IN THE HIGH COURT OF JUSTICE HC12 D 03895 & HC12 B 04711

CHANCERY DIVISION

PATENTS COURT

BETWEEN

VRINGO INFRASTRUCTURE, INC.
(a company incorporated under the laws of the state of Delaware)
Claimant
- and -

(1) ZTE (UK) Limited
First Defendant
(2) ZTE Corporation
(a company incorporated under the laws of the People’s Republic of China)
Proposed Second Defendant

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CLAIMANT’S SKELETON ARGUMENT
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1. This is the skeleton argument of the Claimant, Vringo Infrastructure, Inc. (‘Vringo’),
for the CMC in these patent actions.

Overview

2. The patents in suit relate to mobile telecommunications and have been declared as
“essential” to various standards. Inevitably, this means that the issue of fair,
reasonable and non-discriminatory (‘FRAND’) licensing of Vringo’s patents is in issue
in these proceedings.

3. The key issue for this CMC is whether there ought to be a trial of a preliminary issue
to determine the FRAND issues. Vringo submits that there should for the following
five key reasons:

(a) The Court has the jurisdiction to decide the issues.

(b) Judicial efficiency. Determining the FRAND issues would be the most
efficient way of resolving the dispute between the parties.

(c) Costs. It would also be the most cost effective way of resolving the dispute.

(d) ZTE is taking the position in US proceedings that resolving the FRAND issues
relating to InterDigital’s US patent portfolio and expediting that in advance of

1
any determination of infringement or validity would be the most efficient way
of resolving that dispute.

(e) To do so is in the public interest. The issue of FRAND licensing arises is
every telecoms action relating to standards essential patents. It is in the
public interest for the Court to lay down the applicable principles.

Background

The parties

4. Vringo is the owner of a global portfolio of over 500 patents that relate to
telecommunications infrastructure, internet search and mobile telecommunication.
Although its portfolio consists of some patents that were developed internally, the
majority were purchased from Nokia in August 2012. A substantial proportion of the
patents in its portfolio are “Standards Essential Patents” (‘SEPs’), that is patents that
are infringed by complying with the various mobile telephone standards1 set by
standards setting organisations (‘SSOs’), such as ETSI. The background to
standards setting in the telecommunications field and the development of the
relevant standards is summarised in the witness statement of Mr Stasik (C1/5) at
paras 7 to 14.

5. At the last count Vringo had some 138 individual granted SEPs in various
jurisdictions and a further 248 applications which may mature into granted SEPs.
Included within these are the patents in the 31 patent families Vringo acquired from
Nokia which Nokia had declared to ETSI and other SSOs2. Along with those
declarations, Nokia gave an undertaking to license its SEPs on FRAND terms3.
Vringo, as successor in title to Nokia, will honour that undertaking.

6. The Defendants are part of the Chinese ZTE group of companies. The First
Defendant is the UK operating subsidiary of the ZTE group. The proposed Second
Defendant is the Chinese parent company of the group. The ZTE group
manufactures and sells telecommunications equipment and in particular network
infrastructure equipment and handsets4.

7. ZTE has been in the business of manufacturing and selling telecommunications
equipment since 2003. However, it has never taken a licence under Vringo’s SEPs,

1
to the GSM, UMTS and LTE standards
2
Laakkonen para 22 (C1/4)
3
ETSI’s IPR Policy and the requirement for ETSI members to make declarations to ETSI in respect of patents
which may be or may become essential to a given standard is summarised in Stasik (C1/5), paragraphs 7 to 17.
4
Laakkonen paras 27-29 (C1/4)
2
either from Nokia or subsequently from Vringo. Further, Vringo has offered to license
its portfolio to ZTE on FRAND terms5. It did this first in September 20126 and more
recently on 28 March 2013 in the context of these proceedings7. To date ZTE Corp
has not taken any active steps to negotiate a licence. In correspondence it has
stated that it “is interested in seeking to agree with Vringo a licence under Vringo’s
SEPs on FRAND terms” (C2/1 p 22). However, the most that is said in evidence for
ZTE Corp given by its solicitor Mr. Burdon (C1/7) is that it may wish to settle this
dispute by way of a global licence after all pending litigation has concluded (which is
likely to be many years away).

The actions in the UK and elsewhere

8. The two actions in this jurisdiction commenced as standard patent infringement
actions, albeit ones where Vringo was relying on the various ETSI standards and
ZTE’s declaration that its products comply with those standards as a part of its
infringement case. In order to prevent the costs of enforcement becoming excessive,
Vringo has not sought to bring proceedings on each and every UK patent in its
portfolio but rather has selected an illustrative 6 patents8.

9. Further, it has also not initiated proceedings in every jurisdiction in which it holds
patents. At present there are the following actions on foot between the parties:

(a) There is an infringement action in Germany (Mannheim) brought against ZTE
Corp and ZTE Deutschland GmbH relating to the German equivalents of two
of the patents which are in issue in the UK.

(b) There are infringement proceedings in France between Vringo and ZTE Corp
and ZTE France SASU relating to the French designations of two of the
patents which are in issue in the UK.

(c) ZTE Deutschland GmbH has brought nullity proceedings against Vringo in
Germany against the two patents asserted against it in Mannheim.

(d) ZTE Corp has started Chinese revocation proceedings in relation to the
Chinese equivalents of several of the patents in issue in the UK proceedings.

10. As such there is already very substantial amounts of litigation on foot between the
parties around the globe. However, unless the parties are able to agree terms of a

5
Laakkonen para 7 (C1/4)
6
Laakkonen para 7 (C1/4) and C2/1 p1
7
C2/1 p16
8
Laakkonen para 9 (C1/4)
3
licence to Vringo’s portfolio, this is potentially just the start of the worldwide litigation
between the parties. The next likely territory for an infringement action is Australia
where proceedings are imminent, a letter before action having been issued by Vringo
and no satisfactory response being received from ZTE (C4/2).

11. With regard to this last point, it is not Vringo’s objective to remove ZTE’s products
from the market. Rather, its preferred resolution is for ZTE to take a FRAND licence
under its patent portfolio9. Indeed, its position is that the terms of a FRAND licence
to its portfolio is the real dispute between the parties. The patent infringement
actions that inevitably spring up when parties are seeking to agree a licence to their
SEPs are just shadow boxing around the real issue.

12. This has been recognised by the Court in previous cases. In Nokia v IPCom [2009]
EWHC 1017 (Pat) Floyd J said the following at para 11:

11. The objective of the preliminary issue which is sought is quite plain. What is at stake
between parties in portfolio patent litigation of this kind is usually the sum of money which will
enable the grant of a worldwide licence under the entire portfolio. The preliminary issue seeks
to get to the heart of that question, without the need to try the validity of 15 patents and the
infringement of 3 of them, and a variety of ancilliary defences.

See also the comments of Kitchin J in a later application in the same case ([2009]
EWHC 2742 (Pat)) at paras 6 and 52.

13. Further, the Court will be aware that in virtually all global patent disputes between
telecoms companies settle by way of a licence or cross-licence agreement. A recent
example is the Nokia v Apple litigation where the case settled with a total of 7
technical and non technical trials pending in the UK. Similarly, ZTE’s recent disputes
with Ericsson ended with ZTE taking a license under Ericsson’s portfolio and before
any of the validity trials took place (see C4/9). There was a similar result to its
dispute with Microsoft10. Mr Laakkonen gives further examples in his second witness
statement11. Importantly, it is also ZTE’s position in this action that ultimately this
dispute will likely be resolved by ZTE taking a licence under Vringo’s portfolio12.

14. It is for this reason that Vringo seeks to amend its Particulars of Claim and Reply and
Defence to Counterclaim to ask the Court to resolve the dispute between the parties
in relation to FRAND (as to which see below) and to determine the FRAND issue in
advance of the technical issues of infringement and validity. Doing so is likely to

9
Laakkonen para 10 (C1/4)
10
Laakkonen 2 para 60(b)
11
Laakkonen 2 paras 77-78
12
Burdon at paras 12 and 33-34 (C1/7).
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resolve the global dispute (and the dispute in the UK) between the parties in a
quicker and cheaper manner.

The parties’ positions in outline

15. As stated above, Vringo is content to license its portfolio of SEPs on FRAND terms.
Vringo has made an offer to ZTE Corp (the proposed Second Defendant) to license
its worldwide portfolio of SEPs. This offer would be for the benefit of all ZTE’s
subsidiaries (including the First Defendant in this action). The offer letter is at C2/1
p16. With that letter, Vringo included its term sheet for its proposed licence and
asked ZTE to confirm whether: (a) the terms proposed were satisfactory; (b) the
terms proposed were rejected; or (c) the terms proposed were satisfactory in
principle, save that ZTE would wish to negotiate aspects of the terms.

16. The only response from ZTE Corp has been in a letter sent by Olswang on 18th April
2013 (C2/1/22,23) in which it is stated: “ZTE Corp appreciates Vringo finally providing
a detailed licence proposal. ZTE Corp is interested in seeking to agree with Vringo a
licence under Vringo’s SEPs on FRAND terms. However, ZTE Corp would
appreciate further information and clarification about Vringo’s proposal in order to
move discussions forward”. There is then asked a series of questions. It is to be
noted that in this letter ZTE Corp both (i) appears to be ready to negotiate a portfolio
licence and (ii) does not suggest that it will only accept such a licence once each and
every patent has been litigated across the world, i.e. it is not contingent. ZTE Corp’s
questions were answered by Vringo on 3 May 2013 (See C2/1 p32). Vringo also
asked in that letter for clarification of ZTE Corp’s position. To date, there has been
no further response from ZTE Corp apart from some brief statements in Mr. Burdon’s
evidence which seem now to suggest that, inconsistently, the willingness to agree a
FRAND portfolio licence is in fact contingent.

17. As far as ZTE UK is concerned, early on in these proceedings it raised the issue of a
FRAND licence and undertook that, if any of the 6 patents in suit was found by the
Court to be valid and infringed, it would take a FRAND licence under any such
patent. Additionally, it goes further and contends that it has an entitlement to such a
licence13. It has also amended its defences in each of the action to specifically plead
this. It also contends that as a consequence of ZTE’s undertaking and its entitlement
to a FRAND licence, Vringo is not entitled to an injunction if any of the patents are
held to be infringed after trial14.

13
Laakkonen paras 12-13 (C1/4) and e.g. C2/1 p19.
14
B/4 and B/8 paras 11-16
5
18. In its evidence for the CMC and in correspondence15, ZTE takes the position that
Vringo’s patent portfolio is weak and that determining the issues of validity and
infringement first will make it more likely that the parties will be able to agree a
portfolio licence between ZTE Corp and Vringo. See Burdon paras 33-34. In
correspondence ZTE UK has made it repeatedly clear that it will take a FRAND
licence but only: (i) in relation to the patents in suit; and (ii) only after each and every
one of the patents in suit has been litigated on validity and infringement.

19. Thus there are several issues of principle between the parties:

(a) Vringo on the one hand contends that it has made a FRAND offer. It has
offered to grant ZTE a licence under its global portfolio of SEPs for the benefit
of all of the ZTE group, including ZTE UK. It has put forward heads of terms
in a term sheet which it has invited ZTE to agree to or to agree to negotiate.
As such, its position is that it has fulfilled its obligations to license its SEPs
(including the 6 patents in suit in these actions) and that, having done so, it is
not obliged to license its patents on any other terms, even if those alternative
terms are also FRAND.

(b) ZTE’s position is that it is able to refuse to take a license at this stage,
challenge the issues of infringement and/or validity of each patent Vringo
asserts against it but with the fall back that if it loses, it can require a
compulsory license to any patent it is found to infringe. However, its parent
accepts that at any time it may take a license under Vringo’s global portfolio.

20. The upshot of ZTE’s approach is that it will oblige Vringo to litigate each and every
one of its 138 SEPs (and its further 248 applications when they grant) in the
jurisdictions in which they are granted. This “per patent” approach that slices up a
patent portfolio is wholly unrealistic and divorced from the way the industry actually
works. In reality, the industry works on the basis of global portfolio licences16. This
provides certainty and shields the licensee from the risk of serial litigation.

21. If ZTE’s approach is correct, it will make it extremely difficult or impossible for Vringo
(or indeed any other holder of an SEP) to obtain adequate compensation for the
unauthorised exploitation of its SEP portfolio on a reasonable timescale. Patent
actions can only be brought alleging infringement of individual patents on a national
basis. Conventionally, in the case of large portfolios, actions could initially be
brought on a manageable sub-set of patents in a small number of jurisdictions to act

15
C1/1 pages 19, 20, 27
16
Mr Stasik paras 30-33 (C1/5)
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as a “proxy” for the real dispute about the entire portfolio. If the patentee prevailed in
one or more major jurisdiction the potential of injunctive relief would provide an
incentive for serious negotiations of a global settlement. It is this that justifies the
considerable sums spent on such enforcement programs. The concerns about
“patent hold up” by SEP proprietors has called into question the availability of
injunctive relief. However, if an SEP holder is denied the possibility of injunctive relief
even if the licensee is unwilling to enter into good faith negotiations, the sheer cost
and time involved in litigating an entire portfolio patent by patent and country by
country would be prohibitive. This is illustrated starkly by ZTE’s approach in the
Düsseldorf infringement proceedings brought against it by Huawei, where it
submitted that a payment of €100 would be more than sufficient to cover damages
payable under the 2 SEPs in issue17.

22. This raises serious policy issues, given the value of standards setting in the adoption
of new technologies in the telecoms field (see for example the FTC’s comments on
the benefits of standards setting at p1-2 of C2/5). If patentees cannot obtain
adequate remuneration for SEP portfolios as a consequence of being denied
injunctive relief and only being able to collect royalties on a per patent basis after the
conclusion of litigation (which may take very many years), the incentive for
technology companies to participate in standards setting processes will diminish, to
the detriment of consumers. Further, there will be market distortion between genuine
willing licensees who enter commercial licence agreements on a portfolio basis and
those who for tactical reasons refuse a portfolio licence and demand individual
licences as and when a patentee succeeds in litigation against them.

23. ZTE’s stance in these proceedings is also in stark contrast to the approach it is
currently taking defending SEP infringement proceedings brought by InterDigital in
the United States. It has actively sought the determination by the Delaware District
Court of FRAND royalty rates for a licence to InterDigital’s US portfolio of SEPs (not
just the patents in issue) and to have this determination before the hearing of ITC
proceedings where technical issues of infringement and validity would be considered
(see Laakkonen para 46 and C2/10 and ZTE’s Opposition to InterDigital’s Motion to
Dismiss FRAND counterclaims (C4/12)). We deal with this below in more detail.

Issues for the CMC

24. With that introduction to the dispute and its context, we turn to the issues for the
CMC. There are two main issues:

17
Laakkonen para 47 (C1/4) and C2/7
7
(a) Vringo’s application to amend to introduce its claim for declaratory relief in
relation to the FRAND issue. The draft amended Particulars of Claim and
Reply and Defences to Counterclaim are at B/2 & 618;

(b) Vringo’s application that the FRAND issues be determined in advance of the
technical issues of validity and infringement of the 6 patents in suit in these
actions. This will permit the real commercial issue between the parties to be
resolved and ought to remove the need for the Court to determine the
technical trials (and any further technical trials of Vringo’s other SEPs).

25. If a split trial is ordered, directions to that trial will need to be given. However, we
anticipate that these will be relatively straightforward to resolve once the decisions of
principle are made.

The amendment application

26. Vringo’s draft amended pleadings have two classes of amendment:

(a) First, the amendments to the Replies and Defences to Counterclaim which
are responsive to ZTE’s amendments. There can be no basis not to allow
these amendments.

(b) Second, the amendments to the Particulars of Claims. These seek to bring
claims for declaratory relief into the action to allow the real dispute between
the parties in relation to FRAND to be determined.

27. The nature of the declaratory relief sought can be seen from the draft amended
Particulars of Claim. In summary, Vringo seeks declarations that:

a) A declaration that its Confidential Term Sheet comprised an offer by Vringo to
license its SEPs to the Defendants on FRAND terms and conditions and that
having made a FRAND offer, Vringo is not obliged to offer to license, and the
Defendants are not entitled to a licence to, any of its SEPs on any other terms.

b) A declaration that the Confidential Term Sheet enclosed with the letter of 28
March 2013 complies with Vringo’s obligations to offer to license to the
Defendants the patents in suit in actions HC 12 D03895 & HC 12 B04711 on
FRAND terms.

18
Also B/8 & 12, but the amendments are the same in each action.
8
c) In the alternative, a declaration as to what would constitute an offer to license to
the Defendants its SEPs on FRAND terms and conditions.

d) A declaration that, in all the circumstances, the Defendants have no entitlement
to an individual licence under any of the 6 UK patents in suit in actions HC 12
D03895 & HC 12 B04711 that are found by the Court to be both valid and
infringed by the First Defendant.

Jurisdiction to hear the claim for declaratory relief relating to FRAND

28. As far as the declarations sought are concerned, the Court has a wide jurisdiction to
grant declaratory relief. In Nokia v InterDigital [2007] FSR 23, the Court of Appeal
made it clear that the Court’s modern approach to declaratory relief is less
constrained than it once was and should not be fettered by artificial limits wrongly
ascribed to jurisdiction. The Court has a flexible ability to grant declaratory relief, the
bounds of which were a matter for the Court’s discretion. See Carwarth LJ in paras
29-31. Jacob LJ explained in paras 19-20 that an important factor in whether the
Court should grant declaratory relief was whether there was a real commercial
reason to do so.

29. It is submitted that here there is clearly a lis between the parties and a real
commercial reason for the Court to grant the declaratory relief sought. This is for
several reasons.

30. First, there is an issue between the parties as to the consequences of the fact that
Vringo is the owner of SEPs. In particular, the issue is whether the offer made by
Vringo complies with its FRAND obligations and whether, notwithstanding that offer,
ZTE UK is entitled to deny infringement of the patents in suit and allege they are
invalid – but at the same time assert that if contrary to its primary position they are
valid and infringed, it is entitled to a licence under them at the end of the day.

31. Second, there is the overarching commercial reason to make the declarations
sought. As submitted above, and as both parties recognise, as with the vast majority
of disputes in relation to SEPs, ultimately the real commercial dispute between the
parties is the terms of a FRAND licence to Vringo’s SEP portfolio. Having the Court
resolve this will likely resolve the dispute between the parties, thereby avoiding the
need for numerous patent infringement and validity actions in the UK and elsewhere.
As submitted, above, the benefit in this has been recognised by the Court in the past
and is in reality the way all disputes such as this ultimately are resolved.

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32. Third, the declarations sought in any event arise out of the point that ZTE UK has
already taken in its amended Defences, namely that it is entitled to a FRAND licence
under any of Vringo’s patents found to be valid and infringed and that it would be an
abuse of a dominant position by Vringo to refuse to license it on FRAND terms under
any such patents (see amended Defence at 13(c)). This is a plea that extends to all
of Vringo’s SEPs. Vringo submits that a highly relevant factor to its answer to this
pleaded issue is the fact that it has made an offer of a licence under its global
portfolio that it contends is FRAND.

33. Fourth, it is clear from ZTE’s proposed amended pleading that the legal basis upon
which it claims to have a right to a per patent contingent FRAND licence is UK and
EU competition law and in particular Article 102 EU (abuse of dominance)19. It is
pleaded that it would be an abuse of dominance for Vringo to refuse a per patent
licence even after Vringo has been forced to litigate and prove that it owns one or
more valid and infringed patents.

34. Finally, in the field of SEPs there is an additional reason why seeking declaratory
relief from the Court is appropriate. Competition authorities in the US and Europe
encourage the holders of SEPs to submit to an independent tribunal disputes as to
FRAND licence terms before seeking injunctive relief, to avoid allegations of abusive
behaviour. See Laakkonen paras 18 to 21 on the approach of the FTC in the US in
settling its investigation into SEP enforcement by Motorola and Google and C2/4
(where the European Commission indicated that the Courts are well equipped to
determine a reasonable royalty rate under a FRAND licence).

Joinder of ZTE Corp

35. As to the joinder of ZTE Corp, there is already an issue in the action between Vringo
and ZTE UK as to the nature and effect of Vringo’s obligation to offer to license its
SEPs on FRAND terms. Part of Vringo’s answer to the issue raised by ZTE UK is
that it has made a FRAND offer to license all of its portfolio of SEPs and that this
licence necessarily covers (inter alia) the patents in suit. There is therefore an issue
between Vringo and ZTE UK as to whether the offer made to ZTE Corp is FRAND
vis-à-vis ZTE UK. Given that Vringo’s offer was made to ZTE Corp, it is clearly
desirable to add ZTE Corp as a party so that the Court can resolve all matters in
dispute. ZTE UK has already taken the position in correspondence (C2/1 p12) that it
is not in a position to comment on the terms of the offered licence to ZTE Corp, yet
these terms are central to the extant FRAND dispute. Olswang’s letter raising

19
See paragraphs 11 et seq of the Amended Defence and Counterclaim (B/4/10 and in particular paragraphs
13(c), (e) and (f))
10
questions about the offered licence (C2/1, p22) was written on behalf of ZTE Corp.
Good grounds therefore exist to join ZTE Corp under CPR 19.2(2). As far as service
on ZTE Corp is concerned, ZTE Corp is a necessary and proper party to be a
Defendant to the action in addition to ZTE UK and therefore ground (3) for service
out of the jurisdiction in para 3.1 of PD 6B is satisfied.

36. It will not be burdensome to join ZTE Corp. Olswang represent both ZTE Corp and
ZTE UK. ZTE Corp is well aware of this dispute, is already a party to the parallel
French and German proceedings and has taken the step of filing invalidation
proceedings in China in relation to the Chinese equivalents of the patents in the first
UK action.

37. Mr Burdon states in his witness statement that ZTE Corp does not wish to be a party
to these declaratory proceedings and that it is not necessary to have it as a party to
the proceedings (Burdon paras 80-82). As to this latter point, given that ZTE Corp is
the party to who Vringo’s FRAND offer was made, its presence in the action is clearly
necessary as a proper contradictor to the declaratory relief sought.

38. For all the reasons above, it is submitted that the amendments ought to be allowed.

Should the FRAND issues be heard first?

39. Vringo submits that, in this case, it is appropriate for the newly pleaded FRAND
issues to be tried first, and in advance of the technical patent issues. As we set out
above, this is for 5 main reasons.

(1) The Court has jurisdiction to do so

40. We have dealt with this above. The Court plainly has the jurisdiction to hear the
FRAND issues.

(2) Judicial efficiency

41. As we have explained above, the issue of the appropriate rate for a FRAND licence
to Vringo’s portfolio is the real commercial dispute between the parties. The sooner
this is resolved, the sooner the entire dispute will be resolved. As the Court will be
familiar with from previous cases, if the technical issues are heard first, typically a
number of very expensive patent validity and infringement actions are fixed, a
number of which will be heard. However, ultimately the overall dispute will be
resolved not by the outcome of these actions, but by a global licence or cross-licence
11
agreement. Indeed, as we have noted, even ZTE acknowledges that ultimately the
dispute will likely be resolved by a global licence – see Burdon paras 12 and 33-34
(although ZTE clearly hopes to postpone any serious negotiations of a licence for
some years after the conclusion of the pending actions in Europe and elsewhere).
That being the case, the parties and the Court ought simply to cut to the chase now
and determine the appropriate rate for such a licence.

42. As far as what would be involved, as Mr Laakkonen explains in paras 63-67, it would
be akin to the exercise of setting reasonable royalty rates in a patent damages
inquiry – a task the Court is of course very familiar with. As was the case in the
recent US case of Microsoft v Motorola, the exercise for the Court will be to simulate
a hypothetical bilateral negotiation under FRAND obligations (see C2/11, paras 83-
93, especially paras 83- 84). Because such bilateral negotiations occur in practice
(see the evidence of Mr Stasik) there is evidence of the results of such negotiations
that can be used by the Court in simulating the hypothetical negotiations. Of
relevance in performing the exercise of simulating the bilateral negotiation will be a
comparison with existing licences under the relevant standards, the importance of the
SEPs to the standards and the importance of the standards and the SEPs to the
products in issue.

43. Doubtless, ZTE will say that it would important to consider in detail the validity of the
SEPs in such an exercise. Vringo accepts that this may be a relevant factor in the
hypothetical bilateral negotiation, but not one that is so important that the Court need
to try the validity of the patents in same way as it would in revocation proceedings.
As Mr Laakkonen notes, this was not something the US Court did in Microsoft v
Motorola. This was because the Court concluded that the hypothetical bilateral
negotiation was to be assumed to be conducted before any infringement took place –
it was an ex ante analysis20. However, it is clear from that judgment that evidence
about validity or invalidity will be taken into account but at the stage of the
assessment of comparables. This is because in the real world (the benchmark used
by the Court) parties do make an assessment of the relative strengths and
weaknesses of the putative licensor’s portfolio and they factor this assessment into
the royalty they are prepared to pay and this is hence reflected in the evidence put
before a court as to comparables21. This is however rather different to the in depth
validity analysis in the context of a revocation action.

20
C2/11 para 97.
21
C2/11 para 430
12
44. Insofar as ZTE does in fact mount such an argument it is also inconsistent with the
forceful submissions that ZTE has made to the Delaware Court in which it strongly
argues that FRAND should be assessed upon the basis that there is no contingency,
i.e. no argument in advance as to validity. ZTE cites cases in which the US Courts
have held that FRAND is determined without any assessment of validity.22

45. Further, as Mr Stasik explains, when actual licences are being negotiated it is not
unusual for the licensee to carry out only a high level review of selected short-listed
patents chosen by the licensor (see Stasik paras 21-23). Of course, in the context of
licences agreed between willing licensors and licensees, the whole point is to avoid
the expense of protracted litigation and so the issues of validity, essentiality and
infringement are not fought out. As submitted above, the assessment of whether an
offered licence is FRAND should, in Vringo’s submission, be performed by simulating
as far as possible the negotiations between a notional willing licensor and licensee,
giving such weight to the issue of validity as the evidence demonstrates actually
occurs in the real world.

46. That this is a feasible exercise for the Court can be seen from the judgment of Judge
Robart in Microsoft v Motorola. As explained in its Order (C2/11 p6), during 13-20
December 2012, the Court heard evidence from 18 witnesses. These were
23
witnesses of fact and experts. As the Court noted , ultimately more often than not
the evidence of the witnesses was not in conflict and where it was, the Court was
able to resolve it by the use of law, logic and reason. As the Order makes clear24,
having decided the correct approach, the Court looked at the importance of the SEPs
to the standard and the importance of the standards and SEPs to the products in
issue. The Court used this, together with information as to comparables to come up
with the appropriate royalty rate. It is submitted that this Court could perform a
similar exercise to the US District Court in a similar time frame and thereby resolve
the dispute between the parties.

47. ZTE’s evidence as to its reasons for wanting the technical trial first is not entirely
consistent. In some places in his evidence, Mr Burdon explains that because ZTE is
confident that none of Vringo’s patents is valid, determining the FRAND issues first
would be a waste of time and money as FRAND relates to relief and that will never
arise unless the patents are found to be valid and infringed25. ZTE’s position is that
even if the Court were to decide the FRAND issue first, the technical trials would still

22
C4/12 pages 8-11
23
C2/11 p6 lines 9-13
24
C2/11 p7-8
25
e.g. Burdon paras 30 (C1/7)
13
need to go ahead to decide if such a royalty was payable at all26. Vringo does not
agree with these reasons for hearing the technical trials first. Once the FRAND issue
is determined, the overall dispute will likely be resolved in the usual way by a global
licence. It is of course notable that this is precisely the position ZTE is currently
taking in the US proceedings with InterDigital. In that case it is positively asserting
the advantages in determining FRAND first. See below.

48. In other places in his evidence, Mr Burdon explains that ZTE’s position (being the
very opposite of its position in the US) is that trying the technical trials first will allow
the parties to arrive at a global licence and that the issue of infringement and validity
is one of the biggest barriers to agreeing a worldwide licence (see Burdon para 12 &
33). In relation to this suggestion, the difference between the parties is therefore no
more than whether that is best done as ZTE suggests by this Court (and the courts in
other jurisdictions) hearing what is potentially a very large number of patent
infringement and validity actions which the parties can eventually use (or not use) in
their private negotiations which may (or may not) result in an agreed licence.

49. Vringo submits that trying the validity of the patents separately (in multiple countries)
in order to allow the parties to try to arrive at a licence for Vringo’s portfolio is an
extravagant luxury. Even in relation to the 6 patents in issue in these proceedings
(which are merely a selection from Vringo’s portfolio), ZTE is suggesting that the
trials of these 2 actions will need to be 6 months apart, each will take 10 days (each
with 3 days pre-reading) and have a technical complexity of 4. Vringo considers that
this is realistic (and possibly optimistic on time estimates and conservative on
technical complexity). They will therefore occupy one of the specialist patent judges
for at least 26 days (not including any interim applications) and not produce a first
instance judgment on all 6 patents until into 2015. Added to this will need to be a
year or so (i.e. to mid 2016) to take account of any appeals. Then, if Vringo are
successful on any of the patents, the Court will need to start the process to determine
the FRAND issues and ZTE’s plea that Vringo is abusing its dominant position.
These will doubtless take several more years, with the result that a final
determination on just these 6 patents on ZTE’s approach would not occur until near
the end of this decade. And finally, there would be the extra time that would be
added if Vringo commenced proceedings on any of its other patents.

50. In the light of the foregoing, it is submitted that the most efficient use of the resources
of the Court and the parties to resolve the parties’ dispute, is for the Court to decide

26
Burdon para 62 (C1/7)
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the FRAND issue. Vringo’s approach will ultimately be quicker and more efficient
than the course suggested by ZTE.

51. Finally, doing so would be a more efficient way of resolving the dispute from the point
of view of the Court and other court users. It would avoid the Court lists being
needlessly clogged in the way they currently are by multiple substantial actions with
the result that other litigants have to wait longer than normal to have their disputes
resolved.

(3) Cost

52. Dealing with FRAND first will be more cost effective. Vringo estimates that a trial on
the FRAND issues would take circa 5-7 days (consistent with the trial length in
Microsoft v Motorola) and could be ready for trial early in 2014. It is estimated that
preparing for and conducting that trial would cost each party in the region of £1m to
£1.2m27.

53. In contrast, hearing the technical trials would be substantially more expensive and
time consuming. Mr Laakkonen estimates that the cost to Vringo of litigating a
technical trial in relation to each of its patents in the UK would be in the region of
£1m. Thus to deal with the 6 patent is suit in the two existing actions would cost in
the region of £6m. Olswang’s estimates for ZTE’s costs of litigating the technical
trials of the 6 patents in suit is slightly lower at £3.8m, but this is still a substantial
sum of money.

54. And it is not just saving the costs of hearing these 2 actions over 6 patents. As
mentioned above, these are not Vringo’s only patents and on ZTE’s approach it will
have to litigate each and every one of them, in this country and elsewhere. Vringo’s
position is that if it wins a particular patent infringement action, it will still only offer a
portfolio licence and if it loses it will simply continue the litigation in different
jurisdictions and/or on different patents and at the same time still offer only a portfolio
licence. Having such parallel litigation will inevitably mean that the same technical
and FRAND issues will be litigated before multiple tribunals. Determining the
FRAND issues early will potentially mean that these other cases need not be heard.

(4) ZTE’s position in the concurrent InterDigital v ZTE proceedings in the US

55. Vringo’s fourth reason why the Court should order the FRAND issues to be
determined first is because that is precisely the position that ZTE is taking in the

27
Laakkonen paras 49-67 (C1/4)
15
proceedings between it and InterDigital in the US. Mr Laakkonen has exhibited
various submissions put in by ZTE in those proceedings, which make its view very
clear. For example:

(a) On 31 January 2013, it counterclaimed in those proceedings for declaratory
relief: (i) that InterDigital has not offered licences on FRAND terms and (ii)
setting the appropriate FRAND royalty rate for all of InterDigital’s US patents.
See C2/10 pages 23-25.

(ii) It has applied to expedite the determination of its counterclaims in relation to
FRAND. On 11 February 2013, it served an opening brief in support of its
motion to expedite (at C2/10) and said as follows:

Consequently, ZTE (USA) now seeks to have its Counterclaims for determination of
FRAND license terms and specific performance expedited in order to efficiently resolve
the controversies between the parties and to avoid the irreparable harm caused by
InterDigital' s efforts to enjoin and exclude ZTE (USA) from utilizing standardized
technologies. A judicial declaration of FRAND license terms and an order requiring specific
performance of InterDigital's contractual obligations to grant a license on FRAND terms will
prevent these harms, but only if the determination occurs before InterDigital would be able to
enforce an exclusion order from the ITC - as early as December 28, 2013, if InterDigital should
prevail in the first ITC Investigation. This determination and relief from harm is only available
from this Court. A declaratory judgment setting appropriate FRAND license terms to
InterDigital' s United States declared essential patents and an order requiring specific
performance of InterDigital's contractual obligations to grant a license on FRAND terms
are the lynchpins in this case, as well as every other case between the parties, and
expedited resolution of it would profoundly save judicial, administrative and party
resources. Once the Court sets the appropriate FRAND terms for a license, the parties
can consummate the license, resolving the cases. (page 3-4)

In support of its motion it argued than an expedited trial of the FRAND issue
would (i) serve judicial efficiency (ii) prevent irreparable harm to ZTE and (3)
was in accordance with recent US authority, including Microsoft v Motorola.
In relation to that latter point, ZTE submitted:

To expedite the determination of a FRAND license in that case [Microsoft v Motorola], Judge
Robart ordered a "mini-trial" on FRAND issues to be considered separately from Motorola's
patent infringement claims. Microsoft v. Motorola, Inc., 854 F. Supp. 2d at 1002-03 ("to move
the adjudication process forward with respect to the [F]RAND-based issues in this case, the
court intends to schedule a mini-trial on any unresolved [F]RAND-based issues"). That is
precisely the approach ZTE (USA) seeks to have the Court adopt here.

(iii) On 25 April 2013, ZTE served an opposition to InterDigital’s motion to dismiss
ZTE’s FRAND counterclaims. This is at C4/12). In that brief it repeated that
the position that resolving the FRAND issue would resolve “all disputes”
between ZTE and InterDigital and consideration of them would promote both
“justice and economy”28. See also on p8:

28
Page 1 & 12-13
16
“The Court’s setting of a FRAND rate (Count VI), which Defendants have unequivocally
undertaken to pay, together with the companion orders of specific performance that
Defendants have requested as remedies, would resolve these lawsuits entirely.

(iv) Further, ZTE’s position in the InterDigital proceedings was that it was
prepared to take a licence under InterDigital’s SEPs, regardless of the
position as to validity. See below from p9 of the 25 April brief:

“Rembrandt was also very different from the situation here. Like Apple, the defendant in that
case equivocated on its commitment to pay the rate set by the court, reserving the right to
argue that “no payments are due under the license,” if the single asserted patent was found not
infringed or invalid. Id. at *3.6 Defendants, in stark contrast, have unequivocally committed to
license IDC’s entire U.S. declared-essential 3G and 4G portfolio on the FRAND terms set by
the Court regardless of whether any asserted patent is found to be infringed or valid. (original
emphasis)

(v) It also contended that it was not necessary for the patents to be found to be
essential for it to be appropriate and possible for the Court to determine a
FRAND rate. See pages 9-11 of the 25 April brief, including:

“IDC is also wrong as a purely legal matter in arguing that its FRAND commitment is contingent
on a finding of essentiality. IDC Br. at 10-11. Every court that has considered the issue
agrees that “claims based on fair, reasonable and non-discriminatory licensing
obligations are not contingent upon the results of patent infringement suits regarding
the same patents” and that such claims are therefore ripe when declared-essential
patents have been sued on”

“Thus, for adjudication of the FRAND obligation, it is not necessary “to determine
whether the patents at issue are in fact ‘essential’ because [Motorola] has already
voluntarily declared them essential.” Id. (quoting Nokia Corp. v. Qualcomm, Inc., No. 06-
509, 2006 WL 2521328, *1-2 (D. Del. Aug. 29, 2006)”

56. Thus it can be seen that the position that ZTE is taking in these proceedings is
entirely inconsistent with the position it is taking in its concurrent proceedings in the
US with InterDigital. Vringo submits that this demonstrates that ZTE’s position in
these proceedings is artificial and purely tactical because it perceives there to be an
advantage in dragging these proceedings out as long as possible. However, it is
submitted that the position it has taken in the US accurately reflects the true position.

(5) Public policy

57. The fifth reason is public policy. Over the last 10 years there have been a large
number of patent actions relating to mobile phones. These have all been substantial
disputes with multiple patents being put in issue, generally spread over multiple trials.
These have typically been category 4-5 cases and therefore have been allocated to
the specialist patents judges, taking those judges away from other cases. They have
also filled up the lists, delaying the time to trial for other litigants.

58. Most of these actions have raised FRAND issues. To date, generally the FRAND
issues have been stayed while the technical issues are decided. Most if not all of
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these disputes have been ultimately resolved by the parties agreeing a worldwide
licence. However, in recent times the Court has acknowledged the sense in deciding
FRAND first. We refer to the observations of Floyd J (as he then was) in Nokia v
IPCom [2009] EWHC 1017, which we have set out above. Although, Floyd J
refused to order FRAND to be heard as a preliminary issue, his primary reason for
doing so was that the parties had set off on a course trying infringement and validity
and the first trial was only 6 months away at the time of the application. In addition, it
appears that both parties were initially of the view that hearing the technical issues
first was likely to lead to settlement. The Court was not convinced that the late
change of tack proposed by IPCom, with its attendant wasted costs, would provide
sufficient benefit to warrant adopting it. Such considerations do not apply here, given
the early stage of the proceedings. In Philips and others v Harvard International
which related to the enforcement of the MPEG2 patent pool, Kitchin J (as he was
then) scheduled FRAND issues to be heard ahead of the technical patent trials,
which were stayed. The reasons which he gave were that the dispute between the
parties was at its heart the issue of money, that both parties were willing to enter into
a licence but disputed the terms, that a resolution of the FRAND issues may provide
a platform for settlement, that the Court was likely to have to determine the FRAND
issues at some time in any event and that this option would probably be less costly
(see C4/19). The directions given by Kitchin J are referred to in the subsequent
decision of Lewison J [2009] EWHC 1600 (Pat).

59. Vringo submits that guidance from this Court on the meaning of FRAND and how
FRAND terms and conditions are to be set would be in the public interest. It would
allow parties (and the Court) to avoid the multiple preliminary rounds of satellite
patent litigation and determine the terms of a FRAND licence.

60. Other jurisdictions are already doing this. We have referred above to the position in
the US. It is submitted that the time is right for this Court to apply its well-respected
abilities to this issue and, in the same way as it does for other types of commercial
disputes, provide high quality and practical dispute resolution service to parties
whose ultimate commercial dispute is in relation to the terms of a FRAND licence
under a patent portfolio.

Other points

61. Mr Burdon makes a series of points in his paras 47-56 about what would be involved
in a FRAND trial and seeks to suggest that it will be complicated.

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(a) First, he suggests that there may be competition issues as to whether ZTE
UK would be entitled to pay damages in lieu of an injunction if it were to
refuse to agree to Vringo’s suggested worldwide licence. However, the
purpose of determining the FRAND issues is to allow the parties to enter just
such an agreement. In any event, ZTE has not properly pleaded out any
competition issues (see para 13(c) of its amended defence at B/4) so the
point is theoretical at this stage.

(b) Second, he states it is not clear whether Vringo is undertaking to enter into a
portfolio licence in the event that the Court decides that Vringo’s offer is not
FRAND but determines what would be FRAND (see Burdon para 50).
However, Mr Laakkonen confirms in his second witness statement that Vringo
is prepared to be so bound, provided that ZTE would prepared to be so
bound.

(c) Mr Burdon suggests that the FRAND issue would require “a vast amount of
technical expert evidence” in relation to each part of the standards to which
Vringo’s patents have been declared (see Burdon 51-53). However, Vringo
submits that Mr Burdon is over-stating the scope of the technical issues.
With proper case management, such evidence can be kept in check. For
example, although Vringo’s original draft order provides directions for expert
and fact evidence at this stage, an alternative approach would be to conduct
an exercise akin to that used in the PCC. The parties could to be directed to
serve statements of case in relation to the FRAND issue now. They can then
return to the Court for a further CMC with proposals for how the trial would be
conducted in the light of the pleadings, including the disclosure to be given,
the expert and fact witnesses they intend to call and the issues to be
addressed in by those witnesses and the issues to be determined by Court.
The Court can then consider whether such evidence would be useful (and
only allow evidence that it concludes would) and can set a timetable for
meetings of experts and service of expert and fact evidence in order to focus
the case on the real issues that need to be decided. The sorts of issues the
experts will opine upon are similar to issues arising in competition cases there
is a growing body of practical lore about how to ensure that experts limit the
issues and this could and should be used in this case.

(d) Fourth, he suggests that other parties (and in particular Nokia) may need to
be joined. Vringo does not see at the moment why there is any need for any
other person to be a party to the action to permit the issues between it and

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ZTE to be determined. As explained in Mr. Laakkonen’s reply statement, the
allegations made by ZTE about Vringo’s relationship with Nokia and Nokia’s
involvement in this litigation are incorrect. The suggestion that other
undertakings in the telecoms industry may need to be joined is far fetched,
and unworkable and wrong. It has never been done in any dispute about
FRAND conditions. This is an inter partes dispute about royalties for patents
owned by Vringo and does not invoke the rights of others.

(e) Fifth, he suggests in para 66 that ZTE might have practical difficulties in
complying with the timetable suggested by Vringo. However, he does not
explain why and it appears to be little more than arm-waving. However, this
is not a reason for hearing the technical trials first. It can be dealt with by
appropriate adjustment of the proposed directions.

(f) In his evidence, Mr Burdon refers to the decision of the German Court in
Huawei v ZTE to refer to the CJEU certain questions relating to the
enforcement of SEPs (Burdon para 43-45). He suggests that because the
CJEU might not respond until 2015, it makes sense in the meantime for the
Court to determine the technical issues in these two actions. Vringo submits
that the Court has to decide the best way to manage these actions.
Determining the technical issues merely to fill in time whilst waiting for the
CJEU is not a proper way to manage this action. The German litigation could
very well settle or the answers given by the European Court might not cover
the issues in these cases or do so only partially.

62. For all the reasons given above, Vringo submits that the Court should order the
FRAND issues to be determined first. Further, Vringo should be granted permission
to amend and ZTE Corp should be added as a party.

NICHOLAS GREEN QC
THOMAS HINCHLIFFE
TIM POWELL
Brick Court Chambers, Counsel for the Claimant
3 New Square,
Powell Gilbert LLP. 3 June 2013

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