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UK Court of Appeal Rejects Tesla’s Pool-Wide Rate-Setting Claims in Divided Ruling

March 9, 2025

Last July, the UK High Court dismissed a case filed by Tesla that sought the declaration of a fair, reasonable, and nondiscriminatory (FRAND) license rate covering Avanci, LLC’s entire 5G pool—declining to make such a determination through certain claims against Avanci itself or by forcing member InterDigital, Inc. to serve as a “representative” of the other standard essential patent (SEP) owners participating in that pool. Now, a divided UK Court of Appeal has upheld the dismissal of those claims, prompting a sweeping dissent from Lord Justice Richard Arnold.

Lord Justice Arnold’s Dissent

That dissent accounts for the bulk of the Court of Appeal’s March 6 decision—all but the last eight pages, out of 64—and explains the various reasons that Lord Justice Arnold would have allowed Tesla’s appeal. The dissent is recounted in detail below given the apparent divisions within the Court of Appeal on certain FRAND matters (particularly since Lord Justice Arnold’s view prevailed in last week’s interim SEP license decision in Ericsson v. Lenovo, which he authored) and to provide context for some of the legal and factual issues at play.

Lord Justice Arnold began his analysis by noting that the parties fundamentally dispute the scope of the court’s jurisdiction to grant declaratory relief. That jurisdiction, he explained, stems from the High Court’s “inherent” jurisdiction, or “more accurately” its “general” jurisdiction, which allows the court to make a negative declaration—i.e., one that “something is not the case”—at its discretion, where doing so would serve a “useful purpose” as well as the “aims of justice”. Courts have more recently held that on this basis, the High Court can determine what terms would be FRAND based on claims for infringement raised by a SEP owner against an implementer (Unwired Planet v. Huawei) and based on a claim for such a declaration from an implementer that has undertaken to accept a license set by the court (InterDigital v. Lenovo).

He then noted that the issue in this appeal was whether there are further limits on the jurisdiction described above, proceeding to review a series of more recent cases where courts had weighed requests for declarations. Here, Lord Justice Arnold found that those decisions reflected four additional principles: that a declaration’s underlying purpose “must be not only useful, but also legitimate” (Teva v. Novartis); that for the court to properly decide a legal issue, “it is necessary for there to be an applicable legal rule or standard” (Vestel v. Access Advance); that the “court must consider the effect of the declaration not only on the parties before the court, but also on persons who are not parties” (Rolls Royce v. Unite the Union); and that the court must also consider whether “alternative remedies” are available (Milebush v. Tameside).

–  Tesla’s Claims Against Avanci

Lord Justice Arnold then proceeded to address Tesla’s appeal of the High Court decision, beginning with the latter’s ruling that there were no serious issues to be tried for Tesla’s claims against both defendants under the Court of Appeal’s 2021 decision in Vestel v. Access Advance. In that case, Turkish implementer Vestel sought a FRAND declaration as to the HEVC Advance pool administered by defendant Access Advance. The complaint also named patent owner Philips, sued in its own capacity and as a representative of the other licensors in the pool. While Vestel originally asserted various legal bases for a FRAND determination, by the time the case was on appeal, its revised claim for relief only sought to ground its claim on the court’s general jurisdiction. The Court of Appeal held, in relevant part, that Vestel’s claim failed because it had not shown a legal right to a FRAND declaration on that basis, as there is “no such thing as a free standing FRAND claim” under UK law.

Here, Lord Justice Arnold agreed with Tesla that this case can be distinguished from Vestel: While the plaintiff in that case did not show that the intellectual property rights (IPR) policy of the relevant standard-setting organization (SSO), the International Telecommunication Union (ITU), required patent owners to commit to offering FRAND terms (as the ITU’s patent policy apparently does not include such a requirement), Tesla had pleaded that the IPR policy of European Telecommunications Standards Institute (ETSI), the standard-setting organization to which the relevant FRAND declarations were made, does require such an undertaking from patent owners and that Tesla is a beneficiary of that undertaking. Per Tesla’s reasoning, as adopted here by Lord Justice Arnold, it does not matter that the company is not specifically seeking to enforce that obligation: No cause of action is required, and the company need only point to the ETSI policy as the “legal right” by which its claim can be judged.

However, Lord Justice Arnold argued that this did not resolve the matter of Tesla’s claims against Avanci, agreeing with the latter that the key issue was whether “it is a requirement for the grant of declaratory relief concerning a legal right that the defendant is either the owner of, or subject to, the legal right relied upon”. The answer to that question, he contended, has two parts: whether Tesla has a real prospect of success on its claim, and whether procedural fairness would make it inappropriate for the court to exercise its discretion.

As to the first point, Lord Justice Arnold observed that the issue turned on whether the Avanci 5G agreement needed to be FRAND. Here, he found that Tesla’s argument in the affirmative had a “real prospect of success” in establishing that as a matter of “commercial reality”, the only license for the UK SEPs covered by the pool would be a global FRAND license. Lord Justice Arnold additionally determined that issuing a FRAND declaration would serve a useful purpose, even though it is not independently enforceable or has no enforceable consequences, in that it could force Avanci to reconsider its position on the proper rate for its 5G pool, similar to the outcome in Panasonic v. Xiaomi (in which the Court of Appeal considered the utility of a declaration that a SEP owner in Panasonic’s position would agree to an interim license, which the company ultimately granted).

As to the second point concerning procedural fairness, Lord Justice Arnold found that if the litigation were to proceed against Avanci but not against InterDigital, and no SEP owners seek to be joined, Avanci could ask the court to exercise its discretion not to hear Tesla’s claims. On that question, Lord Justice Arnold determined that a ruling against Tesla was “not inevitable”, based on the fact that Avanci alone can set its platform rates (thus making it the proper defendant for the question of whether the 5G rate is FRAND); that the SEP owners could still join if they decided they had “something to contribute to the debate”; and because a ruling for Tesla would not necessarily “adversely affect” the SEP owners’ interests, since Avanci could decide to just absorb a modest rate decrease rather than passing along it to members.

Citing these factors and the fact that “this is a developing area of law”, Lord Justice Arnold thus concluded that Tesla has a “real prospect of success on their Licensing Claims against Avanci”.

–  Jurisdictional Rulings Pertaining to Avanci

Lord Justice Arnold next addressed various jurisdictional issues on appeal, including some issues common to both defendants. His analysis began with jurisdictional “gateway” 11, which allows service out of the jurisdiction—i.e., serving a claim on a defendant not based in the UK—where the claim’s subject matter “relates wholly or principally to property within the jurisdiction”. Here, as Vestel was again at issue, Lord Justice Arnold argued that that decision reached the correct determination on this gateway, and that (as the High Court also determined in this case, albeit more briefly) the same reasoning applied here: that if the implementer plaintiff could show a “legally enforceable right” to a FRAND license covering the relevant UK SEPs, the subject matter of the claim would be those SEPs, regardless of whether a FRAND license would also necessarily cover foreign patents.

Lord Justice Arnold reached a somewhat different conclusion from the High Court as to whether the UK was the most convenient forum for the dispute. The High Court found that the dispute as a whole was properly characterized as a licensing claim for a global FRAND license, with the case’s patent-related claims to be tried after the FRAND licensing claims since they “might well not be needed”. Lord Justice Arnold argued that he would have rejected Tesla’s appeal of the decision sidelining the patent claims, declining to accept its argument that a declaration of nonessentiality was tantamount to a declaration of noninfringement. However, Lord Justice Arnold accepted Tesla’s argument that the dispute was properly characterized as concerning “what terms for a licence of the UK SEPs in the Avanci 5G Platform are FRAND even though it is Tesla’s case (and Avanci does not dispute) that only a global licence, rather than a UK-only licence, would be FRAND”.

Lord Justice Arnold also took issue with the High Court’s determination on whether the Delaware Court of Chancery was an available forum—finding that the lower court had not considered whether that court could determine the terms for a FRAND license to the UK SEPs at issue, given its different characterization of the dispute; and holding that the court had improperly placed the burden of proof on the plaintiffs. After weighing expert reports on the issue, he concluded that “Avanci would be likely to move to dismiss those claims on the ground that US courts lack subject matter jurisdiction, alternatively should not exercise any such jurisdiction, in respect of claims concerning foreign patents, and that motion would be likely to succeed”, with the same outcome for InterDigital, such that the Chancery Court would not be an available forum. With no other forum having been suggested by either defendant, this left the UK the only possible forum, Lord Justice Arnold determined—before proceeding to lay out various reasons why (in case he was “wrong” on that issue) both venues would be “equally appropriate fora”.

– Tesla’s Claims Against InterDigital

Lord Justice Arnold next turned to the viability of Tesla’s claims against InterDigital, under which the High Court held that there was no “serious issue to be tried” either. Here Lord Justice Arnold first tackled several points of contention raised by InterDigital, explaining that he would have held (contrary to what that defendant argued) that Tesla had properly identified a legal right to bring declaratory proceedings seeking a FRAND determination, rendering the issue justiciable, as explained in his similar determination as to the claims against Avanci.

Lord Justice Arnold also disagreed with InterDigital in arguing that the claim against it served a “useful and legitimate purpose”. Even though InterDigital cannot on its own grant a license to the entire Avanci 5G pool, force Avanci to do so, or offer licenses to the other members’ SEPs, he flagged the potential ripple effect of a declaration as to InterDigital’s SEPs: If the court determined a rate for InterDigital that was lower than the Avanci portfolio rate, such that it could no longer rely on the Avanci SPLA, this could force “Avanci to reconsider its position” and propose an updated version of that license agreement to its members. Moreover, Lord Justice Arnold determined that declarations against InterDigital would be useful even if one were also made against Avanci and even if InterDigital were not forced to represent the other patent owners, the latter because it would still be bound with respect to potential enforcement against Tesla.

Additionally, Lord Justice Arnold agreed with Tesla that its claim against InterDigital did in fact raise a serious issue to be tried, rejecting both of the “two distinct propositions” underpinning the High Court’s ruling to the contrary. The first was the notion that InterDigital would face evidentiary issues in defending the claim in Avanci’s absence because InterDigital would not have access to the license agreements required to make the court’s FRAND determination. Here, Lord Justice Arnold underscored that Tesla had committed in the alternative to accept a FRAND determination as to InterDigital’s patents alone; i.e., to a bilateral license. To the extent that InterDigital also took the position that a FRAND license to its SEPs would be a bilateral one, he found that there would be no evidentiary issue. Evidentiary difficulties might only arise if Tesla prevailed in its argument that a FRAND license to InterDigital’s SEPs is one under the Avanci 5G terms, but Lord Justice Arnold found that even though it was Avanci that undisputedly set the terms of its 5G license, InterDigital could still offer evidence to justify that rate through various means (e.g., a top-down cross-check). Moreover, even if Avanci were not a party, he observed that InterDigital could still secure relevant evidence using US statutory mechanisms for conducting discovery in foreign litigation (28 U.S.C. § 1782).

The second proposition from the lower court’s ruling was that it would inevitably decline to exercise its jurisdiction to issue a declaration for Tesla due to potential prejudice to other Avanci 5G pool members; Lord Justice Arnold briefly rejected this ruling for similar reasons as its holding on procedural fairness as to the claim against Avanci, as noted above.

– Tesla’s Representative Claim

However, Lord Justice Arnold stated that he would have upheld the High Court’s decision not to force InterDigital to defend Tesla’s claims as a representative of the other Avanci 5G patent owners. He began by finding that the lower court properly exercised its discretion to determine, in ruling on a matter of first impression, that a defendant outside the UK cannot “be made the subject of a representative action without it being established that” the court would have exercised jurisdiction over that defendant (as summarized on appeal). Lord Justice Arnold noted, in part, that despite evidence that at least 53 of the 67 pool members owned UK SEPs, the 14 that remained would be exposed to UK proceedings and bound by their outcome, even when “jurisdiction could not be established against them if sued in their own capacities”.

Lord Justice Arnold also agreed with the lower court as to its second and third reasons for declining to make InterDigital serve as the representative: respectively, that without Avanci as a codefendant, InterDigital would face difficulty in defending Tesla’s rate-setting claim; and that it would be “unfair” to force InterDigital to bear the “responsibility and cost of defending the claim”. For the second reason, he observed two possible scenarios. As noted above, in the event that the applicable FRAND license would be bilateral, Lord Justice Arnold pointed out that InterDigital would face no such difficulty. In the event that the FRAND license would be one to the entire Avanci 5G platform, he found that Avanci itself would be “best placed” to defend that claim, a debate to which the pool’s members “have little to contribute”. Even if, as Lord Justice Arnold had previously posited, certain defendants might wish to weigh in, he found it made little sense for Tesla to be able to force the choice of InterDigital as representative. As to the third reason, Lord Justice Arnold concluded that Tesla had “little to say” beyond those points, finding it “difficult to see why InterDigital”—or, for that matter, any one member—“should be involuntarily burdened with this”.

Finally, Lord Justice Arnold declined to reach the High Court’s fourth reason, which concerned how the decision might bind an unidentified Avanci member (referred to as “L1”) with which Tesla already had a bilateral license, given its other holdings on the representation issue.

– Jurisdictional Issues Regarding InterDigital

Lastly, Lord Justice Arnold rejected a series of jurisdictional issues related to InterDigital, largely adopting the same reasoning as his conclusions for Avanci with respect to the same jurisdictional gateways at issue, and for the issue of the appropriate forum as to InterDigital. He also briefly addressed what he found to be Tesla’s failure to make “full and frank” disclosures of certain “obvious facts and arguments”.

Opinions from Remaining Judges

The decision concluded with two separate opinions, both much shorter, from the two Court of Appeal judges that ruled against Tesla.

– Lord Justice Phillips

Lord Justice Stephen Phillips began by laying out a narrow view of the FRAND commitment required under the ETSI IPR policy: While noting that this undertaking requires the Avanci 5G SEP owners to each negotiate a license to their SEPs on FRAND terms, he held that the IPR policy does not require SEP owners “to license their SEPs on a collective basis with other SEP owners, whether on ‘FRAND terms’ or on any terms”. Moreover, Lord Justice Phillips found that while Tesla would logically prefer that a FRAND license to the Avanci 5G platform amount to a “single collective rate, heavily discounted for bulk and convenience . . . the owners of the SEPs have simply not agreed to license their SEPs on discounted collective terms”. A UK court cannot force them to do so, he held.

As a result, Lord Justice Phillips concluded that “there is no contractual obligation that would give the English court jurisdiction to determine the ‘FRAND terms’ of a licence of the SEPs on the Avanci 5G platform, even if all of the SEP owners were joined or represented in the proceedings”. This is especially the case for Avanci, he determined, as the pool administrator had not given any FRAND undertakings and lacks the authority to “negotiate let alone agree ‘FRAND terms’ on behalf of the owners for the collective licensing of their SEPs”.

Lord Justice Phillips also countered certain key premises of Lord Justice Arnold’s dissenting opinion. In part, he dismissed the notion that “in the absence of a contractual foundation for English jurisdiction”, such jurisdiction can be based on the fact that as a “commercial reality”, the only FRAND license to the UK SEPs in the Avanci 5G pool is a global platform license, as he characterized Lord Justice Arnold’s position. Whether that is indeed the commercial reality, held Lord Justice Phillips, the court cannot engage in such a rate-setting exercise because the participating SEP owners have not made any such “contractual undertaking”. Additionally, whether or not Avanci members rely on the availability of that collective license, as also highlighted by Lord Justice Arnold, Lord Justice Phillips countered that such “informal conduct does not come close to being contractual in nature”. Nor did Lord Justice Phillips agree that the possibility that Avanci would reconsider the terms of its license based on a FRAND determination justify a court-determined license for the entire pool.

Lord Justice Phillips also held that because the SEP owners had not undertaken to offer a collective pool license, Tesla had not shown a legal right upon which its claims could be based. This meant that Tesla was asserting a free-standing FRAND claim of the type barred by Vestel, Lord Justice Phillips concluded as a result—thus disagreeing with the dissent’s interpretation of that case. He additionally rejected Lord Justice Arnold’s conclusion as to procedural fairness, countering that if the court were to grant Tesla’s requested declaration, this would “affect, significantly and directly, the rights and interests of the owners of the SEPs on the Platform” such that the court could not “properly and fairly undertake[]” such a an exercise without their participation. While he dismissed Tesla’s claims against InterDigital and Avanci as a result of the foregoing, Lord Justice Phillips agreed with Lord Justice Arnold that the former could not be required to serve as a representative of the other Avanci 5G SEP owners.

On the other hand, Lord Justice Phillips rejected Lord Justice Arnold’s characterization of Tesla’s alternative request for the determination of a bilateral FRAND license to InterDigital’s SEPs, finding instead that the automaker had not properly raised the issue on appeal, that it does not “genuinely” want such license and that one would not be of “real commercial use to it”.

– Lady Justice Whipple

Lastly, Lady Justice Philippa Whipple concurred with the reasons cited by Lord Justice Phillips for dismissing the case, expressing particular agreement with his interpretation of the ETSI undertaking and his position as to the aforementioned bilateral license issues.

Lady Justice Whipple also separately took issue with certain aspects of Tesla’s pleaded case, determining that it had failed to properly establish why the Avanci 5G SEP owners’ individual FRAND commitments necessarily result in Tesla having an entitlement to a license covering the entire pool.

Additionally, Lady Justice Whipple underscored that she disagreed with Lord Justice Arnold as to the likelihood of success of Tesla’s claim for a pool-wide license, both for the reasons laid out by Lord Justice Phillips and based on her own reading of the MLMA (the Master License Management Agreement) laying out the terms of Avanci’s authority. Under the MLMA, she explained, Avanci does not agree to carry out any individual SEP owners’ FRAND obligations, while the agreement preserves the owners’ ability to carry out bilateral licenses. This “reflects a deliberate separation” of the SEP owners’ FRAND commitments from their deal with Avanci, found Lady Justice Whipple. As a result, she continued, Tesla can either choose the Avanci 5G license as offered or pursue bilateral licenses, and cannot claim the “best of both”—in part “because Avanci is not party to the ETSI arrangements”, commercial convenience notwithstanding.

Finally, Lady Justice Whipple held that Tesla’s claims fail under Vestel given the identified lack of a legal right, and that those claims fell short of the baseline “useful and legitimate” requirement, such that resolution prior to trial is appropriate.

For more details on the decision below in this case, see “UK High Court Dismisses Tesla FRAND Rate-Setting Case Targeting Avanci 5G Pool” (July 2024).

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