Context: Lenovo is seeking a U.S. antisuit injunction against Ericsson’s enforcement of standard-essential patents (SEPs) in Latin America and potentially elsewhere. The hearing will be held on Thursday (January 11). Ericsson’s opposition to Lenovo’s motion revealed that the latter’s counteroffer amounted only 23 cents per unit (previous article on this dispute).
What’s new: On Friday (January 5), Lenovo filed its antisuit reply brief. The filing argues that the 23-cent offer is justified from various angles, primarily deriving the number from the middle between the two most recent UK FRAND determinations (Apple v. Optis and InterDigital v. Lenovo). Lenovo’s UK-centric FRAND stance is also underscored by a proposed arbitration agreement that effectively leaves the decision to the High Court of Justice in London. For fear of anti-antisuit injunctions that certain Colombian courts might enter when they return to work, Lenovo urges Judge Terrence Boyle in the Eastern District of North Carolina to act swiftly.
Direct impact: Lenovo appears potentially (one never knows to what extent they blow things out of proportion) desperate in the face of Ericsson’s Brazilian and Colombian preliminary injunctions and stresses that, unlike Apple, Lenovo does generate a significant portion of its sales in Colombia. It is possible that Lenovo will come under settlement pressure now if the U.S. court applies the correct standard for antisuit injunctions and denies Lenovo’s motion.
Wider ramifications: It is now clearer than ever that Lenovo wants the High Court of Justice in London to be the world’s premier SEP devaluation forum (which is also what Tesla is hoping in a newly discovered automotive SEP case), despite generating only about 1% of its global sales in the UK. As ip fray noted before, Lenovo is not asking the U.S. court to protect its own jurisdiction, but actually just Lenovo’s UK agenda.
The fact that the two most recent UK FRAND determinations favored implementers, in one case Lenovo itself, has clearly emboldened the company. But the UK judiciary never aspired to be the world’s lowball-FRAND forum, and presumably isn’t eager to play that role going forward. The related decisions are under appeal, and affirmance is far from certain, even less so with Lord Justice Colin Birss sitting on the appeals court.
The disprecancy between the parties’ official positions (1% of sales capped at $4/unit vs. $0.23/unit) can be attributed, in no small part, to litigation posturing, the difference between that Ericsson’s number was blessed by a U.S. federal court and an appeals court for 4G (with 5G being more valuable) while Lenovo’s offer is almost certainly unsupported by any comparable license agreement in the industry. The numbers that the two sides would actually accept to put an end to this dispute are presumably not that far apart, but obviously far enough for them to be embroiled in multijurisdictional litigation with some of the most expensive U.S. and UK law firms involved.
Lenovo hopes to persuade Judge Boyle that it absolutely needs an antisuit injunction. But if one looks at the parties’ pleadings and compares Lenovo’s arguments and actions to what a willing licensee would do, it looks like only injunctive relief has the potential to enable a resolution of this dispute in the not too distant future.
On Friday (January 5), Lenovo filed its reply brief in support of the motion for an antisuit temporary restraining order (TRO):
There are two angles from which to look at the filing: what it means for the likelihood of an antisuit injunction being granted, and what it means in the wider picture of (and beyond) this dispute.
Lenovo seeks to differentiate its situation from Apple’s in 2022
Lenovo pointed to Microsoft v. Motorola, though Microsoft was undoubtedly a willing licensee at the time and the U.S. case was filed almost a year before the relevant German SEP enforcement actions, and Huawei v. Samsung, though the Federal Circuit never got to decide as a result of a settlement and appeared at least somwhat skeptical at the hearing.
Ericsson then pointed to its own case against Apple, where the defendant was denied that kind of relief in the Eastern District of Texas. That’s a problem for Lenovo, and it tries to make the Apple case distinguishable primarily because of the Colombian market representing a smaller percentage of Apple’s than of Lenovo’s worldwide sales.
Lenovo argues that Apple was not seeking an antisuit injunction but merely about an entitlement to damages. The problem with that argument is that Apple was arguably seeking something much less ambitious and aggressive than Lenovo–and didn’t get even that.
Other antisuit arguments
The question of whether the parties in the potentially enjoining action (Lenovo U.S. and Ericsson) are functionally identical to the ones in the potentially enjoined foreign cases is not likely to be dispositive. Lenovo now says that its U.S. entity is negotiating on behalf of the entire group. It’s possible that Ericsson raised the identity argument just to get Lenovo to take a clear position on the record as prior positions may have been somewhat contradictory.
Lenovo is worried that “when the Colombian courts re-open on January 14 and 20, 2024, Ericsson can seek anti-anti-suit injunctions to prevent the very relief Lenovo is seeking from [the court in North Carolina].” Lenovo would like the U.S. court to pre-empt foreign courts. With the antisuit hearing taking place on Thursday (January 11), that means Lenovo wants Judge Boyle to decide within one business day of oral argument. And even if Judge Boyle agreed that he should decide that quickly, it doesn’t make Lenovo’s case more meritorious.
Lenovo is being a very unreasonable litigant that continues to defend its insistence on non-SEPs in any SEP-related dispute rolution (which is unheard of and makes no sense as non-SEPs are, normally, not FRAND-encumbered), denies that it is seeking its own injunctions because they would withdraw those cases if Ericsson withdrew its cases (which would be a recipe for multi-year hold-out), and a preposterous passage says “the narrow relief Lenovo seeks does not limit Ericsson’s ability to seek adjudications of infringement and damages anywhere in the world.” There is nothing “narrow” about what Lenovo is seeking. All that Ericsson would be allowed to do comes down to damages determinations and some general findings on the merits (i.e., that a patent is valid and infringed). By contrast, other implementers have been more measured by merely seeking anti-enforcement injunctions.
Lenovo’s motion falls short of the requirements for a U.S. antisuit injunction, and even if the district court granted it, it would likely be lifted by the appeals court.
U(K)topian FRAND rates
Where either party has a point is that each prefers a jurisdiction for the FRAND determination in which Lenovo isn’t generating substantial sales: Ericsson prefers the U.S. and Lenovo likes the UK. In that case, however, the most suitable enforcement jurisdictions are the ones where Lenovo does generate significant portions of its worldwide sales, and when Ericsson does just that (in Brazil and Colombia), Lenovo also complains instead of trying to persuade the courts (including the appeals courts) in those jurisdictions of its positions.
In its reply brief, Lenovo explains how it arrived at its 23 cents/unit counteroffer:
Lenovo’s royalty is based on two decisions from the UK (Optis v. Apple and Interdigital v. Lenovo). Relying on the fulsome analyses in those cases, which was based on the presentation of substantial evidence at trial, Lenovo determined the total royalty for all cellular declared essential patents owned by any patent holder in both cases, took the average of those amounts ($5.22), and applied Ericsson’s estimated share of cellular essential patents (4.45%) to arrive at $0.23/unit.
Lenovo attached as an exhibit a November 3 letter to Ericsson in which the same kind of methodology (relying on non-final decisions that are under appeal) was also stated:
[…] Ericsson’s offer of $5 per 5G unit is almost 30X the FRAND rate per unit determined in the Interdigital v. Lenovo case […], and more than 200X the FRAND rate per unit determined in the Optis v. Apple case […].
And:
To arrive at this FRAND rate, Lenovo started with the total royalty based on the cellular stack extrapolated from Optis ($5.72) and InterDigital ($4.73), we took the average of those two figures ($5.22), and applied Ericsson’s estimated stack share (4.45%).
Lenovo’s focus on the UK is also reflected by its proposed arbitration agreement, which is not actually an arbitration agreement but just another means of having the decision made in London:
Section 4 on arbitration procedure is the relevant one:
Subsection 4.1 envisions International Chamber of Commerce (ICC) arbitration in New York City, but subsection 4.2 then wants the arbitration tribunal to apply “the laws of England and Wales.” The key part, however, is subsection 4.3:
In determining the Disputed Terms, the Arbitral Tribunal shall be bound by the English Court’s final determination in the UK License Claim.
The “UK License Claim” is what Lenovo filed in the High Court of Justice on November 28, 2023.
The proposed arbitration agreement is also designed to cause further delay, such as by requiring negotiations before arbitration begins (though the parties have been negotiating for a long time).
But the key issue is that Lenovo’s approach to arbitration would not bring the dispute to an end in a more efficient way. It’s not free-standing arbitration, but a proceeding wrapped around the FRAND determination Lenovo is seeking in the UK, where the court won’t even have global FRAND jurisdiction unless Ericsson agrees.
Lenovo apparently never stops to showcase hold-out behavior.