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In a judgment handed down last week by Mr Justice Mellor, the UK Patents Court held that (1) Nokia’s challenge to the jurisdiction of the court to determine the terms of global licences in respect of certain video codec technologies on reasonable and non-discriminatory (RAND) terms has failed and (2) the applications by Acer and ASUSTeK (as well as Hisense, who were separately represented) (together, the Claimants) for declarations relating to interim RAND licences have succeeded.

This decision is a significant win for Morgan Lewis clients Acer and ASUSTeK. It is also the first time that the court has determined the scope of RAND undertakings given by standard essential patent (SEP) holders to ITU-T, the relevant standard setting organisation for video codec SEPs, and whether an SEP owner has the right to specify arbitration rather than court determination of RAND rates. Further details on the decision are set out below.

Acer and ASUSTeK are represented in the United Kingdom by Tim Powell and Hiroshi Sheraton, assisted by their team members Benjamin Rowlatt, Kristjan Bloudoff, Kulraj Singh Bhangra, Dania Al-Bayati, and Teal St. Nicklaus. Morgan Lewis is also representing Acer in parallel US International Trade Commission (ITC) proceedings in the United States, with a team led by partners Brent Hawkins and Stephanie Roberts and associate Zack Miller.

1. BACKGROUND

The Claimants had been each attempting to negotiate with Nokia on the terms of a RAND licence to Nokia’s portfolio of video codec patents, which were declared by Nokia to be essential to ITU-T standards under H.264 and H.265. Nokia brought numerous sets of proceedings around the world (including in the United States, the Unified Patent Court (UPC), Germany, Brazil, and India) seeking injunctions against the Claimants, but without any request for those courts to determine the terms of a RAND licence. As a defensive response, the Claimants each initiated proceedings in the United Kingdom, seeking inter alia the determinations and declarations of RAND terms for global interim and final licences.

2. NOKIA’S CHALLENGE TO JURISDICTION IS REJECTED

Nokia challenged the jurisdiction of the UK Patents Court to make the determinations and declarations sought by the Claimants. Ultimately, the court held that the orders granting each of Acer, Hisense, and ASUSTeK permission to serve their respective claims on Nokia outside of the jurisdiction had been correctly granted. In addition, the court found that the declaratory relief sought by the Claimants is available under Swiss law, and in the alternative, is also available as a matter of English procedural law.

The heart of Nokia’s jurisdiction challenge was two-fold: (1) an SEP owner that has declared its patents essential to the ITU-T under either the H.264 or H.265 standards is obliged to merely negotiate in good faith rather than offer a licence on RAND terms and (2) any obligation owed by Nokia to the Claimants is discharged by Nokia’s offers to settle the terms of a RAND licence through arbitration (termed Nokia’s “Adjustable Arbitration Offers”), which the Claimants do not consent to. Both of these points were rejected by the court.

Under Nokia’s interpretation of its ITU-T RAND obligations, Mr Justice Mellor stated that “the ITU-T system would be wholly unfit for purpose”. Agreeing with the Claimants, the court held that Nokia’s ITU-T RAND obligations created by way of its undertakings to the ITU-T are enforceable contracts under Swiss law. Importantly, these contracts were found to be for the benefit of third-party beneficiaries, which require Nokia to make RAND offers which are capable of acceptance and, when accepted, require Nokia to enter into the resulting RAND licence.

In refuting Nokia’s position in relation to Adjustable Arbitration Offers, the court held that they do not constitute an offer of a RAND licence that is capable of acceptance. Furthermore, the court observed that no arbitration agreement has been concluded between Nokia and any of the Claimants, and that if arbitration was an alternative forum to the English Court as a result of making an offer to arbitrate, it could almost always prevent the English Court from assuming jurisdiction.

3. INTERIM LICENCE DECLARATIONS SOUGHT BY THE CLAIMANTS ARE GRANTED

Following its findings on jurisdiction, the court held that the following two declarations that were sought by the Claimants should be made:

• A declaration that, in accordance with the contractual obligations on the part of Nokia and the undertakings given by the Claimants, a willing licensor and willing licensee would agree to enter into and actually enter into an interim licence pending a final determination of such terms as determined by the court
• A declaration of the terms of an interim licence

The court also found Nokia to be in breach of its ITU-T RAND commitment by making an interim licence offer that was conditional on Acer and ASUSTeK submitting to arbitration.

The court determined the terms of the interim licences that would be declared, including:

• There would be a sum payable by each of the Claimants to Nokia under their respective interim licences. This was for a total amount hallway between Nokia’s offer and the Claimants’ offers. It comprised a non-refundable amount of the sums the Claimants accepted should be paid and a refundable amount that could be adjusted up or down depending on the final RAND determination
• The interim licence would cover both decoding claims and claims which the Claimants contended were technically essential to the operation of the standards

4. WIDER RAMIFICATIONS

This dispute is one of a series of actions brought by SEP holders against implementers of video codec streaming technology. As such, the result is of wide interest to computer manufacturers and providers of streaming services. Nokia has indicated it intends to appeal this decision, but the case will now proceed to a full RAND rate setting trial next summer, where Acer and ASUSTeK will ask the court to settle the terms of a final global licence to Nokia’s video codec SEP portfolio.