Panasonic Holdings Corporation v Xiaomi Technology UK Ltd & Ors

Factual and Procedural Background

This appeal concerns orders by Judge Leech dismissing an application by the Defendants ("Company A") for a declaration that a willing licensor in the position of the Claimant ("Company B") would enter into an interim licence of a portfolio of standard-essential patents ("SEPs") declared essential to certain telecommunications standards pending a final determination of fair, reasonable, and non-discriminatory ("FRAND") terms by the Patents Court. The application was dismissed on 5 July 2024. Permission to appeal was granted and expedited due to urgency.

The underlying dispute involves infringement claims and licensing negotiations between Company B and Company A relating to SEPs essential to 3G and 4G standards. Company A has expanded its market presence globally, including significant sales in the UK, but the parties have been unable to agree on licence terms over several years.

Company B commenced proceedings in England seeking declarations of patent essentiality and infringement, and that its licence terms are FRAND or that court-determined terms are FRAND, along with an injunction against Company A if it refuses to take a licence. Both parties gave enforceable undertakings to enter into a licence on terms determined by the Patents Court. The parties agreed to proceed directly to a FRAND trial without technical trials, scheduled for late 2024.

In parallel, Company B has pursued multiple infringement actions in German and Unified Patent Court ("UPC") jurisdictions, with Company A responding with invalidity claims before the Federal Patent Court. These proceedings involve substantial time and expense. Company A contends that pursuing these foreign actions is inconsistent with the parties’ undertakings and the certainty of a global FRAND licence to be determined by the English Patents Court.

Both parties submitted expert evidence on French and German law relevant to the contractual and competition law obligations arising from the ETSI IPR Policy governing SEPs and FRAND terms. The judge considered the contractual context, procedural history, and commercial background in detail before dismissing Company A’s application.

Legal Issues Presented

1. Whether Company B’s performance of its FRAND commitment in good faith requires it to enter into an interim licence on appropriate terms pending the final FRAND determination;
2. Whether the terms proposed by Company A for an interim licence are appropriate, or whether Company B’s Non-Enforcement Proposal suffices to discharge its FRAND commitment;
3. Whether declaratory relief sought by Company A would serve a legitimate useful purpose.

Arguments of the Parties

Company A's Arguments

• Company B’s pursuit of foreign infringement proceedings, despite undertakings to enter into a global FRAND licence, breaches its obligation of good faith under the ETSI IPR Policy.
• Company B should agree to an interim licence on terms proposed by Company A, including payment of royalties at a rate Company A contends is FRAND, with interest, pending final determination.
• Declaratory relief would serve a useful purpose by compelling Company B to comply with its good faith obligations and prevent oppressive litigation tactics.
• Refusing declaratory relief on grounds of comity is inappropriate, as the English court should protect the contractual rights of the parties and avoid unnecessary parallel litigation.

Company B's Arguments

• Company B is entitled to enforce its SEPs in any competent jurisdiction until Company A actually takes a licence; undertakings to enter into a licence on FRAND terms do not impose an obligation to grant an interim licence.
• The ETSI IPR Policy contemplates negotiation and court determination as a last resort; Company B’s pursuit of foreign proceedings is legitimate and not in breach of good faith.
• Company B’s revised Non-Enforcement Proposal, requiring Company A to pay a lump sum for the full licence term upfront with adjustments later, is sufficient to discharge any obligation.
• Declaratory relief sought by Company A would be an impermissible advisory opinion and an exercise in jurisdictional imperialism, interfering with foreign courts’ jurisdiction.
• Anti-suit injunctions are the appropriate remedy if Company A’s foreign proceedings are vexatious or oppressive, but no such application was made.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed analysis of the contractual framework under the ETSI IPR Policy, the nature of SEPs and FRAND obligations, and the procedural context of the ongoing litigation. It reaffirmed that the ETSI IPR Policy creates a contractual undertaking by SEP holders to grant licences on FRAND terms, enforceable by implementers, and that this undertaking is subject to good faith performance.

The court recognised the dual risks of "hold up" by SEP holders and "hold out" by implementers, noting that the legal regime and dispute resolution mechanisms are designed to prevent both. It emphasised that SEPs differ from ordinary patents because implementers have a right to a licence from the first day of use, and injunctions serve primarily to enforce this entitlement rather than to exclude implementers outright.

Company A’s pursuit of foreign injunction proceedings was found to be inconsistent with its good faith obligations under clause 6.1 of the ETSI IPR Policy and the parties’ reciprocal undertakings to the English court. The court considered that Company A’s conduct aimed to coerce Company B into accepting supra-FRAND terms by leveraging exclusionary relief abroad, despite the certainty of a global FRAND licence to be determined in England.

The judge’s original refusal of declaratory relief was based on a finding that the declarations would serve no useful purpose and would amount to jurisdictional imperialism, as well as respect for comity towards foreign courts. On appeal, the court disagreed with these conclusions, finding that declaratory relief would serve a useful purpose by compelling Company A to reconsider its conduct and promoting resolution of the dispute, thereby reducing burdensome foreign litigation.

The court also analysed the terms on which a willing licensor in Company A’s position would grant an interim licence, concluding that such terms would be a modification of Company B’s proposal: a licence period from 2011 until the final licence takes effect, with royalties calculated as a midpoint between the parties’ proposals, subject to adjustment after the FRAND trial.

While one appellate judge dissented, viewing the declaration as premature and potentially improper, the majority found the relief appropriate and that the court’s power to grant such declarations should be exercised to uphold contractual good faith and prevent abusive litigation tactics.

Holding and Implications

The court’s final decision is to ALLOW THE APPEAL and grant the declarations sought by Company A, subject to modification of the interim licence terms as described.

The holding establishes that a SEP holder bound by undertakings to grant a global FRAND licence and engaged in parallel foreign proceedings aimed at coercing supra-FRAND terms may be found in breach of good faith obligations. The court may grant declaratory relief to regulate interim licensing arrangements pending final determination.

This decision directly affects the parties by requiring Company B to enter into an interim licence on specified terms and curtailing Company A’s ability to pursue foreign injunctions inconsistent with its undertakings. The judgment does not create a broad new precedent on interim FRAND licences beyond the facts but clarifies the court’s jurisdiction and approach in managing SEP disputes involving parallel proceedings and good faith obligations under the ETSI IPR Policy.