Philips v ASUS: waiving rights to a FRAND licence does not necessarily avoid a five-week trial to determine FRAND terms

Introduction

Philips, ASUS and HTC have been engaged in a long run of litigation concerning the validity and infringement of Philip’s standard essential patent (SEP) portfolio. Certain SEPs have been found to be valid and infringed, and the FRAND trial (to determine FRAND licence terms for Philips’ SEP portfolio), listed for five weeks, has been scheduled for early next year. ASUS has a small market in the UK for products that required a licence and has taken the view that it will not develop this market. ASUS is therefore prepared to submit to an injunction in the UK in respect of those of its products that have been found to infringe Philips’ patents.

ASUS’ willingness to submit to an injunction and withdraw from the UK market must, at least in part, be motivated by the fact that, as the law currently stands, in order for the infringing products to remain on the UK market, ASUS would need to enter into a global licence of Philips’ portfolio on terms settled by the UK Court. ASUS has instead opted to withdraw from the market, and attempted to withdraw from the FRAND trial as a result. However, submitting to the injunction still leaves open the question of damages for past infringement.

In an interim hearing between Philips and ASUS heard on 17 January 2020, ASUS contended that given it is not seeking a FRAND licence, its participation in the FRAND trial was unnecessary, and would waste time and costs for all the parties, as well as the Court itself.

This Judgment concerns the outcome of ASUS’ application, and addresses how compensatory damages are assessed for the infringement of UK patents forming part of a global SEP portfolio.

Submissions

ASUS admitted that Philips was entitled to injunctive relief and offered to pay damages for past infringement at a FRAND rate of $0.75 per infringing device. Philips however argued that this was not sufficient and the amount of damages owed was a matter to be decided at the FRAND trial. Philips raised two objections to ASUS’ offer:

1. a “fundamental” point concerning the volume of sales which needed to be taken into account; and
2. a “traditional” point that the royalty per device was too low.

Philips’ position was that it is entitled to payment of those royalties that would have been payable had ASUS done what it should have done to legitimise its infringing sales. Namely, ASUS should have acquired a licence to render its infringing acts lawful, and the only licence available to ASUS would have been a worldwide FRAND licence. On this basis, the royalties attracted by all devices licensed under the counterfactual FRAND licence amounted to recoverable damages irrespective of whether the devices were infringing. Alongside this, Philips deleted its pleaded averment that a royalty rate of $0.75 (what ASUS offered) per device was FRAND, and instead suggested the starting royalty should be that payable by those who are non-compliant under a worldwide licence ($1 per unit).

Decision

The key issue is the extent to which Court-determined FRAND terms can be “read across” into the assessment of compensatory damages for past infringements, which are calculated by reference to a counterfactual licence.

Mr Justice Marcus Smith differentiated between a “Declared Licence” (i.e. the forward looking Court determined FRAND licence), and a “Counterfactual Licence” used to calculate damages for past infringements of which “the Implementer simply pays damages calculated by reference to the licence it should have entered into in order to render its past unlawful infringements lawful.” He commented that the compensatory principle is intended to place the patentee in the position it would have been in but for the infringement, and the question is one of “proper compensation”. Mr Justice Smith expressed a preliminary view (in the absence of evidence) that ASUS’ measure of damages appeared too low, and Philips’ appeared too high. He also commented that any measure of damages that automatically drags in past sales of other jurisdictions runs a risk of usurping the jurisdiction of other courts.

Mr Justice Smith held that the extent to which a Declared Licence is considered in the assessment of damages, was a question of fact, and in this case, to be determined at the FRAND trial.

Co-Authored by Shayna-Radhika Patel.