With special thanks to trainee, Jonathan Peters, for his contribution to this article.
Actions were brought by companies within the Apple group against Qualcomm Inc, a US-based chip designer, and its subsidiary Qualcomm UK. Apple claimed that Qualcomm UK had breached its obligations as a member of the European Telecommunications Standards Institute (ETSI) by not granting licences for standard essential patents (SEPs) using fair, reasonable and non-discriminatory terms (FRAND).
An SEP is a patent for technology essential to a standard that is set in a particular industry. SEP holders can license these patents to third parties, but must ensure they do so on FRAND terms. (For further background about SEPs see our earlier blog here.)
Apple further called for the revocation of five of Qualcomm Inc.'s patents that related to 3G, 4G and future 5G wireless chip technologies, on the grounds that they were invalid due to being non-essential and therefore not SEPs. They also called for a declaration that Qualcomm Inc.'s rights were exhausted in respect of certain patents where chipsets were supplied by Apple with the consent of a Qualcomm group company. Finally, Qualcomm Inc. was accused of abusing a dominant position in the applicable markets in breach of Article 102 TFEU.
Qualcomm UK applied to strike out the claim against it and Qualcomm Inc. applied for a declaration that the High Court had no jurisdiction in relation to the claims going beyond the patent claims made against it.
High Court ruling
Morgan J delivered his judgment in the High Court on 22 May 2018.
Claim against Qualcomm UK
Apple alleged that Qualcomm UK breached Article 6.1 of the ETSI IPR policy. This clause states that the Director General of ETSI can request the 'owner' to give an irrevocable undertaking to grant licences on FRAND terms in specific situations. The court found that the word 'owner' required Qualcomm UK to be the owner of the IP right. It was clear that the the UK company was not the owner at any point in time of the patents in question and therefore had not breached the clause.
Apple additionally argued that Qualcomm Inc. had made a declaration that covered Qualcomm UK when it stated that 'Qualcomm Inc. and/or its affiliates are prepared to grant licenses of the relevant IPRs on FRAND terms'. The court interpreted the declaration to mean that an affiliate was someone who has the power to grant the licence and for that to occur, they must own the right in the first place. Since Qualcomm UK did not own the right, it was not covered by the term.
Consequently. summary judgment was given in favour of Qualcomm UK because the court saw no real prospect of Apple's claim succeeding.
Claims against Qualcomm Inc.
Since Qualcomm Inc is US-based, it had to be served out of jurisdiction, for which certain criteria had to be satisfied. The burden was on Apple to convince the court that there was a serious issue to be tried. It also had to satisfy the court that there was a good arguable case that the claim fell within one of several jurisdictional gateways available for this type of action (CPR 6.36 and Practice Direction 6B). Finally, Apple had to satisfy the court that England was the correct forum to try the case in all the circumstances.
The applicable gateways that were claimed were gateways 3, 4A and 9.
- Gateway 3 required Apple to show that there was a real issue between it and Qualcomm UK, and that Qualcomm Inc. was an important party to the claim. However, in light of the court's dismissal of the claim against Qualcomm UK, this gateway was not available.
- Gateway 4A required that the claim must be made in reliance on one of several paragraphs mentioned in the gateway. Apple argued that although it did not rely on Gateway 4A, it could have done so. The court refused to interpret the words in 'reliance on' widely to incorporate the mere possibility of reliance. Consequently, this gateway was not available either.
- For Gateway 9 to apply, the claim must be in tort. Under Gateway 9(a), on which Apple sought to rely, damage must have been sustained or will be sustained within the jurisdiction. The court identified being overcharged as an example of such damage. For Apple to have suffered this damage, they must either have sold the product after paying a higher price for it and not passed on the cost to the consumer (leading to a loss), or have transferred the extra cost to the consumer and lost sales as a result. Only Apple Retail UK Ltd and Apple Distribution International were within the UK jurisdiction and therefore were the only ones that could proceed with the claim out of the six claimants.
The judge found that the evidence provided was confusing and not presented in the correct manner. However, he decided to give directions for the service of further evidence and await further arguments in relation to Gateway 9.
Finally, the judge also determined that the UK was the correct forum for the claim of breach of Article 102, as Apple Retail UK Ltd was a UK company that had suffered loss in the jurisdiction as a result of Qualcomm's alleged abusive behaviour.
This action by Apple's against Qualcomm is the latest development in the companies' global dispute.
Those hoping that the recent ruling would provide some definitive guidance from the courts on breaches of FRAND undertakings may be disappointed – the judgment revolved instead around jurisdictional issues and the relevance of a subsidiary company to a claim.
What was demonstrated was that UK courts will consider carefully the scope of its jurisdiction when faced with disputes involving global group companies. Apple's attempt to use Qualcomm UK, which did not own the relevant patents and had not directly granted any licences, as an anchor to bring its claim in the High Court, was unsuccessful. Under the ETSI rules, an affiliate of a company making declarations of SEPs was held not to be liable for the actions of its parent.
In respect of the parts of the case concerning FRAND undertakings, it seems that the battle between the parties remains confined to California, where Qualcomm Inc. is based. As for the claims by Apple Retail UK and Apple Distribution International, the case will continue in the UK, with further hearings to answer the outstanding issues.