UK High Court decision paves the way on setting global FRAND royalty rate

The decision also provides further guidance as to how the parties negotiating such licences should conduct themselves, according to intellectual property law experts at Pinsent Masons.

The dispute between Lenovo, an implementer which specialises in designing, manufacturing, and marketing consumer electronic devices including mobile telephones, and InterDigital, which designs and develops a range of advanced technologies that are used in digital cellular and wireless products and networks, including 2G, 3G, 4G, arose over the licensing terms for use of telecoms patents owned by InterDigital that had been declared essential (standard essential patents, or SEPs) to the operation of the 3G, 4G and 5G standards set out by the European Telecommunications Standards Institute (ETSI).

An SEP is a patent that protects technology believed to be essential to implementing a technical standard. In other words, you cannot operate a standard compliant device without necessarily using the patented invention.  The bodies through which businesses collaborate to develop standards – such as ETSI – require SEP rights holders to make SEPs available for others to use by way of a licence on FRAND terms.

The purpose of the case before the High Court was to determine what terms would be FRAND for Lenovo to license InterDigital’s portfolio of SEPs for standardised 3G, 4G and 5G technology. Handing down the High Court’s judgment, Mr Justice Mellor said Lenovo should pay InterDigital royalties of $138.7m – around 40% of the sum the manufacturer originally claimed – and should pay in full for past sales.

The judge also determined that none of the licensing deal offers made by either party were FRAND, but found that there was insufficient evidence that Lenovo was unwilling to take a licence. Likewise, he said InterDigital was not trying to keep Lenovo’s products off the market, but instead trying “to obtain recompense for the long period during which Lenovo [was] not paying any royalties.”

Mark Marfé of Pinsent Masons said the decision is important because it confirms the decision taken by the Supreme Court in the dispute between Unwired Planet and Huawei that UK courts are willing to set global FRAND royalty rates for standardised industries. “It also provides further guidance as to how the parties negotiating these SEP licences should conduct themselves,” Marfé said.

He added: “Consistent with other FRAND decisions, the validity of the SEP portfolio was not a relevant factor. Issues over the validity and infringement of some of those SEPs was determined at earlier technical trials. The court’s decision that neither parties’ offers were FRAND was predictable, since these cases are very time consuming and expensive, and it is likely the parties would have sought to agree a rate amongst themselves to avoid the need for litigation if their offers had not been so far apart.”

Carissa Kendall-Windless of Pinsent Masons said the determination that Lenovo was not intentionally holding out on taking a license had a knock-on effect for the relief that InterDigital could seek. “Previous case law has established that a licensee can change their mind and accept licence terms at a later point in time, and that is an acceptable commercial practice. As a result, the likelihood of a patentee being granted an unqualified injunction, as InterDigital was seeking, seems an even more remote possibility now,” Kendall-Windless said.

She added: “The UK is one of only two jurisdictions willing to set a global FRAND royalty rate, the other being China. To date, no other European country has done so. Going forward, all eyes will be on the Unified Patent Court, which is set to open its doors on 1 June 2023, and whether UK jurisprudence will be persuasive in following a similar approach. There is another pending FRAND determination due to be handed down imminently in a dispute involving Optis Cellular Technology and Apple, where the court is also expected to follow a similar approach to the UK.”