FRAND - Lenovo v Ericsson

Great Hall, Royal Courts of Justice

Author Aurelien Guichard Licence CC BY-SA 2.0 Source Wikimedia Commons

Jane Lambert

Court of Appeal (Lords Justices Newey and Arnold and Lady Justice Falk) Lenovo Group Ltd and others v Telefonaktiebolaget LM Ericsson (PUBL) and another [2025] EWCA Civ 182 (28 Feb 2025)

This was an appeal against Mr Justice Richards's refusal to grant a declaration that a willing licensor and a willing licensee in the situation of the parties to this litigation would agree to, and actually enter into, a short-term cross-licence that would expire once either an English court or the US District Court for the Eastern District of North Carolina fixes the terms of a FRAND cross-licence (see Lenovo Group Ltd and others v Telefonaktiebolaget LM Ericsson (publ) and another [2024] EWHC 2941 (Pat) (19 Nov 2024)). The appeal was heard by Lords Justices Newey and Arnold and Lady Justice Falk on 25 Feb 2025 and judgment was handed down on 28 Feb 2025 (see  Lenovo Group Ltd and others v Telefonaktiebolaget LM Ericsson (PUBL) and another [2025] EWCA Civ 182 (28 Feb 2025}). By para [172] of Lord Justice Arnold's judgment, the Court allowed the appeal. 

The Parties

The claimants are the Lenovo Group Ltd, and its British and American subsidiaries ("Lenovo"). The group specialises in designing, manufacturing, and marketing consumer electronics, personal computers, software, servers, converged and hyper-converged infrastructure solutions, and related services. The defendants are Telefonaktiebolaget LM Ericsson, a Swedish multinational and its British subsidiary ("Ericsson").  They supply infrastructure, software, and services in information and communications technology for telecommunications service providers and enterprises, including, among others, 3G, 4G, and 5G equipment, and internet protocol and optical transport systems.

The Issue

Both Lenovo and Ericsson own standard-essential patents ("SEPs") which have been declared to various cellular standards promulgated by the European Telecommunications Standards Institute ("ETSI"). Pursuant to ETSI's policy on intellectual property rights, both Lenovo and Ericsson have given undertakings to offer licences of those SEPs to implementors on terms that are fair, reasonable and non-discriminatory (FRAND).  

Both groups of companies need to work patents of the other. Lenovo uses Ericsson's patents in making and selling smartphones, tablets and notebook computers while Ericsson uses Lenovo's in its infrastructure business. Both acknowledge the need for a cross-licence on FRAND terms to enable them to work SEPs owned by the other but they have not been able to agree the terms of such cross-licence. 

Since October 2023 both groups have sought injunctions or similar orders against the other - Ericsson in Brazil, Colombia and the USA  and Lenovo in England and the USA.  There are proceedings in England and North Carolina in which the courts of either jurisdiction could determine the terms of a FRAND cross-licence.

Lenovo's Reasons for Seeking the Declaration

Mr Justice Richards explained the reason for Lenovo's application in para [5] of his judgment:

"Although this is a declaration as to how hypothetical persons might be expected to act, Lenovo sees real benefit in it. Lenovo itself is happy with the terms of the Short-Term Licence and the significant royalty which it would be obliged to pay to Ericsson under it. If the court makes the Declaration, Lenovo hopes that Ericsson would actually enter into the Short-Term Licence which would result in injunctions that Ericsson has already obtained falling away on the basis that Lenovo is licensed. If, by contrast, Ericsson is not prepared to enter into the Short-Term Licence, Lenovo hopes that courts overseas would decline to grant or continue any injunctions restraining Lenovo from using Ericsson's SEPs on the basis that Ericsson is an "unwilling" licensor."

He added at [7]:

"Finally by way of introductory remarks I note that the declaration that Lenovo seeks is in virtually identical form to the declaration that was granted in Panasonic Holdings Corporation v Xiaomi Technology UK Limited and others [2024] EWCA Civ 1143 (Panasonic CA), although obviously the terms of the Short-Term Licence are different from those of the licence in Panasonic."

I discussed the Court of Appeal's judgment in the case in FRAND - Panasonic Holdings Corporation v Xiaomi Technology UK Ltd. on 14 Oct 2014 in NIPC Law.

Mr Justice Richards's Decision

Mr Justice Richards explained why he refused the declaration in para [134] of his judgment:

"I am not satisfied to a high degree of assurance that the statement in the Declaration is correct in fact or law. Nor am I satisfied that making the Declaration would have real utility and I am concerned that it would interfere with the principle of comity."

Grounds of Appeal

Lenovo appealed on the following grounds:

• Ground 1: Mr Justice Richards was wrong to conclude that Ericsson's obligation of good faith did not require it to enter into an interim licence.
• Ground 2: The judge was wrong to conclude that the interim licence proposed by Lenovo was not FRAND.
• Ground 3: The judge was wrong to conclude that the declaration sought by Lenovo would serve no useful purpose.
• Ground 4: The judge was wrong to conclude that making the declaration would be contrary to the principle of comity.

In para [1] of his judgment, Lord Justice Arnold characterized the essential question on the appeal as whether Panasonic v Xiaomi was a decision confined to the specific facts of that case, as Ericsson had contended, or whether the underlying reasoning was applicable more widely, as Lenovo had argued.  He granted permission to appeal and expedited the appeal because of the urgency of the matter.

Ground 1: Good Faith

The learned lord justice noted that there was no dispute that French law requires a SEP owner to perform its obligation to grant an implementer a licence on FRAND terms in good faith, and this requires the SEP owner to negotiate the terms of such a licence in good faith. Whether a party has complied with the requirement of good faith is a fact-sensitive question, which must be assessed objectively.

One of the reasons why Mr Justice Richards had refused Lenovo's application is that a brief from the US Office of Unfair Import Investigation that an offer made by Ericsson on 11 Oct 2023 to enter into a cross licence with Lonovo was comfortably within the FRAND range. He considered he had no basis on which to gauge the value of Lenovo's patent portfolio. Accordingly, he was not satisfied to a high degree of assurance that in exerting pressure on Lenovo to accept Ericsson's 11 Oct offer by bringing proceedings in Brazil, Colombia and the USA, Ericsson was necessarily seeking supra-FRAND rates.

Lord Justice Arnold observed that the judge's reasoning did not address the question of what was the point of Ericsson's pursuing the Brazilian, Colombian and US proceedings if not to coerce Lenovo into accepting terms more favourable to Ericsson than the English courts would determine to be FRAND.

Ericsson replied that it had brought those proceedings because Lenovo had held out against paying licence fees for 16 years.  Lord Justice Arnold replied that even if that were true Lenovo was now offering licence fees backdated to the first day on which those fees were payable together with interest.  Ericsson also argued that it was enforcing rights to which it was entitled including the possibility of excluding Lenovo's goods from the US market.  Were that to happen Ericsson could oblige Lenovo to accept its licence terms whether they were FRAND or not.

Lord Justice Arnold concluded that Ericsson wanted to achieve a better outcome than a determination by the English or any other courts would provide.  He acknowledged that Ericsson's conduct was less egregious than Panasonic's in Panasonic v Xiaomi as it had not undertaken to the English courts to enter into a licence on the terms they determined to be FRAND.  However, it was also aiming to coerce Lenovo into accepting terms more favourable to Ericsson than the English courts might determine to be FRAND, or at the very least to avoid the risk that the English courts might determine as FRAND terms less advantageous to Ericsson than those it had offered.  In his lordship's view, Ericsson was in breach of its obligation of good faith.

Ground 2:  Whether Lenovo's Proposed Interim Licence was FRAND

Another reason given by Mr Justice Richards for dismissing Lenovo's application was that he did not have expert evidence to satisfy him that even the key terms of the short-term licence proposed by Lenovo were FRAND.  In Lord Justice Arnold's view, he had not needed it.   The learned lord justice referred to para [75] of his judgment in Alcatel Lucent SAS v Amazon Digital UK Ltd [2025] EWCA Civ 43:

"… Amazon's application for an interim licence will not require the court to determine most of the issues which will arise at the RAND trial. It will simply require the Court to determine (1) whether Amazon are entitled to an interim licence and (2) if so, what terms are appropriate. As can be seen from Panasonic v Xiaomi, the question of what terms are (F)RAND for an interim licence is quite different to the question of what terms are (F)RAND for a final licence, and determining such terms is a much more limited task. As Amazon submit, this is because the interim licence is only designed to hold the ring pending determination of the terms of the final licence, and the payments made pursuant to it will be adjusted to the extent necessary in consequence of the determination of the terms of the final licence."

Ground 3:  Whether the Declaration Would Serve a Useful Purpose

Mr Justice Richards feared that Ericsson would simply order any declaration that get might make.  He said at para [128] of his judgment:

"However, the facts of this case are much less stark. Lenovo criticises Ericsson's pursuit of injunctions as being designed to oust the jurisdiction of either the English courts or the ENDC as 'rate-setting courts'. However, that is inaccurate since there is no 'rate-setting court' whose determination of FRAND terms both sides have agreed to accept. Moreover … I am unable to conclude to any high degree of assurance that, even if the declaration were made and Ericsson did think again about its actions, it would choose to enter into a Short-Term Licence. In my judgment, even if I made the Declaration, there is a clear likelihood that, Ericsson would conclude that, since the Lump Sum payable under the Short-Term Licence cannot be recognised for accounting purposes, it is insufficiently worth having to outweigh the disbenefit of having to give up its injunctions."

"ENDC" referred to the US District Court for the Eastern District of North Carolina where litigation was taking place.  The reference to "accounting purposes" was an argument that "a payment by Lenovo to Ericsson under an interim licence would 'not provid[e] Ericsson with any payment that could be recognised as revenue under generally accepted accounting principles (meaning that Ericsson could not use that money until a final licence is signed)'". That was an argument that had not been raised in Panasonic which Lord Justice Arnold discussed in paras [120] to [122]. In short, he regarded the argument as artificial and concluded at [123] that there was nothing in the evidence in Lenovo to undermine the conclusion he had reached in Panasonic.  He rejected the "accounting purposes" argument again at [144].

Addressing Mr Justice Richards's reasoning, Lord Justice Arnold said at [144] that the judge below did not ask himself why Ericsson was opposing the application if it was determined to ignore any declaration he might make.

Ground 4: Comity

Lord Justice Arnold noted that Ericsson had addressed ground 4 first in its oral and written submissions arguing that the relief sought by Lenovo clearly offended the principle of comity regardless of the merits of Lenovo's other grounds.  That was because comity was an even more important issue in this appeal than it had been in Panasonic as Ericsson had not invoked the jurisdiction of, nor given an undertaking to, the English courts.

His lordship referred to the general statements concerning the principle of comity by the US Supreme Court in Hilton v Guyot 159 U.S. 113, 164 (1895) and Lord Justice Millett in Credit Suisse Fides Trust v Cuoghi [1998] QB 818 and para [94] of his own judgment in Panasonic:

"… Comity in this context means that the courts of this jurisdiction should respect the ability of courts [in other countries] to decide issues falling within their respective competencies, and should be cautious about granting any relief which might interfere with such courts' exercise of their own jurisdictions or which might be perceived as an attempt to do so (unless there are proper grounds for the grant of an [anti-suit injunction])."

He stressed that this principle applied to the US International Trade Commission even though it was not a court.

He said at [149] that his reasoning in Panasonic applied equally to this case:

"If the declaration does induce Ericsson to reconsider their position and to grant Lenovo an interim licence, that would promote comity because it would relieve the courts and tribunals of the USA, Brazil and Colombia of a great deal of burdensome and wasteful litigation. If, on the other hand, Ericsson decide to ignore the declaration and to pursue the proceedings in the USA, Brazil and Colombia, it will be entirely for those courts and tribunals to make their own assessment of the parties' conduct, including their conduct in the English proceedings, and to decide what, if any, relief to grant Ericsson for any infringements they may find established in the absence of a licence. Thus making the declaration would not be contrary to comity."

A similar submission had been put to Mr Justice Richards but he had rejected it without explaining why.

Ericsson had argued that the International Trade Commission and US District Court had been seised first.  Lord Justice Arnold acknowledged that that was true but a challenge by Ericsson to the jurisdiction of the English courts had failed and the English courts had exclusive jurisdiction in at least one aspect of the case.  He remarked at [152]: "In those circumstances, the legal centre of gravity, although not the commercial centre of gravity, of the overall dispute is in England."  

Lenovo had offered to submit to the District Court's jurisdiction as to FRAND terms if Ericsson dropped its campaign to obtain injunctions and equivalent relief in the ITC.   Ericsson did not agree to do that. Instead, Ericsson vigorously pursued such relief, in particular in the ITC. That demonstrated that Ericsson was not driven by jurisdictional preference for FRAND determination but by a preference for the exclusionary power of the ITC over FRAND determination by any court.  As his lordship put it, that amounted to hold up.

Comment

At the start of his judgment, Lord Justice Arnold said that this was the third time the Court of Appeal had been required to consider whether a willing licensor of a portfolio of SEPs should be required to grant an interim licence to an implementer who had undertaken to take a licence to that portfolio on FRAND terms to be determined by the Patents Court pending such determination. The other cases were Panasonic and Alcatel. He hoped the Court's decision would provide the Patents Court with sufficiently clear guidance to avoid, or at least reduce, the need for further such appeals.

Anyone wishing to discuss this article may call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact page at any other time.