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When the chips are down

Please read Mark Lomas' "Smart Phone Truce" for an update on this article.

Nokia wins injunction against HTC One Mini handset in the Patents Court

HTC and Nokia are household names and compete globally with each other in the lucrative mobile phone market. The UK market is worth about $7 billion to device vendors in 2012, and is projected to be worth $9 billion in year ending 31 December 2013. Both Nokia and HTC are relatively small players in this market: Nokia has 6% of the market and HTC has 3% of the market.

HTC had purchased from third parties, and used in its mobile phones, microchips which Nokia's claimed infringed its patent rights in the UK. Nokia sought a final injunction to restrain further infringement in the UK.

HTC argued that the Court should exercise its discretion to award damages, rather than grant an injunction. HTC said that European and English case law requires the Court to refuse an injunction where it would be disproportionate to grant one. Alternatively, HTC sought a stay of any injunction pending an appeal of the decision against it.

HTC claimed that it did not originally know if the chips in it were infringing. An HTC witness stated "The features of the chips selected by HTC for the new phone are unknown to HTC, and hence I do not know if they infringe EP 024". This particular assertion fell on stony ground; Mr Justice Arnold found this statement from a leading technology company "simply incredible".

The Court looked at a number of factors to decide on proportionality, but granted an injunction for the HTC One Mini which had been launched after the original litigation had started. It found that there would be significant damage to the rights that the patent gave to Nokia and HTC had non-infringing alternatives available to it. However, the Court did not go as far as injuncting HTC in respect of its flagship handset the HTC One (pending appeal). Given the current Court diary this may not take place until the summer of 2014.

This is a good example of a case where a judicial balancing exercise was necessary. Whilst a key question has to be what is the impact of an injunction on the infringer, the effect on the claimant Nokia of denying an injunction also had to be considered, HTC had a heavy burden to prove and that the Court stated it had to be very cautious before making an order that would amount to ordering Nokia to grant a licence to a competitor i.e. in circumstances where no such licence would normally have been available.

The injury to Nokia's patent from infringement was neither small, nor was it capable of being estimated in money and adequately compensated by a relatively small payment. The patent had almost six years left to run and, unless restrained, HTC could infringe it for the whole of that period. If an injunction were refused, it would have to be on the basis of an order for HTC to pay a running royalty, which would be very difficult to assess, and based on financial terms imposed by the court. That would be an order without all the safeguards of a consensually negotiated licence.

On the other hand, where a patent owner could either charge a monopoly price for its patented goods or simply refuse to grant licences, the impact on the infringer of an injunction, which might exclude the infringer from the relevant market, should be taken into account, unless it had a non-infringing alternative.

HTC argued that the infringing chips were only a small component of its handsets, that the royalty was likely to be small, in relation to the selling price of the handsets. The Court was not persuaded, or swayed by the fact that the claim was part of a larger dispute between the parties involving other patents and other countries.

The single most important factor in this case was that it would be possible to design source and construct a mobile phone without an infringing chip so that HTC could render all of its phones non-infringing within 18 months. Well before the patent expired.

In terms of the HTC One the Judge decided that balance of proportionality came down in favour of HTC and granted a stay of the injunction, but only pending an appeal by Nokia. Given the issues in this case, we would absolutely anticipate an appeal in due course.

Blocking sales of the HTC One would according to HTC cause catastrophic harm to HTC and Judge Arnold decided the potential harm to HTC presently outweighs the harm to Nokia for not having the injunction (pending appeal). However, that was not the case for the other handsets in issue. For these, the potential harm was more evenly weighted, and HTC had designed and launched those handsets, knowing that it was facing an infringement claim and without making contingency plans.

No doubt both parties will have mixed feelings about the result and both will claim victory of sorts. It goes to show that much turns on the circumstances of each case and you can't simply say that a remedy is an absolute right having proved infringement.

Case Reference HTC CORP v NOKIA CORP (2013)

Ch D (Patents Ct) (Arnold J) 03/12/2013