Unwired Planet International Ltd v Huawei Technologies Co., Ltd & Ors

The issue I need to decide relates to the appropriate costs orders to be made arising from my judgment in this patent trial, which has been called Trial A. It arises as follows: There is one overall dispute between the claimant, Unwired Planet, and the two groups of defendants, Huawei and Samsung. That overall dispute is concerned with a portfolio of patents held by Unwired Planet and whether Huawei and Samsung need a licence in relation to those patents in order to make and sell telecommunications equipment compliant with the relevant telecommunications standards. It involves considering whether and to what extent the licenses offers by Unwired Planet are FRAND; whether and to what extent any counter-offers by Huawei and Samsung are FRAND; and whether there have been various breaches of competition law, (both Article 101 and 102) relating to Unwired Planet's conduct and also looking at the transaction whereby Unwired Planet acquired the patents from Ericsson. One of the questions is whether the master sale agreement, which transfers the patents from Ericsson to Unwired Planet, is itself contrary to Article 101.

In addition, in this overall action, there are what can be called conventional patent questions. The defendants, Huawei and Samsung, contend that the various patents relied on by Unwired Planet are not essential to the standard and are therefore not infringed by their products. That is an issue which depends on the true interpretation and scope of the claims and, of course, it depends on what claims are valid. Then there are full-blown invalidity challenges in the form of counterclaims for revocation of the various patents, alongside the other competition law counterclaims.

The overall dispute is large and complex. It was case managed in such a way as to consist of, I think, five so-called “technical” trials, each dealing with one patent (or sometimes divisional patents being dealt with together) in which the issues of validity and infringement and essentiality are dealt with all in one go. Each technical trail is in effect a conventional patent case. Then the competition law and FRAND issues have all been managed separately to be dealt with at a single non-technical trial. The scheduling that has been arranged is that the five technical trials will all be heard before the non-technical trial. The non-technical trial is due to start in the autumn of next year.

Various possibilities are conceivable. The competition elements of the case may be dismissed completely. They may succeed completely. If they are dismissed then this trial and the others technical cases are in effect conventional patent infringement actions, albeit that there will need to be determination of what a FRAND royalty should be. On the other hand, if the competition law elements succeed, then it may be that Unwired Planet are deemed not to hold the patents at all, because the patents should still be regarded as being held by Ericsson because the MSA is void. Or it may be that, at least in the case of Samsung, Samsung has the benefit of a licence. It already has a licence from Ericsson and one of the possible outcomes from the dispute overall is at that the licence which it has may cover some or all of the Unwired Planet patents.

This is the hearing dealing with the consequences of the first technical trial. Therefore, the decisions being made here do have significant ramifications for this overall dispute.

The particular point that I need to address here relates to costs. If this was a freestanding patent trial on its own, there would be no question. In the main judgment ([2015] EWHC 3366 (Pat)) I concluded that this patent is valid, is infringed by the relevant sample products and is essential to the relevant standard.

Accordingly, the costs order one would expect is that the defendants pay the claimant's costs attributable to that trial, to be assessed if not agreed. There will be an interim award and that will be that.

The parties agree that an interim award should be made and agree the amount, but the parties disagree about the terms of the costs order. The defendants' position is that the material parts of costs order should be as follows.

"(5)

The defendants shall pay the claimant's costs attributable to Technical Trial A, to be assessed if not agreed. […]

(6)

The defendants shall make an interim payment to the claimant of £1,270,800 by 4 p.m. on the 20th January 2016.

[…]

(8)

Paragraphs 5 and 6 of this order are made pending the final order in the non-technical trial in these proceedings or further order in the meantime and without prejudice to the defendants ability to recover any part of their costs attributable to Technical Trial A and/or any part of the claimant's costs attributable to Technical Trial A, depending on the outcome of the non-technical trial."

The draft order also contains a declaration that the patent is essential to the relevant standard, a declaration that the patent is infringed by wireless telecommunication networks which operate in accordance with the standard, and declarations that the relevant Huawei and Samsung sample products infringe the patent.

A point which arose in the course of argument was that the declaration relative to Samsung needs to be modified in some way appropriate to deal with the fact that the non-technical trial may result in a finding that Samsung have a licence, in which case a declaration that the Samsung products infringe would not be accurate. One way to deal with this could be to say that the declaration in relation to Samsung is dependent on the outcome of the non-technical trial or something like that. I will leave that to the parties to be agreed (if it can be). That is not the main issue.

Ms May QC, who appears for Samsung, supported by Mr. Lykiardopoulos QC for Huawei, submits that the order above is the appropriate order to make.

A difficulty which I raised in the course of argument is whether that order in fact is open to the court, given the terms of CPR 44.2(8) and its predecessor, CPR 44.3(8), which provide that interim award or payments on account are made when the court makes an order for costs. The reason the question arises is because the point of the drafting of paragraphs 5 and 8, from the defendants' point of view, is that together they put the parties in the same position as if the order was an order for costs reserved. Ms May has explained why, instead of making an order simply for costs reserved, the orders are drafted this way. It is, and I sympathise with the defendants' reasoning, to recognise that the normal order that one would make at the end of a patent trial with the outcome that has been reached would be an order that the defendant pays the claimant' costs. That is intended to be recognised in the drafting, but nevertheless to put the defendants in the same position as if it was an order for costs reserved.

Another possibility might simply to have provided for liberty to apply, but that might be said to create some hurdle which would have to be overcome in order to justify revisiting the costs order. The intent behind paragraph 8 is that the costs order can be completely revisited freely by the court at the end of the non-technical trial, or indeed at any other time if it was appropriate. In my judgment as drafted paragraphs 5 and 8 would have that effect and they are therefore, in substance, an order reserving the costs. However I will not decide this application based on CPR r44.2(8) because, as counsel submitted, it may be that any problem there could be avoided by undertakings being given by the defendants to make a payment on account even when costs are reserved.

Ms May submits that the order is the appropriate order to make in the circumstances, because the outcome of the non-technical trial may well be that her clients end up as the overall winner in this action as a whole, and that that may mean that, ultimately, the appropriate costs order is different from an order which gives Unwired Planet the costs of this technical trial.

In support of her submissions, and for this I am sincerely grateful, Ms May has identified some cases which bear on this issue. The first one is Weill v Mean FiddlerHoldings, a decision of the Court of Appeal [2003], EWCA Civ 1058. There, Mr Justice Lightman, as he then was, sitting in the Court of Appeal, dealt with a case in which the court had to consider a costs order made at the end of a trial which was a split trial between the issues of liability and damages. The question was whether it was appropriate to reserve the costs at the end of the split trial or not, bearing in mind that it was being argued that it may turn out that only nominal damages would be awarded. So, even though the person getting the damages had necessarily won the liability trial, the court would want to take that outcome into account in considering what the appropriate costs order would be.

The relevant statement of principle is at the end of the judgment and it as follows:

"The fact that only nominal damages are awarded after a single trial of the issues of liability and damages in the circumstances of a particular case may constitute grounds for refusing the claimant his costs or his full costs of the issue of liability. There is much to be said for the view that the incidence of costs should be the same whether or not for case management reasons there has been an order for a split trial and whether or not the order for a split trial was made on the initiative of the claimant or the defendant. If this is so, in the case where there is a split trial and it is left uncertain until conclusion of the trial on quantum whether the claimant will recover more than nominal damages, it may be proper for the trial judge to defer making any order for the costs of the trial of the issue of liability until the final outcome of the action is known. This may be the case whenever the judge considers that there is a real possibility that the outcome of the assessment of damages may affect the merits of the parties' entitlement to the costs of the issue of liability. If the judge forms the view that it does, he must consider carefully whether justice to the defendant requires him to postpone any decision on costs until the final outcome of the action is known. I do not think that the judge's decision in the exercise of his discretion to follow this course in this case and postpone the decision on costs can or should be disturbed."

That case was followed in three subsequent cases, which I will mention in chronological order, the next one is Shepherds Investments v Andrew Walters [2007] EWCA, Civ 292. Again, it arises from a costs order at a split trial. At paragraph 19 Mummery L.J. said:

"The authorities recognise that there are circumstances in which it is proper to exercise of judicial discretion by reserving or adjourning the question of costs pending the final resolution of all the outstanding issues, including quantum of damages or an account of profits: JJ Harrison (Properties) Limited v. Harrison ( Lawtel: 7 December 2000) at pages 7 and 9-10; Weill v. Mean Fiddler Holdings Limited [2003] EWCA Civ 1058 at paragraphs 31 to33 (where it was uncertain after the trial on liability whether the claimant would recover more than nominal damages); HSS Hire Services Group plc v. BMB Builders Merchants Limited [2005] 3 All ER 486; and Intense Investments Limited v. Development Ventures Limited [2006] EWHC 1628 (TCC) at paragraphs 3 to 6 and 23 to 28."

Then, in Beiber v Teather & Greenwood, Mr Justice Norris also referred to Weill v Mean Fiddler. The report that was available is not the full report of the judgment, but is a digest, but I can refer to the digest.

"The preliminary issues were not like a large interlocutory application, but were more properly regarded as part of a staged trial. The question of costs would therefore be approached by regarding the preliminary issues as part of a staged trial, and the ultimate outcome of costs would not be determined by the case-management directions that had been given. The court should be confident, before making a major and final costs order partway through a staged trial, that nothing would occur in the remainder of the case that would render such an immediate order substantially unjust, Weill v Mean Fiddler Holdings Ltd [2003] EWCA Civ 1058 considered. There was a real possibility that the outcome of any trial would affect the merits of the parties' entitlement in respect of settlement of earlier determined issues. Justice to the claimants required that any decision on costs be postponed until the final outcome of the action was known."

Whether these are the precise words that were used by Mr. Justice Norris in these circumstances does not matter. The intent is clear and bearing in mind Weill v Mean Fiddler, it is likely to be an accurate paraphrase of what the judge said.

Then I will refer to a further decision of Mr. Justice Norris in RedstoneMortgagesv B Legal [2015] EWHC 745 (Ch), in which the judge, again, was dealing with costs of preliminary issues. Paragraph 17, which refers to Weill v Mean Fiddler, states:

"The approach to costs questions upon the determination of preliminary issues was considered by the Court of Appeal in Weill v Mean Fiddler Holdings Limited [2003] EWCA Civ 1058. The guidance given (at paragraph [31]) was that in any ordinary case in the absence of special circumstances the court would make an order for costs in favour of a Claimant who has succeeded on the issue of liability: But where it is uncertain until the conclusion of the trial on quantum whether there will be a recovery of substantial damages it may be proper to defer making any order until the final outcome is known."

I also note paragraph 23, in which the judge said:

"The ordinary expectation would be that an order for costs would be made at the conclusion of the preliminary issue. Reserving the costs simply requires another judge on another day to adjudicate upon how the costs of the earlier determination of issues on which he or she did not adjudicate should be borne. It is true that the possibility of a successful causation defence might justify reserving the costs so that the ultimately successful party can preserve a right to argue entitlement to the entire costs of the action (notwithstanding complete failure on the breach of duty issue). But it might equally justify a 'costs in case' order being made at the conclusion of the preliminary issue reflecting the degree of success in the contest the parties have chosen to set up."

A point was made in argument that the observation in paragraph 23 in Redstone does not have the same impact here because I am docketed to deal with this dispute.

So, Ms May submits, it is clear that the court has a discretion in relation to costs and it is also clear that, in circumstances in which the court is considering making a costs order relating to a hearing which is a final determination of an issue before the entire dispute has been resolved (whether as a preliminary issue or a split trial, or in some other way), it can be a proper exercise of that discretion to make a final costs order at this stage and conversely it can be a proper exercise of discretion to reserve the costs over until the overall conclusion. That is what the Court of Appeal is explaining in those judgments.

The principle is the one identified in Weill v Mean Fiddler itself, that if the court considers there is a real possibility that the outcome of the hearing which is to take place at the overall conclusion, may affect the merits of the parties' entitlement to costs of the issue which is before the court right now, then it would be appropriate to consider carefully whether to postpone the decision on costs.

Mr. Speck submits that there is no good reason to make an order in the form sought by the defendants. He submits I should not reserve the costs or take the course submitted by the defendants. He refers to what he calls "ordinary expectation". That is referring to paragraph 23 of Redstone. He submits that ordinarily in a case of this kind one would make an order for costs to be paid and there is no reason not to do that in this case.

While I agree with Mr. Speck that ordinarily that is what happens, it seems to me it is not quite the right way of looking at it. The correct way of looking at it is to apply the relevant legal principles. If it turns out that that often leads to the outcome Mr. Speck refers, and I rather think he is correct about that, that is the fact of the matter. But it does not mean that the court should be doing it simply because that is normally what happens.

The question I have to decide depends on applying the general legal principles applicable to costs to the facts of this case. The general principles are well established, CPR order 44.2, indicates that the court has a discretion in relation to costs. If the court decides to make an order the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order.

Then, I take into account the particular principle that I have mentioned already from Weill v Mean Fiddler in a circumstance where, as here, although this is the final determination of certain issues in this overall dispute, it is not the final determination of the overall dispute.

At the end of the day the question I need to ask myself is whether the outcome of the assessment of the costs attributable to this Trial A will be affected by the outcome of the non-technical trial. If I am satisfied that there is a real possibility that this may occur, then I should do something on the lines suggested by Ms May. If not, then I should make the ordinary order, that is to say an order that the unsuccessful party, (the defendants as far as trial A is concerned) pays the winner's costs.

The answer to this question can be gauged by looking at the relief that I am ordering now. I am making a declaration that the patent is valid and is essential. They are the real issues which the court determined at Trial A. It is to those issues that the costs that I am dealing with are attributed. The significance of those two declarations is not going to be influenced or undermined by the outcome of the non-technical trial. There is no possibility that the incidence of costs on those issues will be affected by the outcome on Trial A.

I have also made declarations relating to infringement as opposed to essentiality as a distinct conceptual point and it is right that the infringement declaration in relation to Samsung does need to be qualified because it may turn out that Samsung does not infringe the patent. However this trial was concerned with the issues of validity and essentiality and infringement (in the sense of scope of claim) and to the extent that it related those questions the defendants have lost. I cannot imagine that the outcome of the non-technical trial will make any difference to the determination of those costs.

I will take the most extreme case, which is that the defendants win on all issues arising at the non-technical trial, which includes all the competition law questions, and for that matter, the assessment of the FRAND royalty. Even looking at it in that way, the fact remains that the validity and scope of the 744 patent was distinctly challenged and has been found valid and essential, subject to anything the Court of Appeal may do.

If the Patents Court had determined all these matters in one go at one trial (which I am bound to say I regard as really inconceivable, but just for the purposes of consideration I will think about it in that way), I cannot imagine that the court would not make a form of issue-based order in which the issue of validity and essentiality of the 744 patent would be regarded as a sufficiently distinct issue on which the costs would be dealt with to follow the merits of that issue. It might be that in such a case overall, the balance of payment would be a payment from Unwired Planet to the defendants, but that would not alter the order that I am making now. The costs order I am considering is only relating to costs attributable to this technical trial. It does not deal with other costs in these proceedings which are not attributable.

Accordingly, I will make the orders sought by the claimant and I will not include the proviso in paragraph 8.

I will give permission to appeal on the grounds set out in this draft Grounds of Appeal, on the issues of construction, priority and obviousness. In my judgment, they disclose a real, as opposed to fanciful, prospect of success. I have well in mind Mr. Speck's submission that the grounds need to be examined, and I have read his written skeleton and examined them carefully before this hearing began. It seemed to me, as I indicated earlier, that there was a real, as opposed to fanciful, prospect of success in relation to those grounds.

In saying that, I particularly bear in mind what was said by the Court of Appeal in the Pozzoli v. BDMO case, not in the sense that I interpret it as necessarily a rule that the court below should grant permission to appeal in circumstances where it does not really think there is a real prospect of success, but just bearing in mind that this a highly technical case for which, in order to comprehend the issues, involves being immersed in the technology to a significant extent. I have borne that in mind when giving permission to appeal on these points.

I am not satisfied that there is a real, as opposed to fanciful, prospect of success on the novelty ground; nor am I satisfied that it would be appropriate to give permission on the other ground, that there is some other compelling reason why. While the defendants submit it raises a point of general importance, that is only because it is about the law of novelty and the law of novelty in patents is of general importance. I am not aware that the issue is a point that comes up very often; and nor am persuaded that the point is of sufficient public significance that I should give permission to appeal even though I do not believe there is a real prospect of success. That is what I will do.