Saved by the FRAND trial date, Birss J refuses Conversant’s Huawei/ZTE third party licence disclosure application

Three parties, three approaches to calculating FRAND.  Conversant (who bought this patent portfolio from Nokia) says that the Court should follow the calculations in Unwired Planet and scale accordingly.  Huawei says to use a comparable licence approach – using a 2017 licence between it and Nokia.  ZTE says to use a “top down” approach and also take into account the rates arrived at in disputes in other jurisdictions (e.g., Judge Selena in TCL v Ericsson).

Last summer, Huawei amended its pleading to argue that Conversant was barred from using the Unwired Planet judgment following the rule in Hollington v Hewthorn [1943] 1 KB 587.  This states that unless relating to issue estoppel, decisions of tribunals and inquiries are not admissible in other civil proceedings.  ZTE contend that their reliance on other judgments did not breach this rule because they are not using a judgment as proof of its contents, but as a factor that any negotiating party would take into account during licence negotiations.  

That same summer, Conversant applied for disclosure of ZTE ‘s and Huawei’s 2G, 3G and 4G licences entered into with third parties.  The judge – His Honour Judge Hacon sitting in the Patents Court – refused the application.  He considered that Birss J’s judgment in Unwired Planet was that third party licences were of no help in that case and that it was not proportionate given the work and costs required to deal with those licences.  The third party licences applied for were considered to be of “no help” because they were not licences from Conversant (the current patent owner) or Nokia (the previous patent owner). 

The Application

In this application, Conversant again sought disclosure of third party licences in substantially the same form (the earlier application was a bit wider, but Birss J said that didn’t amount to much).  Huawei and ZTE opposed the application primarily on the basis that HHJ Hacon had already refused the disclosure following the application of CPR 3, rule 3.1(7) (power to vary or revoke an order) and Tibbles v SIG Plc [2012] 1 WLR 2591 (there needs to be a material change of circumstances before an order can be varied).

However, this case is part of the ever popular Disclosure Pilot Scheme under PD 51U.  Thus, the application is governed by paragraph 18.  Paragraphs 18.1 and 18.2 provide that a Court may, at any stage, make an order that varies an order of Extended Disclosure as long as the applicant proves that it is (i) necessary for the just disposal of the case and (ii) reasonable and proportionate (in light of the overriding objective, nature complexity of the proceedings, probative value of the documents, cost efficiency etc).  Ms Joanna Smith QC sitting as a Deputy Judge of the High Court was faced with a similar argument as Huawei’s and ZTE’s in Vannin Capital PCC v RBOS Shareholders Action Group Limited [2019] EWHC 1617 (Ch).  In that case she held that CPR Rule 3.1(7) and Tibbles did not trump Paragraph 18; Paragraph 18 explicitly contemplates that orders will be varied.  Birss J agreed.

Therefore, Birss J had to ask whether the variation of the original order, now, was (i) necessary for the judge disposal of the proceedings and (ii) reasonable and proportionate.   Still, he explained, the fact that essentially the same order had been sought and refused, is a relevant factor that the Court will take into account when considering whether the order sought now is reasonable and proportionate.

Conversant argued that circumstances had materially changed, namely Huawei had amended its case to rely on Hollington v Hewthorn (see above) and on the 2017 Huawei-Nokia licence.  Conversant’s valuation expert provided evidence that it would be difficult to unpack this licence and to work out how comparable that licence really is.  Thus, if Huawei succeeded on Hollington v Hewthorn (meaning that Conversant could not rely on Unwired Planet as a means of FRAND calculation), but then Conversant demonstrated that the 2017 Huawei-Nokia licence was not comparable, there would be very little evidence left in the case to assess the relevant FRAND royalty rate.  In argument, Conversant’s fall-back proposal was that 3 or 4 licences could be disclosed by Huawei and nothing from ZTE (since their approach was based on “top down” not “bottom up”).

The Decision

Birss J was not convinced.  Given that trial is at the end of April, the judge held it was not reasonable and proportionate to order even the fall-back as it “would still add significant extra evidence“.  At paragraph 21, the judge noted that:

“The fundamental thing is that it would put the parties to a great deal of difficulty. There would be confidentiality issues to deal with, although I think those would be overcome in the time. However the critical problem would be that in order for both sides to prepare fairly with at least six further licences is just something which cannot be done between now and holding on to the trial date on 27th April. Holding on to the trial date is something which I intend to do my utmost to achieve.” (emphasis added)

Notably the judge did not comment on the first prong of the test – whether the disclosure was necessary to justly dispose of the case.  He did however indicate that the refusal of the application was a timing issue.  At paragraphs 22 and 23 he said this:

“It is not for me on this application to say that the decision HHJ Hacon made was wrong. That would be a matter for an appeal. I do not propose to analyse that decision in the context in which it was made. What I will say however, is that based on the evidence and submissions before me now – which are not the same as they were before the judge –and particularly having regard to the scenario Conversant rely on, had I been dealing with this in July 2019 I might well have made a different order. I seriously doubt an order for sixteen licences would ever be proportionate but a much lower number might have been.

Faced with the situation as it is put before me now, if it had been possible to make an order of the kind sought without massively disrupting the timetable (which I am quite satisfied it would not be) then I can only say that I might well have made a different order and ordered some measure of disclosure of third party licences.” (emphasis added)

The judge concluded with rejecting Huawei and ZTE’s argument that third party licences between defendants/group companies and third parties ought never be disclosed and/or may never have any probative value. The evidence is secondary to licences of the portfolio in issue or the larger portfolio, he said, but it doesn’t mean that they may not be relevant. It depends on the pleaded case, the nature of the evidence available to the court and the usual principles of disclosure.  He also gave a warning that one cannot extrapolate the evidence and use of evidence in Unwired Planet to be a one-size-fits-all approach – the facts and parties in Unwired Planet and this case are different (see [23]).

So with that – the FRAND trial continues on to ruin everyone’s Easter, unless the Supreme Court intervenes first…