FRAND

This article is part of the latest edition of our Patents: Review of the Year publication.

Perhaps the only thing that FRAND determinations and buses have in common is that after a very long wait (six years since Birss J’s decision in Unwired Planet⁶⁰) two have come along at once: InterDigital v Lenovo⁶¹ and Optis v Apple⁶².

Mellor J delivered the 958-paragraph judgment in InterDigital. He found that Lenovo would need to pay a rate of US $0.175 per device, resulting in a lump sum payment of $138.7 million for a FRAND licence until the end of 2023. He emphasised that comparable licences remain the most important basis for establishing a FRAND rate, and considered that, unlike in Unwired Planet, top-down cross checks are of limited use. 

The Judge considered how to select and deal with the comparable licences. Here (unlike in Optis v Apple) only licences to InterDigital’s portfolio were considered. Factors considered in identifying relevant comparable licences included sales volumes, the location of those sales, and product mix across the different cellular standards. InterDigital sought to rely on 20 licences, often with smaller players, where InterDigital had achieved relatively high royalty rates, but Mellor J did not consider these were appropriate comparables. Instead, the Judge relied on one of Lenovo’s preferred comparable licences - a licence between InterDigital and LG concluded in 2017. Mellor J ‘unpacked’ this licence to determine the per unit royalty rate. The Judge considered the unpacking process should be as objective as possible. He took into account adjustments for the time value of money (i.e. due to an advance lump sum payment) and emerging markets (i.e. applying a discount in respect of sales in territories considered to be emerging markets).

In applying the derived per unit royalty rate to determine the lump sum payable by Lenovo, Mellor J decided that limitation periods played no role in FRAND determinations between a willing licensor and licensee. He therefore applied the rate to all of Lenovo’s past sales. Whether Lenovo had to pay interest on these historic royalties was held over to the consequentials hearing⁶³. There, he found that it was FRAND for a licensor to be awarded interest to compensate it for money not paid earlier, in this case at a rate of 4%, compounded quarterly. Despite this award of interest, Mellor J found Lenovo to be the overall “winner” of the FRAND trial when it came to awarding costs. This was because he had rejected the set of comparables relied on by InterDigital, and arrived at a per unit rate “very close” to that contended for by Lenovo; the fact that Lenovo was writing a substantial cheque was irrelevant. One further indicative factor was that the party mounting a substantive appeal against the judgment, was InterDigital not Lenovo. 

As well as determining the FRAND rate, Mellor J also addressed the issue of whether the parties had been an unwilling licensor and licensee, respectively. The Judge’s analysis of willingness in the context of the conduct of the negotiations turned on the offers made and/or rejected by the parties. The Judge considered InterDigital was unwilling by offering rates above what was found to be FRAND. Similarly, whilst the Judge concluded that “Lenovo did drag their heels on occasion and to that extent, did not act as a willing licensee”, he considered Lenovo was justified in not accepting InterDigital’s supra-FRAND rates and as a consequence found that, for the most part, Lenovo did conduct itself as a willing licensee. In terms of its subsequent conduct, the Judge considered that Lenovo did not act as a willing licensee when it failed to undertake a FRAND licence after liability for patent infringement had been established; indeed, Mellor J noted that, with the benefit of hindsight, he regretted not having granted a FRAND injunction immediately following the first technical trial. 

As a postscript, Mellor J made a number of suggestions for case management of future FRAND proceedings, including encouraging: the agreement of the data sources to be used by the experts, early disclosure of potentially comparable licences under an appropriate confidentiality regime, and tighter case management with the parties focusing only on the issues which really matter. 

Mellor J’s InterDigital judgment was quickly followed by Marcus Smith J’s 285-page Optis v Apple⁶⁴ judgment in May 2023. The Judge determined that the total amount payable by Apple should be US$ 56.43m plus compound interest on past sales at 5% per annum, for a FRAND licence running until the expiry of all patents within the relevant portfolio and including a release for six years of past infringement⁶⁵. Marcus Smith J took a different approach to comparable licences from Mellor J in InterDigital. Rather than relying on the licences to Optis’ portfolio (branded “worse than useless”), Marcus Smith J relied on licences that Apple had entered into with other SEP holders. The Judge applied several different factors in order to select averages which he then used to derive the price payable by Apple for the Optis share of all SEPs. The Judge emphasised that the rate he computed was specific to Apple.

Similar to Mellor J’s approach in InterDigital, Marcus Smith J gave short shrift to the parties’ allegations relating to the conduct of their negotiations, criticising them for “wasting valuable time and money” on these issues, and concluded in respect of the parties’ conduct that Optis had not abused a dominant position (nor was it dominant), and that Apple had negotiated in good faith.

While both judgments contain a wealth of further judicial commentary on FRAND issues, to some extent they will be confined to the particular facts at issue in those proceedings. Marcus Smith J was clear in Optis v Apple that no findings of fact (including for example, an unpacked licence rate) from Unwired Planet could be binding or even simply adopted in another case at the risk of abdicating judicial responsibility⁶⁶. 

2023 also saw a number of other FRAND developments. In April 2023, the Supreme Court granted permission to appeal in the Optis v Apple Trial F case. The Court of Appeal⁶⁷ had upheld Meade J’s finding⁶⁸ that a patentee is entitled to an injunction on a valid and infringed SEP unless and until the implementer undertakes to take a licence on the terms subsequently determined by the court to be FRAND (rather than the alternative condition of the implementer taking a licence on terms which have already been determined to be FRAND, as contended for by Apple). A hearing is anticipated in 2024. The Court of Appeal also considered the issue of in-house counsel access to confidential licences, ruling on the appropriate form of undertakings⁶⁹.

In July 2023, Meade J ruled⁷⁰ on various declarations sought by Oppo to protect itself from injunctive relief after an earlier ruling that one of Nokia’s SEPs was valid and infringed by Oppo. Faced with competing interpretations of Clause 6.1 of the ETSI IPR Policy, he held that Nokia was required to make a FRAND offer capable of acceptance by Oppo. Clause 6.1 did not have the effect of meaning Oppo was already licensed. He also decided that Oppo’s undertaking to accept a FRAND licence from the Chongqing court in China (rather than the English court) was not sufficient to make it a beneficiary of Clause 6.1. 

Meade J decided that as a matter of principle, an implementer found by the English court to infringe should not be permitted to remain on the market unlicensed on the basis that it has opted for a FRAND assessment in a foreign jurisdiction. Should two courts provide alternative FRAND terms, the choice of which FRAND licence to offer would be at the election of the patentee, not the implementer. Accordingly, Meade J considered Oppo to be an unwilling licensee: it had undertaken only to take a licence on the terms set in Chongqing. However, Meade J did note that the English courts would try hard to prevent FRAND rate-setting in respect of identical or overlapping geographical territories being conducted at the same time in the UK and in another jurisdiction purely by the patentee’s own election. 

Following two form of order hearings⁷¹ which took place after the substantive trial, Meade J also granted Oppo qualified permission to appeal (certifying a leapfrog appeal to the Supreme Court in light of the extant Optis v Apple Trial F appeal), granted Nokia a stayed injunction against Oppo, and adjourned the upcoming FRAND trial. The case has since settled.

Continue reading the other sections in publication:

1. Claim construction and infringement
2. Validity
3. FRAND
4. Supplementary protection certificates (“SPCs”)
5. Procedural issues
6. Unitary Patent/Unified Patent Court

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