Anti-Interim-License Injunctions and the Erosion of Contract Rights

In late September, the Mannheim Local Division of the Unified Patent Court (UPC) and Germany’s Munich Regional Court issued the world’s first “anti-interim license” injunction orders (AILIs). These unprecedented orders prohibit Amazon from pursuing a UK-court-ordered interim license from InterDigital during their dispute regarding codec licenses governed by the International Telecommunication Union’s (ITU’s) intellectual property rights (IPR) policy. On October 20, the UK’s High Court of England and Wales issued an anti-AILI against InterDigital.

The UK’s interim license framework was established to provide third-party beneficiaries a remedy when a standard essential patent (SEP) holder is actively breaching its voluntary contractual commitment to license its SEPs on fair, reasonable, and non-discriminatory (FRAND) terms during the pendency of a UK rate setting adjudication. By issuing these AILIs, these two courts have signaled a striking disregard for those contractual commitments. If upheld, these AILIs will not only weaken confidence in FRAND commitments but also call into question the enforceability of many provisions in global patent agreements.

The UK Interim License Framework

In 2024, the UK Court of Appeal held in Panasonic v. Xiaomi that courts can declare interim licensing terms during the pendency of a global FRAND rate determination. While the court declined to order Panasonic to enter into interim license, it held that if Panasonic failed to do so, the UK courts would consider it an “unwilling licensor” for continuing to breach its FRAND commitments.

In that case, the UK Court of Appeal was concerned that Panasonic’s pursuit of injunctive relief at courts in Germany and the UPC could pressure the product manufacturer to accept an above-FRAND license before the UK court could determine a FRAND rate. It noted that “[t]he purpose of [these parallel actions] is to exert pressure on the implementer to agree to the terms demanded by the SEP holder rather than await the determination of the English courts.”

The UK’s interim license framework, as set forth in Panasonic and subsequent cases, is aimed at protecting the UK courts’ ability to resolve properly instituted rate-setting disputes without the need to issue an anti-suit injunction (ASI). Indeed, in Lord Justice Phillips’ dissent, he acknowledged there was “jurisdiction to grant a final declaration . . . at an interlocutory stage” but noted it was “an exceptional power” to exercise on a remedy that he saw as “weak and of dubious efficacy.”  Panasonic at ¶ 104.  In his view, the appropriate interim remedy was an ASI given that the parallel proceedings were “indefensible” and “appear[ed] to be unconscionable, vexatious and designed to be oppressive.” Pansonic at ¶ 105.

The role of comity in interim license orders

Criticisms of the UK’s interim license framework are misplaced as they conflate contractual enforcement with patent infringement. Arguments that the UK’s approach would subordinate the patent infringement proceedings of other national courts to the UK’s rate-setting determinations ignore that the UK’s jurisdiction “is based entirely upon the contractual undertaking of the owner of those patents to grant [global FRAND] licenses.” Tesla v. Interdigital at ¶ 222.

As part of these commitments, SEP holders are obligated to engage in good faith negotiations for a global FRAND license. The interim license declaration is the UK courts’ remedy for a breach of that contract. The UK Court of Appeal even indicated in Alcatel Lucent v. Amazon that an order for specific performance to enter into an interim license — a contractual remedy — may be appropriate if the remedy is available under the law governing the relevant IPR policy.

The contractual basis for interim license orders is the reason they do not encroach on the jurisdiction of other courts. Courts have “no good reason for diffidence” in stopping a party from engaging in foreign actions when that party has “promised not to bring them.” See The “Angelic Grace” [1995] 1 Lloyd’s L. Rep. 87, 96. While the issue in the Angelic Grace, was related to the enforcement of an arbitration agreement, the same principle holds for interim license orders. The Panasonic order — which was predicated on a finding that the parallel foreign proceedings were a breach of contract — was simply a means of holding the SEP holder to its own voluntary contractual commitments.

The Anti-Interim License Injunctions

The UK courts’ adoption of an interim license approach was structured as a compromise solution, to avoid more invasive means of protecting its jurisdiction to enforce contractual commitments. The approach nevertheless was deemed inadequate by courts in Germany and the UPC. Indeed, both jurisdictions’ AILI decisions acknowledged that the UK interim licensing framework would not necessarily force InterDigital to enter into an interim license. Nonetheless, the courts concluded that the “negative consequences” for InterDigital from declining to grant an interim license and being labeled an unwilling licensor or found in breach of contract — “may deter [it] from seeking judicial enforcement” and were sufficient to warrant the injunction against the UK action. UPC Decision at ¶ 45.

The UPC decision further noted that if “‘specific performance’ [to take an interim license] required under Swiss law were ordered, [InterDigital’s] claim would be rendered groundless because [Amazon] could then raise the license objection.” UPC Decision at ¶ 7. In other words, the UPC order is also based on an effort to prohibit Amazon from enforcing the contract itself.

Settlement pressure and de facto rate-setting

The German and UPC courts’ concern about the litigation pressure stemming from declaratory relief — even absent specific performance — is ironic in light of the far more severe leverage that can be provided by the threat of market exclusion. When a German or UPC court grants an injunction, the licensee’s only options are to accept the SEP holder’s terms or withdraw from the market. In most cases, this transforms injunctive ‘relief’ into one-sided de facto rate-setting. Once the license is executed under threat of injunction, there is no realistic mechanism for the licensee to challenge the terms or recover overpayments — its contractual FRAND rights have been rendered unenforceable as a practical matter.

The UK interim license framework, by contrast, is meant to preserve the status quo pending a full adjudication of FRAND terms while also providing interim revenue to the SEP holder during the process. If the SEP holder later proves that the interim rate was too low, the court’s final determination ensures full compensation — any shortfall can be recovered retroactively, with interest. The process therefore balances both sides’ interests: licensees avoid exclusion orders that could force them to abandon their effort to have their FRAND rights adjudicated, while SEP holders receive compensation and retain the right to any true-up payments once the final rate is established.

Thus, the critique of the UK’s approach inverts the reality. It is the German and UPC courts that are preventing the adjudication of legal rights. In condemning the UK courts for ‘prejudging’ the FRAND rate by averaging the parties’ proposals, the Mannheim Local Division overlooks that its own injunction regime adopts the SEP holder’s terms in full, without any judicial valuation or subsequent correction. The result is the very imbalance that undermines the FRAND contract and, in the process, upends the CJEU’s Huawei v. ZTE framework.

Misapplication of competition law

The UPC sought to justify its injunction on the ground that it was obliged to ensure compliance with EU competition law. It explained that FRAND determinations — interim or otherwise —made by “courts not bound by EU [competition] law” could potentially be invalid in the EU. UPC Decision at ¶ 48. This appears to mean that the UPC would only recognize FRAND determinations by an EU court.

Aside from being a case of judicial imperialism, the reasoning misses the role of competition law in the SEP context. Competition law is meant to provide a defense in the EU against SEP holders seeking injunctions. It does not eliminate contractual commitments made by the SEP holder or stop putative licensees from enforcing their rights as beneficiaries. As the European Telecommunications Standards Institute recently expressed, “the CJEU has never held that . . . the FRAND undertaking should be disregarded or replaced by a mechanism of [the CJEU’s] own creation.” By recasting competition law as a shield for SEP holders to seek injunctions, rather than a safeguard against hold-up, the UPC has inverted the legal principles underpinning the CJEU’s decision in Huawei v. ZTE.

The UPC was concerned competition law could be implicated if a UK ‘unwillingness’ declaration could force a SEP holder to accept a rate at what they saw as the ‘lower end’ of the FRAND range. However, this position is disconnected from how competition law applies to FRAND licensing. Competition authorities in the EU and US have long recognized their role in FRAND licensing is to stop SEP holders from misusing market power obtained through standardization to extract above FRAND rates. Terms that the SEP holder believes are too low may raise issues of private contract or valuation — which Courts can fully assess in rate-setting processes — but would not constitute an abuse of dominance.

Subordination of contract law

The German and UPC AILIs undermine — and potentially even eliminate — contractual commitments. Both courts prohibited Amazon from seeking a declaration from a UK court that InterDigital’s conduct constituted a breach of contract. The UPC went further, noting concern that under the Swiss contract law governing the ITU IPR policy, the court could be required to order specific performance of an interim license. In short, the AILIs were issued to block any court from holding InterDigital to its voluntary contractual commitment.

This goes beyond the specific issue of interim license orders. The underlying rationale is not bound by any limiting principle and can equally apply the enforcement of any contractual commitment preventing a SEP holder from bringing an infringement action before these courts. In issuing their AILI orders, these two courts have thus called into question the enforceability of commonly used contractual provisions such as forum selection, choice of law, and arbitration clauses.

Conclusion

The recent UPC and German AILIs represent a stark escalation in jurisdictional tensions over not only SEP litigation but also the enforceability of contract rights generally. Despite the jurisdictional compromise presented by the interim license approach designed by the UK judiciary, the courts in Germany and the UPC appear committed to being the sole adjudicators of FRAND disputes, and content to abrogate contract rights. This creates a dangerous precedent where courts may prioritize jurisdictional protectionism over the enforcement of voluntary contractual commitments.