BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
7 Rolls Building, Fetter Lane
B e f o r e :
| Conversant Wireless Licensing S.A.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
Mr Alexander Layton QC and Mr Henry Forbes Smith (instructed by Allen & Overy LLP) for the Huawei Defendants
Mr Micheal Bloch QC (instructed by Bristows LLP) for the ZTE Defendants
Hearing dates: 27 and 28 February and 1 and 2 March 2018
Crown Copyright ©
Mr Justice Henry Carr:
The issues on these applications
i) The English court has no jurisdiction to decide these claims which are, in substance and effect, claims for infringement of foreign patents, the validity of which is in dispute.
ii) Alternatively, the court should decline to exercise jurisdiction to decide the claims, because England is not the proper or appropriate forum (forum non conveniens); China is the natural forum.
iii) Huawei China and ZTE China have not been validly served in England.
iv) Applications by Conversant for permission to serve out of the jurisdiction on Huawei China and ZTE China and for substituted service should be refused.
Manufacture and sales of alleged infringements in China
Proceedings brought by the Defendants in China
Putting in issue the validity of foreign patents
i) the English court has no jurisdiction to declare foreign patents invalid;
ii) Conversant's claims are, in substance, claims for infringement of foreign patents, the validity of which is disputed; and/or to which the invalidity of foreign patents is a defence, and which therefore depend on the validity of foreign patents, when such validity is disputed.
i) because of the preponderance of sales outside the UK, and in particular in China, these claims are principally concerned with foreign patents;
ii) the global FRAND claim is the principal subject matter of the proceedings;
iii) the invalidity of the foreign patents in the portfolio, such as the Chinese patents, would provide a defence to the global FRAND claim, and the Defendants intend to advance such a defence;
iv) it would be fair and proportionate to test the validity of each of the 11 Chinese patents in the portfolio in any global FRAND proceedings in the English court, in view of their small number and overwhelming commercial significance;
v) it would also be fair and proportionate to test the validity in such proceedings of a properly representative sample of the non-Chinese patents as a proxy for the validity of all the non-Chinese patents as a whole; and
vi) the English court has no jurisdiction to perform this exercise in respect of global royalty claims for past or future infringements.
"If a worldwide licence is FRAND then requiring Huawei to take and pay for one would not amount to determining questions of validity in relation to which courts of other member states have exclusive jurisdiction under Art 22(4). Taking Huawei's example of the ongoing German proceedings, the German courts would remain free to determine the relevant patents' validity. A FRAND licence should not prevent a licensee from challenging the validity or essentiality of licensed patents and should have provisions dealing with sales in non-patent countries. So if the German courts decide all the relevant patents are invalid (or not essential) that would simply result in whatever consequences the worldwide licence provided for. Since the licence is a FRAND licence those consequences are FRAND too. The binding nature and clarity of Art 22(4) are not thereby undermined and, most importantly, there is no risk of decisions in England and Germany conflicting."
"Any Licensed Patent in a country which is determined by a relevant court to be invalid or not essential would cease to count as a Licensed Patent in that country. Further, if additional Licensed Patents are added in a country, appropriate adjustments shall be made."
"The appropriate rate for China is not complicated to arrive at. The comparable licences show that rates are often lower for China than for the rest of the world. The relevant factor varies. I find that a FRAND licence would use a factor of 50%."
Forum conveniens – preliminary points
The Brussels I Regulation and the Owusu decision
"… the Brussels Convention precludes a court of a contracting state from declining the jurisdiction conferred on it by Article 2 of that Convention on the ground that the court of a non-contracting state would be a more appropriate forum for the trial of the action, even if the jurisdiction of no other contracting state is in issue or the proceedings have no connecting factors to any other contracting state."
That reference was not concerned with the subject matter of Art. 24. The CJEU was asked, but declined to answer, a second question as to whether this also applied in cases concerned with the subject matter of Art. 24.
"Where the dispute before the court concerns … the validity of certain forms of intellectual property right … it is most improbable that an English court, seised with jurisdiction on the basis of Art.2, is obliged to exercise it if the defendant applies for a stay on the ground that a non-Member or non-Convention state is the forum conveniens"
The authors continue at [12-024]:
"It is submitted that the proper course for an English court is to use Arts. [24 and 25] to identify the classes of case in which a court may continue to apply its national law. It is inappropriate to go further and to insist on the articles being applied slavishly."
Amendment of the forum non conveniens application notice
Forum conveniens – the principal issues
i) The basic principle is that a stay will only be granted on the ground of forum non conveniens when the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice.
ii) In service in cases, the burden of proof rests on the defendant to persuade the court to exercise its discretion to grant a stay. However, each party will seek to establish the existence of factors which it relies upon, and in respect of any such matter the evidential burden will rest on the party who asserts its existence. If the court is satisfied that there is another available forum which is prima facie the appropriate forum, the burden will shift to the claimant to show that there are special circumstances by reason of which justice requires that the trial should nevertheless take place in this country.
iii) In service in cases, the defendant has the burden not just to show that England is not the natural or appropriate forum for the trial, but to establish that there is another available forum which is clearly or distinctly more appropriate than the English forum.
iv) Since the question is whether there exists some other forum that is clearly more appropriate for the trial of the action, the court will look first to see what factors there are which point in the direction of another forum. The natural forum is that with which the action has the most real and substantial connection. Connecting factors will include not only factors affecting convenience or expense (such as availability of witnesses), but also other factors such as the law governing the relevant transaction, and the places where the parties respectively reside or carry on business.
v) If the court concludes at that stage that there is no other available forum which is clearly more appropriate for the trial of the action, it will ordinarily refuse a stay.
vi) If, however the court concludes at that stage that there is some other available forum which prima facie is clearly more appropriate for the trial of the action, it will ordinarily grant a stay unless the circumstances by reason of which justice requires that the stay should nevertheless not be granted. In this enquiry, the court will consider all the circumstances of the case, including circumstances which go beyond those taken into account when considering connecting factors. One such factor can be the fact, if established objectively by cogent evidence, that the claimant will not obtain justice in the foreign jurisdiction, and the burden is on the claimant to prove this.
i) The underlying aim in all cases of disputed forum is to identify the forum in which the case can suitably be tried for the interests of all parties and for the ends of justice.
ii) However, there is an important distinction in the starting point and onus of proof between cases where permission is required to serve proceedings out of the jurisdiction and situations where service is possible without permission. In the former case, the modern rules reflect Lord Goff's statement of general principle, in providing that permission is not to be given unless the court is "satisfied that England and Wales is the proper place in which to bring the claim": CPR 6.37 (3).
iii) The ultimate overarching principle is that stated in The Spiliada. If the court is not satisfied at the end of the day that England is clearly the most appropriate forum, then permission to serve out must be refused or set aside.
"Before applying The Spiliada … test, the judge posed the question: "What is this action?" That was a very pertinent question. One cannot decide where a matter should be most appropriately and justly tried without being clear what is to be tried. But I do not think the question should be answered simply by reference to the relief claimed, since in an English action the relief claimed will almost inevitably be framed in English terms, particularly where it is statutory. An English pleader will not claim triple damages or dommage-intérêt, appropriate as such relief may be elsewhere. Thus when the judge answered the question by quoting part of the language of section 459 of the Companies Act 1985 he was unconsciously building in a bias towards the choice of an English forum".
Service in or service out?
The Defendants' submissions in outline
Conversant's submissions in outline
Availability of an alternative forum
"There may be some doubt whether the Chinese court would determine FRAND rates for a global SEP portfolio which had little to do with China. In this case, however, I understand that the Chinese patents are central to the FRAND rate for any global portfolio licence. I expect that the Chinese courts would hear the case, at least to the extent of the Chinese SEPs. The Chinese courts will also rule on patent essentiality issues. Validity of disputed Chinese patents including SEPs is routinely dealt with in parallel proceedings before the Patent Review Board (PRB) of the State Intellectual Property Office."
"If Conversant proceeds in China for a determination of essentiality, infringement and FRAND for its global portfolio, I expect that the Chinese court may accept jurisdiction and resolve the case. Since Huawei would have agreed to this, the determination would be made with the consent of both parties, and since Huawei would have agreed not to dispute the validity of non-Chinese patents in those Chinese proceedings, there would be no jurisdictional difficulty."
i) it is common ground between the experts that Chinese courts would apply Chinese law to the question of the ETSI FRAND obligation; Mu 1 ; Yang 2  – . This would result in a lower rate for the entire portfolio than would be granted in other parts of the world. As Birss J stated at  of Unwired Planet: "the comparable licences show that rates are often lower for China than for the rest of the world. The relevant factor varies. I find that a FRAND licence would use a factor of 50%".
ii) the Huawei offer requires Conversant to accept that the Chinese patents are representative of the whole portfolio, which it is not prepared to do;
iii) the Huawei and ZTE Defendants' offers require that FRAND determinations proceed by agreement in different Chinese fora. Instead of the English court determining FRAND for the portfolio, there would be two parallel determinations in different courts in China about the same portfolio. Conversant does not agree.
The Defendants' central argument
"554. First Huawei submitted that any consideration must start with the proposition that at least in English law, there is no such thing as a portfolio right. Citing Lucasfilm Ltd v Ainsworth  UKSC 39,  FSR 41,  1 AC 208 Huawei submitted that the English Courts have no jurisdiction to entertain an action in respect of the validity of a foreign patent, and are reluctant to entertain an action for infringement of a foreign patent even where validity is not in issue. Therefore, insofar as Unwired Planet wishes to complain that Huawei is infringing SEPs in other jurisdictions, Huawei contend that such complaints are in principle for the Courts of those other jurisdictions."
555. I accept that there is no such thing in law as a portfolio right. At least from the perspective of English law, Unwired Planet should sue on SEPs in the countries in which they exist. However this does not preclude a finding that worldwide licences are FRAND. The first submission is relevant but not determinative."
The claims against the UK Defendants
"… It would not be satisfactory if the claimants were forced to sue some of the defendants in England and Wales (because they were served here as of right) and others in the Far East. They would then have to try to prove their case at two different trials, would be at risk of inconsistent findings of fact, and the courts of Taiwan or Japan would have to apply EU law as a foreign law."
Other connections with China relied on by the Defendants
i) Huawei China and ZTE China are Chinese companies and Conversant is a Luxembourg company with no connection with the UK. Huawei UK and ZTE UK are amongst many local subsidiaries whose involvement is said to be wholly peripheral;
ii) the Defendants wish to call witnesses of fact and expert witnesses whose language is Chinese;
iii) in relation to validity, the commercial importance of the Chinese patents to the royalty claim means that China is the more appropriate forum than England. China has specialist patentability courts that can better and more accurately decide whether the key Chinese patents are valid than the English court. Furthermore, it is more democratic and legitimate that disputes concerning patent validity, and thus the existence of monopolies affecting a given territorial population and the price that it pays, should be made in the country whose patents are centrally in issue;
iv) in relation to patent essentiality and infringement, the Chinese infringement court can liaise with and respond to the Chinese validity court in a better more responsive manner than the English court could do, and any conflicts arising between validity and infringement determinations can ultimately be resolved on appeal in a common Supreme Court;
v) China is more appropriate than England by reference to the place of the tort as the place of manufacture and the place where most of the allegedly infringing sales were made;
vi) in relation to language, the Chinese courts are more appropriate than the English courts because the Chinese patents are in the Chinese language, and there is a Chinese version of the standards to which reference can be made. There may also be Chinese language transactions or material which are said to be comparable or have a bearing on essentiality;
vii) if the global FRAND determination takes place in China, the costs are expected to be about £200,000 per side rather than several million pounds which will be required for litigation in the United Kingdom;
viii) Chinese law is more central than English law to this dispute and that is so in a developing and controversial area of law. Chinese law governs the validity of the patents and their infringement, as well as the party's negotiations and any good faith and FRAND obligations towards each other, in relation to the Chinese patents. The parties' negotiations took place in China;
ix) insofar as ETSI obligations are relevant, they are governed by French law which is not a factor which points in favour of England;
x) the case is already underway in China and the argument for the first validity challenge will be heard in March 2018;
xi) when Conversant first tried to enforce its patent portfolio against other market participants it did so in France and the United States, and not in the UK.
Have Huawei China and ZTE China been validly served in England?
Purported service on Huawei China
i) Neither HGF nor its staff have entered into any contracts on behalf of Huawei China nor acted on any delegation of authority from Huawei China to conduct any business with third parties on behalf of Huawei China.
ii) HGF is not an agent of Huawei China and does not carry out the business of Huawei China. HGF is not permitted, nor has the authority, to act in a manner so as to bind Huawei China. HGF simply carries on its own business which provide services to Huawei China and other Huawei group companies.
iii) HGF's premises are not connected to Huawei China. The building in which HGF's premises is located is not owned, leased or licensed by Huawei China.
iv) HGF does not receive any financial contributions from Huawei China to assist with the running of its business. The only financial payment HGF receives from Huawei China is the fee charged for the provision of services by HGF to Huawei China.
v) Huawei China does not control HGF, which is managed by its own board of directors in England and Wales.
vi) HGF's premises are devoted to the business of HGF. No part of HGF's premises is reserved for the business of Huawei China. From time to time HGF makes available parts of this office space for short-term business visitors from Huawei China and other Huawei group companies.
Purported service on ZTE China
Service out in relation to Huawei China and ZTE China
Are the claims within any of the Gateways in 6B PD 3.1?
"The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where— (2) A claim is made for an injunction ordering the defendant to do or refrain from doing an act within the jurisdiction. "
"The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where— (11) The subject matter of the claim relates wholly or principally to property within the jurisdiction."
"on its proper construction the rule cannot be construed as confined to claims relating to the ownership or possession of property. It extends to any claim for relief, whether for damages or otherwise, so long as it is related to property located within the jurisdiction".
Serious issue to be tried
i) the Defendants' application to dismiss these claims on the basis that they are non-justiciable is rejected;
ii) England is clearly and distinctly the most appropriate forum in which to bring these claims. Accordingly, the Defendants' application to stay the claims on the basis of forum non conveniens is rejected;
iii) Huawei China and ZTE China have not been served in England;
iv) the claims are within at least Gateways 2 and 11 of PD6B 3.1;
v) there is a serious question to be tried on the merits;
vi) I give permission for service out of these proceedings and a mechanism for substituted service has been agreed;
vii) accordingly, these claims shall continue in this jurisdiction.