Context: The European Commission (EC) is already making preparations for the implementation of the proposed EU regulation on standard-essential patents (SEPs) despite the fact that its passage into law remains uncertain as serious concerns remain and important questions have gone unanswered (July 11, 2024 ip fray article).
What’s new: InterDigital continues to enforce a German SEP injunction against Lenovo after the Munich Higher Regional Court, in an order dated June 25, 2024 and confirmed by the court to ip fray this week, denied a motion to stay enforcement. But in this particular dispute, based on plenty of publicly available information, there are overwhelming reasons to deem InterDigital an unwilling licensor while Lenovo is, in that case, the clearest case of a willing licensee.
Direct impact: The question is now whether Lenovo will do what worked out very well for Apple in 2012. At the time, Motorola Mobility (which was acquired by Google and later sold to Lenovo) was enforcing a Mannheim SEP injunction against an older iPhone model. The appeals court (in that case, the Karlsruhe Higher Regional Court) denied Apple’s original motion for a stay, but Apple filed renewed motions based on new facts and ultimately got the injunction lifted for the duration of the appeal. In that case, Apple had to create those new facts single-handedly by amending its offer. Lenovo has made a new public offer after a UK ruling on Friday, and the ruling itself constitutes an important new circumstance in its own right.
Wider ramifications: What’s going on in Germany that just can’t be reconciled with EU law as it already stands and which may be viewed by important decision makers as additional evidence of a broken SEP enforcement system in Germany. Considering all of the facts that are on the table, there was no justification for the denial of Lenovo’s motion for an enforcement stay, and there is none for InterDigital’s continued enforcement.
Since shortly after the Munich I Regional Court granted InterDigital a Germany-wide SEP injunction against Lenovo (May 3, 2024 ip fray article), ip fray has repeatedly asked the appeals court’s press office for information on Lenovo’s request for an enforcement stay. On May 14, the appeals court provided its case number (6 U 1565/24). On Monday (July 15), it responded with the information that the motion for a stay had been denied on June 25.
In a case involving different parties, the EC has already communicated to the Munich appeals court through German outside counsel that it disagrees with the Munich I Regional Court’s SEP case law. In ip fray‘s opinion, it is hard to see much of a difference between how the various German patent infringement courts adjudicate SEP cases: the problem is the Sisvel v. Haier ruling by the Federal Court of Justice of Germany, a decision that is intellectually dishonest and constitutes terrible policy.
Far be it from ip fray to take the position that Lenovo is always a willing licensee. That is a case-by-case question. There are fundamental differences between Lenovo’s patent disputes with InterDigital and Ericsson. While InterDigital has been awarded a cellular SEP royalty of 22.5 U.S. cents per unit after two rounds of UK litigation, Ericsson was deemed by a U.S. district court and a regional appeals court (Fifth Circuit) to have been perfectly within its rights to seek from HTC a per-unit royalty of $2.50 across all HTC devices or 1% of a device price floored at $100 and capped at $400 (i.e., a per-unit royalty of $1-4). That’s why none of what this article says has a bearing on Ericsson v. Lenovo (where there is no German injunction in force anyway).
The Munich I Regional Court’s injunction was issued on a basis that just can’t be reconciled with the EU’s Huawei v. ZTE case law. Instead of performing serious economic analysis (if any at all), the lower court simply rejected Lenovo’s position that an offer to take a license based on the outcome of the UK FRAND dispute (at the time, Mr Justice Mellor had set a rate of 17.5 U.S. cents per unit, which InterDigital then appealed) was sufficient to make Lenovo a willing licensee. By now, the rate at which Lenovo would take that license iss 22.5 U.S. cents as the result of a 29% increase by the England & Wales Court of Appeal (EWCA), which fell far short of the 185% increase InterDigital was seeking.
It is, quite frankly, shocking that the Munich appeals court did not immediately see that the court below was wrong and upheld the injunction instead of lifting it. Also, the question must be asked whether the continued enforcement, even if formally allowed by misguided German courts, constitutes a flagrant breach of EU law.
Of course, InterDigital will always argue that the UK outcome isn’t meaningful because there were many pre-5G devices included in a royalty determination for the period from 2007 to 2023 (July 15, 2024 ip fray article).
InterDigital actually deserves a lower royalty in the 5G era as its share went down from 9.1% to 3.7%, and only 7% of its patents are 5G-specific
Not only is InterDigital’s position that a royalty level from the pre-5G era means they should now get more because 5G is better than 4G a non sequitur, but the facts are actually such that implementers have a compelling case for paying less now:
- The overall industry trend is not that smartphone makers (automotive is a different situation) pay more for 5G than for 4G licenses.
- The publicly available numbers concerning InterDigital’s license deal with Apple do not at all suggest a higher per-unit royalty, but merely reflect the growth of Apple’s unit volume.
- InterDigital is still largely about cellular SEPs. Its own published rates don’t attribute huge value, relative to its cellular SEPs, to its WiFi and video codec SEPs.
- Last year’s England & Wales High Court (EWHC) ruling contains various findings of fact that show InterDigital is actually a much less important player in 5G than it was in 3G and 4G, and that it doesn’t have a lot of 5G-specific “diamond” patents:
- At the top of page 198 of the EWHC decision, a table shows that InterDigital’s share of cellular SEPs went down from 9.6% for 3G to 9.1% for 4G to 3.7% for 5G. Given that 5G devices are still backwards-compatible with 4G, a 5G license obviously includes 4G as well. That’s why one can’t argue that InterDigital should now get only 40.7% of its past royalty rate. But it’s preposterous for InterDigital to argue that it should get more for less. Yes, 5G sounds bigger than 4G. But 5G InterDigital is much smaller than 4G InterDigital.
- The patent court from para. 846 of the EWHC decision is furthermore supported by the outcome of five studies referenced in para. 839 of the decision. According to that one, InterDigital’s share went down from 9.5% (3G), 9-13% (4G LTE) and 10% (LTE-A) to only 4% for 5G. That, again, means InterDigital has less than half the share of 5G patents than it used to have in 4G.
- Para. 789(iv) says: “InterDigital’s share of SEPs per generation has varied, but they have a lower share of the 5G SEP universe.”
- What’s particularly important to look at these days is whether a cellular SEP holder just declared old 4G-related inventions essential to 5G or owns “diamond” patents, i.e., inventions that are unique to 5G. Para. 834 of the EWHC decision says, however, that “only 7% [of InterDigital’s 416 claimed 5G SEP familied with granted patents] were unique to 5G.”
In light of those facts, it’s outrageous that both Munich courts are depriving German consumers of choice and of the benefits of increased competition (on price and quality) by barring Lenovo from selling its products in that country.
It’s no less outrageous that InterDigital is taking advance of a broken system. The price for that may be paid not only by InterDigital but ultimately also by other SEP holders, including those who act constructively and are willing to grant licenses on FRAND terms. What’s going on in Germany still doesn’t mean that the proposed EU SEP Regulation makes sense (it does not), but some people are inevitably going to think that German judges are not going to responsibly apply EU law unless the EU enacts some new regulation.
This is separate from the question of whether Mr Justice Richards of the EWHC believes that a full-blown proceeding is still needed in the UK to determine the correct royalty rate for the period starting January 1, 2024 (March 21, 2024 EWHC judgment). Lenovo was seeking an interim license and pointed to the same court’s decision for the 2007-2023 period. The outcome of a full trial on FRAND for that period could be that InterDigital will get even less than it was awarded, on a per-unit basis, for the previous period. With its 5G share being less than half of its 4G share according to different methodologies that the EWHC relied upon, it could become an uphill battle for InterDigital. But in the meantime InterDigital is trying to force Lenovo, through the enforcement of an injunction that issued in Germany for all the wrong reasons, to withdraw the request for a UK FRAND determination and to take a license on supra-FRAND terms.
It would be best if Lenovo could just bring a renewed motion in light of the appellate decision and if the disgraceful German injunction was finally lifted. Something must give because it’s not rational that InterDigital claims it should be entitled to a higher royalty when its share of essential 5G patents is only about 40% of what it used to be for 3G and 4G. That just can’t be a rational basis for upholding a sales ban.