Context: This week, the England & Wales Court of Appeal (EWCA) is hearing the InterDigital v. Lenovo FRAND appeal (and Lenovo’s cross-appeal over late-payment interest) (June 12, 2024 ip fray article). Affirmance of the lower court’s lowball royalty determination is rather unlikely.
What’s new: This article briefly five key takeaways from the UK appellate hearing with a view to the proposed EU regulation on standard-essential patents (SEPs), which was rushed through the European Parliament (June 11, 2024 ip fray article).
1. Other jurisdictions stand ready
All three judges on the panel made it clear that they take the protection of intellectual property seriously. The High Court (actually the lower court for the purposes of UK patent litigation) made two FRAND determinations last year that led some implementers to believe the UK would give them leverage as they seek to devalue SEPs, but the EWCA is poised to redress the balance.
Those UK proceedings are slow, but if the EU effectively delays enforcement by about a year (nine months under the statute, but practically more given the need to prepare for different filings), a jurisdiction like the UK becomes more attractive than otherwise.
No one who watched this week’s UK appellate hearing will seriously believe that UK judges would stand in awe before an EUIPO-led FRAND determination. They’ll take note of it as one of various opinions, but they’ll do their own thing.
2. FRAND determinations are time-consuming
Compared to what their counterparts in other jurisdictions do, UK appeals courts spend enormous amounts of time hearing such cases. The alternative would be for the judges to form their opinion mostly on the pleadings and the record, addressing only a few critical questions at the hearing. But it was clear at this week’s hearing that FRAND determinations are inherently time-consuming. There are many arguments to be made, rebutted, reinforced.
They weren’t even talking about anything technical, such as whether InterDigital’s inventions are in particularly important fields of the relevant cellular standards. It was all just about comparable license agreements and what conclusions to draw from them.
The High Court now tends to need about a year after a hearing to write a decision. Those hearings take a lot of preparation on the parties’ side. The notion that the envisioned EUIPO-led process can deliver a solid result within a time frame of nine months is not realistic.
3. Single decision-makers and appeals
These are two related issues: InterDigital v. Lenovo shows once again that it’s not a good idea to leave such important commercial questions to a single decision-maker, at least not without a proper appeal before a panel of three (or more) judges.
The problem with a single decision-maker is that the person may just go too far in the wrong direction without a professional peer pointing out an error. Here, the appeals court appears unconvinced of Mr Justice Mellor’s choice of one license (a deal between InterDigital and LG) as effectively the only comparable on which the decision was based. Lenovo’s lawyers tried to defend it by saying that agreement is the best comparable and, as a fallback, arguing that the decision could be upheld on other grounds. But a group of decision-makers is always much less likely to take extreme positions than a single person.
The unavailability of a proper appeal of those EUIPO-led FRAND determinations is an issue. Those supporting the proposal make it sound like the infringement courts would then effectively act as appeals courts. But that means you may need to have the same EUIPO decision discussed by multiple courts in multiple jurisdictions (for instance, a couple of German regional courts, two or more UPC Local Divisions, and maybe also national courts in jurisdictions like France and the Netherlands). And it’s never going to be a true appeal but just an argument over whether some non-binding authority should be deemed convincing.
InterDigital v. Lenovo is one of only three FRAND determinations that have been made in the UK so far. Arguably, it’s the first, given that the original one by then-Justice Birss in Unwired v. Huawei cannot be taken seriously: he looked at the parties’ positions and assumed that either party would be off by the same factor. The central issue in that case was the extraterritorial scope of the license imposed on the implementer. So this week was the first UK appeal with a focus on how to arrive at a FRAND royalty rate. Optis v. Apple will be the second.
The UK is now building a body of appellate case law on FRAND determinations. For instance, there will be guidance on how to deal with a SEP holder’s argument that certain agreements were entered into on sub-FRAND terms because of (actual or threatened) hold-out.
The process envisioned by the EU would not really develop a body of case law, much less one of appellate case law. It would just put out some poorly-considered FRAND determinations by conciliators chosen on the basis of criteria that are not even known at this stage.
4. Transparency and discovery
The opacity of the EU’s contemplated proceedings is a serious issue. By contrast, those UK court proceedings are very transparent. They have to protect some numbers that are confidential business information, but the rulings and the proceedings in open court are highly instructive. That would not be the case in those EUIPO-led FRAND determinations.
Discovery (access to relevant documents) is a closely related topic. In the UK, parties can make information requests. One can also see at the early stages of some pending UPC proceedings such as Panasonic v. Xiaomi (June 13, 2024 ip fray article) that some key documents are only put on the table as a result of court orders. Quite often, parties can’t make those requests at the start of the proceedings: it may take time before they even see that some information should be requested. In an EUIPO-led FRAND conciliation, there wouldn’t be enough time and there probably wouldn’t even be any sanctions on parties that withhold relevant documents.
5. SME issues are outliers
Small and medium-sized enterprises (SMEs) rarely face SEP issues, and are practically never sued over SEPs. ip fray would like to see a reasonable solution that shields SMEs from potential SEP abuse (March 7, 2024 ip fray article), but there is no clear and present danger of SMEs going out of business or being unable to make products because of SEP licensing issues. There are false claims to the contrary: fictional stories made up by lobbyists.
In InterDigital v. Lenovo, only one SME license was mentioned (also at this week’s appellate hearing): a deal between InterDigital and Fairphone that was made at a time when Fairphone would have met the EU’s SME definition. ip fray believes courts should ignore such licenses. Fairphone’s global market share at the time “was about 0.004% by value,” so it’s clear that InterDigital did that deal only to produce a comparable with a high royalty rate.
Given that there are no widespread SME-SEP issues, there’s no urgency to pass the EU proposal into law. The topic should be discussed and monitored, and no SME should be bullied into paying supra-FRAND royalties, but the EU proposal doesn’t solve that problem. If a SEP holder wanted to threaten with litigation that an SME can’t afford, there are still various ways of doing that, such as suing in multiple jurisdictions (including non-EU ones like the UK) and telling them that no matter what the outcome of the EUIPO FRAND determination is going to be, there won’t be a settlement on that basis, in which case the SME will still have to deal with infringement litigation, possibly in multiple venues at the same time.
Conclusion
Should the EU SEP Regulation be enacted in its current or any similar form, jurisdictions like the UK will become SEP holders’ preferred venues. InterDigital v. Lenovo also shows that it takes a lot more to get FRAND right than a nine-month process led by a single EUIPO appointee.