Apple Inc. v. Samsung Electronics Co. Ltd. et al

Filing 663

EXHIBITS re #660 Administrative Motion to File Under Seal Apple Inc.'s Notice of Motion and Motion for Partial Summary Judgment Exhibits to Mueller Declaration ISO Apple's Motion for Partial Summary Judgment [660-9] filed byApple Inc.(a California corporation). (Attachments: #1 Exhibit Mueller Decl Exhibit 43, #2 Exhibit Mueller Decl Exhibit 44, #3 Exhibit Mueller Decl Exhibit 45, #4 Exhibit Mueller Decl Exhibit 46, #5 Exhibit Mueller Decl Exhibit 47, #6 Exhibit Mueller Decl Exhibit 48, #7 Exhibit Mueller Decl Exhibit 49, #8 Exhibit Mueller Decl Exhibit 50, #9 Exhibit Mueller Decl Exhibit 51, #10 Exhibit Mueller Decl Exhibit 52, #11 Exhibit Mueller Decl Exhibit 53, #12 Exhibit Mueller Decl Exhibit 54, #13 Exhibit Mueller Decl Exhibit 55, #14 Exhibit Mueller Decl Exhibit 56, #15 Exhibit Mueller Decl Exhibit 57, #16 Exhibit Mueller Decl Exhibit 58, #17 Exhibit Mueller Decl Exhibit 59, #18 Exhibit Mueller Decl Exhibit 60, #19 Exhibit Mueller Decl Exhibit 61, #20 Exhibit Mueller Decl Exhibit 62, #21 Exhibit Mueller Decl Exhibit 63, #22 Exhibit Mueller Decl Exhibit 64, #23 Exhibit Mueller Decl Exhibit 65)(Related document(s) #660 ) (Selwyn, Mark) (Filed on 1/25/2012)

Mueller Exhibit 53

Claim Number HC06 C00618
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
BETWEEN:
TELEFONAKTIEBOLAGET LM ERICSSON
(a company incorporated in Sweden)

Claimant
- and(1) SAMSUNG ELECTRONICS UK LIMITED
(2) SAMSUNG ELECTRONICS CO. LIMITED

Defendants

RE-AMENDED DEFENCE AND
COUNTERCLAIM

IMPORTANT NOTICE: This Re-Amended Defence and Counterclaim contains
infol1nation that is confidential to the pal1ies and to which no. third party should be given
access (see Bristows' letter of 26 June 2006 addressed to the Chancery Registry). Statements
of case served in these proceedings are also subject to an Order of the Court dated 2 October
2006 made pursuant to CPR SAC restricting the rights of third parties to inspect or obtain
copIes.

1.

The Claimant's enforcement of its intellectual propel1y rights in these proceedings (in
seeking injunctive relief, an order for delivery up and an account of profits), and/or its
refusal to grant a licence to thc Defendants in respect of its portfolio of patents
(including the patents in suit) which are technically or commercially essential for the
supply of mobile telephonc handsets in the European Union save on the basis of
unfair trading conditions is an abuse by it of a dominant position contrary to article 82
EC and/or section 18( I) of the Competition Act 1998 ("the Chapter II prohibition")
(see Paragraphs 64 to 86 below); alternatively, the Claimant's exercise of its
intellectual property rights in these proceedings falls within the prohibition in Article
81

EC and/or the section 2( I) of the Competition Act 1998 ("the Chapter I

prohibition"), being the object, means or consequcncc of the agreement constituted by
the rules of the European Telecommunications Standard Institutc CETSI") which
develops and promulgates technical industry standards based in part on the use of

APLNDC-WH-A0000022602

technology covered by essential patents owned or controlled by its Tnember
undertakings (see Paragraphs 63Z to 63CC below).

1A.

The Claimant's enforcement of its intellectual propeliy rights in these proceedings (in
seeking injunctive relief, an order for delivery up and an account of profits) and/or its
refusal to grant a licence to the Defendants on fair, reasonable and non-discriminatory
tenns is in breach of the contract which exists between the Claimant and the First
Defendant as a result of their common membership of ETSI (see Paragraphs 63R to
63Y below).

2.

FUliher and/or in the alternative, the Claimant has waived its right to enforce the
patents in suit ("the Patents") or any of them in these proceedings and/or is estopped
from doing so, either by seeking injunctive relief or by seeking an order for delivery
up or an account of profits (see Paragraphs 87 to 98 below).

3.

Further it is denied that the Defendants or either of them have infringed and/or
threaten to infringe the Patents or any of them as alleged or at all. In addition the
Patents are, and at all times have been, invalid (see Paragraphs 99 to 103 below).

4.

Further and in the alternative, it is denied that the Claimant is entitled to the relief
sought or any relief in respect of the Defendants' acts which are expressly or
impliedly licensed (see Paragraphs 104 to 107 below).

4A.

Further, there are additional patents in respect of which the Claimant is the registered
proprietor which are and have at all material times been invalid, and which should be
revoked (see Paragraphs 110 to 112 below).

5.

Further, and in any event, should the Claimant be entitled to any
denied, the Court should in its discretion refuse to grant injunctive

reIiet~

relief~

which is

an order for

delivery up and an account of profits. In the event that the Claimant does offer the
Defendants a licence under its p0l1folio of essential patents (including the Patents) on
fair, reasonable and non-discriminatory terms, which involves the payment of
royalties by the Defendants, then the appropriate relief will be the grunt of damages
calculated on the basis of those royalties (see Paragraphs 108 to 109 below).

APLNDC-WH-A0000022603

CONTRACT LAW, COMPETITION LAW AND WAIVER I ESTOPPEL DEFENCES

Background
6.

These non-patent law Defences (Paragraphs 7 to 98 below) proceed on the basis that
the Claimant's patent portfolio must be assumed to include at least one essential
patent which is at least partially valid and which would necessarily be infringed by the
Defendants' supply of any mobile telephone handsets or telecommunications
infrastructure equipment complying with the GSM I WCDMA industry standards.

The Parties
7.

The Claimant is a global supplier of telecommunications network equipment,
including radio base stations and core network infrastructure, and services.

Its

headquarters are located in Stockholm, Sweden. The Claimant describes itself as a
"world-leading provider of telecommunications equipment and related services to
mobile and fixed network operators globally". It states that over 1,000 networks in
140 countries use the Claimant's network equipment and 40 per cent of all mobile
calls are made through the Claimant's systems. I

8.

The Claimant claims that it actively promotes open standards and systems. It states
that it has one of the industry's most comprehensive intellectual property portfolios
containing over 20 000 patents. 2

9.

Sony Ericsson Mobile Communications AB ("SonyEricsson") is a 50/50 joint venture
between the Claimant and Sony Corporation. SonyEricsson supplies mobile phones
and other mobile communication devices globally.

Its mobile telephone handsets are

sold throughout the European Union.

10.

The Second Defendant is a global supplier of consumer electronics equipment,
including mobile telephone handsets, and is based in Korea. The First Defendant is a
UK-based sales subsidiary of the Second Defendant. Among other things, the First
Defendant supplies mobile phone handsets in the UK and other countries in Europe,
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APLNDC-WH-A0000022604

including Ireland.

The Second Defendant also has sales subsidiaries located in

Germany, France, Italy, Poland, Portugal, Sweden, the Netherlands, Spain and
Austria.

The Defendants' mobile telephone handsets are sold throughout the

European Union.-

The Industry
11.

The first generation of mobile wireless networks, which are now superseded, used
analogue technologies only.

12.

The most widely available networks in use throughout the world today are known as
"second generation" networks.

These use digital technologies, which offer in

particular much clearer sound quality. They also allow the use of data services such
as Short Message Services ("SMS"), which is a service for sending short text
messages to mobile telephones.
13.

Over time, second generation networks have been upgraded to allow more
sophisticated uses.

The upgraded networks (often called generation 2.5 or 2G+

networks) suppOli higher data transfer rates than ordinary second generation mobile
networks, and they offer additional functions such as allowing users to send and
receive e-mail, and access the Internet.
14.

Third generation or 3G wireless telephone technology is a further generation of highspeed digital technology which allows yet more sophisticated and data-rich
infonnation transfer, including, for example, video telephony and music downloading.

15.

Introduction of third generation technology (which is still not complete in the
European Union) entailed the creation of a new infrastructure and the grant of new
licences to telecommunications operators. At present, second and third generation
technologies co-exist in the European Union.

16.

Both SonyEricsson and the Defendants supply mobile telephone handsets in the
European Union with second generation and generation 2.5 or 2G+ functionality ("2G

APLNDC-WH-A0000022605

handsets") and mobile telephone handsets with third generation functionality ("3G
handsets") .

Industry Standards
17.

In order to allow mobile telephone handsets to be connected to any mobile telephone
network in the European Union (and globally) and to communicate with each other,
international standards have been developed.

18.

GSM ("Global System for Mobile Communications") is a second generation digital
mobile telephone standard.

GSM was initially developed in the early 1980s as a

collaboration between EU heads of state (endorsed by the EC Commission) to enable
mobile roaming between EU Member States. The GSM standard was adopted in
Europe in the early to mid 1990s and has subsequently been adopted in most countries
in the world. In June 2006, there were 690 GSM mobile operators in 213 countries /
territories and over 2 billion users worldwide. 3 In 2005, GSM handsets represented
77.4% of handsets used worldwide. 4
19.

The GSM system can be divided into two broad constituents: (i) the mobile station or
terminal, comprising the mobile telephone handset and SIM (Subscriber Identity
Module) card; and (ii) the infrastructure, comprising the base station subsystem,
which controls the radio link with the mobile station and the network subsystem,
which perfonns the conveyance and switching of calls between the mobile users and
other mobile and fixed network users.

20.

GSM is the exclusive industry standard used for 2G mobile telephone networks
throughout the European Union. All 2G+ (or 2.5G) networks (such as GPRS) in the
European Union also confonn to the GSM standard, with which they are compatible.

21.

So tar as the Defendants are aware, all 3G handsets currently sold in the European
Union incorporate GSM technology, enabling their users to make and receive calls on
GSM networks.

If a 3G handset user travels to an area without 3G network

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200(,

APLNDC-WH-A0000022606

infrastructure coverage, the handset will automatically switch to OSM. All such "dual
use" handsets therefore must also comply with the OSM standard.

22.

WCDMA (Wideband Code-Division Multiple-Access) is one of the main standards
for the implementation of 30 mobile telephony.

Japanese operator NTT DoCoMo

launched the world's first commercial WCDMA network in 2001. As of 2006, 108
30 networks based on the WCDMA standard are operating commercially in 49
countries. s WCDMA is the only 30 mobile telephony standard currently adopted in
the European Union.
23.

WCDMA technology is increasing in importance. In 2005, industry analysis showed
that 30 handsets accounted for 53% of mobile telephone market growth in Western
Europe6 and their sales are growing at a faster rate than sales of 20 handsets. It is
estimated that, by 2010, global sales of 30 handsets will at least equal, and may have
overtaken, global sales of 20 handsets.

24.

The telecommunications networks based on the WCDMA standard can be divided
into the same two constituents (mobile station and infrastructure) as networks based
on the OSM standard.

Standard-setting and Administration

25.

Within Europe, the European Telecommunications Standards Institute ("ETSI") is
principally responsible for the telecommunications standardisation process. ETSI is a
non profit making association under French law. It was recognised as a European
Standards Institute by the European Community in 1992 (see Commission Decision
92/400/EEC of 15 July 1992), and is cUlTently recognised under Directive 98/34 EC
ofthe European Parliament and Council.

26.

ETSI was directly responsible for the development of the OSM standard, and
continues to administer it in Europe.

The WCDMA standardisation process is

administered by 30PP. ETSI is one of six telecommunications standards bodies that
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APLNDC-WH-A0000022607

together form the 3GPP (the others being ARIE, CCSA, ATIS, TTA and TTC).
Individual members of 3GPP must also be a member of one of these bodies and
operate according to the rules of the relevant body.
27.

Standards documents, for inter alia GSM and WCDMA, are updated and republished
by ETSI every quarter.

28.

ETSI has 654 members from 59 countries inside and outside Europe, including most
major manufacturers, network operators and telecommunications service providers.
The Claimant and the First Defendant are both members ofETSI.

29.

According to the ETSI website, there are about 30 holders of patents who have
declared to ETSI that they have patents essential to thc GSM standard, representing
about 3,200 patents (in respect of some patents, this will include a number of foreign
counterparts - this varies depending on the filing and declaration practice of the
patentee).

The ETSI IPR Policy: rights and obligations of ETSI members and rights of third
parties

30.

ETSI members' rights and obligations and the rights of third parties are set out inter
alia in ETSI's Intellectual Property Rights Policy ("IPR Policy"). The version of the

IPR Policy currently in force is dated 23 November 2005. The relevant precepts and
obligations of the IPR Policy referred to below are also contained in earlier versions
of the ETSI IPR policy and have been in force at all material times.
31.

Clause 3 of the IPR Policy sets out ETSI's policy objectives as follows:
"Standards and technical specifications shall be based on solutions which best meet
the technical objectives of the European telecommunications sector, as defined by the
General Assembly. In order to further this objective, the ETSI IPR Policy seeks to
reduce the risk to ETSl, Members and others applying ETSI standards and technical
specifications, that investment in the preparation, adoption and application of
standards could be wasted as a rcsult of an essential lPR for a standard or technical
specification being unavailable. In achieving this objective, the ETSI IPR policy
seeks a balance between the needs of standardisation for public use in the field of
telecommunications and the rights of the owners of IPRs.

APLNDC-WH-A0000022608

IPR holders, whether members of ETSI and their affiliates or third parties, should be
adequately and fairly rewarded for the use of their IPRs in the implementation of
standards and technical specifications.
ETSI shall take reasonable measures to ensure, as far as possible, that its activities
which relate to the preparation, adoption and application of standards and technical
specifications enable standards and technical specifications to be available to potential
users in accordance with the general principles of standardisation".
32.

Clause 15.6 of the IPR Policy states that:

" "Essential" as applied to IPR means that it is not possible on technical (but not
commercial) grounds, taking into account nonnal technical practice and the state of
the art generally available at the time of standardisation, to make, sell, lease or
otherwise dispose of, repair, use or operate equipment or methods which comply with
a standard without infringing that IPR. For the avoidance of doubt in exceptional
cases where a standard can only be implemented by technical solutions, all of which
are infringements of IPRs, all such IPRs shall be considered essential".
33.

Clause 4.1 of the IPR Policy provides for disclosure ofIPRs as follows:

"
each Member shall use its reasonable endeavours, in particular during the
development of a standard or technical specification where it pat1icipates, to infonn
ETSI of essential IPRs in a timely fashion. In particular, a Member submitting a
technical proposal for a standard or technical specification shall, on a bona fide basis,
draw the attention of ETSI to any of that Member's IPR which might be essential if
that proposal is adopted".
34.

Clause 6.1 of the IPR Policy provides for the availability of licences for essential IPR
as follows:

"When an essential IPR relating to a particular standard or technical specification is
brought to the attention of ETSI, the Director-General of ETSI shall immediately
request the owner to give within three months an undertaking in writing that it is
prepared to grant irrevocable licences on fair, reasonable and non-discriminatory
tenns and conditions under such lPR to at least the following extent:
•

manufacture, including the right to make or have made customized components
and sub-systems to the licensee's own design for use in manufacture;

•

sell, lease or otherwise dispose of equipment so manufactured;

•

repair, use or operate equipment; and

APLNDC-WH-A0000022609

•

use methods.

The above undertaking may be made subject to the condition that those who seek
licences agree to reciljrocatc".
35.

Clause 15.4 of the IPR Policy defines "equipment" as meaning "any system or device
fully conforming to a standard", and Clause 15.5 defines "methods" as meaning "any
method or operation fully conforming to a standard".

36.

The ETSI Guide on Intellectual Property Rights ("the IPR Guide") recognises that
non-members of ETSI have cel1ain rights under the IPR Policy even if they do not
have obligations thereunder. Paragraph 1.4 of the IPR Guide contains a table which
"intends to give a clear overview of the most important rights and obligations of the
Institute, the Members, the Secretariat and the rights of third parties as specified under
the ETSI IPR Policy". Thc table includes among third parties' rights, the right "to be
granted licences on fair, reasonable and non-discriminatory terms and conditions in
respect of a standard at least to manufacture, sell, lease, repair, use and operate
(clause 6.1)".

The Patent License Agreement made between the parties on [... Redated ... ]
37.

On [... Redacted ... ], the Claimant and the Defendants entered into a "Patent License
Agreement"

("the

Patent

License

Agreement").

Each

party

agreed

to

[

] licences under [... Redacted ...], defined to mean [... Redacted ... ].

[
37A.

Redacted
Redacted

] were defined to mean [... Redacted ... ].

The said grant accordingly extended not only to [...Redacted...] but also to other
[...Redacted...]. Fut1her, the said grant specifically extended to all [...Redacted...].

38.

At the time of the Patent License Agreement, the Defendants had only a limited
numbcr of patents relating to technology required to meet the GSM standard.

39.

By contrast, the Claimant held numerous patents, in particular relating to technology

required to meet the GSM standard. As far as the Defendants are aware from public
sources, the Claimant was, and continues to be, the holder of the second largest
number of declared essential patents under the GSM standard. [... Redacted ... ].

APLNDC-WH-A0000022610

40.

Under the Patent License Agreement, the Defendants agreed [...Redacted ...].

41.

Clause [... Redacted ... ] of the Patent License Agreement stated inter alia that:

[...Redacted...].
42.

Clause [... Redacted... ] of the Patent License Agreement also stated that:
[...Redacted...].

43.

By clause [... Redacted ... ] of the Patent License Agreement, the Defendants agreed
to license their patents to the Claimant for [...Redacted...].

44.

The Patent License Agreement commenced on [... Redacted ...] (the [...Redacted...])
and was to continue to the expiry date of [...Redacted ... ] (unless tenninated by either
paIiy before that date). By Clause [... Redacted ... ]:
[... Redacted ... ].

45.

As indicated above, Clause [... Redacted ... ] of the Patent License Agreement
[...Redacted...].

46.

At the time when the Patent License Agreement was entered into, both parties
anticipated that the

[...Redacted...]

agreed between

them would represent

[...Redacted...].
47.

In the course of the negotiations for the. Patent License Agreement, the patiies refened
to [...Redacted...].

48.

In fact, on the basis of [... Redacted ... ], the effective average royalty rate for the
[...Redacted ] over the period [...Redacted...] was [...Redacted ]. If, in accordance
with Clause [

Redacted... ] of the Patent License Agreement, [ Redacted...], then

the effective average royalty rate is [... Redacted... ].

APLNDC-WH-A0000022611

Declaration of the Patents in Suit as Essential
49.

In its Particulars ofInfringement, the Claimant states at Paragraph 3(2):
"The Claimant believes and has declared the Patents to be essential in relation to the
European Telecommunications Standards Institution's GSM standard".

50.

The Claimant declared each of the Patents to ETSI as essential in relation to the GSM
standard on 22 February 2002. The following statement appears on the Claimant's
declaration for each Patent:
"The signatory and/or its affiliates hereby declare that they are prepared to grant
irrevocable licences under the IPRs on terms and conditions which are in accordance
with Clause 6.1 of the ETsr rPR Policy, in respect of the standard, to the extent that
the IPRs remain essential".

51.

Clause 6.1 of the ETSI IPR Policy refers to fair, reasonable and non-discriminatory
("FRAND") tenns and conditions.

52.

Therefore, by the said declarations, the Claimant undertook to grant irrevocable
licences under the Patents on FRAND tenus and conditions.

53.

The declaration for each of the Patents was published on the ETSI website for the
infolmation of ETSI members and potential licensees, such as the Defendants.

53A.

The Claimant has declared (and continues from time to time to declare) a large
number of other patents as essential, to ETSI and to other relevant industry standardsetting bodies (such as OMA).

The negotiations between the parties in [... Redacted... ]
54.

Since [... Redacted ... ] (when the Patent License Agreement was entered into), the
Defendants have expanded their pOlifolio of essential patents for the GSM standard
and, to an even greater extent, for the WCDMA standard.

55.

By [... Redacted ... ], the Defendants estimated that their portfolio of WCDMA
essential patents had increased both in absolute terms and relative to the portfolio of

II

APLNDC-WH-A0000022612

essential WCDMA patents held by the Claimant. According to infoll11ation published
on the ETSI website:

55.1

the Second Defendant is now one of about 20 undertakings holding up to 50 GSM
declared essential patents, while the Claimant is one of about 7 undertakings holding
101 or more GSM declared essential patents;

55.2

the Second Defendant is now one of about 10 undertakings, along with the Claimant,
holding 101 or more WCDMA declared essential patents.

56.

In [...Redacted...], the Claimant and the Defendants entered into technical
negotiations for a new patent licence agreement, with commercial negotiations
commencing in [...Redacted...]. They failed to reach agreement. The Claimant then,
on 21 February 2006, initiated the present

proceeding~

(together with patent

infringement proceedings in the USA, Gennany and the Netherlands) seeking inter
alia injunctions to prevent the Defendants making use of the Patents.

57.

Before the Claimant initiated the present proceedings, its final position in negotiations
with the Defendants [... Redacted ] was that the parties should enter into a
[...Redacted...] year cross-licence [ Redacted...] (see Paragraphs 37 to 37A above),
for [...Redacted...] having allegedly been calculated by the Claimant by reference to
[...Redacted...].

58.

The Defendants did not accept the Claimant's offer on the basis that it did not appear
to them fair or reasonable having regard to the level of the previously agreed licensing
fee (under the Patent License Agreement), to the treatment by Ericsson (so far as
discernable) of other comparable licensees including [...Redacted...], and to the
increased value of the Defendants' own patent pOlifolio since the time of the Patent
License Agreement.

Further, the Defendants were unable to assess whether the

Demanded Royalty was non-discriminatory nor the principles upon which the
calculation of the Demanded Royalty had been based. The Claimant did not at any
time during the negotiations between the parties in 2005 provide any adequate
explanation of the steps that it had taken to ensure that the Demanded Royalty was

APLNDC-WH-A0000022613

fair, reasonable and non-discliminatory nor did it adequately explain upon what
principles the Demanded Royalty was based.

59.

The Defendants' final position in the negotiations with the Claimant beforc the
commencement of these proceedings was that the parties enter into a [...Redacted...]
year cross-licence [...Redacted...] for technology under [...Redacted...].

60.

In the light of the Claimant's declaration to the effect that it was prepared to license
its declared essential patents on FRAND tenns and conditions, the Defendants'
solicitors wrote to the Claimant's solicitors on 5 June 2006, asking in particular for:

60.1

a full and clear explanation of the basis on which the Claimant values its own
essential patents for licensing purposes, and calculates the royalties that are to be paid
by each of its licensees, including an explanation of the basis on which the Claimant
values any patents offered by way of cross-licence when setting royalty rates;

60.2

an explanation of the Claimant's understanding of, approach to, and implementation
of FRAND tenns and conditions, including at least:

60.2.1 a full and clear explanation of the Claimant's approach to the duty of nondiscrimination, and how this is implemented by the Claimant in practice across
licensees and potential licensees;
60.2.2 what steps the Claimant has taken (and continues to take) to ensure that its agreements
and demands for royalties payable under licences in respect of patents declared as
essential are fair and reasonable;
60.2.3 full details of any intemal written assessment that the Claimant has actually carried
out conceming the requirements of its undertaking to ETSI to license essential patents
on FRAND terms and conditions; and
60.3

the basis for the Claimant's belief that the terms and conditions of its final prelitigation offcr to the Defendants in respect of the licensing of the Patents were
FRAND with a copy of the Claimant's own contemporaneous written internal
asscssmcnt 0 I' that issllc~ ,mel

APLNDC-WH-A0000022614

60A

"confinnation that every other company currently engaged in any commercial activity
in (respectively) the GSM and WCDMA markets has signed a licence with and is
paying a licence fee to the Claimant or that a licence is cUlTently under negotiation".

61.

By letter dated 13 June 2006, the Claimant's solicitors replied as follows:
"Thank you for your letter of 5 June 2006.
As we are yet to receive either of your clients' Defences regarding this matter we do
not feel it appropriate to provide a response to your requests for disclosure at this
stage".

62.

By letter dated 15 June 2006, the Defendants' solicitors wrote further explaining that
the Defendants remained ready to enter into a cross licence with the Claimant as soon
as it could be satisfied that the tenns and conditions offered were fair, reasonable and
non-discriminatory. The Defendants' solicitors stated that the infonnation sought in
its letter of 5 June 2006 was requested to assist them in making that assessment on a
fair basis and asked the Claimant's solicitors to reconsider their refusal to supply the
infonnation requested.

63.

As at the date of this Amended Defence, the Claimant's solicitors have still not
provided the infonnation requested by the Defendants (despite the request having
been repeated by the Defendants' solicitors in letters dated 14 July, 21 July and 26
July 2006).

63A.

On 20 July 2006, the Claimant served its Reply and Defence to Counterclaim. As at
the date hereof, that document contains the most complete explanation that the
Claimant has yet been prepared to give about the basis on which it has been willing to
enter into a patent licence agreement with the Defendants. In Paragraph 25 of the
Reply and Defence to Counterclaim, the Claimant has asserted simply that:

63A. I It uses a system of "reference royalty rates" in relation to "the licensing of GSM
products" [...Redacted...] and in relation to "the licensing of WCDMA products"
[... Redacted...].

1-1

APLNDC-WH-A0000022615

63A.2 It has applied a discount from those reference royalty rates in making its offer to the
Defendants, in order to take account of "a number of factors". Those factors are said
to have included (a) the Defendants' patent portfolio in each technology; (b) the
parties' respective projected volumes of worldwide sales of each party's and Sony
Ericsson's products; (c) the present and future business relationship between the
parties; and (d) the benefits and risks [... Redacted... ].
63B.

The Claimant's description of its approach is inadequate to justify, or even to enable
the Defendants to understand, how it has arrived at the Demanded Royalty. Thus:

63C.

The basis for the reference royalty rates is opaque. For example, the Claimant does
not show, or indicate, that it has taken into account the overall licensing situation for
licensees generally, including the cost of obtaining all necessary licences from other
relevant patent holders for ill relevant technologies in the end products.

63D.

The Claimant has given no adequate explanation of the way in which it has applied a
discount from those reference royalty rates in the present case, so as to arrive at the
Demanded Royalty.

63E.

The Claimant does not purport to have taken into account, in setting the Demanded
Royalty, the tenns and conditions onwhich it has granted licences to other parties
(including [... Redacted...]) who are in a comparable position to the Defendants qua
licensees, with a view to ensuring that there is no discriminatory treatment of the
Defendants and that the Defendants are not placed at a competitive disadvantage in
relation to the supply of mobile handsets in the European Union.

The Claimant's revised offer made on 7 August 2006

63F.

On 28 July 2006, following a proposal made by the Claimant that it should collect the
licensing terms previously offered to the Defendants into a single document, the Court
directed that the Claimant should serve on the Defendants "a written statement setting
out the tem1S on which it is prepared to enter into a cross-licence with the Defendants
including the patents in suit".

APLNDC-WH-A0000022616

63G.

On 7 August 2006, the Claimant served on the Defendants its proposed draft crosslicence ("the Revised Ericsson Offer"). The Defendants will refer to the full tenns
and conditions of the Revised Ericsson Offer at trial.

In summary, the Claimant

proposed that the parties would grant each other [...Redacted...] licence of
[ Redacted ].

[... Redacted... ] were given a precise definition, to mean

[ Redacted ].
63H.

Accordingly, unlike the 2001 Patent License Agreement between the patiies, and out
of line with the basis of the negotiations between the parties in [... Redacted... ]
relating to a successor agreement, the Revised Ericsson Offer makes no provision for
the inclusion in a new cross-licence of [...Redacted...].

631.

Under the Revised Ericsson Offer, the Defendants would be required to pay the
Claimant a [...Redacted...] together with a [...Redacted...].

63J.

By its solicitors' letter of 18 August 2006, the Claimant declined to provide
[ Redacted ] to be paid under the Revised Ericsson Offer, but stated that
[ Redacted ] could be calculated by applying the [...Redacted...] to [...Redacted...]
and [...Redacted...] (see letter from Claimant's solicitors of 18 August 2006).

63K.

The Defendants have not accepted the Revised Ericsson Offer. As in the case of the
Demanded Royalty (and a fortiori in view of the restriction in [...Redacted...]), the
Revised Ericsson Offer does not appear to them fair, reasonable or non-discriminatory
having regard to the level of the previously agreed licensing fee under the Patent
License Agreement, to the treatment by Ericsson (so far as discemable) of other
comparable licensees including [...Redacted...], and to the increased value of the
Defendants' own patent portfolio since the time of the Patent License Agreement.

63L.

Further, the Defendants are similarly unable to assess the principles upon which the
calculation of the Revised Ericsson Offer has been based. The Claimant has failed to
give any explanation as to how or why it says that the tenliS and conditions of the
Revised Ericsson Offer are fair, reasonable and non-discriminatory over and above its
asseltion (which is denied) tbat "[t]his proposal ret1ects the last offer made by [the
Claimant] in the pre-litigation negotiations" and that "[... Redacted... ] (as pleaded in

APLNDC-WH-A0000022617

our clients Reply and Defence to Counterclaim) and; in addition, were calculated to
incentivise [the Defendants] to settle the dispute without recourse to litigation" (see
the letter from the Claimant's solicitors of7 August 2006).

The Claimant's further increase in its licence demands in January 2007

63M.

On 5 January 2007, the Claimants sought to limit the scope of the Revised Ericsson
Offer even further. By letter from Messrs Bird & Bird, the Claimant stated that the
offer was intended [...Redacted...], and that, despite its wording, it was meant to
cover [...Redacted...] in respect of the [.•.Redacted...].

63N.

Subsequently, on 15 January 2007, Bird & Bird on behalf of the Claimant served
[...Redacted...]. These were:

63N.l [...Redacted...]; and
63N.2 [...Redacted...].
630.

[...Redacted...].

63P.

[... Redacted...].

63Q.

The Claimant has refused to infonn the Defendants, pursuant to written requests made
by their solicitors Messrs Bristows on [... Redacted ... ] and [... Redacted ... ], of the
basis on which the Claimant asserts that its licence offers are FRAND. The Claimant
has even refused to explain why the [...Redacted...] is different from [...Redacted...].
Its position, in relation to explaining the basis of its offers in any way, was set out in a
letter from Bird & Bird dated 18 January 2007:

"Wc have made it clear that our client believes that the obligation to grant a
FRAND licence does not in any way impOli an obligation to justify any such
offer by giving reasoning and evidence in suppOli."

APLNDC-WH-A0000022618

Breach of contract

63R.

Thc Claimant and the First. Defendant are both members of ETSI. The ETSI rules,
including the ETSI IPR Policy, take effect as a multilateral agreement between its
members, governed by French law ("the ETSI agreement").

63S.

The Claimant has expressly agreed and undeliaken, in accordance with clause 6.1 of
the ETSI IPR Policy, and its fonnal written undertakings made thereunder, to be
prepared to grant irrevocable licences on fair, reasonable and non-discriminatory
tenns under all its patents declared as essential to ETSI (including the Patents). The
Claimant has admitted that it is under a binding legal obligation to grant a licence
under all such essential patents on fair, reasonable and non-discriminatory tenus: see
in particular paragraph 20 of the Claimant's Reply and Defence to Counterclaim.

63T.

Under French law, the content of the Claimant's obligation to be prepared to license
on fair, reasonable and non-discriminatory tenus must be interpreted in the light of the
facts and circumstances surrounding the adoption of the said obligation in the ETSI
IPR Policy.

The relevant facts and circumstances include, in particular, the

desire/need of the ETSI members concerned to comply with EC competition law, and
to avoid the intervention of the European Commission if no competition lawcompliant IPR policy could be adopted. In consequence, and in view of the potential
applicability of the prohibitions in Articles 81 and 82 EC, the obligation to license
standard-essential patents on "fair and reasonable", as well as on "nondiscriminatory", tenns includes an obligation to ensure that the tenns of licensing do
not infringe Articles 81 and/or 82 EC and in particular do not hinder effective
competition between manufacturers and suppliers of mobile telephone handsets, and
that the interests of final consumers of mobile handsets (in particular in not paying
excessive prices) are not hanned.
63U.

The Claimant's liccnsing offers under its portfolio of essential patents (culminating in
the Amended Revised Ericsson Offer) have not been on fair, reasonable and nondiscriminatory terms. The Claimant is thereby in breach of its contractual obligations
under the ETSI agreement. The Defendants refer to and rely on all of the facts and
matters which are set out at Paragraphs 80 to 84A below.

APLNDC-WH-A0000022619

Breach o(the obligation to negotiate in goodfaith / transparently

63V.

Fmiher, as a result of the Claimant's said declarations to ETSI, and in the light of the
matters set out in Paragraphs 30 to 36 and 63T above relating to the objectives and
principles of the ETSI IPR Policy to which the Claimant has subscribed, the Claimant
is obliged under the French law of obligations to enter into good faith negotiations
with the Defendants for the licensing on FRAND tenDS of the patents that it has
declared as essential.

63W. The obligation to negotiate in good faith for the grant of a licence on FRAND ten11S
necessitates:

63W.I that the Claimant should demand only tenDS and conditions that are FRAND, and
which are based upon a cogent justification;
63W.2 the provision by the Claimant of a full and clear explanation of the basis on which it is
asserted that any demanded tenDS and conditions are FRAND, namely each of (a) fair
(b) reasonab Ie and (c) non-discriminatory; and
63W.3 that the Claimant should answer in good faith any challenge made or questions raised
by a potential licensee, such as the Defendants, concerning any demanded tenDS and
conditions for the grant of a licence.
63X.

In breach of the said obligation of good faith, the Claimant has refused, and continues
to refuse, to explain to the Defendants (in response to their solicitors' request) and to
justify the principles, facts and matters on which it bases and purports to justify the
Demanded Royalty and/or the royalty proposed under the Amended Revised Ericsson
Offer. The Defendants refer to and rely upon the matters set out at Paragraphs 63V to
63Wabove.

63Y.

Instead of negotiating in good faith, the Claimant has initiated these proceedings in
order to exert pressure on the Defendant to agree to its unfair, unreasonable and
discriminatory demands for a new patent licence agreement, or else be driven from
the market for the supply of mobile telephone handsets. The Claimant has thereby

APLNDC-WH-A0000022620

'wrongly tenninated the negotiations between the patiies in breach of its obligation to
negotiate for the licensing of the Patents (and all patents declared to ETSI and othcr
relevant industry standard setting bodies as essential) in good faith.

Article 81 EC and/or section 2 of the Competition Act 1998
63Z.

Further or alternatively, the obligations referred to in Paragraphs 63S, 63T, 63V and
63W above are required by, as well as in order for the agreement between
undeliakings which is comprised by the ETSI rules ("the ETSI agreement") to be
compatible with, Article 81 EC and/or the Chapter I prohibition:

63Z.1. The ETSI agreement is an agreement between undeliakings which, actually or
potentially, restricts competition on the market for the supply of mobile telephone
handsets within at least the European Union (see further Paragraphs 67 to 69 below),
and affects trade between member states (see further Paragraphs 85 to 86 below). In
particular, the GSM standard adopted within ETSI requires to be implemented by all
manufacturers and suppliers of mobile telephone handsets for use within (at least) the
European Union. Similarly, the WCDMA standard requires to be implemented by all
manufacturers and suppliers of 3G mobile telephone handsets.

Against that

background, the ETSI agreement operates, actually or potentially, to confer market
power on its members who are owners of essential patents under the applicable
technical specifications and standards, vis-a.-vis mobile handset suppliers who need to
take licences under such patents for their business purposes.
63Z.2. The ETSI agreement is made compatible with the requirements of Aliicle 81 EC
(including the conditions of Article 81 (3) EC) only if and to the extent that, under the
agreement, members owning essential patents are prepared to grant licences under
those patents on FRAND tell11S, when requested to do so.
63Z.3

lf~

under the provisions of the ETSI agreement, members owning essential patents

may refuse to license any party who is unwilling to accept without question a bare
assertion that the tell11S proposed by the patent owner are allegedly FRAND, then the
agreement will not provide a sufficient mechanism to ensure that licences

011 t~lir,

20

APLNDC-WH-A0000022621

reasonable and non-discriminatory tenns are actually granted so as to be compatible
with Aliicle 81 EC.

63AA. Paragraphs 63Z to 63Z.3 above are repeated with respect to the application of the
Chapter I prohibition rather than Article 81 EC, save that references to effects on
trade within the United Kingdom should be substituted for the references to effects on
trade between member states.
63BB. The refusal by the Claimant to license the Defendants under its portfolio of essential
patents on fair, reasonable and non-discriminatory tenns, and/or the Claimant's
refusal to justify in any way the basis of its licence offers, represents an exercise of
intellectual property rights that itself falls within the prohibition in Article 81 EC
and/or the Chapter I prohibition, being the object, means or consequence of the ETSI
agreement.
63CC. In the premises, even if (which is denied) the Patents are valid and infringed, the
Claimant may not obtain the relief that it seeks in these proceedings and will be
limited to a remedy in damages equivalent to that which the Claimant can establish
would be payable under a licence on fair, reasonable and non-discriminatory tenns.
Article 82 EC and/or section 18(1) of the Competition Act 1998

64.

The Claimant's refusal to grant a licence to the Defendants in respect of its portfolio
of technically and commercially essential patents (having the same scope as under the
PLA) otherwise than by imposing unfair trading conditions is an abuse by it of a
dominant position contrary to Article 82 EC and/or section 18( 1) of the Competition
Act 1998 ("the Chapter II prohibition"), and the Claimant is not entitled to the relief
sought by it in these proceedings.

Relevant markets

65.

For the reasons set out in Paragraphs 17 to 21 above, any undeliaking that wishes to
manufacture or supply mobile telephone handsets for use in the European Union

APLNDC-WH-A0000022622

today (whether 2G or 3G handsets) must ensure that the handsets incorporate
technology that complies with the GSM industry standard.

66.

The Patents are declared to. be essential for compliance with the GSM industry
standard and (for the purposes of this competition law defence) are assumed to be so
(see Paragraph 6 above). Therefore, any undertaking that wishes to manufacture or to
supply mobile telephone handsets for use in the European Union today cannot avoid
utilising the technology which is the subject-matter of each of the Patents. In other
words, the relevant technology represents an indispensable input from the point of
view of any such undertaking, since there are no actual or potential substitutes for it.

67.

In these circumstances, there is a relevant economic market for the supply, within (at
least) the European Union, of the technology that is covered by each of the four
Patents.

67 A.

Further or alternatively, there is a relevant economic market for the supply within at
least the European Union of technology required to be implemented for the supply of
commercially saleable 2G and/or 2G and 3G mobile telephone handsets; alternatively, .
there is a relevant market for the supply of all the technology owned or controlled by
the Claimant which is required to be implemented for the supply of commercially
saleable 2G and/or 2G and 3G mobile telephone handsets.

67B.

By reason of its possession of a large portfolio of patents (including the Patents) that
have been declared essential to the relevant industry standards (including the GSM
and WCDMA standards, and the OMA specifications applicable to those standards),
and/or which are in fact commercially essential from the point of view of mobile
telephone handset suppliers, the Claimant occupies a dominant position in the
economic market or markets refelTed to at Paragraphs 67 to 67A above ("the relevant
technology markets").

68.

Further, and insofar as it is necessary to establish the same, there is also a relevant
economic market for the supply of mobile telephone handsets for use within (at least)
the European Union (being handsets that need to comply with the GSM industry
standard. and in respect of which use of the technology covered by essential patents

APLNDC-WH-A0000022623

under that standard is required). The relevant technology markets are "upstream"
markets in relation to the "downstream" market for the supply of mobile telephone
handsets.

69.

The downstream handset market is limited to 2G handsets, on the basis that a
hypothetical monopolist of such products within (at least) the European Union would
be able to raise its prices by a small but significant amount (5-10 per cent.) for a
significant time, without this strategy being rendered unprofitable as a result of
consumers switching their purchases to other products, and in particular to the only
other widely available commercial substitute product, namely 3G handsets.
Alternatively, the downstream handset market comprises both 2G and 3G handsets.

The Claimant's dominant position
70.

The Claimant holds a dominant position in each of the relevant technology markets.
Any undertaking that wishes to carryon business in the economic market for the
supply of mobile telephone handsets for use in the European Union has no choice but
to seek and obtain a licence under the Claimant's portfolio of essential patents
(including the Patents).

If the Claimant were to choose to exploit any such

undertaking by, for example, charging excessive and/or discriminatory prices, that
undertaking could not respond by switching its purchases of the relevant technology
to an alternative supplier, or by using some alternative technology. The Claimant is
therefore an unavoidable trading partner for any undertaking wishing to compete in
the mobile handset market in the European Union. It faces no competitors in the
supply of the relevant technology, and it has the power to behave to an appreciable
extent independently of its customers and, ultimately, consumers.
71.

The Claimant's position of dominance in relation to the relevant technology markets
is strengthened by the fact that the Claimant does not itself carryon business in the
supply of mobile telephone handsets for use in the European Union (although it has an
interest in the SonyEricsson joint venture), and therefore the ability of potential
licensees to counter any unreasonable demands by the Claimant as respects the tel111S
of licensing of its portfolio of essential patents (including the Patents), by threatening

APLNDC-WH-A0000022624

to withhold from the Claimant licences of their own essential patents relevant to the
supply of handsets, is very limited.

72.

Similarly, the Defendants and other potential licensees under the Claimant's essential
patent portfolio (including the Patents) are unable effectively to counter any
unreasonable demands by the Claimant by threatening to withhold licences of their
own declared essential or other patents relevant to the supply by the Claimant of
telecommunications network equipment and services.

That is so because, among

other matters:
n.l

the Claimant has a very powerful and well-established market position and installed
base in the supply of network equipment and services: see Paragraph 7 above. In
particular, approximately forty per cent. of all mobile telephone calls are made
through the Claimant's systems. The businesses of other undertakings (such as the
Defendants

and

customers

of the

Defendants)

involved

111

the

mobile

telecommunications industry are, in varying degrees, reliant upon the continued
effective provision of the Claimant's network equipment and services;

n.2

the market for the supply of network equipment and services is characterised by the
conclusion of infrequent agreements with a small number of customers, whereas the
handset market is characterised by the need for suppliers (such as the Defendants) to
conclude agreements with a large number of customers on a regular and frequent
basis. Accordingly, the shOli-term commercial effects on the Claimant's network and
equipment sales of any threat by the Defendants to withhold licences of their essential
patents is different from, and in practice far less than, the effects on the Defendant's
handset sales of a threat by the Claimant (as in these proceedings) to do likewise.

73.

Moreover, the Claimant's position of dominance, and the extent of its special
responsibility not to allow its conduct to impair genuine undistOlied competition, are
strongly reinforced by the lack of transparency in the relevant technology markets, to
which the Claimant, through its conduct, contributes. As explained in the following
paragraphs, that lack of transparency n0Il11ally renders it impossible for any potential
licensee to know whether the licensing tenns being offered by the Claimant are fair,

APLNDC-WH-A0000022625

reasonable and non-discriminatory, at least in the absence of co-operation hom the
Claimant itself.

74.

It is a common feature of licensing agreements for essential (and non-essential)

patents for inter alia the GSM and WCDMA standards that they contain in practice a
confidentiality or non-disclosure clause, under which the parties are obliged not to
disclose to any third pmiies the tenns of the agreement, including the royalty rates or
licensing fees that are paid by the parties thereunder.
75.

In view of that feature of the industry, any potential licensee is nonnally entirely
dependent upon the patent holder to explain fully the principles upon which it bases
the tenns and conditions that it desires to impose under any proposed patent licence,
and to demonstrate that those tenns and conditions are compatible with Article 82 EC,
in that they are, in all relevant respects, fair and reasonable and non-discriminatory.

76.

In these circumstances, if, as in the present case, the holder of declared essential
patents relating to the GSM industry standard refuses to explain the principles on
which it bases the tenns and conditions under any proposed patent licence, this
precludes the possibility for a potential licensee to negotiate in order to ensure the
application of fair trading conditions for the purposes of Article 82 EC, and thereby
enables the patent holder to impose abusive trading conditions, including excessive
and/or discriminatory pricing.

77.

The following are the best particulars that the Defendants can give of the abuse of
dominance by the Claimant pending clarification of the basis for the Revised Ericsson
Offer.

Abuse
(1)

Refusal to license otherwise than by the imposition of unfair and/or discriminatOlY
trading conditions

77A.

As of [... Redacted... ], the Revised Ericsson Offer effectively replaced the
Claimant's tinal position in pre-litigation negotiations with the Defendants (as set out

APLNDC-WH-A0000022626

in Paragraph 57 above). As at [.,.Redacted... ], the Revised Ericsson Offer was itself
effectively amended when the Claimant issued ten11S for a [...Redacted...] (see
paragraphs 63M to 63Q above).

The following paragraphs of this Re-Amended

Defence therefore focus on the Revised Ericsson Offer, as amended by the subsequent
offers in respect of [...Redacted...] ("the Amended Revised Ericsson Offer").

78.

As a result of exceptional circumstances, the Claimant's refusal to grant the
Defendants a licence under its portfolio of essential patents (including the Patents)
unless they agree to the Amended Revised Ericsson Offer is an abuse of a dominant
position in breach of Article 82 EC and/or section 18(1) of the Competition Act 1998,
for the following reasons:

78.1

The Claimant's essential patents (including the Patents) relate to "industry standards",
and/or, without access on fair trading conditions to the technology covered by the
portfolio, it is impossible for any undetiaking sustainably to compete in the
downstream economic market for mobile telephone handsets in the European Union;

78.2

The Claimant does not seek to rely on its intellectual property rights in these
proceedings in order to reserve exclusively to itself the ability to manufacture and
supply mobile telephone handsets: rather, its intention is to extract unfair and/or
discriminatory licensing tenns from the Defendants as the price for their continued
presence in the market;

78.3

In recognition of the essential nature of the Patents and other patents within its
pOlifolio, the Claimant has made express declarations to ETSI of its preparedness to
enter into licences on FRAND tenns. However, despite this, the Claimant has refused,
and continues to refuse, adequately to explain to the Defendants (in response to their
solicitors' requests) the principles on which it bases and purports to justify the
Amended Revised Ericsson Offer.

78.4

The Defendants were, until recently, licensees of the Claimant, and they are existing
and important competitors in the market for the supply of mobile telephone handsets
in the European Union;

APLNDC-WH-A0000022627

78.5

In the premIses, if the Defendants cannot obtain a licence under the Claimant's
pOlifolio of essential patents (including the Patents) on fair trading conditions, they
will be unable economically to utilise the relevant technology and so to supply mobile
telephone handsets that comply with the industry standards on a fair commercial
basis; as a result, they will eventually be driven from the market for the supply of
mobile telephone handsets in the European Union, in which they currently compete,
thereby causing a significant loss in competition in the handset market to the
detriment of consumers; further or alternatively, the result of having to pay excessive
licence fees to the Claimant is likely to be reflected in increased prices of handsets to
consumers;

78.6

For all the reasons set out in Paragraphs 80 to 84A below, the royalty proposed under
the Amended

Revised

Elicsson

Offer is

an unreasonable,

excessive and

discriminatory price that cannot be objectively justified, and so the charging by the
Claimant of the royalty proposed under the Amended Revised Ericsson Offer would
be illegal as amounting to the imposition of an unfair selling price contrary to Aliicle
82(a) and/or Article 82(c) EC, and/or contrary to s.18(2)(a) and/or (c) of the
Competition Act 1998;
78.7

The Defendants aver insofar as necessary that they do not require a licence of the
Claimant's patents merely in order to duplicate goods or services already being
offered on the mobile handset market by the Claimant. The Claimant is not in fact
present on the mobile handset market (although the SonyEricsson joint venture
company is), and in any event the Defendants' range of mobile telephone products is
varied and innovative, and is different fi'om the range of products that is offered by
the SonyEricsson joint venture.

79.

There is no objective justification for the Claimant's constructive refusal to license its
portfolio of essential patents (including the Patents) to the Defendants in the present
case.

~ lit \:\ ()_~ _' _
~

APLNDC-WH-A0000022628

(2)

U/~fair

80.

FUliher or altemative1y, the royalty proposed under the Amended Revised Ericsson

/ excessive pricing

Offer, if charged, would constitute an unfair seiling price within the meaning of
Article 82(a) EC and section l8(2)(a) of the Competition Act 1998, for the following
reasons:
Comparators
80.1

The Demanded Royalty was unfair and/or excessive in that:

80.1.1 it was substantially in excess of any royalty or licence fee charged to the Defendants
by any other holder of essential GSM and WCDMA patents under comparable crosslicence agreements without there being any objective justification for this difference;
and
80.1.2 it exceeded the [... Redacted...] charged to the Defendants by [... Redacted ...] under
comparable cross-licence agreements [... Redacted...], without objective justification.
80.1.3 Since the Demanded Royalty was an unfair and exceSSIve selling pnce when
compared to the royalties and licence fees charged to the Defendants by other holders
of [... Redacted...] under comparable cross-licence agreements, the Amended Revised
Ericsson Offer is also an unfair and excessive selling price.
80.2

The Defendants refer to the following facts and matters in support of the allegations at
Paragraph 80.1 above:

. 80.2.1 The confidential cross-licence agreements upon which the Defendants rely at
Paragraph 80.1.1 above as rclevant comparators (where differences between the
agreements are not considered such as to remove their value as comparators), and
which have been disclosed to the Claimant, including those made since
[...Redacted ...] with: [... Redacted...].

APLNDC-WH-A0000022629

80.2.2 [... Redacted...] charged to the Defendants by [... Redacted ...] under comparable
cross-licence agreeme~ts is in the region of [... Redacted...] (including the royalties
and licence fees (if any) payable to all the licensors listed in Paragraph 80.2.1 above
and under the 2001 Patent License Agreement with Ericsson - see Paragraph 80.3
below), which faUs to be compared with [... Redacted...] sought by the Claimant
[...Redacted...] as the Demanded Royalty.

The yardstick o[the 2001 Patent License Agreement
80.3

The [... Redacted...] agreed by the pmiies under the Patent License Agreement was the
result of fair commercial negotiations between the parties. It was in line with the
licence fees paid by the Defendants to other holders of [... Redacted...] under
comparable cross-licence agreements.

The licence fee under the Patent License

Agreement provides a yardstick against which the fairness of the Demanded Royalty
and the royalty proposed under the Amended Revised Ericsson Offer may be
measured:
80.3.1 The Demanded Royalty represented a [... Redacted...] on the licence fee agreed by the
parties under the Patent License Agreement.

At [... Redacted...], the Demanded

Royalty is more than [... Redacted...] agreed by the parties under the Patent License
Agreement. Moreover, as noted above at Paragraph 45, only [... Redacted...] of the
[...Redacted...] related to the period on and after the Effective Date of the Patent

License Agreement [... Redacted...]. The Demanded Royalty is therefore more than
[...Redacted...] under the Patent License Agreement;

80.3.2 There is no objective justification for the said increase;
80.3.3 On the contrary, as explained above, the Defendants' patent portfolio (which would
be the subject of a cross-licence under the new agreement) has strengthened,
particularly as regards patents essential to the WCDMA standard, since the Effective
Date of the Patent License Agreement;
80.3.4 Moreover, since 2001, WCDMA technology has increased in importance. In :2005,
industry analysis showed that 3G handsets accounted for 53% of mobile telephone

APLNDC-WH-A0000022630

market growth in Western Europe 7 and their sales are growing at a fastcr ratc than
sales of 2G handsets. It is estimated that, by 2010, global sales of 3G handsets will at
least equal, and may have overtaken, global sales of2G handsets;
80.3.5 The value of essential patents for WCDMA technology has therefore also increased;
80.3.6 However, the Demanded Royalty failed to attribute any or any adequate value to the
Defendants' patent pOlifolio which would be cross-licensed to the Claimant.
80.3.7 Since the Demanded Royalty was an unfair and excessivc selling pnce when
measured against the yardstick of the licence fee charged under the Patent License
Agreement, the Amended Revised Ericsson Offer is also an unfair and excessive
selling price.
The need to take into account the cumulative royalties that have to be paid to licensors of
declared essential patents
80.4

The royalty proposed under the Revised Ericsson Offer fails to take into account the
cumulative royalty costs required to be paid to patent holders by undertakings wishing
to comply with the GSM standard (including associated 2.5G technologies such as
GPRS), and the WCDMA standard.

If undertakings carrying on business in the

supply of mobile telephone handsets (and in particular undertakings without any
essential patents of their own to cross-license) had to pay royalties to all relevant
patent holders that were in line with the royalty proposed under the Amended Revised
Ericsson Offer, the cumulative cost would be prohibitive and would therefore prevent,
restrict or distOli competition in the mobile handset market:
80.4.1 In a document entitled "Proposal for IPR Policy Refonn" presented to the ETSI
General Assembly meeting of 10-11 January 2006 at Munich by the Claimant,
Motorola and Nokia, the authors rcfelTed to the problem of "royalty stacking" and of
excessive cumulative royalties, and said:

(ISM .'\sS"Ci'llil111 .<I'llislics QI lO()():

3GS~vl

(\V-CDMA) l'cgiPlial statistics (\\'W\\'.gsl1llVprJd.cPI1l)

APLNDC-WH-A0000022631

" ... each essential patent owner can develop its own idea of how FRAND should
be applied in practice. This fragmented approach means that when there are
many essential patents and essential patent owners the overall license cost, Le.
the "cumulative royalties", are more uncertain.
Also the increasing tendency for multi-function, multi-technology products means
that there are ever more patents covering the end product, giving rise to the
phenomenon of so-called 'royalty stacking'.
Overall, cumulative royalties are perceived to be uncertain and often too high,
possibly even prohibitive".
(emphasis added)
80.4.2 In that document, the Claimant, Motorola and Nokia proposed that the FRAND
definition should be clarified by reference to a principle of "aggregated reasonable
tenns" which:
"means essential patent owners agree to grant licences on tenns that are objectively
commercially reasonable taking into account the overall licensing situation
including the cost of obtaining all necessary licences from other patent holders
for all relevant technologies in the end product.
" ... the proposed new definition in the IPR policy will enable and signal to judges
in patent litigation that they can and should look at the overall cumulative
royalty costs for a given standard and not just to assess whether the terms being
offered by one particular licensor are fair and reasonable in vacuo. In other
words the courts will be directed to takc into account the cumulative royalty
effect in standards where there are potentially many patent claims".
(emphasis added)
80.4.3 The Claimant, Motorola and Nokia emphasised that their proposal:
"is not really changing the nonnal practice and behaviour of licensing in the field.
What it does is to codify existing best practices."
80.4.4 In a statement dated 28-29 January 1998 made to ETSl's Special Mobile Group (in
which the Defendants pmiicipated), which statement was subsequently posted on
ETSl's website, the Claimant, together with Nokia, NTT DoCoMo, NEC, Fujitsu,
Matsushita (Panasonic) and Mitsubishi Electric, declared

its willingness to grant

licences to existing and future essential WCDMA patents on FRAND terms. The
Claimant and the other companies further stated:

APLNDC-WH-A0000022632

" ... WCDMA should become an open world standard accessible to all users and
manufacturers. For a rapid growth and a cost-effective solution for the next
generation of mobile communication services, the total cost of the IPR needed for
the standard must be addressed.
"Building on the foundation of the IPR policies of ETSI and other standards bodies,
an approach is needed to obtain clarity that IPR that is Essential to the WCDMA
standard' will be licensed to anyone wishing to obtain a license and that the
cumulative cost will be fair and reasonable....
"There shall be no upfront payments. The cumulative maximum cost should be set
at a reasonable level.
"These statements are made on the condition of reciprocity; paliies not accepting this
framework and requiring royalty rates that are not compatible with these aims shall
not receive the benefit of the undertakings by the original signatories and parties later
joining these principles."
(emphasis added)
80.4.5 In a press release dated 6 November 2002, the Claimant further announced that it had
entered into a "mutual understanding" with NTT DoCoMo, Nokia and Siemens:
"to introduce licensing arrangements whereby essential patents for W-CDMA are
licensed at rates that are proportional to the number of essential patents owned by
each company. The intention is to set a benchmark for all patent holders of the WCDMA technology to achieve fair and reasonable royalty rates.
"The companies together own the clear majority of the essential Intellectual Property
Rights (IPR) relevant to the W-CDMA standard selected already by about 110
operators worldwide. This arrangement would enable the cumulative royalty rate
for W-CDMA to be at a modest single digit level. .. ,
"It is of the utmost importance for the mobile communication industry and in the
interests of both licensors and licensees that the cumulative royalty cost of WCDMA is maintained at a competitive level which encourages both greater
growth and innovation in the industry," says Lothar Pauly, board member of the
Siemens Infonnation and Communication Mobile Group ....

"W-CDMA is the standard selected by most operators in the world for their future
business, and with this initiative we believe that the cumulative royalty rate will be
even lower for W-CDMA than GSM, which has enjoyed unrivalled success compared
to any other standard in the world" says Torbjorn Nilsson, Senior Vice President
Marketing & Strategic Business Development of Ericsson.

APLNDC-WH-A0000022633

"This initiative is meaningful for promoting the W-CDMA services hy keeping
cumulative royalty rate below 5%", says Kota Kinoshita, Executive Vice President
ofNTT DoCoMo.... ".
(emphasis added)
80.4.6 A precise assessment of what would be a reasonable cumulative royalty rate in the
market for the supply of mobile telephone handsets in the European Union will be a
matter of expert evidence. However, the Claimant has itself estimated that the typical
cumulative royalties payable by licensees supplying OSM-compliant products is 5-7
per cent. TheDcfendants will contend that this range represents an upper bound to a
fair cumulative royalty rate for a licensee with no significant intellectual propetiy to
cross-license. For a licensee holding essential patents which it is prepared to crosslicense, the Defendants will contend that the cumulative royalties should be still
lower.
80.4.7 During the negotiations between the parties in [... Redacted
that its standard royalty rates in relation to the licensing of [

], the Claimant stated
Redacted...] patents

were [...Redacted...] in respect of [...Redacted...] and [...Redacted...] in respect of
[...Redacted...].
80.4.8 As respects the licence fees demanded from the Defendants, the royalty proposed
under the Revised Ericsson Offer is to be calculated by reference to a [...Redacted...]
of the value of the Defendants' sales of 20 handsets based on the [...Redacted...] and
[ Redacted ] of the value of the Defendants' sales of 3G handsets based on the
[ Redacted ]: see Paragraph 631 above.

Those figures, moreover, are stated to

exclude licences under the Claimant's [•..Redacted ]. Under the Revised Amended
Ericsson Offer [ Redacted ], a licence including [ Redacted...] is to be calculated
by reference to [ Redacted ] on sales of 2G handsets based on the [...Redacted...]
and [...Redacted ] on sales of[...Redacted ]. If the Defendants had to pay royalties
to all other holders of declared essential [ Redacted...] patents in line with the
royalty proposed under the Amended Revised Ericsson Offer, the cumulative royalties
would be unfair and unreasonable and amount to substantially in excess of
[... Redacted ...].

APLNDC-WH-A0000022634

80.4.9 In particular, and hy way of il1ustration, in the case of essential patents under the
GSM standard, there are about 30 holders of declared essential patents by whom
royalties could be sought. About 7 of these (including the Claimant) hold 101 or
more declared essential patents according to infonnation published on the ETSI
website.
Failure to take account ofthe value ofthe Defendants' patent porffolio

80.5

Further or alternatively, the royalty proposed under the Amended Revised Et1CSson
Offer is unfair and/or excessive by reason of the fact that it fails to take any or any
adequate account of the value of the Defendants' patent portfolio which would be
cross-licensed to the Claimant, in particular, those patents which the Defendants have
declared as essential to ETSI under both the GSM standard and, more patiicularly, the
WCDMA standard:

80.5.1 As indicated above, in 2005, the Defendants estimated that their portfolio of essential
patents for GSM had increased since 2001, and that their portfolio of essential patents
for WCDMA had increased both in absolute tenns and relative to the portfolio of
essential WCDMA patents held by the Claimant.
80.5.2 The Defendants continue to obtain further patents essential to the WCDMA standard
and their position in this growing technology, relative. to that of the Claimant, is
improving all the time: According to infonnation published on the ETSI website, the
Second Defendant is now, together with the Claimant, one of about 10 undertakings
holding 101 or more declared WCDMA essential patents.
80.5.3 The Claimant's failure to take any or any adequate account of the value of the
Defendants' patent portfolio is evidenced by the fact that neither the Amended
Revised Et1CSson Offer nor the Demanded Royalty took into account the value of the
Claimant's or SonyEricsson's projected sales of infrastructure equipment or mohile
telephone handsets incorporating technology under the Defendants' relevant patents.

APLNDC-WH-A0000022635

Double payment

80.6

Further or alternatively, the royalty proposed under the Revised Ericsson Offer is
unfair and/or exces£ive

in

that it takes no account of the fact that about

[ Redacted ] per cent of the Defendants' mobile telephone handsets contain
[ Redacted ]

manufactured

under

a

licence

between

the

Claimant

and

[ Redacted ] supplied to the Defendants by [...Redacted...], and more than
[ Redacted ]% of the Defendants' 3G mobile telephone handsets (including all the
products listed in Annex 2) contain [ Redacted...] manufactured under a licence
between the Claimant and [...Redacted ]: see Paragraphs 104 to 107 below. The
Defendants believe that part of the price paid by them for the aforementioned
[...Redacted...] represents a royalty payment or other transfer of value to the Claimant
(e.g. through the Claimant making correspondingly reduced royalty payments to
[...Redacted...] or [...Redacted...], in respect of cross-licensed technology) to the
Claimant for the use of its technology. As the royalty proposed under the Revised
Ericsson Offer is based on a percentage of the actual sales price of the said handsets,
it therefore involves a double payment to the Claimant for the use of the technology
contained in the [...Redacted...].
No reasonable relationship between the royalty rates proposed for GSM and for WCDMA
essential patents

80.7

The royalty proposed under the Amended Revised Ericsson Offer involves a royalty
rate of [...Redacted...] for GSM patents and [...Redacted...] for WCDMA patents.
These rates cannot be based on objective criteria because the cross-licence value of
the Defendants' GSM patent portfolio (including essential patents) is significantly
smaller than the cross-licence value of its WCDMA patent portfolio (including
essential patents) so that if the royalty rates were calculated on the basis of objective
criteria, the royalty rate charged to the Defendants for WCDMA essential patents
would be expected to be lower than the rate charged to them for GSM essential
patents, rather than (as is the case) vice versa.

APLNDC-WH-A0000022636

Failure to take into account that royalties charged should not be excessive by comparison
with the Claimant's research and development costs

80A.

In setting the royalties proposed under the Amended Revised Ericsson Offer, the
Claimant failed to take into account that its total licensing income should not be
excessive by comparison with the Claimant's costs ofresearch and development, and
should reflect no more than a fair return on the investment made. The Claimant's
approach was simply to maximise the value of, and the retwns from licensing, its
intellectual property rights. Tn patiicular, the Claimant failed (adequately or at all) to
take into account, in its approach to the setting of the reference royalty rates under the
Amended Revised Ericsson Offer, the aggregate value that could be expected to be
derived from licensing the patents concerned in comparison with the costs of research
and development.

Nor, when setting the royalty rates in the Amended Revised

Ericsson Offer, did the Claimant take account of the very substantial licensing income
that it would thereby receive from the Defendants, given the Defendants' very
substantial worldwide sales of mobile telephone handsets. The assessment of what
would be a fair return on the Claimant's research and development expenditure will
be a matter for expert evidence at trial. The setting of excessive royalty rates by the
Claimant could be expected ultimately to lead to excessive handset prices paid by
consumers.
Failure to take into account the inherent and/or pre-standard value o{the patented inventions
80B.

In setting the royalties proposed under the Revised Ericsson Offer, the Claimant failed
to take into account that the rates charged in respect of technically essential patents
should conespond to the inherent and/or pre-standard value of the patented
inventions, and should not include that propOliion of the value which is due to the
effects of standardisation, or merely to interoperability.

Failure to use an appropriate base for the charging or royalties in view or developments in
the range offeatures ofFered by mobile telephone handsets
80C.

The Claimant's various offers all base the royalty rate on the net selling prices of the
Defendants' mobile telecommunications products, which are in significant part, and

APLNDC-WH-A0000022637

increasingly, detem1ined by extraneous features that do not relate to the licensed
telecommunications technology, such as photo and video cameras, games, colour
screens, mp3 players, and radio. The Claimants have not, or apparently not, taken
into account that the royalty rates it now requires (which arc understood to be based
on standard reference rates) should be appropriately reduced to reflect those
developments.
Over-recovery under the Amended Revised Ericsson Offer
80D.

The Claimant's combined offer made in [...Redacted... ] was arrived at simply by
adding [...Redacted...] to the royalty rates contained in the [... Redacted ... ] Revised
However, the latter offer was itself specifically intended to be a

Ericsson Offer.

crystallisation of the Claimant's final offer to the Defendants in the negotiations for a
successor cross-licence to the PLA (which expired in [... Redacted ... ]).

Those

negotiations between the parties were conducted on the basis that the parties would
arrive at a cross-licence with a similar scope to the PLA, which extended to
[ Redacted ].
[

Redacted

There was never any suggestion that those negotiations, or the

] offer, excluded [...Redacted...] until the Claimant's solicitors' letter

of 5 January 2007. Accordingly, even if (which is denied) the [... Redacted... ] offer
is on FRAND terms, it already implicitly includes a royalty element relating to the use
of the technology covered by all [...Redacted...] incorporated in the handsets, so that
the recovery of any additional sums by the Claimant would be unfair and
unreasonable.
80E.

For the avoidance of doubt, the Defendants aver that an undertaking in the position of
the Claimant must offer potential licensees in the position of the Defendants a single
licence under (at least) all its relevant telecommunication standard-essential patents
where it has accepted, or is otherwise under, obligations to be prepared to license all
such patents on fair, reasonable and non-discriminatory tet111S. In the altemative, the
tenns on which one group of standard-essential patents is licensed (e.g. essential
patents declared to ETSI) must still take account of the terms on which all other
standard-essential

patents

(e.g.,

[...Redacted...])

arc

Iiccnscd

to

the

samc

eounterparties, if they are to be fair, reasonable and non-discriminatory terms.

APLNDC-WH-A0000022638

(3)

Discriminatory pricing

81.

The royalty proposed under the Amended Revised Ericsson Offer, if charged, would
constitute the application of dissimilar conditions to equivalent transactions with other
trading parties, placing the Defendants at a competitive disadvantage, in breach of
Article 82(c) EC and/or sections 18(1) and (2)(c) of the Competition Act 1998.

82.

By its letters of 5 and 15 June 2006, the Defendants' solicitors asked the Claimant's
solicitors inter alia for details of the royalty rates charged by the Claimant to other
licensees for GSM/WCDMA patents that the Claimant has declared as essential, and
for an explanation of the Claimant's approach to the duty of non-discrimination and
how this is implemented by the Claimant in practice across licensees and potential
licensees. However, by its letter in reply of 13 June 2006, the Claimant's solicitor has
refused to provide that infonnation (see Paragraphs 60 to 62 above).

83.

Based on the infonnation available to the Defendants, and subject to further
infonnation and disclosure and/or inspection of disclosed documents, it appears that
the royalty proposed under the Amended Revised Ericsson Offer [... Redacted...] the
level of royalty charged by the Claimant to other similarly-positioned licensees,
without there being any objective justification for the difference:

83.1

[...Redacted...]

83.2

[...Redacted...]

83.3

[...Redacted...]

83.4

[...Redacted...]

83.5

[...Redacted...]

83.6

[...Redacted ...]

83A.

Moreover, the other terms proposed under the Amended Revised Ericsson Offer
would constitute the application of dissimilar conditions to equivalent transactions

APLNDC-WH-A0000022639

with other trading parties, placing the Defendants at a competitive disadvantage, in
breach of Article 82(c) EC and/or sections 18(1) and (2)(c) of the Competition Act
1998 for the following reasons:

83A.l Under the [... Redacted...] is granted a licence [... Redacted...].
83A.2 The basis upon which the royalty sum [... Redacted...] (and any further payments by
the party [... Redacted...]) was calculated for the purposes of the [... Redacted...]

IS

unclear.
83A.3 However, even if (which is not admitted) the royalty to be paid by [... Redacted...] to
the Claimant pursuant to the [... Redacted...] was calculated by reference to the same
royalty rates as those proposed by the Claimant to the Defendants under the Amended
Revised Ericsson Offer, because [... Redacted...] pays royalties in respect of the
Claimant's [... Redacted...] whereas the Amended Revised Ericsson Offer applies only
to [... Redacted...], the Defendants are charged a higher price by the Claimant (overall
and pro rata for the [... Redacted...]) for the ability to make and market mobile
telephone handsets that are compliant with the GSM and WCDMA standards.
83AA FUliher, even if the royalty proposed by the Claimant to the Defendants under the

Amended Revised Ericsson Offer has been reduced by the Claimant so as to reflect
the exclusion of [... Redacted...] from the Amended Revised Ericsson Offer, which is
not admitted, the exclusion of [... Redacted...] from the Amended Revised Ericsson
Offer still leaves the Defendants facing an extra practical hurdle compared to
[ Redacted ] (i.e. the need to obtain further patent licences in respect of
[ Redacted ] at reasonable rates) before they can supply mobile telephone handsets

that are compliant with the GSM and WCDMA standards.
83A.5 The aforementioned differences in treatment place the Defendants at a substantial
competitive disadvantage vis-a-vis [... Redacted...] in the highly competitive
downstream market for the supply of mobile telephone handsets for use within (at
least) the European Union (being handsets that need to comply with the GSM and
WCDMA industry standards).

APLNDC-WH-A0000022640

83A.6 The same reasomng applies mutatis mutandis to the [...Redacted...] under which

[...Redacted...] is granted a licence of the Claimant's [...Redacted...].

84.

If the Defendants were obliged to pay -the royalty proposed under the Amended
Revised Ericsson Offer, they would be placed at a competitive disadvantage as
against other participants in the market for the supply of mobile telephone handsets in
(at least) the European Union, who are charged a lower licence fee (or, in the case of
Sony Ericsson, none at all) without any objective justification for the difference in
treatment.

(4)

Lack of transparency

84A.

Fm1her or alternatively, the Claimant's approach to the negotiations with the
Defendants for a new patent licence agreement was, and is, abusive in itself, in that
the Claimant has at all material times failed or refused to provide the Defendants with
information sufficient to enable them reasonably to satisfy themselves that the terms
and conditions being requested by the Claimant were fair, reasonable and nondiscriminatory, and were based upon a cogent justification.

Effect on trade between Member States
85.

The abuses of dominance on the part of the Claimant, described at Paragraphs 77A to
84A above, may affect trade between Member States for the purposes of Article 82

EC:
85.1

Mobile telephone handsets are widely traded between European Union Member
States;

85.2

Changes in the cost base of different suppliers relating to common elements of cost
(such as the licence fees in respect of essential patents) are likely appreciably to
influence the prices, quantities or specifications of mobile telephones, and therefore
the conditions of competition between those suppliers on the market.

APLNDC-WH-A0000022641

86.

Further or altematively, the Claimant's abuses of dominance are likely to have an
appreciable effect on trade within the United Kingdom for the purposes of the Chapter
II prohibition, for the reasons set out in Paragraph 85.2 above.

Waiver / estoppel
87.

Further or in the altemative, the Claimant has waived its right to enforce the Patents
or any of them in these proceedings and/ or is estopped from doing so, either by
seeking injunctive relief or at all.

88.

By its declarations of essentiality to ETSI, the Claimant made a clear and unequivocal
representation to ETSl Members and to all other third-party undertakings that sought
to manufacture and supply mobile telephone handsets incorporating the relevant
technology, including the Defendants, that it was prepared to grant them irrevocable
licences under its portfolio of essential patents (including the Patents) on FRAND
tenns and conditions.

89.

In view of the purpose of making such declarations (see Clause 3 of the ETSl lPR
Policy) and in view of the statements of the Claimant reproduced at Paragraphs 90 to
91 below, the said representation was intended to affect legal relations between the
Claimant and inter alia the Defendants, and to be acted upon by the latter accordingly.
Alternatively, for the said reasons, it was of such a nature that a reasonable person
would have understood it to be so.

90.

In a document entitled "Proposal for IPR Policy Refonn: Minimum Change Optimum
Impact Approach (MCOl) - Frequently Asked Questions" presented to the ETSI
General Assembly meeting of 22-23 March 2006 at Neuss by the Claimant, Motorola
and Nokia, the authors confinned that declarations whereby holders of patents
essential to ETSI standards undertook to grant licences on FRAND tenns were legally
binding, as follows:

"It is proposed to introduce definitions of Aggregated Reasonable Tenns and
PropOliionality [as] pmi of the undertaking to grant licences on FRAND ten11S which
would be legally binding on ETSI Members. ...

APLNDC-WH-A0000022642

,.

It is proposed to continue to rely upon bilateral licensing and legal enforceability of
the rules against anyone violating them ...

A patent owner who is a member of ETSI will have to make a legally binding
commitment to license essential patents on FRAND terms based upon the principles
of aggregated reasonable tenns and proportionality. Technically, that commitment is
made to ETSI itself, which effectively extends to all ETSI members. We believe that
the Courts would not be able to ignore such a commitment in any relevant litigation".
91.

The Claimant, Motorola and Nokia emphasised that their position on these matters:
"is not really changing the non11al practice and behaviour of licensing in the field.
What it does is to codify existing best practices".

92.

The Defendants acted upon the said representation to their detriment as follows:

92.1

Since the said representation, the Defendants have continued to manufacture and sell
2G and 3G handsets containing the relevant technology on the assumption that they
would be able to obtain a licence under the Claimant's essential patent portfolio
(including the Patents) on FRAND ten11S.

92.2

Since the said representation, the Defendants have developed and launched new
versions of and upgrades to their 2G and 3G handsets containing the relevant
technology on the assumption that they would be able to obtain a licence under the
Claimant's essential patent portfolio (including the Patents) on FRAND ten11S.

92.3

Since the said representation, the Defendants have invested substantial sums of money
in research and development into mobile telephony, including in particular WCDMA
technology, with a view to including that technology in 2G and 3G handsets also
containing the relevant technology on the assumption that they would be able to
obtain a licence under the Claimant's pOlifolio of essential patents (including the
Patents) on FRAND tenTIs.

93.

The offer by the Claimant to grant a licence to the Defendants under its pOlifolio of
essential patents (including the Patents) upon payment of the royalty proposed under
the Amended Revised Ericsson Offer is not an offer to grant a licence on FRAND
tenns, as the royalty proposed under the Amended Revised Ericsson Offer is unfair,

·L2

APLNDC-WH-A0000022643

unreasonable and discriminatory for the reasons set out

Il1

Paragraphs 80 to 84A

above.

9<4.

The Claimant has never offered the Defendants a licence under the Claimant's
portfolio of essential patents (including the Patents) on FRAND terms for any period
after [... Redacted . .. ].

95.

The Defendants hereby aver that, should such a licence be offered on such tenns by
the Claimant the Defendants will accept that offer.

96.

In the premises, it would be unconscionable for the Claimant now to resile from the
said representation by enforcing the present claim for infringement of the Patents or
any of them.

97.

Therefore, the Claimant has waived its right to enforce the present claim for
infringement of the Patents or any of them and! or is estopped from doing so.

98.

Fmiher, and in any event, the Claimant has waived its right to seek injunctive relief
for infringement of the Patents or any of them and! or is estopped from doing so.

PATENT AND LICENCE DEFENCES

99.

[...Redacted...].

100.

[...Redacted...].

101.

[...Redacted...].

102.

[...Redacted...].

103.

[... Redacted...].

[... Redacted...] Licences

APLNDC-WH-A0000022644

104.

FUliher and in any event, the Defendants deny that the Claimant is entitled to the
relief sought or any relief in respect of the Defendants' products in respect of which
the Claimant complains which utilise [...Redacted...] supplied [...Redacted... ] and or
[...Redacted...].

105.

The Defendants understand that the [...Redacted...] are manufactured and distributed
by [...Redacted...] under a licence between the Claimant and [...Redacted...]. The
[...Redacted...] contain all means, or in the altemative, means relating to an essential
element of the alleged invention of the Patents which is suitable for putting and
intended to put the alleged invention of the Patents into effect.

Annex 1 hereto

contains a list of the Defendants' products which utilise the [...Redacted...].
106.

The Defendants understand that the [...Redacted...] are manufactured and distributed
by [...Redacted...] under a licence between the Claimant and [...Redacted...]. The
[...Redacted...] contain all means, or in the altemative, means relating to an essential
element of the alleged invention of the Patents which is suitable for putting and
intended to put the alleged invention of the Patents into effect.

Annex 2 hereto

contains a list of the Defendants' products which utilise the [...Redacted...].
107.

In the premises, the acts of whieh the Claimant complains in respect of such of the
Defendants' products as utilise the [...Redacted...] or the [...Redacted...] are acts
which are done with the consent of the proprietor of the Patents.

Non-Entitlement to Injunctive Relief
108.

In any event in its discretion the court should refuse to grant injunctive relief: but
grant damages in lieu for the following reasons:

108.1 The Claimant, having committed itself to licensing the Patents upon fair, reasonable
and non-discriminatory terms, has accepted that it can be cotnpensated in monetary
terms for any use of the Patents;
108.2 The effect of an injunction would be dispropOliionate, because it would go far beyond
preventing use of the inventions said to be the subject of the Patents;

14

APLNDC-WH-A0000022645

108.3 No alternative design is possible in respect of truly essential patents;

108.4 The lack of injunctive relief would not be injurious to the Claimant who would be
adequately recompensed by monetary damages;
108.5 The imposition of an injunction would, in the circumstances, be oppressive.
109.

In the premises, should the Claimant be entitled to any relief, which is denied, the
appropriate relief is the grant of a damages equivalent to a fair, reasonable and nondiscriminatory royalty.

PATENT COUNTERCLAIMS

110.

[... Redacted...].

111.

[... Redacted...].

112.

[... Redacted...].

AND THE DEFENDANTS COUNTERCLAIM FOR:
(1)

A Declaration that the Claimant's refusal to license its portfolio of essential
patents (including the Patents) to the Defendants otherwise than on the terms
of the Amended Revised Ericsson Offer and/or that the Claimant has
wrongfully refused to negotiate with the Defendants in good faith and on the
basis of a full and cogent justification of its demands for the grant of a licence
on tenns that are fair, reasonable and non-discriminatory is an abuse of
dominance contrary to Article 82 EC and/or the Chapter II prohibition, and is
thereby unlawful;

(2)

A Declaration that the Claimant has unlawfully and in breach of contract
refused to license the Defendants in respect of its portfolio of essential patents
(including the Patents) on FRAND terms and/or that the Claimant has
wrongfully refused to negotiate with the Defendants in good faith and on the

APLNDC-WH-A0000022646

basis of a full and cogent justification of its demands for the grant of a licence
on FRAND tenns;

(3)

An Order that European Patents (UK) No. [... Redacted...] be revoked;

(4)

A Declaration that European Patents (UK) No. [...Redacted...] are not
infringed by the Defendants' mobile handsets which utilise either the
[...Redacted...] or the [...Redacted...];

(5)

Further or other relief;

(6)

Costs.

JON TURNER QC
KASSIE SMITH
BRIAN NICHOLSON
Served this 15 th day of March 2007 by Bristows, Solicitors for the Defendants.

Statement of Truth

The Defendants believe that the facts stated
Counterclaim are true.

111

this Re-Amended Defence and

I am duly authOlised by the Defendants to sign this Statement of Truth.

Natne

.

Position or Office Held
Date

.
.

APLNDC-WH-A0000022647

ANNEX 1

List of the Defendants' handsets which utilise the [...Redacted...]

[...Redacted...]

APLNDC-WH-A0000022648

ANNEX 2

List of the Defendants' handsets which utilise the [...Redacted...]

[...Redacted...]

_' I Ii '''", '

~ ~

APLNDC-WH-A0000022649