Patents - Interdigital Technology Corporation and others v Lenovo Group Ltd. and others

Author Interdigital Licence CC BY-SA 4.0 Source Wikimedia Commons

 

Jane Lambert

Patents Court (Mr Justice Mellor) Interdigital Technology Corp and others v Lenovo Group Ltd and others  [2023]  EWHC 539 (Pat) 16 March 2023

This was the second time that an English court had been called upon to determine what terms were fair, reasonable and non-discriminatory ("FRAND") in a licence between holders of patents that are essential for compliance with a technical standard ("standard essential patent" or "SEPs") and those wishing to use those patents to comply with the standard ("implementers").  The other time was in Unwired Planet International Ltd v Huawei Technologies (UK) Ltd and another [2017] EWHC 711 (Pat) ("UPHC").  Mr Justice Birss (as he then was) settled an agreement on FRAND  terms which he annexed to his judgment in Unwired Planet International Ltd v Huawei Technologies Co Ltd and another [2017] EWHC 1304 (Pat), [2017] RPC 20 ("UPHC Remedies").  

The Interdigital Litigation

At para [4] of his judgment in Interdigital Technology Corp and others v Lenovo Group Ltd and others [2023] EWHC 539 (Pat) 16 March 2023), Mr Justice Mellor described the action as essentially a dispute over the terms on which the Lenovo Group Ltd and other defendants ("Lenovo") should take a licence from InterDigital Technology Corp and the other claimants' ("Interdigital") to use patents that had been declared essential to the 3G, 4G and 5G standards of the European Telecommunications Standards Institute ("ETSI").   I had previously discussed the dispute in FRAND - The Interdital v Lenovo Litigation on 3 May 2022.  The court had directed 5 technical trials lettered "A" to "E" and the FRAND one.  A "technical trial" determines whether or not a patent is valid, essential to a standard and infringed. A "FRAND" trial decides the terms on which an implementer may use SEPs.

The judge noted that Interdigital had won trial "A" and Lenovo trial "B" though his decision in trial "B" had been overturned. Interdigital had also won trial "C" and no appeal had been lodged.  He concluded that at the time of the trial, Interdigital had established its right to a FRAND determination and its position had only been strengthened by subsequent events.

The Headline Issues

Mr Justice Mellor said at para [6] of his judgment that the parties had identified two headline issues for him to determine:

"i) The first was whether InterDigital’s January 2020/5G Extended Offer is FRAND and if not, what terms are FRAND for a licence to Lenovo of the InterDigital patent portfolio? This headline issue resolved into two major parts: first, the comparables case and second, the top-down cross-check. .....
ii) The second was what remedy is appropriate and in particular, whether InterDigital is entitled to an injunction in respect of the ‘Asserted Patents’ (and if so, in what form), in so far as the Asserted Patents are held valid and essential? This issue resolved into three parts: first, whether Lenovo was a willing licensee during the extensive negotiations which occurred prior to the commencement of this action; second, was InterDigital a willing licensor during those negotiations; third, the consequences of Lenovo’s failure to commit to take a FRAND licence."

The comparables case and the top-down cross-check are methods of ascertaining FRAND terms.  The first requires an analysis of licences that are said to be comparable to the ones offered by the SEP holder or sought by the implementor.  The top-down cross-check was explained as follows by the judge at para [815]:

"InterDigital’s top-down case was advanced as a cross check for their ‘primary’ comparables case. It started with the notion that the cumulative value of all the royalties which would be paid in an ideal (hold-out free) world on FRAND terms in respect of each generation of technology should not exceed a certain reasonable maximum value. The next stage in the argument is that if one can assume or assess that maximum value for a particular generation, then a reasonable royalty for each licensee to charge can be deduced by reference to that licensee’s proportion of the total universe of patents which are assessed as essential to the standard."

At para [16] of his judgment, the learned judge said that he would deal first with the comparables case, secondly the top-down analysis and thirdly the allegations regarding each party's conduct.  

Interdigital’s January 2020/5G Extended Offer

The following is a summary of the "5G Extended Offer" referred to above:

The 5G Extended Offer
Scope	Worldwide, 2G (past sales only), 3G, 4G and 5G patents
Licensed products	3G, 4G and 5G terminal units
Term	6 years (commencing 1 January 2018)
Royalty	By standard rates: 5G: 0.54% of ASP, where the ASP is subject to a cap of $200 cap and a $60 floor 4G: 0.45% of ASP, where the ASP is subject to a $200 cap, and a $50 floor 3G: 0.36% of ASP, where the ASP is subject to a $100 cap, and a $40 floor
Release	Full, upon payment for past sales at above rates
Discounts embedded into royalty rates	5% term discount 5% regional sales mix discount
Discounts available	Volume discount: 10% per 20M units sold applied progressively, up to a maximum 70% discount for sales over 140M units in a calendar year. Time value of money discount: 10% per year prepaid. Fixed payment discount: 4% per year pre-paid (to a maximum 20%).

 

Interdigital calculated that it was owed $337 million on that basis. 

Lenovo's Counter Offer

On 14 Dec 2021, Lenovo offered a lump sum of $80m +/-15% for all sales in the 6-year term to the end of 2023 with a full release for all past sales for no additional consideration. The figure of $80m was the approximate mid-point between $65.4m and $99.6m. The $65.4m was calculated using weighted average past and future rates of $0.07 and $0.20 from what Lenovo alleged to be the 6 most probative comparable licences, The latter figure was calculated on a blended rate of $0.16. On these figures, each cent accounted for approximately $6.22m.

The Authorities

At para [165] of his judgment, Mr Justice Mellor said that his task had been significantly simplified by the following:

• Mr Justuce Birss's analysis in UPHC’ and UPHC;
• the judgment of the Court of Appeal in Unwired Planet International Ltd v Huawei Technologies Co Ltd and another : [2018] EWCA Civ 2344, [2018] RPC 20 (‘UPCA’);
• the judgment of the Supreme Court in Unwired Planet International Ltd v Huawei Technologies Co Ltd and another  [2020] RPC 21, [2020] Bus LR 2422, [2020] UKSC 37, [2021] ECC 17, [2021] 1 All ER 1141, [2021] 4 CMLR 3, [2021] 1 All ER (Comm) 885(‘UPSC’); 
• Mr Justice Meade's judgments in Optis Cellular Technology LLC and others v Apple Retail UK Ltd [2021] EWHC 1739 (Pat) (‘Optis B’) and Optis Cellular Technology LLC and others v Apple Retail UK Ltd: [2021] EWHC 2564 (Pat) (‘Optis F’);
• the Court of Appeal's decision in Optis Cellular Technology LLC and others v Apple Retail UK Ltd [2022] EWCA Civ 1411 (‘Optis F CA’);
• His Honour Judge Hacon's decision on the form of order in Interdigital Technology Corporation and others v Lenovo Group Ltd and others [2021] EWHC 3401 (Pat) (‘Trial A FOO’); and 
• the judgment of the Court of Justice of the European Union in Case C-170/13, Huawei Technologies Co Ltd v ZTE Corp  ECLI:EU: C:2015:477 [2015] 5 CMLR 14 (‘Huawei v ZTE’).

His lordship also referred to the following Chinese and US cases:

• Huawei v InterDigital (2013) Guangdong High People's Ct. Civ. Third Instance No 305;
• TCL v Ericsson - TCL Comm. Tech. Holdings, Ltd. v Telefonaktiebolaget LM Ericsson Inc., Public Redacted Memorandum of Findings of Fact and Conclusions of Law 8:14-cv-00341 (C.D. Cal. Dec. 21, 2017) (Selna, J.); 
• TCL v Ericsson (Federal Circuit) - TCL Commun. Tech. Holdings Ltd. v. Telefonaktiebolaget LM Ericsson Inc., 943 F.3d 1360 (Fed. Cir. 2019);
• In re Innovatio IP Ventures LLC Patent Litigation Case No 11 C 9308, 2013 WL 5593609 (N.D. Ill Oct 3, 2013);
• Ericsson v D-Link - Ericsson, Inc., v D-Link Systems, Inc., 773 F.3d 1201 (Fed Cir 2014); and 
• CSIRO v Cisco - Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc., 809 F.3d 1295 (Fed. Cir. 2015).

ETSI's IP Policy

The obligation on SEP holders to grant implementers licences on FRAND terms arises from clause 6.1 of ETSI's Intellectual Property Rights Policy:

"When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory ("FRAND") terms and conditions under such IPR to at least the following extent:

• MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;
• sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;
• repair, use, or operate EQUIPMENT; and
• use METHODS.

The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate."

Clause 6.1 is governed by French law which had been interpreted most recently by Mr Justice Meade in Opetis F. With the parties' agreement and after having regard to s. 4 (2) and (4) Mr Justice Mellor decided to follow Mr Justice Meade's finding on clause 6.1.  At para [195] of his judgment, Mr Justice Mellor summarized and endorsed para [63] of Lord Justice Arnold's judgment in Optis F CA:

"It can be seen from the Supreme Court’s analysis that clause 6.1 must be interpreted in a manner which avoids both hold up by the SEP owner and hold out by an implementer. Hold up by the SEP owner will be avoided by ensuring that the SEP owner is held to its ETSI Undertaking. Hold out by the implementer will be avoided by allowing the SEP owner to enforce its normal right under the general law to obtain an injunction to prevent infringement of the SEP by the implementer save to the extent that this would be inconsistent with the SEP owner’s ETSI Undertaking."

The Comparables Case

The judge said at [427] that he approached the issue of FRAND terms on the basis that he was dealing with a willing licensor with Interdigital’s portfolio of patents and a willing licensee with Lenovo’s array of products and sales though he reminded himself that in real life a willing licensor and willing licensee would have reached agreement long ago and not have found themselves in dispute. The protracted negotiations meant that some claims had become statute barred. Following Mr Justice Meade's decision in Optis F, Mr Justice Mellor reaffirmed that an implementer had a duty to seek a FRAND licence upon becoming aware of an infringement of a SEP.

Each of the parties presented comparables which were considered by the parties' experts.  The judge discussed Interdigital's approach between [295] and [356] and Lenovo's between [357] and [390].  He reviewed the licence agreements proposed by Interdigital but held at [689] that they were not relevant comparables for reasons he set out in that paragraph.  Interdigital subsequently seized upon a licence agreement referred to as LG 2007 as an "awesome comparable".  His lordship analysed that agreement and the other licences proposed by Lenovo.  At para [813 he held that a willing licensor and willing licensee would agree on a single per unit rate which would reflect all the considerations he had discussed in his analysis. He concluded that that rate was $0.175 per cellular unit.  Relying on the experts' calculations based on Lenovo's sales data going back to 2007, Mr Justice Mellor determined in the next paragraph that the $0.175 rate yielded a lump sum payment of $138.7 million.

The Top-Down Cross Check

Interdigotal presented its cross-checl at para [847].. The model worked for 4G licences but not so well for 3G or 5G.  For these and other reasons, the judge rejected the cross-chack approach.

Conduct

Interdigital alleged that Lenovo was not entitled to enforce the undertaking in clause 6.1 of ETSI's IP Policy for the following reasons:

• Interdigital complained that Lenovo had adopted a strategy of deliberate hold-out and that it had no intention of working the standard under a licence.  Accordingly, Interdigital sought an unqualified injunction against Lenovo.  
• Relying on paras [285] and [288] to [341] of Mt Justice Meade's judgment in Optis F, Interdigital argued that it was intended to an unqualified injunction quite irrespective of Lenovo's conduct. 

Lenovo accused Interdigital of holding up and offering licences on terms that were not FRAND,  It alleged that its deals with other licensees were unreasonable and that it was less than transparent in disclosing relevant financial data.

His lordship reviewed the negotiations and the offers and counter-offers that had been made by the parties.  At para [928] he said that he was "driven to the conclusion that by consistently seeking supra-FRAND rates, InterDigital did not act as a willing licensor."  As to whether the Lenovo companies had acted as willing licensees, he found that Lenovo had taken excessive time in agreeing and renewing non-disclosure agreements and that they had caused significant delays in negotiations. However, he did not criticize them for rejecting Interdigital's offers or positions or for seeking further information.  He concluded at [932] that for the most part, Lenovo did conduct themselves as willing licensees. 

He agreed with Interdigital that Lenovo should have been subject to a FRAND injunction in respect of the first patent that was found to be valid, essential and infringed.  He had said at para [10] that he found the notion that Interdigital really wanted an unqualified injunction to be unreal. The only reason Interdigital was trying to obtain an injunction against Lenovo was to force Lenovo to take a licence. The last thing that a SEP licensor wants is to take an implementer off the market. They want the implementer to, sell products that are standard-compliant and pay royalties on them.

Judgment

At para [944] Mr Justice Mellor assessed the lump sum for a FRAND licence to the end of 2023 at $138.7 million.  Neither Interdigital’s 5G offer nor Lenovo’s lump sum offer mentioned above was FRAND or within the FRAND range. He found no value in Interdigital’s top-down cross-checks in any guise.  While rejecting the complaints against Lenovo he granted Interdigital an injunction against infringing its SEPs subject to Lenovo's paying the lump sum and taking a FRAND licence.

Conduct of Future FRAND Trials

The trial took place over 17 days with an allocated 4 days of pre-reading, 2 of which were interspersed between hearing days.  The judge was supplied with over 50 bundles of documents, with further bundles of cross-examination materials. The opening skeleton arguments and annexes comprised over 360 pages, with the closing skeleton arguments a further 400.

His lordship made the following recommendations for the conduct of future FRAND proceedings:

• The parties should make every effort to ensure that forensic experts use the same data source(s).  The use of different data sources by the experts had given rise to considerable and unnecessary complications. Data sources should be identified at an early stage and the parties should endeavour to agree them. If they could not agree, then the Court could rule. 
• There should be much tighter case management.  Experiments like the top-down cross-check should be recognized for what they were and an informed decision could be reached as to whether they were justified.
• The pre-trial review should identify the issues and make adequate provision for dealing with them.  The PTR in this case had lasted only half a say which proved to be inadequate.
• Estimates should be kept under review and updated from time to time.
• Litigants must endeavour to focus only on issues which really matter. Early in the litigation, parties to a FRAND action should agree:
• early disclosure of potentially comparable licences under a court-monitored confidentiality regime and 
• a stay of the action to allow the parties to negotiate on the basis of the information then available, and
• if those negotiations do not succeed after a limited time, then the action may continue.

The Order

On 6 March 2023, Lenovo gave the following undertaking:

“That within seven days of the expiry of the time to appeal against the final order of the High Court settling the terms of a FRAND licence (“Final FRAND Trial Order”) or, if there is an appeal (or appeals) against the Final FRAND Trial Order, the withdrawal or final determination of such appeal(s), the Defendants will enter into the form of licence settled by Mr Justice Mellor or such other licence as may be finally settled by the courts in these proceedings (“Settled Licence”)”.

There will be a further hearing to determine the form of order and the Settled Licence.

Comment

This has been an extraordinarily difficult case note to write partly because the judgment is 225 pages long and partly because large chunks of it have been redacted,  The judge has promised to publish a fuller version of his judgment in due course but even that will be incomplete. Many of the findings are difficult to follow without knowing the contents of the experts' reports and a transcript of the evidence of the trial.  I hope I have made it easier for readers to understand this case and explore the judgment.  Anyone wishing to discuss this case note should call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact page,