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InterDigital Ruling A Warning Shot For UK FRAND Litigation
By Alex Baldwin · Listen to article
Law360, London (March 22, 2023, 11:06 PM GMT) -- While the English courts have now twice proved that they can settle global essential patent licensing disputes, the delays and costs in litigating these issues could discourage both licensors and licensees from taking their battles to court in the first place, lawyers say.
Chinese tech giant Lenovo was ordered, in a highly anticipated High Court decision, to pay $139 million to InterDigital to license several standard-essential patents. (AP Photo/Andy Wong)
In a much-anticipated decision, Judge James Mellor ordered Chinese tech giant Lenovo to pay $138.7 million to Delaware's InterDigital to license several standard-essential patents, or SEPs. In the process, the court laid out a burgeoning model for determining these fees going forward.
The court held that the licensing deals pitched by both InterDigital and Lenovo were not fair, reasonable and nondiscriminatory, or FRAND, and settled on a total figure Lenovo should pay that was far below the $337 million InterDigital was gunning for when it decided to bring the case.
The judgment of 230-odd pages attempts to standardize similarly complex disputes going forward, in what attorneys said appears to be a bid to streamline the FRAND determination process. But in the end, Judge Mellor arrived at a figure that could prove uninviting for licensors looking to bring their own cases before the courts.
"I don't think that there is much argument that an adversarial court system is not ideal for the resolution of these types of disputes," Powell Gilbert LLP partner Tess Waldron said.
Waldron, who represented Huawei in the English courts' first FRAND rate-setting decision, likewise noted that the process so far has "been time-consuming and expensive."
InterDigital's case was separated into six trials: five to determine the validity and essentiality of the patents and the final one to weigh the FRAND offers and licensing rates for those patents.
It took just over three years from the time InterDigital brought the case to the court's eventual FRAND ruling. The FRAND trial itself represented close to a full month's worth of hearings and expert testimony.
"Unless the sums in play are large, the costs and delay could be disproportionate," Brown Rudnick LLP partner David Knight said.
But while the judgment landed closer to Lenovo's figure for the final lump sum payment, one decision Judge Mellor made was that no limitation period should apply for disputes over FRAND terms.
This means that a licensee that was "willing" to license the patents would have to pay royalties dating back to the first sale of the products that used the patented technology.
To this point, Judge Mellor decided to forgo the six-year window that both InterDigital and Lenovo had proposed in line with the standard cutoff under English law to determine the lump sum. Instead, he decided that the total Lenovo should pay needed to take into account royalties for all sales of products that include the patented technology, dating back to 2007.
While this would generally fall outside the national limitation period for torts, Judge Mellor said that the limitation should not apply in determining FRAND terms between willing licensors and licensees.
"I think there is acknowledgment here that this action is a hybrid one, and that it's kind of an action in tort of patent infringement but also to determine a contractual arrangement on FRAND terms, to the point that the limitation period would not apply at all," Paul Hastings LLP partner Jason Raeburn said.
Judge Mellor's findings could ward off parties from litigating these issues altogether and opt for alternate avenues to decide FRAND rates rather than seek a decision from the English courts.
"I think there is a fear that this might be the last one, not only because of Mellor's comments, but because there could be better avenues to solve these disputes," Knight said.
While both key examples of U.K. FRAND litigation — Unwired Planet v. Huawei and InterDigital v. Lenovo — have proved lengthy and costly, the new decision goes some way to laying the groundwork for further FRAND cases before the courts as well as licensing negotiations going forward.
Judge Mellor provided a methodology designed to minimize the busywork of unpacking, selecting comparable agreements and deriving a FRAND rate present in this case. The methodology essentially states that the rate should be the amount paid divided by the units sold.
"You could see us getting to a point where we have a relatively streamlined FRAND procedure if these principles are applied, which would make it quicker and perhaps more attractive," Waldron said.
If Judge Mellor's approach to determining FRAND rates survives the impending appeal from InterDigital, the reasoning could provide guidance outside the court for licensors and licensees looking to arrive at fair rates going forward.
Ultimately, SEP owners want products out in the market that use their technology, and this ruling will have a large impact on negotiations for SEP licenses before the issue ever reaches the bench, according to Raeburn.
"I think the general intention of these types of judgments is to mitigate the number of claims that end up getting to court … with the aim of making the parties come closer on suitable figures and not having to litigate and fight over what the FRAND rate truly is," Raeburn said.
