Conversant Wireless Licensing SARL v Huawei Technologies Co. Ltd & Ors

The Defendants’ case is that:

In particular, the Defendants contend that:

Mr Speck QC, on behalf of Conversant, did not dispute the proposition that the English court could not determine the validity of foreign patents. In relation to European patents (apart from the UK designations), the English court would be required by Arts 24(4) and 27 of the Brussels I Recast Regulation to declare of its own motion that it had no jurisdiction to adjudicate upon cases in which the dispute concerned validity. In the case of non-European patents, Conversant was content to proceed on the basis of the provisional view expressed (obiter) by this court in Chugai Pharmaceutical Co Ltd v UCB Pharma SA [2017] EWHC 1216 at [73] to [74] that direct challenges to the validity of such patents are not justiciable in the English courts, based on the common law rule in Moçambique, as explained by the Supreme Court in Lucasfilm v Ainsworth [2011] UKSC 39.

Mr Layton QC contended that the word “direct” was inappropriate, and any case where the validity of a non-European patent was in issue was not justiciable. I do not agree, as the rule in Moçambique, in my view, prohibits such challenges where validity is the principal issue. However, this makes no difference to the questions which arise on this application, and I will assume, in favour of the Defendants, that the English court has no jurisdiction to adjudicate upon cases in which the dispute concerns validity of non-European patents.

In UnwiredPlanet, Huawei did not challenge the jurisdiction of the English court to adjudicate on a global FRAND licence. However, it relied upon jurisdictional arguments in support of its claim that a global licence was not FRAND. Birss J considered these arguments at [553] - [567]. Huawei pointed to existing infringement and validity actions in, for example, Germany. It submitted that the English court should not make a final determination that it was required to take and pay for a licence in Germany, and issue injunctive relief if it declined to do so, when that issue was currently before the German courts. Huawei contended that this would amount to circumventing the jurisdictional rules laid down by Art 22(4) (now Art 24(4)).

Birss J noted at [565] that Art 22(4) provides that in proceedings concerning the registration or validity of patents, the courts of the member state in which the registration has been applied for have exclusive jurisdiction. He cited the relevant case law of the Court of Justice of the European Union (“CJEU”) which established that this applied whatever the form of proceedings in which the issue of patent validity was raised, including if validity were challenged as a defence or counterclaim to a claim for infringement. However, he held that the Brussels I Regulation and the CJEU case law had nothing to do with what the terms of a FRAND licence should be. At [567] he said:

“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.”

Birss J’s analysis is simple, and in my view, compelling. Applying it to the present case, there is nothing to prevent Huawei China and ZTE China from continuing in China with challenges to validity in respect of the Chinese patents. If all the Chinese patents are invalid or not infringed, then any FRAND licence will need to provide that no royalties should be payable in respect of them, either for the past or the future. If the Defendants are successful in respect of all such patents, then, on the figures provided to me, a large proportion of the royalties which would otherwise be payable will fall away. Furthermore, if the Chinese courts determine a FRAND royalty rate for the Chinese patents which are valid and infringed, the English court may well decide to include this rate for China in any global FRAND licence that it determines.

For reasons that both sides accept, the Defendants cannot put in issue the validity of foreign patents in proceedings before the English court. If, in their defences, the Defendants asked this court to determine that foreign patents were invalid, the plea would be strikeable as non-justiciable. However, it is not unjust to the Defendants for this claim to proceed in the English court, merely because of an assertion that the Defendants intend to plead matters which are non-justiciable. The Defendants do not need to do so, as they can bring their invalidity claims in the appropriate jurisdiction. A global licence which is FRAND can take account of the results of proceedings taken by the Defendants in the appropriate jurisdiction, by reflecting the results of those proceedings and by providing an appropriate mechanism for royalty adjustment.

On behalf of the Huawei Defendants, I was provided with an estimate which indicated that all of the Chinese proceedings will be determined in China by mid-2019, whereas a determination of a global FRAND licence in the UK would not start until 2020, after the technical trials had been concluded. The evidence shows that the Chinese proceedings will be concluded by early to mid-2019. Even if I accede to Mr Speck’s application to fix the global FRAND hearing before the technical trials (which, subject to further submissions that Mr Speck is entitled to advance, does not seem to me to be appropriate) the Chinese proceedings would still be concluded before a global FRAND trial was heard and decided in the UK. On this basis, there is no question of the Defendants putting in issue the validity of the Chinese patents in the UK proceedings. All such questions will have been determined before the FRAND proceedings start.

But even in a case where challenges to validity of foreign patents were still pending, as was the position in Unwired Planet, this would not deprive the English court of jurisdiction, for the reasons given by Birss J. If, in the present case, the Defendants wish to challenge the validity of patents in other jurisdictions outside the UK and China, they are entitled to do so in the jurisdictions to which those patents apply. Even if those proceedings have not been determined, a global licence which the English court considers to be FRAND will have a mechanism for reflecting the results of these proceedings.

In fact, the licence which was approved by Birss J in UnwiredPlanet contains a mechanism for dealing with patents held to be invalid after the licence has been settled. This mechanism has been adopted by Conversant in its latest “FRAND” offer, which is an adaptation of the UnwiredPlanet licence to the Conversant portfolio. In summary, a distinction is drawn between a “Major Market” and “Other Markets”. A Major Market means, in respect of 2G or 3G standards, a country in which there are two or more “Licensed Patents” and in respect of 4G, a country in which there are three or more Licensed Patents. China is excluded from the definition of Major Market. Other Markets means any country which is not a Major Market, but excluding China. A higher royalty rate is required for devices that are sold in a Major Market, as compared with Other Markets or China.

Clause 4.3 provides that adjustments to the list of Major Markets is done on an annual basis. It states that:

“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 effect of the clause is that lower royalty rates will become payable if the number of Licensed Patents in a jurisdiction drops below specified levels, because of determinations of invalidity or non-essentiality in that jurisdiction. In respect of China, royalty rates are always at the lowest rates of Other Markets, because royalty rates in China are lower than in the rest of the world. Further, when considering the appropriate fraction for calculation of the Chinese royalty rate, Birss J said in UnwiredPlanet at [583]:

“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%.”

The Huawei and ZTE Defendants criticised this mechanism, on the basis that it still required payment of royalties for the past and for the future, even if all the Chinese Patents were found invalid and/or not infringed. It was submitted that the July 2017 licence that has been offered by Conversant is not FRAND, as it fails to take into account the results of the Chinese proceedings. On this basis, it was submitted the claim is not justiciable. I disagree. The Defendants’ criticism only has force if they succeed in establishing that all of the 11 Chinese patents in the Conversant Portfolio are invalid or not infringed. If one or more Chinese patents are found to be valid and infringed, then the mechanism in the July 2017 licence may be FRAND. In those circumstances a licence for one or more Chinese patents will be required, and it will be at the lowest rate contemplated by the licence.

In any event, this is not, in my judgment, a jurisdictional objection. Rather, it is an objection to a specific term of the proposed licence, which is alleged not to be FRAND based on a hypothetical. The Defendants may make a counter-offer, which they contend is FRAND, containing the mechanism that they say is appropriate for adjusting the royalty to reflect the outcome of the Chinese proceedings. It is most unlikely that every term of the licence proposed by Conversant will be accepted without change by the court, and this dispute is a matter for the trial, which does not affect the justiciability of the claim.

There are other, fundamental objections to the Defendants’ justiciability objection. First, the Defendants submit that all of Conversant’s claims in the UK proceedings are not justiciable. I reject this. Claims of infringement of UK patents are properly justiciable in this jurisdiction, particularly as the Defendants will undoubtedly challenge the validity of the UK patents (see, for example, Dagg 1 [33], which confirms this intention on behalf of Huawei). Based on the Defendants’ own arguments, such a claim, which puts in issue the validity of UK patents, is only justiciable in this jurisdiction.

Secondly, the effect of the Defendants’ justiciability argument is that no patentee will be able to have a determination of what terms would be FRAND for its global portfolio, without agreement from the defendants and subject to conditions imposed by the defendants, despite being bound by the obligation to offer a FRAND licence in order to be granted relief from patent infringement. The same arguments advanced by the Defendants on these applications could be advanced in every country in the world. The Huawei and ZTE Defendants would be able to say that any claim for infringement of local standards essential patents was non-justiciable locally, insofar as such a claim sought determination of a global FRAND licence. The effect would be that Conversant would need to seek separate licences for each individual country where it held SEPs, by commencing separate litigation in each such territory. Conversant characterised this as a “hold-out charter” which would enable continued infringement without payment of royalties. I agree.

This consequence would fundamentally undermine the judgment of Birss J in UnwiredPlanet. Mr Layton invited me to express the view that Birss J’s judgment was wrong in various respects, and suggested that this might be of assistance to the Court of Appeal (a proposition which I doubt). I decline to do so. I would only do so if I were convinced that the judgment was wrong. Based on the arguments advanced on these applications, I am not convinced that Birss J was wrong in any material respect.

In conclusion, I shall dismiss the Defendants’ justiciability objection.

Article 4(1) of the Brussels I Recast Regulation provides that: “Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.” Conversant submitted that Huawei UK and ZTE UK must be sued in their country of domicile i.e. the United Kingdom and there is no room for the doctrine of forum non conveniens to apply so as to displace that rule.

In this regard, reliance was placed on the judgment of the CJEU in Owusu v Jackson [2005] QB 801. The CJEU held that an English court could not apply the doctrine of forum non conveniens to decline jurisdiction over a claim against a European domiciliary on the ground that the natural forum for the claims was outside Europe. The CJEU held at [46] that:

“… 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.

Art. 24(4) of the Brussels I Recast Regulation provides, inter alia, that the courts of a Member State shall have exclusive jurisdiction, regardless of the domicile of the parties, in proceedings concerned with the registration or validity of patents. The application of Owusu to Art. 24 cases is considered in Dicey, Morris and Collins on the Conflict of Laws (Fifteenth Edn.) at [12-021]:

“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.”

In Ferrexpo AG v Gilson Investments Ltd and others [2012] EWHC 721; [2012] 1 CLC 645, Andrew Smith J considered the applicability of the Owusu decision to a case concerned with corporate decisions in Ukraine, which fell within the subject matter of Art. 24(2) (then Art. 22(2)). He concluded at [154] that “it is a matter of discretion whether the court should or should not assume jurisdiction” and added that: “There appears to me no reason of principle or policy that the reflexive application of the article should be adopted slavishly and, as stated in Dicey Morris and Collins (loc. cit.) at para 12-022, it is inappropriate to do so.”

Mr Speck did not take issue with the view expressed in Dicey, nor with the judgment of Andrew Smith J in Ferrexpo. He recognised that in a case which concerned the validity of non-European patents, the English court has a discretionary power to decline jurisdiction on the basis of forum non conveniens. However, he submitted that this was merely a repackaging of the Defendants’ justiciability objections. He argued that if this court were to reject the justiciability objections, on the basis that these claims are not concerned with the validity of foreign patents, then Art. 24(4) has no application, and forum conveniens principles do not apply to the claims against Huawei UK and ZTE UK, who must be sued where they are domiciled.

In answer, Mr Layton submitted that, as Dicey makes clear, it is not necessary that the case should fall slavishly within the subject matter scope of Art. 24. He submitted that it was sufficient that the case concerns non-European patents.

In any global FRAND determination, the English court will not be concerned to determine the validity of any non-UK patent, for the reasons which I have explained when dismissing the Defendants’ justiciability objections. A global FRAND licence will take account of validity determinations in other jurisdictions. Therefore, I accept Mr Speck’s submissions that Huawei UK and ZTE UK must be sued for infringement of the UK patents in the courts where they are domiciled and there is no room for the doctrine of forum non conveniens to apply.

Since I have rejected the Defendants’ case that these claims are non-justiciable; and concluded that Huawei UK and ZTE UK are precluded from obtaining a forum non conveniens stay, it follows that the cases will continue in this jurisdiction against the UK Defendants, whatever may be the position in respect of the Chinese Defendants.

In the application notices in respect of forum non conveniens, the Chinese Defendants only were identified as applicants. The UK Defendants applied to amend the application notices so that they would also be identified as applicants. Conversant submitted that the UK Defendants’ amendment applications were too late. It further submitted that relief from sanctions would be required for the amendment applications to succeed, which should not be granted.

In the light of my conclusion that Huawei UK and ZTE UK must be sued in the courts where they are domiciled, and there is no room, in their cases, for the doctrine of forum non conveniens to apply, I shall refuse permission to amend. The UK Defendants are not entitled, as a matter of law, to make these applications. Therefore, the question of relief from sanctions does not arise. However, had it been necessary to determine the question then I would have granted permission to amend the application notice. I will explain my reasons for this conclusion very briefly. A discretionary stay has already been sought by Huawei China and ZTE China, and the evidence concerning it is before the court. The omission of the UK Defendants was a minor oversight which caused no prejudice to Conversant. Even if relief from sanctions had been required (which I do not accept) then I would have granted such relief. Had the UK Defendants been entitled to seek a forum non conveniens stay, it would have been disproportionate to decline to resolve that claim because of a minor oversight.

I shall apply the principles as summarised by Lord Goff in Spiliada Maritime Corp v. Cansulex Ltd [1987] AC 460. It is necessary to set out the principles to be applied in both “service in” and “service out” cases, as although there are differences, many considerations are common to both.

In service in cases, Lord Goff set out the law in six propositions at 476C – 478E. In summary:

In service out cases, where the court exercises its discretionary power under CPR 6.37, the key principles identified in The Spiliada continue to apply. These were considered by the Supreme Court, in relation to CPR 6.37, in VTB Capital plc v Nutritek International Corp and others [2013] UKSC 5; in particular in the judgment of Lord Mance at [12] – [18]. In summary:

The Defendants submitted, and I accept, that the inquiry requires the court to identify which is the natural or appropriate forum or forum conveniens for the dispute between the parties, not merely the claims the claimant wishes to advance or the relief it wishes to seek. In this regard, the Defendants relied heavily upon the decision of the Court of Appeal in Re Harrods (Buenos Aires) Limited [1992] Ch 72. In that case, an English company (Harrods) had carried on business for many years in Argentina and was regarded in Argentina (but not in England) as an Argentinian company. It was owned 49% by the claimant and 51% by the defendant. The claimant brought an unfair prejudice petition in England seeking an order under the English Companies Act requiring the defendant to buy out its minority share.

At first instance, Harman J noted that the inquiry was into the appropriate forum to resolve “the action”, and asked himself “what is this action?”. He answered that question by defining “the action” as a petition for unfair prejudice under the English Companies Act in respect of an English company. Having formulated the forum conveniens inquiry that way, he concluded that it was “blindingly obvious” that the appropriate forum was England.

This approach, which Mr Layton and Mr Bloch characterised (somewhat unflatteringly) as “the Harman fallacy”, was overturned on appeal. Bingham LJ said at 127C that “the judge did not direct himself in accordance with [Spiliada] … and moreover put the question in a way which pre-empted the answer”. He said at 123F:

“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”.

For the reasons set out below, I regard these proceedings as “service out” cases, where Conversant requires permission to serve out because Huawei China and ZTE China have not been properly served. The question, therefore, is whether Conversant has satisfied the court that England is clearly the most appropriate forum for these cases to be tried, having regard to the interests of all parties and to the ends of justice.

Mr Bloch QC concentrated his submissions on this aspect of the case, which was also developed by Mr Layton QC. The Defendants contend that this question should be answered in the negative. The central factor in their argument is that the Chinese patents are overwhelming in their importance for past and future royalty claims in respect of the Conversant portfolio. They contend that this is a case in which the validity, essentiality and infringement of the Chinese patents must be tested in order to determine the appropriate royalty rate for a global FRAND licence. They contend that the most appropriate forum to do this is in the Chinese courts, as the patents of other countries, and in particular the UK patents, are of marginal significance to the claim for global royalties.

The Defendants submit that the relief which Conversant is really seeking is a declaration as to the terms of the global FRAND licence. This is said to be the primary claim on the claim form and the commercial driver for the proceedings, and the reason why Conversant has chosen to bring the proceedings in the UK in preference to anywhere else. It is said that the UK infringement claims are relied on to connect the case with the UK, but they are no more than a convenient hook upon which to hang the enforcement of a global FRAND licence. They submit that Conversant’s approach to forum conveniens elevates form over substance, and suffers from the “Harman fallacy”. The Defendants also rely upon a variety of other factors which are said to connect the proceedings with China, rather that England.

In support of their contention that there is another available forum for determination of a global FRAND licence, the Defendants rely upon “concessions” to the effect that they would agree to have a global FRAND rate determined in China. I do not consider that these are properly characterised as concessions, and I will refer to them as “offers” by the Defendants.

Conversant submits as follows: First, the UK is clearly the appropriate forum for the UK patent infringement claims. The FRAND issues are part and parcel of those infringement claims and so should remain with the UK infringement claims. The Defendants’ forum non conveniens case treats the claim as a claim for worldwide royalties, but this is not the case. Secondly, the Defendants’ arguments on forum non conveniens ignore the fact that on any view, the case against the UK Defendants must remain here, due to the Owusu doctrine. Therefore, the claim against the UK Defendants will remain here and the effect of moving the claims against the Chinese Defendants to China would result in bifurcated proceedings with a risk of duplication of issues in multiple jurisdictions. Thirdly, there is significant doubt that the Chinese courts have jurisdiction to decide the terms of a global FRAND licence and/or infringement/essentiality of non-Chinese patents. Finally, other connecting factors point to the UK as being the most appropriate forum. The fact that the bulk of sales occur in China is not relevant to the issue of what the correct licence for the portfolio should be.

Fundamental to the Defendants’ argument is that China is an alternative forum which is available to decide on issues of essentiality and infringement of non-Chinese patents and to set the terms of a global FRAND licence. If the Chinese courts do not have jurisdiction to determine essentiality and infringement of the four UK patents and to set the terms of a global FRAND licence, then no alternative appropriate forum is available, and the Defendants’ application for a stay must be rejected at the first stage of The Spiliada test. Conversant strongly disputes the contention that China is an alternative forum which is available to decide these issues.

Mr Xiaoguang Yang, a partner in the firm of Zhongzi Law Office, has given evidence on behalf of Conversant. Mr Yang has more than 30 years' experience in practising in intellectual property law in China in relation to both patent prosecution and litigation. His evidence is that there is no provision in Chinese law which would enable Chinese courts to make a FRAND ruling on a global basis. Chinese courts are required to uphold the rule of law. In China this is interpreted as meaning that the courts cannot take action unless empowered to do so by an explicit provision. As a matter of Chinese law, there is no provision enabling the Chinese courts to make a finding as to FRAND on a global basis. This is supported by the fact that no decided patent case in China indicates that the Chinese courts would consider determining a FRAND licensing rate encompassing non-Chinese patents. Further, the Chinese courts have never determined the full terms of a FRAND licence, and Mr Yang does not believe that they would do so.

He points out that Art. 24 of the 2016 Judicial Interpretation, which gives jurisdiction to the Chinese courts to determine FRAND licensing terms, is in respect of Chinese patents only. He also states that the Chinese courts would not be prepared to resolve a debate about the FRAND obligations in respect of a party subject to the ETSI IPR policy which is governed by French law. In the Chinese case of Huawei v Interdigital, despite being shown Art. 12 of the ETSI rules, and despite considering the ETSI FRAND obligation, the Guangdong High People’s Court refused to apply French law and applied Chinese national standards to the Chinese patents in issue in that case.

The Huawei Defendants rely on the evidence of Jianzhong Shen who is a partner at Allen & Overy based in Hong Kong China, who leads the firm’s intellectual property and life science practices in China. He has held this position since January 2017, having joined the firm from AstraZeneca China where he was employed as China General Counsel.

At paragraph [6] of his first statement, Mr Shen states that:

“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.”

There is no doubt that the Chinese courts can determine infringement, essentiality and validity of the Chinese patents, and can set a FRAND royalty rate for Chinese patents. Mr Shen does not say that Chinese courts will determine any of these issues in respect of non-Chinese patents.

At paragraphs [9] – [10] of his second statement Mr Shen notes the Huawei Defendants’ offer that if Conversant proceeds to China for a global FRAND determination, then the Huawei Defendants will not challenge the validity of Conversant’s non-Chinese patents in those Chinese proceedings and will agree to the Chinese court determining essentiality, infringement and the FRAND rate for Conversant’s global portfolio. On that basis, he states that:

“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.”

In summary, Mr Shen’s view is that the Chinese courts may determine issues of a global FRAND licence and infringement/essentiality of foreign patents, including the UK patents in issue if both parties agree.

The ZTE Defendants rely upon the evidence of Mu Ying. Ms. Mu has been counsel at Global Law Office in China since November 2017. Before then she was a judge in the Beijing Intellectual Property Court since 2015 and prior to that was a judge in the Intellectual Property Law Division of the Beijing First Intermediate People’s Court for six years. Ms. Mu expresses the view at paragraphs [45] – [46] that, although the Chinese courts have not previously ruled on the FRAND terms of a global licence it would be prepared to do so “at least if both parties asked it to do so”.

In my judgment, the totality of the evidence establishes that the Chinese courts do not have jurisdiction to determine essentiality or infringement of non-Chinese patents, nor do they have jurisdiction to determine FRAND rates in respect of non-Chinese patents without agreement from both parties. The furthest that the Defendants’ evidence goes is to suggest that, if Conversant were to agree to the terms of the Defendants’ offers, then the Chinese courts might or would accept jurisdiction. However, no reasons are advanced to support the conclusion that the Chinese courts would accept jurisdiction conferred by agreement to determine infringement of UK patents and to set a global FRAND rate. There was no evidence that this has ever been done before in China, and, with great respect to Mr Shen and Ms. Mu, I regard their somewhat tentative suggestions as speculative.

In any event, Conversant has made it clear that it does not accept the Defendants’ offers, for a number of reasons, which, in my judgment, are reasonable. In particular:

During his oral submissions, Mr Speck did not suggest that Conversant would not obtain justice if these cases were heard in China, other than as a result of it applying Chinese law and he repeated this submission in a case summary which I asked the parties to prepare subsequent to the hearing. I would reject any submission that Conversant would not obtain justice in China, in accordance with Chinese law. Intellectual property judges in China are making tremendous efforts in developing a system for deciding and enforcing intellectual property claims. FRAND royalty rates for Chinese patents have been lower than in other parts of the world, no doubt because China considers this to be in accordance with the current needs of its population. This is not a question of an inability to obtain justice in accordance with the laws of a different jurisdiction. However, the significantly lower royalty rates explain why Conversant will not agree to the Defendants’ “concessions”. No owner of a global portfolio would voluntarily submit to determination of a FRAND licence for the entirety of its portfolio where the rates applied would be lower than in the rest of the world.

In conclusion, in my judgment, China is not an alternative available forum in which infringement of the UK patents can be determined, nor in which the terms of a global FRAND licence can be set. However, in case I am wrong, I will consider the other arguments advanced by the parties.

In my judgment, the characterisation of these claims as foreign portfolio infringement claims, or worldwide royalty claims, is inaccurate. They are claims for infringement of four United Kingdom patents, and the English court is clearly the appropriate forum in which these cases should be tried. The Defendants are entitled to pursue their actions in respect of the Chinese patents, and the result of those Chinese proceedings will be taken into account in any global FRAND licence. As in UnwiredPlanet, the global FRAND licence sought by Conversant sets different royalty rates for different territories, and it makes no difference where the bulk of the sales occur.

The fact that these are claims for infringement of UK patents is a matter of substance, not form. Of course, the object of the proceedings is to obtain the relief sought in the claim form, in these cases either a global FRAND licence or a FRAND injunction, but this does not differentiate these proceedings from other cases before the English court; the relief sought is generally the object of the proceedings.

Birss J rejected a similar argument at [554] – [555] of UnwiredPlanet. Huawei relied on a series of arguments in support of its submission that UnwiredPlanet’s insistence on a global licence was not FRAND. Birss J said:

“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 [2011] UKSC 39, [2011] F.S.R. 41, [2012] 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 UnwiredPlanet 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, UnwiredPlanet 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.”

I agree with Birss J that there is no such thing as a portfolio right. That mischaracterises the claim, as it is not the cause of action sued upon. These claims are concerned with infringement of UK patents, and the relief that should be granted if infringement is established. If one or more of the four patents in suit is held to be valid and infringed, then the court will consider what relief should be granted. Conversant says that it is willing to grant a licence on FRAND terms and (subject to some equivocation) the Defendants say that they are willing to take a licence on FRAND terms. There is a dispute between the parties as to whether a global licence would be FRAND.

In UnwiredPlanet, Birss J held that a global licence was FRAND, on the basis of evidence as to industry practice, and comparables agreed between willing licensors and willing licensees of SEP portfolios. Whether such relief should be granted in the present case will be a matter for the FRAND trial, if liability is established. If these claims were stayed on the basis of forum non conveniens, then the consequence would be that the English court could not decide upon infringement of UK patents, and could not decide what relief it would be appropriate to grant where such patents are infringed. That, in my judgment, would not be in the interests of all the parties and the ends of justice.

I do not consider that this reasoning suffers from the “Harman fallacy”. In Harrods, Harman J framed the question to be answered simply by reference to the relief claimed. 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. In the present case, the Defendants focus solely on the relief claimed, and thereby ignore the substance of the claim for infringement of UK patents.

I have accepted Conversant’s argument that the case will continue in any event against Huawei UK and ZTE UK. The Defendants’ offers contemplate that the Chinese courts will decide on infringement of the UK patents when setting a global FRAND licence. This would mean that two courts would be deciding the question of infringement of the same UK patents. The risk of inconsistent decisions is clear and is plainly undesirable. In Iiyama (UK) Ltd and others v Samsung Electronics Co Ltd and others [2018] EWCA Civ 220 the Court of Appeal, in a combined judgment, said at [130]:

“… 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.”

The Defendants relied upon several other factors, which they submitted were objective connections with the case to China. It was contended that:

There is no dispute that, in relation to the Chinese patents, validity and infringement will be determined in China. Many of the factors relied upon by the Defendants are addressed to that proposition, which is common ground. This does not mean that China is the natural forum for a case which concerns allegations of infringement of UK patents, and for relief in terms of a global FRAND licence. In my judgment, it plainly is not the natural forum.

As to the Defendants’ suggestion that they wish to call Chinese witnesses of fact, they are entitled to do so, but there will be little scope for evidence of fact in the technical trials (where product and process descriptions will be expected) or in a FRAND hearing. As to expert evidence, the Huawei Defendants relied upon English-speaking experts in the UnwiredPlanet FRAND trial. If the Defendants wish to rely upon Chinese experts, they are entitled to do so, but it does not follow that the UK is other than the natural forum for this dispute. As to legal costs, I do not accept that the comparison relied on by the Defendants is a connecting factor to China. In any event the comparison is flawed as it assumes that this FRAND trial will require the same time and costs as the UnwiredPlanet trial. UnwiredPlanet established the relevant principles and if they are upheld on appeal then subsequent cases will be very significantly shorter. In addition, the Defendants’ alleged concerns about legal costs sit uneasily with suggestions that they wish to pursue patent by patent challenges in numerous different jurisdictions.

Conversant has satisfied me that England is clearly the natural and appropriate forum in which these claims should be tried. Therefore, I reject the Defendants’ application for a stay on grounds of forum non conveniens.

The basic rule, which applies under the CPR as it did under RSC Order 11, is that unless a foreign company is carrying on business at a place within the jurisdiction, it cannot be served with proceedings within the jurisdiction. This is a minimum requirement: Adams v Cape Industries Plc [1990] 1 Ch 433 at 524F; SSL International plc v TTK LIG Ltd and others [2012] 1 WLR 1842 at [49].

Huawei China is a Chinese company with its registered offices in Shenzhen, China. Conversant sent the claim documents by letter dated the 25 July 2017 to “[Huawei China] c/o Huawei Global Finance (UK) Ltd, 99 Bishopsgate, London EC2M 3XD FAO Adam Page”. The covering letter stated that service was being effected “on the basis that this is a place where [Huawei China] carries on activities in the United Kingdom and/or is one of [Huawei China]’s places of business in the United Kingdom.”

Huawei Global Finance UK Ltd (“HGF”) is a UK company in the Huawei group which is under common ownership with Huawei China but is not a subsidiary of Huawei China. It is not sued as a defendant and is not alleged to have any involvement in the subject matter of these proceedings. Mr Page, to whose attention the documents were directed, is Legal Counsel and Company Secretary of HGF. HGF was established to provide platform advisory services and treasury management services for the Huawei group.

The principal activities of HGF are explained by Mr Page at paragraph [8] of his first statement. As to advisory services, HGF supports and provides technical and specialist expertise into various financial, accounting, tax, treasury and compliance activities of members of the Huawei group; and as regards treasury management services, HGF operate a treasury business that executes financial trades and transactions in accordance with delegated authority and the applicable treasury management policies and procedures of members of the Huawei group.

Mr Page explains that:

On behalf of Conversant, Mr Speck criticised the evidence of Mr Page. He pointed out that at [8] of his first statement Mr Page states that HGF executes financial trades and transactions in accordance with delegated authority. But Mr Page nonetheless denies that HGF entered into contracts on behalf of Huawei China. Mr Speck submitted that if it were simply trading on its own account, HGF would not need delegated authority. Mr Page has explained that HGF does not have any delegation of authority from Huawei China to execute financial trades or transactions, but it is submitted that this is inconsistent with the wording of the financial statements, repeated by Mr Page, which refers to delegated authority.

Similarly, Mr Speck disputes Mr Page’s evidence that whilst HGF displays in its reception the name of Huawei Technologies, that refers to the business of the group rather than the company name of Huawei China. The company name of Huawei China is Huawei Technologies Co. Limited and Mr Page’s LinkedIn profile states that he is Legal Counsel and Company Secretary at Huawei Technologies.

Mr Speck also relied on the fact that some 35% of employees of HGF are in fact employees of Huawei China on secondment to HGF. HGF makes available desks at its offices in London for employees of (amongst others) Huawei China. This, he submits, is sufficient to show that Huawei China shares HGF’s offices, which have therefore become a place of business for Huawei China in the United Kingdom.

He also pointed out that HGF is, as described in its own reports and accounts, an internally financed entity. It appears to depend entirely upon income from other group companies derived from entering into and executing transactions for them. It is inferred that Huawei China must be supporting HGF.

Furthermore, HGF operates as the global finance centre for the Huawei group. There is a finance committee within Huawei China which is described in the Annual Reports of Huawei China as “the decision maker for risk management”. There is therefore a substantial overlap between the activities of HGF and those of the finance committee within Huawei China. Two members of the board of directors of HGF are also members of the board of Huawei China. They also sat upon Huawei China’s finance committee until shortly after the date of service of the proceedings on Huawei China.

Finally, Conversant submitted that HGF does not appear to have any business with third parties. It only carries out transactions with or for other Huawei group companies.

In my judgment, Mr Speck has raised legitimate questions concerning the evidence of Mr Page, which may well be relevant at trial to Conversant’s claims of common design. However, these questions do not render Mr Page’s evidence implausible in the absence of cross-examination. For the purposes of this application, I accept Mr Page’s evidence. Any other conclusion would mean that his evidence is highly misleading, which is a view that I am not prepared to reach without cross-examination.

For these reasons, I conclude that service on HGF does not constitute valid service on Huawei China.

The issues in respect of purported service on ZTE China are similar to those in relation to Huawei China. Conversant claimed that it effected service of the proceedings on ZTE China by sending them to Landmark Place, Windsor Road, High Street, Slough SL1 1LJ (“the Slough address”), which at the relevant time was ZTE UK’s registered office. Conversant submitted that the Slough address is a place at which ZTE China does business or carries on activities.

Conversant’s case is based on the evidence of Mr Moss that numerous ZTE employees state on their LinkedIn profiles that they work for ZTE China and that they work in the UK. This must be a reference to the address of ZTE UK. Where the address of the local subsidiary within the relevant jurisdiction is the place of employment of numerous employees of the parent company, who may be assumed to be carrying out the business of the parent company at that address, it was submitted that this is direct evidence of the parent company carrying on business at the subsidiary’s business address, as if the subsidiary were entering into contracts on behalf the parent.

Ms Xu, an account manager at ZTE UK, has served evidence in answer to Mr Moss’s statement. In general terms, she denies that the relevant employees are based in the UK, or states that they are employed by ZTE UK. She also states that some of the LinkedIn profiles contain mistakes.

Conversant also relied upon ZTE UK’s accounts, which show that it is not a self-supporting company, that its liabilities exceeded its assets, and that it is dependent upon continuing financial support from ZTE China to remain in operation. It was submitted that ZTE China is providing ZTE UK with substantial injections of cash to keep it afloat and thereby shouldering a proportion of all of ZTE UK’s costs, including its accommodation and staff costs.

Ms Xu accepts that ZTE China offers some financial support to ZTE UK through intragroup loans and guarantees, as is common between parent and subsidiaries. However, her evidence is that ZTE China does not directly fund any premises of ZTE UK and does not require ZTE UK to spend loan money in any way. Furthermore, intragroup loans from ZTE China carry interest and in that respect are similar to any commercial loan that ZTE UK might obtain from a bank or other lender. Guarantees are provided because they are a standard arrangement between parent and subsidiaries and because ZTE China does not have a bank account in the UK.

Ms Xu, and Ms Wang, who is Senior IP Counsel at ZTE China, give evidence that ZTE China does not control the activities of ZTE UK. Miss Wang also confirms that ZTE UK does not act as an agent of ZTE China. ZTE UK carries out a business as principal on its own account in selling ZTE mobile devices in the UK.

This evidence was criticised by Mr Speck, who pointed out that ZTE China is repeatedly described as being the ultimate controlling party of ZTE UK in ZTE UK's accounts. Furthermore, the statement in ZTE China’s regulatory announcement described ZTE UK as facilitating ZTE China’s overseas development.

In my judgment, Mr Speck has raised legitimate questions concerning the evidence of Ms Xu and Ms Wang which may be relevant at trial in respect of Conversant’s claims of common design. However, they are not such as to render their evidence implausible, in the absence of cross-examination. Any other view would mean that their evidence is highly misleading, which is a conclusion that I am not prepared to reach without cross-examination.

For these reasons, I conclude that service on ZTE UK does not constitute valid service on ZTE China.

Conversant contended that the claims fell within five of the Gateways in 6B PD 3.1. It is only necessary for me to refer to two of these Gateways, which are sufficient to decide this issue.

6B PD 3.1(2) provides that:

“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. ”

In an unreserved judgment given during the hearing of these applications ([2018] EWHC 482 (Pat)) I granted permission to Conversant to amend its pleadings (“the Amendment judgment”). I held that there was at least an arguable case for a FRAND injunction against Huawei China and ZTE China. I did so without prejudice to the Defendants’ jurisdiction challenges. The Defendants accept that if that judgment is correct, then the claim for an injunction will fall within 6B PD 3.1(2) with the result that the other claims would accordingly fall within 6B PD 3.1(4)(a) as being closely related thereto.

However, the Defendants contend that the court was wrong to hold that there was an arguable case for an injunction and should hold on the jurisdictional challenges that there is no such arguable case. It is said that the basis for the court’s decision was that the Defendants are not willing to submit to the English court’s determination of whether or what licence terms are FRAND. That is said to be inconsistent with the Defendants’ challenge to the English jurisdiction and wrongly to presume that England is the natural forum for FRAND determination to which a willing licensee should submit. The Defendants contend that they are willing to submit to judicial determination of FRAND as is clear from the Chinese proceedings that they have brought, and their offers that they will agree to a global FRAND determination, provided that this takes place in China. It is submitted that the Defendants are willing licensees who are merely disputing the proper forum.

I will not repeat the basis for FRAND injunctions, which I have set out in the Amendment judgment. I have carefully considered the Defendants’ arguments but I do not accept them. It is necessary to take account of all relevant facts, which are as follows:

First, Mr Moss has given evidence that Conversant has been in lengthy discussions with Huawei China and ZTE China in respect of their groups’ unlicensed global activities which are said to implement the inventions claimed in the handset SEPs in the Conversant portfolio. These discussions have continued over several years, but Conversant are of the view that no meaningful progress has been made. During this period, it was not suggested that any licence fees have actually been paid by the Huawei Defendants or the ZTE Defendants to Conversant.

Secondly, the position of the Huawei Defendants, as explained in the first Statement of Ms Dagg at [32] – [33] is that “Huawei does not agree that a global portfolio licence is necessary in this case.”; and that “Huawei intends to challenge the validity, essentiality and infringement of the Chinese patents in particular and of the other Asian Pacific and other European patents as well, and also of the UK patents”. The ZTE Defendants have been less overt about their position in evidence; see Wang (2) at [35] - [43].

Thirdly, and significantly, despite repeated requests in correspondence the Huawei and ZTE Defendants have not confirmed the following: (a) that they are willing to take a licence on FRAND terms determined by the English court; (b) that in so far as there is any dispute as to whether a licence structure or other terms are FRAND, it is not for the Defendants to reserve to themselves the right to resolve that dispute; (c) that their willingness to take a licence on FRAND terms is unconditional, both as to the circumstances in which and timing at which they will enter into a licence.

Fourthly, I have considered the “concession statements” served by the Defendants shortly before the hearing. I do not regard them as concessions, for the reasons set out above. They suggest that the Defendants will only accept a global FRAND determination if it takes place in China, subject to a number of conditions to which Conversant would be required to agree.

Of course, there will be another side to this story. The Defendants contend that they have not been made a FRAND offer by Conversant, and that they have entered into negotiations in good faith. This cannot be determined on a summary application, and on the available evidence I have reached the conclusion that Conversant has a good arguable case for a FRAND injunction. In the circumstances, I conclude that the claims for injunctive relief fall within 6B PD 3.1(2), with the result that the other claims fall within 6B PD 3.1(4)(a) as being closely related thereto.

6B PD 3.1(11) provides that:

“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.”

The four patents sued upon in these proceedings, as EP patents designating the UK, constitute property within the UK within the meaning of Gateway 11, since they are UK intellectual property. I do not accept the Defendants’ argument that the claims do not relate principally to the UK patents, but rather to foreign patents. It does not matter whether the property is tangible or intangible: see In re Banco Nacional de Cuba [2001] 1 WLR 2039 where it was held that shares in a UK company were property in the UK for the purposes of this Gateway. As to interpretation of Gateway 11 the court stated at [33] that:

“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”.

I conclude that the subject matter of the claims relates wholly or principally to property within the jurisdiction and that the requirements of Gateway 11 are satisfied.

The Defendants submit that there is no serious issue to be tried, and permission to serve out should be refused for that reason. This argument was advanced by Mr Layton, who submitted that infringement could not be inferred from the fact that the patents had been declared essential, as such declarations meant no more than that patents might be standards essential, and over-declarations were common.

However, Mr Moss explains at [22] – [27] of his second statement that the claims of infringement are not only based upon the fact that each patent relied on has been declared essential, and that each of the alleged infringements are said by their manufacturers to operate in accordance with the relevant standards. In addition, prior to commencing this litigation, Conversant, with the assistance of its solicitors, reviewed Conversant's portfolio of patents to re-assess the essentiality of its patents for the purposes of determining the FRAND rate in accordance with the methodology set out in UnwiredPlanet. Each of the patents relied on in the UK litigation, in addition to being declared essential, was also confirmed to be essential in that analysis.

Furthermore, after the start of these proceedings, Conversant has joined a licensing scheme in relation to the LTE (4G) standard. Conversant submitted details regarding 10 of its patents for independent review as to their essentiality to the LTE standard, including families relating to three of the four patents sued on in these proceedings. That review found that all 10 patents submitted were essential to the LTE standard.

Mr Moss also sets out detailed evidence to support acts of direct infringement and joint tortfeasance by the Chinese defendants.

In my judgment, there is clearly a serious question to be tried and I reject the Defendants’ arguments to the contrary.

I shall grant Conversant permission to serve out on Huawei China and ZTE China, and I understand that a mechanism for substituted service has been agreed.

I conclude that: