Tesla appeal dismissed in ‘5G vehicles’ patent pool case

In a split majority decision, the Court dismissed an appeal by Tesla over claims it sought to raise against InterDigital, the owner of SEPs, and Avanci, a platform provider that facilitates access to SEPs – including those owned by InterDigital.

SEPs are patents that protect technology believed to be essential to implementing a technical standard – in other words, a standard compliant device cannot be operated without necessarily using the patented invention.

Standards are developed by businesses working together under the umbrella of standard-setting organisations (SSOs), such as the European Telecommunications Standards Institute (ETSI), which oversees the development of communications standards vital to many businesses. SSOs like ETSI require SEP rights holders to make SEPs available for others to use by way of a licence on FRAND terms. Disputes on what are FRAND terms often arise in the context of SEP licensing negotiations and litigation can follow if the parties are unable to agree.

In this case, Tesla is seeking to implement almost 12,000 SEPs that Avanci makes available to be able to launch 5G-enabled vehicles in the UK market. There are multiple different owners of the patents in Avanci’s pool, including InterDigital’s. Avanci has offered to licence the entire pool to Tesla at a flat rate of $32 per vehicle, but Tesla believes the rate is too expensive and does not constitute FRAND.

Tesla raised patent and licensing claims against InterDigital and Avanci respectively before the High Court and asked it to declare a global FRAND rate for licensing all of not just InterDigital’s SEPs but all of the patents in Avanci’s pool. In support of its case for declaratory relief, it argued that it would be impractical for it to have to enter into bilateral negotiations with each of the owners of the pool of SEPs Avanci facilitated access to.

However, Tesla’s case was rejected at pre-trial stage by the High Court. Among other things, the High Court considered that Tesla had failed to show that the courts of England and Wales, rather than the courts in the US state of Delaware, where Avanci is based and where InterDigital has its principal place of business, would be the right forum to hear its licensing claims.

Tesla challenged various aspects of the High Court’s judgment before the Court of Appeal, which ruled two-to-one against allowing the implementer’s appeal. Lord Justice Phillips and Lady Justice Whipple robustly disagreed with Lord Justice Arnold, who gave the leading judgment.

The fundamental point on which Lord Justice Phillips and Lady Justice Whipple were agreed was that they considered that Tesla did not have an actionable claim against Avanci in relation to the licensing declarations it sought against Avanci. They disagreed with Lord Justice Arnold, who had considered that Tesla did have a potential contractual claim against Avanci on the basis of the terms of ETSI’s policy on FRAND licensing. On this point, Lord Justice Phillip said that what the SEP members of Avanci’s platform “have not agreed to do, on any sensible interpretation of the contractual arrangements with ETSI, is to license their SEPs on a collective basis with other SEP owners, whether on ‘FRAND terms’ or on any terms”.

In essence, the two Justices consider that Tesla can choose between taking advantage of the Avanci platform to access and license all the pool of SEPs they need at a rate Avanci chooses or enter into negotiations with each of the SEP holders individually, with those SEP holders being obliged, under the terms of ETSI’s policy, to license on FRAND terms.

“The decision confirms the current position under English law that there is no free-standing right to a FRAND determination,” said patent law expert Mark Marfé of Pinsent Masons. “Had that door been opened, it would have had a significant impact for both SEP holders and implementors.”

“This decision also confirms the judicial practice in both the UK and other courts, including Germany and the UPC, to look at the commercial reality of FRAND/SEP negotiations, including the patent pool’s actual contractual framework,” he said.

“Had the decision gone in the implementer’s favour, it would have likely led to many SEP holders to consider whether the patent pool model gave them sufficient control over their own licensing programs and if the model remains viable,” Marfé said.

“Fewer licensors participating in patent pools then makes it harder for smaller implementers to readily obtain licences to SEPs, which would have a disproportionate impact on those implementers who are typically less unfamiliar with FRAND licensing requirements,” he added, highlighting that both the UK government and Intellectual Property Office have highlighted the need for SMEs to have a better understanding of the FRAND licensing regime in comments made before the launch last year of the new SEP Resources Hub.

However, Marfé said it is possible Tesla will appeal.

“Given that this is, as Lord Justice Arnold described, a ‘rapidly developing field of law’, it would not be surprising if Tesla sought permission to appeal to the UK Supreme Court,” he said.