The Court of Appeal in London has overturned a High Court ruling that Chinese company Xiaomi was not entitled to an interim licence to use standard essential patents (SEPs) owned by Panasonic, pending final determination of a global fair, reasonable and non-discriminatory (FRAND) licence.

A judgment handed down by Lord Justice Richard Arnold on 3 October, which Xiaomi‘s adviser Kirkland hailed as “groundbreaking”, said that granting an interim licence sought by Xiaomi “would serve a useful purpose” in forcing Panasonic to reconsider its position.

Arnold also concluded, with Lord Justice Moylan agreeing, that a willing licensor in the position of Panasonic would enter into an interim licence with Xiaomi.  

Describing Panasonic’s conduct as “indefensible”, the Court of Appeal judgment found that Panasonic was not complying with the standard-setting organisation ETSI’s obligation to negotiate a licence with Xiaomi “in good faith, and thereby avoid hold-up, but aiming to coerce Xiaomi into accepting terms more favourable to Panasonic” than the English Patents Court would determine to be FRAND.

It is the first time that the courts of England and Wales have been asked to decide whether to make such a decision. It is essentially forcing Panasonic to offer an interim licence and thus protecting Xiaomi from the threat of an injunction as it awaits the FRAND trial. The court order on the house-keeping hasn’t been received yet but it is likely to set a date for Panasonic to make that offer.

Arnold said the period of the interim licence should be from 2011 until the licence determined by the Patents Court assuming the latter date will be 31 December 2024 (at the end of the FRAND trial). Secondly, the sum payable by way of royalty should be midway between the sum offered by Xiaomi for that period and the proportion of the sum demanded by Panasonic on 13 September that is referrable, on a pro rata basis, to the period of the interim licence.

Xiaomi and Panasonic have been unable to agree terms that are FRAND for licensing Panasonic’s portfolio of 3G and 4G patents. Proceedings began in the UK courts in July 2023, with Panasonic seeking a declaration of infringement and an injunction.

There are also parallel SEP infringement proceedings at the Unified Patent Court (UPC) and German regional courts in Munich and Mannheim.

The latest judgment has condemned Panasonic’s approach in invoking the exclusionary power of injunctions in other jurisdictions (namely, in Germany and the UPC). It noted that Panasonic wishes to use the exclusionary power of injunctions granted by the foreign courts to force Xiaomi to pay more than the English courts would order.

The appeals court pointed out that Xiaomi had offered to take an interim licence with the payment of royalties to Panasonic pending the determination of the Patents Court. It continued that: "Any rational SEP holder in the position of Panasonic would want to be paid sooner rather than later.” It concluded: "Panasonic’s reluctance is only explicable on the basis that it is seeking to compel Xiaomi to accept terms more favourable to Panasonic than the Patents Court would order.”

Lord Justice Arnold (with Lord Justice Moylan agreeing) ruled that Panasonic was in breach of its obligation of good faith under clause 6.1 of the ETSI IPR Policy by pursuing claims for injunctions in foreign courts despite having invoked the jurisdiction of the English courts to determine FRAND terms for a global licence and despite both parties having undertaken to enter into a licence on the terms determined by the Patents Court to be FRAND.

They also said that the declarations for an interim licence should not be refused on the grounds of comity.

However, Lord Justice Phillips, although agreeing that Panasonic’s conduct was “indefensible”, did not believe Panasonic was obliged to enter an interim licence on terms which have not been determined on the evidence to be FRAND.

Xiaomi was represented by a Kirkland & Ellis team led by London-based partners Nicola Dagg, Jin Ooi and Steve Baldwin and associate Andrew Marks.

Kirkland called the decision “groundbreaking”, noting that the court has “condemned Panasonic’s conduct as being inconsistent with its obligations under the ETSI rules and its undertakings to the English Court to enter into the global FRAND licence terms to be determined by the English Court”.

The FRAND trial is expected to begin on 31 October and will be heard by Lord Justice Meade. 

8 New Square’s Daniel Alexander KC and Monckton Chambers’ Ligia Osepciu were instructed by Kirkland & Ellis for Xiaomi.

Blackstone Chambers’ Andrew Scott KC and 8 New Square’s Isabel Jamal were instructed by Bristows for Panasonic.