party to an application to dispute jurisdiction has permission to appeal against a decision dismissing its jurisdictional challenge, whether the English Court has jurisdiction to make case management directions to take effect pending such appeal; (b) if so, whether that power should be exercised in this case and in what way."
"Often, perhaps usually, there will be no question of requiring the parties to do anything in the proceedings until the permission question or the jurisdiction appeal itself is disposed of. It may be a waste of time and money. But the appeal stage inevitably takes time, and there will be some commercial cases where it makes sense that the action does not (to use the phrase used by the claimants) 'go into stasis'".
"22. As to the first, any such prejudice seems unlikely. As it was put in Deutsche Bahn v Morgan Advanced Materials  EWCA 1484 at :
'That leaves only the question whether it is arguable that by taking steps in the proceedings, so far as concerns the claims of the UK Claimants alone, at the express direction of the Tribunal, the non-UK Defendants will be found to have 'entered an appearance' thereby investing the Tribunal with jurisdiction pursuant to Article 24 of the Regulation so far as concerns the claims against them by the non-UK Claimants. The Tribunal thought this risk fanciful in the light of the decision of the ECJ in Case 150/80, Elefanten Schuh GmbH v Jaqumain  ECR 1671 and of this court in Harada Limited v Turner  EWCA Civ 1695. So do I. As the Tribunal observed at paragraph 66(3) of its Ruling it is permissible in terms of Article 24 of the Regulation to contest jurisdiction whilst at the same time contesting the merits, provided that the intention to contest jurisdiction is evinced at the outset. The non-UK Defendants are being required to deal with the merits of the claim of the UK Claimants. I do not regard it as seriously arguable that by so doing they will be submitting to the jurisdiction of the Tribunal in respect of claims by the non-UK Claimants, a fortiori where the jurisdiction of the Tribunal to entertain those claims is sought to be established on a different basis and where the non-UK Defendants have maintained a clear and consistent challenge to that jurisdiction from the outset. I would refuse permission to appeal on this ground also.' (Tomlinson LJ)"
"4. At its root, Conversant's business model is the licensing of its patents to implementers. Conversant is bound by a FRAND obligation to ETSI, that is, to offer licences to the technology covered by its patents of Fair, Reasonable and Non-Discriminatory terms. As a matter of generality, patentees cannot obtain injunctions for the infringement of their SEPs unless a FRAND licence has been offered for the implementer to take as an alternative and that offer has been declined.
"5. As will be apparent, Conversant's business depends on achieving licence agreements with implementers. Conversant is not in the business of making mobile handsets, network equipment or operating networks that implement its patented technology itself, and so failure to achieve licence agreements is a failure to receive income. At the same time, maintaining a patent portfolio is not costless as I shall expand upon further below."
"7. The problem commonly known as 'hold out' (or 'reverse hold up') arises in that it is inherently in the interest of implementers of the ETSI standards to withstand having to pay licence fees on the technology they use for as long as possible. This reduces the cost of their business in the manufacture and sale of handsets and infrastructure equipment, with relatively little down side – these companies anticipate that even if they do not take licences willingly at the end of the day they will only ever have to pay the FRAND royalties they should have been paying all along to avoid an injunction arising out of their infringement. In practice, in many instances a patentee will be commercially unable to enforce its right to FRAND royalties because of (a) the sheer costs of litigation and (b) the unwillingness of implementers to settle (which itself is driven by there being little downside for the implementer in continuing litigation to the bitter end, win lose or draw).
"8. As such, it is inherently in the interest of an implementer to delay the conclusion of a FRAND dispute for as long as possible. Following on from that, it is inherently in the interest of an implementer to delay the start of any litigation that is going to finally determine such a dispute for as long as possible, and then delay its progress for as long as possible to put off the date at which they will have to pay licensee fees or face an injunction. As such, there is little to no downside for an implementer in taking this course, but such course has the effect of depriving companies such as Conversant of their income stream. This makes hold out a substantial problem for patent owners – it can have serious deleterious effects on the viability of their business model.
"9. This means (and has historically meant) that large swathes of patents declared to be essential to ETSI standards are being used by implementers without licence, in other words, by way of infringement of those patents."
"12. First, it has led Conversant to have to take tough commercial decisions regarding the maintenance of its portfolio. In short, maintaining a portfolio of patents is very expensive and increasingly so over time. I have been told by Mr Scott Burt (Chief Intellectual Property Officer, Senior Vice President and General Counsel for Conversant Intellectual Property Management, Inc., the parent company of Conversant) that the cost of prosecution and renewal fees associated with the Portfolio were $1,528,607 in 2012, $1,780,816 in 2013 and $1,831,811 in 2014.
"13. As can be seen, the fees associated with maintaining the patents of a portfolio also increase over time. This because the renewal fees charged by patent offices around the globe generally (with very few exceptions) increase as the age of the patent (or patent application) increases.
"14. Mr Burt has informed me that because Conversant had been expecting to receive revenues from licensing the Portfolio, but those revenues have not materialised, over a period covering late 2014 and early 2015. As a consequence, the expenditure associated with maintaining the Portfolio had to be cut by around 50%. I am told that this process resulted in hundreds of patents and patent applications being abandoned. This is a direct result of Conversant being unable to secure licence agreements with implementers including Huawei and ZTE.
"15. It will also be apparent that the longer companies such as Huawei and ZTE hold out in paying license fees for patents they (and their subsidiaries and affiliates) are exploiting globally, the greater the negative financial consequences can be for the a patentee. Moreover, a patentee cannot re-instate an abandoned patent or patent application once a recalcitrant licensee has been put in a position of having to make a payment. Thus the longer an implementer can hold out, the lower the future royalties they may face, creating a benefit to an implementer in holding out for as long as possible.
"16. A second issue is the general aging of the Portfolio. As time goes on, increasing numbers of patents in the Portfolio will be expiring. If enough time has passed through negotiations and delay imposed by implementers, by the time the patentee has been forced to resort to litigation the patents on which an injunction might be sought (where an implementer declines to take a FRAND licence) may have expired before the question of an injunction can be addressed. This is particularly apposite in this case where two of the patents now asserted against Huawei and ZTE (see further below) expire in 2018."
Directions for trial