InterDigital Inc (IDCC)

[Gamco]

UK Court of Appeal’s FRAND ruling will signal London’s role in SEP litigation
In an unusually long and complex appeal hearing, the UK Court of Appeal heard the FRAND rate dispute between InterDigital and Lenovo last week. The court's upcoming ruling will be a landmark for the UK's position in the global SEP dispute. But the UK patent courts have other cases in the pipeline.

19 June 2024 by Mathieu Klos

“Thank you for your detailed and interesting submissions,” presiding judge Richard Arnold could hardly have bid a more sober farewell to the barristers and solicitors representing InterDigital and Lenovo last Friday afternoon. But experienced patent judge Arnold is said to have a very sober style.

After five days of intensive hearings in room 63 of the venerable UK Court of Appeal, all 21 lawyers and judges present will have been glad to start the weekend. Usually patent hearings at the Court of Appeal last for up to two days. But the appeal against High Court judge James Mellor’s judgment in InterDigital vs. Lenovo not only concerned the calculation of FRAND rates, but also London’s future position in global SEP litigation.

Global significance
Mobile communications patents and the associated licences are a global billion-dollar business. When SEP holders and implementers cannot agree on a licence rate covering the important SEPs for 3G, 4G and 5G, for example, they often end up in court. In such cases, patent courts in the US, UK, China and Germany aim to provide clarity, usually playing a central role in these battles. It is not yet clear what role the new Unified Patent Court, which has now received a number of SEP lawsuits, will play in the future.

Up to now, the UK High Court is the only court in the world to have set a global FRAND rate with judge Colin Birss’ landmark ruling in Unwired Planet vs. Huawei.

Following the Unwired Planet ruling, SEP holders seeking to enforce a favourable FRAND rate regarded London as particularly attractive. The tables were turned, however, when judge James Mellor handed down his ruling in the dispute between InterDigital and Lenovo last March.

The case concerned a 3G, 4G and 5G portfolio licence and it was the first time the High Court judge was able to apply the Birss ruling. For this reason, the patent community is closely following the case.

Independent judges panel
Mellor’s judgment favoured the implementer. His decision on FRAND-rate setting saw the court order Lenovo to pay a FRAND rate of $138.7 million. The judgment also declared both parties’ previous offers as non-FRAND. Later in 2023, Mellor released two further decisions in which he declared Lenovo the “overall winner” of the FRAND trial.

Unsatisfied with the judgment, however, both InterDigital and Lenovo subsequently lodged appeals. The Court of Appeal combined both appeals (case IDs: CA-2023-001492 for InterDigital and CA-2023-001489 for Lenovo) and a panel featuring judges Richard Arnold and Christopher Nugee held the hearing last week. Colin Birss also sat on the bench as the third judge.

On 10 June, the panel opened the hearing just as soberly as it would end five days later — with a bow to the lawyers present and the British Crown. Internationally renowned UK patent judge Arnold took the lead. He has heard countless patent cases, though he has not yet had the chance to adjudicate in an SEP case. However, he is on the panel in the Court of Appeal case on willingness between Optis and Apple.

Thanks in part to his Unwired Planet ruling, Colin Birss is one of the best-known UK patent judges. He is also an advocate of the UPC and many considered him a top candidate for the UPC Court of Appeal.


Christopher Nugee
Richard Arnold, High Court, London, patent
Richard Arnold
Judge Colin Birss, IPEC, UK High Court
Colin Birss
Christopher Nugee, on the other hand, has an extensive commercial background, rooted in property and business law. However, Nugee has previously ruled on patent cases alongside Arnold, such as on the validity of Bristol-Myers Squibb’s apixaban patent in 2023 and the heat-not-burn e-cigarettes battle between BAT and Philip Morris.

InterDigital goes first
London lawyers describe the three judges as “extremely competent” and “intellectually independent”. In any case, the three judges were well prepared for the hearing and did not shy away from asking questions. They were clearly unimpressed by the fact that the case involved balance sheets, licence agreements and the calculation of complicated rates from licences that InterDigital had previously concluded with other implementers.

As the hearing began, InterDigital’s legal team went first. Barrister Adrian Speck from 8 New Square supported by Mark Chacksfield and Tom Jones presented InterDigital’s arguments. A Gowling WLG team around Alexandra Brodie, Michael Carter and Olivia Nimmo instructed the barristers. All three judges put questions to Adrian Speck regarding InterDigital’s appeal.

Lenovo responds
Lenovo then presented its case from Tuesday until Thursday. Lenovo’s barristers Daniel Alexander from 8 New Square and James Segan from Blackstone Chambers first responded to the arguments from InterDigital, and then presented Lenovo’s own appeal. A Kirkland & Ellis team around Daniel Lim, Nicola Dagg and Oscar Robinson instructed and supported the barristers.

On Friday parties addressed the opponent’s arguments. There were final opportunities for the judges to ask questions, which they mainly put to Lenovo’s lead counsel Daniel Alexander and James Segan. But trial observers did not see this as a disadvantage.

Questions over calculation
In essence, the two opponents wrestled before the Court of Appeal over James Mellor’s calculation of the licence rate. In March 2023 Mellor found a per unit rate of $0.175 much closer to Lenovo’s proposal of $0.16, and a “long way” from InterDigital’s contention of a blended rate of $0.53. Additionally, the court found the payable lump sum “substantially lower” than InterDigital’s offer of $337 million. Furthermore, the judges found Lenovo the winner regarding comparables, and Lenovo successful on the “top down” and “conduct” aspects of the case.

Lenovo based its appeal on two key points. James Mellor had miscalculated the royalties for the past, claimed Lenovo’s barristers, because he applied to the FRAND rate all sales made by Lenovo from 2007 onwards. Instead, they argued, Mellor should only have calculated sales since the third quarter of 2023.

Lenovo is also challenging James Mellor’s decision to grant interest to InterDigital, at 4% compounded quarterly, for the whole period for which royalties were awarded. Lenovo considers this to be wholly unjustifiable.

As a result, Lenovo’s representatives asked the Court of Appeal judges to set the FRAND lump sum at $108,900,000. The High Court, on the other hand, had set $138.7 million plus $46.2 million in interest.

The calculation of the licence rate also played a central role for InterDigital, as judge Mellor had set a rate significantly lower than InterDigital’s offer. In addition, InterDigital wants a revision of its designation as an unwilling licensor in the first instance ruling. This assessment is important for future negotiations with licensees.

Shift towards implementers?
Judge Mellor’s FRAND judgment has led patent experts to infer the UK High Court would tend towards an implementer-friendly position in the future and thus potentially deter SEP owners from suing there.

During the appeal hearing, the three judges endeavoured to remain neutral. They gave no insight into their current view of the case. Those present considered the hearing to be undecided. In the end, no one wanted to speculate whether the implementer or the SEP holder was winning.

Nevertheless, it was clear that the judges are taking a very close look at judge Mellor’s method of calculating the FRAND rate. Should they set a lower FRAND rate than judge Mellor’s, as Lenovo has called for, it will cause a sensation.

Lenovo initiates second trial
The intensity of the debate in the courtroom showed the importance of the case for London as a patent location. The case will shed light on how the UK patent courts will determine FRAND rates in the future, and especially how judges factor in payments for the past.

But the current InterDigital vs. Lenovo appeal is not the only significant case in determining the future importance of London courts for SEP litigation.

For example, Lenovo has initiated a second FRAND trial in its battle with InterDigital. Lenovo has asked the UK High Court to set a global licence rate for InterDigital’s entire portfolio, which includes implementation patents as well as SEPs. The court is thus to calculate the FRAND rate from 2024 onwards.

More FRAND judgments to come
Furthermore, new cases have already been filed. Another significant case is the appeal in Optis vs. Apple. And in Panasonic’s global dispute against Xiaomi and Oppo, for example, the UK High Court ordered an initial FRAND trial for both implementers in the fourth quarter of 2024 (case ID: HP-2023-000025). Two technical trials will only start two and four months after the FRAND trial. Thus, the court is following previous reasoning from London, in that courts should first clarify the FRAND rate before entering into the often lengthy technical trials. In a further twist, the Unified Patent Court is expected to hear cases in the same dispute around the same time. This means Xiaomi and Oppo may face their first injunctions on the continent while London is hearing the FRAND case.

In a dispute with Ericsson, Lenovo and its subsidiary Motorola are seeking a global cross-licence from the London courts. Ericsson initiated the dispute with patent infringement and ITC cases in the US. In response Lenovo filed suits at the UPC and UK High Court. A global FRAND cross-licence determination by the UK High Court could lead to global patent peace between the two opponents. According to reports, the court has asked the two companies to agree on an interim regime and to stop enforcing injunctions until a competent court decides on a FRAND rate.

July or October?
Following the conclusion of the appeal hearing, InterDigital and Lenovo will now have to be patient. “We reserve our judgments,” said judge Arnold on the final day. “I’m not going to make any promises as to how quickly they will be handed down. We will do it as seriously as we can.”

The judges could publish the verdict as early as the end of July. Indeed, Richard Arnold is generally known to write his judgments quickly. The crucial question, however, is whether the three judges agree in their rulings or whether they have differing opinions on individual points. If this is the case, it will not only be more time-consuming to reach a verdict, but also to interpret it.

The official judicial year in the UK ends at the end of July. The courts then enter a two-month break and do not resume their work until October. Given the complexity of the case, a verdict in around six weeks seems rather unrealistic. But perhaps Richard Arnold, Colin Birss and Christopher Nugee still have surprises in store for the patent community.

https://www.juve-patent.com/legal-commentary/uk-court-frand-ruling-lenovo-interdigital-signals-londons-role-in-sep-litigation/