The UK High Court has handed down its decision in the FRAND trial of the InterDigital v Lenovo litigation. It concerned InterDigital, an American company holding patents relevant to 3G, 4G and 5G technology and Lenovo, a Chinese ‘implementer’ of that technology. Lenovo has been ordered to pay InterDigital a royalty of $138.7 million (a rate of $0.175 per cellular unit) for its use of InterDigital’s 3G, 4G and 5G patents in its products. This is only the second decision of its kind in the UK (most such cases settle out of court).
In short, the Court was asked to set global terms of a licence to be granted by InterDigital to Lenovo on ‘Fair, Reasonable, And Non-Discriminatory’ (FRAND) terms. Although Lenovo was ordered to pay a significant lump sum to InterDigital, the per unit royalty rate was only slightly higher than the $0.16 rate offered by Lenovo in negotiations, and is far lower than the rate offered by InterDigital which it claimed was FRAND at trial - being $0.498 and giving a total sum of $337 million – which likely reflects the conduct of the parties during negotiations.
A perennial issue in court battles between patent owners (such as InterDigital) and implementers (such as Lenovo, who implement those patents to sell their products) is the court’s assessment of which party has acted more reasonably and in good faith in negotiations. There is a degree of push and pull between the patent owner, who may ‘hold up’ agreeing a licence to use their patent to obtain exorbitant royalty fees, and the implementer, who may ‘hold out’ by offering licence rates significantly below what the court deems to be FRAND. As litigation in this space takes many years to reach a decision, the implementer can hold out for many years, getting the benefit of using a patent for many years and establishing itself in the market, without paying any royalty for it.
The Court ruled that Lenovo was reasonable to reject offers from InterDigital “which were significantly above any FRAND range”. In fact, nearly every offer and position InterDigital made “were too high and… outside the FRAND range”. Moreover, Lenovo was reasonable in its request to InterDigital for more information and in seeking assurances as to what other implementers (such as Huawei) had paid. One of the standards by which parties are judged in such cases is their willingness either to grant, or accept a licence. Mr Justice Mellor found that InterDigital was largely acting as an unwilling licensor, being opaque in the information it would provide to Lenovo, and making offers to Lenovo that were “inflated and discriminatory”.
The Court emphasised the importance of transparency, noting for example that “it is not FRAND nor is a licensor acting as a willing licensor if it refuses to provide the information necessary for a willing licensee to evaluate an offer”. Such information includes the number of units covered, the royalty rates or total sum paid and the standards involved in previous licences. While Mr Justice Mellor welcomed InterDigital’s transparency initiative (in which rates from January 2020 were published on its website), he ruled that this “does not go nearly far enough and did not result in a transparent licensing programme”.
The Court also noted in a postscript to its decision that Lenovo had indicated that it was prepared to provide a FRAND undertaking (i.e. to accept the FRAND licence terms), although only after all potential appeals have been exhausted. The Court may well refuse to accept an undertaking on these terms, given that it may be many years before such an undertaking takes effect, creating the potential for more ‘hold out’ by Lenovo. There will be greater clarity on Lenovo’s election following a hearing that will take place before the end of term for the Court on 5 April 2023.
For its part, InterDigital has already confirmed that it plans to appeal the decision on several points, as mentioned in a press release yesterday.
For further information please contact Toby Sears and Caitlin Heard, both partners at CMS