The Appeal in Optis v Apple
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iPhones Author iPhone 15 Licence CC BY-SA 4.0 Source Wikimedia Commons |
Court of Appeal (Lords Justices Newey, Arnold and Birss) Optis Cellular Technology LLC and others v Apple Retail UK Ltd and others [2025] EWCA Civ 552 (1 May 2025)
This was an appeal by Optis Cellular Technology LLC, Optis Wireless Technology LLC and Unwired Planet International Ltd. ("Optis") against a declaration by Mr Justice Marcus Smith on 16 Feb 2024 that a licence annexed to his order was fair, reasonable and non-discriminatory ("FRAND"), The learned judge had granted the declaration following his judgments in Optis Cellular Technology LLC and others v Apple Retail UK Ltd and others [2023] EWHC 1095 (Ch) 10 May 2023 and Optis Cellular Technology LLC and others v Apple Retail UK Ltd and others : [2024] EWHC 197 (Ch) 14 Feb 2024. According to para [4] of Lord Justice Birss's judgment in Optis Cellular Technology LLC and others v Apple Retail UK Ltd and others [2025] EWCA Civ 552 (1 May 2025) Mr Justice Marcus Smith decided that the appropriate licence fee for the use by Apple Retail UK Ltd, Apple Distribution International Ltd and Apple Inc ("Apple") of Optis's standard essential patents ("SEPs") should be US$56.43 million plus interest. Optis appealed on the ground inter alia that the sum was far too low. It contended that the consideration for a FRAND licence should be US$7.4 billion.
Mr Justice Marcus Smith's Judgment
His lordship's judgment consists of 508 paragraphs divided into 6 parts and an annexe. Lord Justice Birss analysed it between paras [24] and [76] of his own judgment. He summarized it at [25]:
"Introductory Part I deals with FRAND and the relevant legal principles. Part II identifies the parties and the issues. Part III deals with the proceedings and the evidence. It begins to describe problems the judge identifies with the accountancy expert evidence including unpacking and comparables. This part also addresses evidential difficulties relating to patent portfolios. A major part of the judgment is Part IV, in which findings on specific issues are made. Then at crucial Part V the FRAND question is answered, using the judge’s own approach and then finally Part VI is a short section on disposition."
At para [22], Lord Justice Birss explained that Mr Justice Marcus Smith had rejected the evidence of both parties' accountancy experts and substituted his own approach to reaching a financial conclusion. He dismissed unpacking (that is to say, breaking down a lump sum licence fee into a dollar per unit or ad valorem rate) entirely. Instead, he manipulated the data in terms of lump sums. Also, rather than identify the best comparables, he used an averaging approach. That approach and the reasons for it were at the heart of this appeal.
Grounds of Appeal
Mr Justice Marcus Smith refused permission to appeal. Optis applied for permission on 25 grounds, 11 of which related to valuation and 14 to other licence terms. Lord Justice Arnold gave Optis permission to appeal on all 25 grounds, though it abandoned grounds 15, 16, 19, 20 and 21 in its amended appellant's notice. Shortly before the hearing, Optis also gave up ground 18. Apple served a respondent's notice seeking to affirm Mr Justice Marcus Smith's order on 6 grounds.
Hearing the Appeal
The appeal was heard by Lords Justices Newey, Arnold and Birss between 25 Feb and 3 Mar 2025. Judgment was handed down on 1 May 2025. The main judgments were delivered by Lord Justice Birss and Lord Justice Arnold. Lord Justice Birss discussed the financial issues between para [1] and para [151]. He calculated the lump sum payment from 2013 to 2027 at US$502 million. Lord Justice Arnold discussed the other terms between para [152] and para [261]. These included whether there should be a cut-off date for interest and whether licence terms and orders restricting Optis's access to foreign courts were FRAND and conformed to comity. Lord Justice Newey agreed with the judgments of Lords Justices Birss and Arnold at para [262].
Valuation
Optis's first ground of appeal was that Mr Justice Marcus Smith made a fundamental error by rejecting both experts' evidence and substituting his flawed approach. He also erred in rejecting the conventional comparables approach. Apple's respondent's notice supported the judge's approach but argued that his calculation had been too generous to Optis.
Expert Evidence
Lord Justice Birss first considered whether the judge had the right to reject the evidence of both accountants. Mr Justice Marcus Smith set out his reasons for rejecting their reasons in para [314] of his judgment. Lord Justice Birss considered those reasons between paras [86] and [96] and decided that the judge’s rejection of the experts' evidence had been procedurally unfair, unsupported and inconsistent with the parties' common ground.
Judge's Approach
The learned Lord Justice considered Mr Justice Marcus Smith's approach between para [101] and para [115]. The judge had placed 19 roughly similar licences on a common scale and then took a simple average of the entries. Lord Justice Birss accepted that putting available licences on a common scale to evaluate them was entirely logical, but there was no precedent, basis in the evidence or principle for that approach. His lordship said at [115] that the right approach would have been to adopt a comparables-based approach in the sense of being one based on identifying the best comparable or comparables, excluding others and working from there. That had been Optis's second ground of appeal. There was no justification for setting aside the common ground of experts, using lump sums and averaging or failing to take sales volumes into account, which disposed of the seventh and eighth grounds of appeal. It also meant that the ninth ground on apportioning the lump sum for past and future did not arise. The fifth ground on the inclusion of licences was not relied on."Against the background I have described this court is in a position to reach a just conclusion on the FRAND rate starting from the position of identifying the potential comparables in issue and analysing them by putting them on a common scale of some kind by reference to the stack share under licence in each case, as determined by the Innography data. Expressed in this way, this is the core of the judge’s approach below and to that extent it is not now criticised by either party (although Optis contends there is only one comparable - Google). The difference now is to adopt this approach using the DPU data produced by the experts, which the judge wrongly rejected. A convenient common scale to use for analysis is the rate in DPU which a given licence would imply pro rata for a licence of a 0.38% stack share. That 0.38% is the stack share applicable to a licence from Optis to Apple bearing in mind the recent Ericsson licence. The exercise is not as complicated as it might seem. It will involve a broad axe - as it always would have done if the judgment had approached this matter the right way - but that arises in any event."
"..... the judge’s approach to determining the non-royalty terms of the licence involved a misunderstanding of the court’s role in declaring FRAND licence terms (ground 11), resulted in licence terms that did not constitute a commercial licence (ground 12), involved procedural unfairness (ground 13), wrongly gave Apple benefits for free (ground 14) and erred in principle with respect to the interest stop date (ground 17)."
“Pending the entry into force of the Court-Determined Licence pursuant to the Optis Undertaking:
(i) Each of Optis and Apple are obliged to do nothing inconsistent with or prejudicial to the future operation of the Court-Determined Licence.
(ii) Each of Optis and Apple may apply to this Court (reserved to Marcus Smith J or, if unavailable the Judge in Charge of the Patents Court …) on seven days’ notice for direction as to whether a proposed course of conduct is permitted under paragraph 6(2)(i) above.
(iii) Each of Optis and Apple may apply to this Court (reserved to Marcus Smith J or, if unavailable the Judge in Charge of the Patents Court …) for any order appropriate to maintaining and/or preserving the effective future operation of the Court-Determined Licence.”
.........................................
7. For the avoidance of doubt, this Court-Determined Licence is intended (amongst other things) to carry into effect the approach set out in paragraphs 503 to 505 of the Trial E Judgment. It is recognised that unforeseen circumstances may require litigation in relation to the Portfolio, in which case
(i) The parties should seek to reach agreement as to the prosecution of this litigation, failing which
(ii) The parties should apply to the Court under the Order."
The judgment also considers the circumstances in which a new trial may be ordered. Lord Justice Birss considered that it was very much a last resort. In this case, their lordships had enough material from the experts to substitute their own judgment.
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