Courts That "FRAND" Differently: Part 1

Recently, two different courts — the High Court of England and Wales (“UK Court”) and China’s Chongqing Intermediate People’s Court (“Chinese Court”) — opined on what a fair, reasonable and non-discriminatory (FRAND) portfolio cross-license would be for the very same 5G cellular SEP portfolios.[1] They came to significantly different results: the UK Court decided the balancing payment from Samsung to ZTE should be about $392 million whereas the Chinese Court decided it should be nearly double that at approximately $731 million. 

This will be a short mini-series.  This first post focuses on information that can be gleaned from the cases:  the lack of transparency regarding SEP licenses and SEP licensing practices means we are forced to glean whatever information we can from SEP cases or from statements made in other public forums.  The next posts will focus on lessons that we should learn from the cases. 

Background

The cases involve two companies, ZTE and Samsung Electronics, that (1) both participated in the development of the 5G standard, (2) are both large 5G SEP holders and (3) are both major implementers of 5G technology.  According to a report put out by LexisNexis, Samsung is the fifth largest 5G patent holder,  and ZTE is the sixth largest.[2]  Both companies also are large 5G implementers: each are in the top 5 largest providers of 5G RANs (products such as cellular base stations).[3]  Both also sell 5G handsets, although Samsung sells many more handsets than does ZTE.[4] 

Even though Samsung holds more declared 5G SEPs, because Samsung sells more handsets than ZTE, ZTE received a large "balancing" payment as part of the 2021 License.  ZTE felt entitled to an even larger balancing payment from Samsung when it came to negotiating a cellular cross-license in 2024.  The companies both wanted to conclude a new cross-license and had many meetings to try to do so.  However, the parties could not agree on valuation. And so began their global FRAND litigation war.[5]   

Tidbits to Be Gleaned from the Cases 

• ZTE and Samsung entered into a term-limited cellular cross-license in 2021 (“2021 License”). 

o   Term-limited licenses are, in my experience, relatively common in the SEP space. However, the 2021 License was set up a bit differently than many term-limited licenses.  In my experience, most term-limited SEP licenses have a 4-5 year license term and, to the extent they include a covenant not to sue ("CNTS"), have a CNTS that is only during the term of the license. The 2021 License, however, had only a 3 year license term and also had a CNTS that ran for one year after the term of the license ended.  UK Decision at p.110. 

o   Even though ZTE is ultimately a Chinese company and Samsung a Korean one, California law governs the 2021 License.  China Decision at 83.

o   There was an argument over whether the 2021 License covered 2G-5G or only 2G-4G/LTE.  The UK Court ultimately decided that it did cover some 5G whereas the China Court decided it did not. Compare, UK Decision at para. 256 with the China Decision at 84-5.

• Samsung has cellular cross licenses with Ericsson (2021) and Nokia (2023).  Samsung also has a one-way 7-year term-limited license with Interdigital (2025) that cost it $1.05 billion dollars. U.K. Decision at p.111.  The Samsung-Interdigital license was the renewal of an existing agreement and resulted from an arbitration.  Apparently, the Samsung licenses with Nokia, Ericsson and Interdigital have a much higher rate than the 2021 License.  See UK Decision at para. 347.

• Samsung also has licenses with NEC (2022), Datang Mobile Communications Equipment Co., Ltd., Dokomo and with Huawei Technologies Co., Ltd. (2022).  The Huawei license covers 2G-5G.  UK Decision at 112; China Decision at 18. 

o   According to information provided by one of the experts, Huawei has a “stated 2.5 USD per unit” rate for 5G licenses, although whether this is the rate Samsung paid is not stated.  China Decision at 68. 

o   The NEC and Huawei licenses “explicitly state that neither shall be used as comparable agreements, but solely for reference purposes.”  China Decision at 87.  Maybe something has been lost in translation but I am unsure what “reference purposes” but not comparable means.  I also am unsure how the statement in a license agreement that it should not be used as a comparable can exclude an agreement from consideration by a court as a comparable if, in fact, the license agreement is comparable.

• Samsung has an alleged to be “below . . . market value” license with Wireless Planet/PanOptis.  China Decision at 41.

• ZTE has a term-limited cellular cross license with Apple (apparently with a similar rate to the 2021 License and that clearly covers 5G).  UK Decision at para. 232-3.  

  
  

• ZTE also has a cellular cross license with Vivo (2024), and cellular licenses with Oppo (2024) and Xiaomi (2024).  UK Decision at 110.

• ZTE’s expert proposed a total industry 5G licensing rate of 4.341% to 5.273% for the period 2019–2023 and 7.8% to 8.5% for the period 2024–2029.  The Chinese Court agreed finding “the cumulative licensing rate for the 5G standard industry in this case to be 7.8%-8.5%.”  China Decision at 101.[6]  That would mean that if a Samsung handset sold today cost $1000, the overall royalty would be $78-$85 for a 5G only license.  That seems very high given that the price of the entire semiconductor chip that implements typically several generations of the cellular standard within that Samsung phone costs $25-75.  See, Homage to the Semiconductor Chip and Building a House for why that is not the right way to value chip-based standards.

Conclusion

Most of the terms of the various licenses are not available in the public versions of the decisions so this is about as far as it goes with gleaning license information from the decisions.  No actual rates from the cited licenses are disclosed (although a few total payment amounts that were previously publicly disclosed are disclosed again in these cases), and only a very limited amount of information about the terms in each of the agreements is made publicly available.  In fact, the most detailed information about license rates came from the UK Court’s discussion of what is publicly available from other court decisions. UK Decision at parag. 101 and 105.

I have always wondered why there is so much secrecy about SEP license terms and rates, if the terms are essentially the same[7] (see, Licensing in the Real World - A Primer on SEP License Agreements) and the rates are actually FRAND.  “Non-discriminatory” implies that similarly situated companies should pay similar rates and get similar terms. If that is actually true, then information about those rates and terms should be kept secret.  And if it is not true, as both courts found, then courts and competition law authorities should be looking much more closely into why there are so many non-FRAND agreements.

These cases underscore that more transparency is needed.  Indeed, it appears that the transparency problem is so acute that even the UK Court was obliged to use information gleaned from other cases in order to make its own decision. None of us - whether courts, implementers, legislators, regulators or the public - should be forced to glean crumbs of information from court decisions.  However, that is what we are presently reduced to doing.

[1]          The UK Court judgement is here: Samsung-v-ZTE-FRAND-judgment-REDACTED-Final-for-hand-down.pdf (“UK Decision”). The original version of the Chinese Court’s judgement can be found here: Attached judgment ┃ Six-year license fee of $731 million! Chongqing No. 1 Intermediate People's Court issued a first-instance judgment on the ZTE v. Samsung case.  I am using a machine translated copy and my cites will be to the pages in my translation which may not be exactly the same as in the original decision (“China Decision”). 

[2]          5G Report: Trends and Innovation Insights

[3]          Huawei, Ericsson secure nearly two-thirds of the RAN market share.  And see also, ZTE, Samsung Battle for Wireless Market Share (both Samsung and ZTE are making “similar land grab[s]” trying to take more of the RAN market which currently is dominated by Huawei, Ericsson and Nokia).

[4]          IDC - Smartphone Market Share; About us page - ZTE Devices and 15 Smartphone Companies with the Largest Market Share in 2024.  See also China Decision at 39.

[5]          As always seems to be the case in these global FRAND disputes, the global litigation posture is complex and more cases than these two were filed.  See, China Decision at 17-18 for a discussion of the many lawsuits that were filed.

[6]          The Chinese Court also said that cumulative rates are case-specific so it would not re-use a cumulative rate it had found in a prior case.  China Decision at 99.   

[7] Cross-licenses tend to be more bespoke than one-way licenses and so they tend to have more terms that actually merit confidential treatment.