Context: One week ago, the England & Wales Court of Appeal (EWCA) held that Lenovo was entitled to an interim cross-license with Ericsson pending the English courts’ resolution of their FRAND dispute (February 28, 2025 ip fray article). By that standard, any implementer can demand a global interim license from any standard-essential patent (SEP) holder by bringing a FRAND action in the UK. That constitutes extraterritorial overreach, also known as judicial imperialism.
What’s new: On Wednesday (March 5, 2025), Ericsson informed the United States International Trade Commission (USITC, or just ITC) that the EWCA decision constituted reversible error and that Ericsson would appeal it to the UK Supreme Court (UKSC). The EWCA did not grant permission to appeal, but Ericsson can seek that permission from the top UK court. Meanwhile, a Monday (March 3, 2025) order by the EWCA has become discoverable. It gives Ericsson until this coming Monday (March 10, 2025) either to grant Lenovo an interim cross-license or promise to do so in the event its appeal to the UKSC does not succeed. Otherwise Ericsson will be deemed an unwilling licensor.
Direct impact: It appears unlikely that Ericsson will bow to the EWCA’s pressure and comply with a clearly misguided decision. The hurdle is high for the UKSC to allow an appeal, but the judgment is so outrageous and some fallacies are so obvious that it might happen. At any rate,should Lenovo attempt to leverage the Monday order against Ericsson, courts in other jurisdiction may impose sanctions on Lenovo (February 4, 2025 ip fray article) and the European Commission may start World Trade Organization (WTO) complaint proceedings against the UK, which would be warranted (unlike the EU’s hypocrisy concerning China).
Wider ramifications: A different SEP-related EWCA decision that came out yesterday, Tesla v. Avanci & InterDigital, shows that Lord Justice Arnold does not always manage to leverage his patent expertise to build majority support for his extremist positions (March 6, 2025 ip fray article). And sitting next to “[his] learned friend Richard” at a SEP conference in the Polish capital of Warsaw today (conference program), Presiding Judge Professor Peter Tochtermann of the Unified Patent Court’s (UPC) Mannheim Local Division (LD) diplomatically reminded his British colleague of the concept of comity.
At the above-mentioned Warsaw conference, on which we reported twice yesterday (1, 2), LJ Arnold reiterated something that sounds like common sense to economically illiterate persons but is 100% nonsensical if one has ever actually run a business:
His most basic misconception is that he thinks a willing licensor of SEPs cannot have any other agenda than holdout when refusing a interim license agreement, given that the licensor will receive interim payments.
What LJ Arnold and his colleagues who mistakenly followed him don’t understand is that there’s a right basis and a wrong basis for money changing hands:
- The right basis is that a payment is made because the obligation is recognized, which means that it contributes to the financial results that investors focus on, and the recipient can then use or invest that money in whatever way it chooses.
- The wrong basis is that the implementer simply uses the licensor for a banking service and makes a deposit.
Why does the licensor effectively become a bank? And why wouldn’t the licensor, contrary to what LJ Arnold thinks it should, welcome the influx of cash?
The interim payment is subject to an adjustment that could go either way. There could be a repayment of an unknown amount.
Let’s assume $100 million is paid as an interim license fee. The problem is that the ultimate determination by the court could be, say, $20 million. Or less. The number is simply not known.
If the licensor spent the $100 million on operating costs and/or dividends, it could turn out later that the money was actually just loaned, not earned.
That uncertainty also limits the licensor’s ability to invest those funds. Even if the licensor assumes that the dispute may take longer, there is always the possibility of something happening that leads to a settlement below that amount. And then the licensor may have to make a partial refund rather quickly. As a result, it could not do much more than term deposits with a one-month term.
Ericsson told the ITC not to attach any importance to the UK situation because the ITC, not a UK court, decides whether to impose a U.S. import ban on patent-infringing products. In a footnote, Ericsson highlighted one of the issues with the EWCA ruling that it is now going to appeal, which is that Ericsson can’t recognize (for accounting purposes) such interim payments as revenue:
“As one example of the faults in the UK court’s ruling, Lenovo presented no evidence disputing this fact, which the lower court found persuasive when denying Lenovo’s request. Yet the UK appellate court dismissed Ericsson’s uncontroverted position simply because generally accepted accounting principles ‘are not legal documents like statutes or contracts.’”
The UKSC would do the reputation of its jurisdiction a favor by accepting the appeal and reversing the EWCA before it does even more damage.
LJ Arnold repeated at the Warsaw SEP conference today his view that interim licenses were compatible with comity (the notion that courts should not encroach on each other’s jurisdiction), but no mantra can turn a falsehood into a truth.
Judge Professor Tochtermann was being very diplomatic. He mentioned that in recent months he felt forced to read more UK court rulings than decisions by his own court, the UPC. That was the first thinly-veiled complaint over LJ Arnold’s judicial imperialism. The other was that Judge Professor Tochtermann said he generally doesn’t believe judges in different countries should (in other words) usurp each other’s jurisdiction.
On Monday (March 3, 2025), the EWCA followed up to the Friday judgment and entered an order. It refused permission to appeal to the UKSC, but Ericsson will (based on its ITC filing) try to obtain the permission from that court itself. The critical part to discuss here, also in light of what LJ Arnold said at today’s conference, is the following:
4. In the event that, within 7 days of the date of this Order, Ericsson refuse
either 4.1 or 4.2 below, Ericsson are in breach of their FRAND
commitments under the ETSI IPR Policy and are unwilling licensors.4.1 To offer Lenovo the Interim Licence and to enter into the same with
Lenovo; or4.2 Give the following undertaking to the Court on condition that
Lenovo gives the reciprocal undertaking set out above:
Pending any application for permission to appeal to the Supreme
Court or the determination of any such appeal, Ericsson undertake
that they shall abide by the terms of the Interim Licence as if the
same were in full force and effect and shall enter into the Interim
Licence within 7 days of any such appeal or permission to appeal
being refused or withdrawn. If any appeal to the Supreme Court is
finally allowed, Ericsson shall repay any sums paid by Lenovo
under their undertaking given above which the Court decides
should be repaid (including interest if appropriate).
As long as this is just a UK court labeling Ericsson an unwilling licensor, it doesn’t necessarily matter. The ITC or courts in any given jurisdiction are not bound by what a UK court says.
But what if Lenovo seeks a court order obligating Ericsson to grant such a license? At today’s conference, LJ Arnold said that when UK courts make global FRAND determinations, SEP holders can walk away. Are the UK courts going to content themsleves with making declarations of the kind that U.S. courts call “advisory opinions” (a basis for denying jurisdiction)?
And what if Lenovo seeks damages for breach of a contractual obligation? After Monday (March 10, 2025), it could say that the EWCA has deemed Ericsson to be an unwilling licensor who failed to comply with a FRAND licensing obligation.
When Ericsson told the ITC on Wednesday that it would appeal the EWCA ruling and that nothing would change in practical terms for the purposes of the Ericsson-Lenovo ITC matters, the EWCA order was already two days old. It is, therefore, hard to imagine that Ericsson would cave to Lenovo and LJ Arnold on Monday.