Context: Since a favorable FRAND determination in an InterDigital v. Lenovo case that came down last year, Lenovo has been looking for various ways to use the UK judiciary against standard-essential patent (SEP) holders (today’s previous ip fray article).
What’s new: The jurisdictional decision mentioned in the previous article (published in the BAILII database) is fundamentally at odds with one of the most basic principles of antitrust law, which is the illegality of tying. So far, there was global consensus that SEP holders must not abuse the market power conferred upon them by SEPs for the purpose of forcing implementers to license non-SEPs. If SEP holders did what Mr Justice Richards declined to rule out as a potential FRAND obligation, which is to offer a total portfolio license also including non-SEPs, they would violate the antitrust laws of many jurisdictions, an effect they could avoid only by making not only one FRAND offer but two (a SEP portfolio licensing offer as well as a complete portfolio licensing offer also including non-SEPs). But an obligation to offer two alternative sets of terms would be at odds with Huawei v. ZTE.
Direct impact: What InterDigital hoped for was an outright dismissal of a facially meritless claim. All that Lenovo has achieved so far is that there will be further analysis. If Mr Justice Richards, who does not appear to have much SEP expertise and is not yet convinced of Lenovo’s claim being ultimately successful, made a decision of far-reaching and highly problematic consequences, he would certainly not have the last word.
Wider ramifications: Lenovo’s litigation strategy is not about ensuring the proper interpretation of the law as it stands or about contributing to a reasonable evolution of case law. It is a bad-faith attack on the SEP licensing system as a whole.
While ip fray considers Mr Justice Richards’ decision bad and wrong, it is unclear whether InterDigital’s lawyers focused on the best arguments. At least one of InterDigital’s arguments appears to have been not just weak but besides the point: according to the decision, InterDigital argued that any SEP holder, even if holding just a single SEP, might end up having to offer total portfolio license to an implementer. That argument makes no sense, and was correctly rejected by Mr Justice Richards, as Lenovo’s argument is about InterDigital’s specific case and not a bright-line rule affecting all SEP holders. Lenovo argues that InterDigital appears to routinely conclude license agreements that include not only its SEPs but also its non-SEPs, and points to an announcement of a settlement with Xiaomi as well as the possibility of proving this based on the production of comparable license agreements in the further process. So, to be fair, Lenovo’s argument is specific to this one patent holder and not to the strawman outlier scenario InterDigital’s lawyers brought up.
Obviously, InterDigital is far from the only SEP holder to presumably grant licenses to its entire portfolio in all (or almost all) cases, as opposed to SEP-only licenses. Lenovo also pointed the court to its experience with other licensors. There are, however, companies that hold SEPs and are prepared to license them, but do not routinely license non-SEPs. Chances are that if someone approached Apple about licensing their SEPs, Apple would not be interested in going beoynd that. Even a company that typically licenses complete portfolios, Nokia, at least once entered into a SEP-only license (and then sued the licensee, HTC, only over non-SEPs).
Mr Justice Richards, who is relatively new to that court (2022 press release by the UK judiciary), may never have dealt with a FRAND matter before. In his decision, he makes it perfectly clear (several times, in fact) that he is unconvinced of the merits of Lenovo’s claim. He just didn’t reach the degree of conviction of the claim being meritless that he’d have dared to throw it out, though dismissing the claim (which Lenovo could then have appealed) would have been the right thing to do.
Huawei v. ZTE still applies in the UK, though the UK judiciary has, since Brexit, been free to deviate from those pre-Brexit ECJ decisions that are currently still part of UK case law. It was clarified by the UK Supreme Court with a view to global SEP portfolio licenses in Unwired Planet v. Huawei. Mr Justice Richards just lacked the conviction and courage to throw out Lenovo’s attempt to further expand the meaning of “recognized commercial practices in the field” (which is all that Huawei v. ZTE says about what a FRAND offer or counteroffer must look like) by now saying that even a global SEP portfolio license is not enough if the same patentee in most cases (if not always) grants total portfolio licenses that also include its non-SEPs. Lenovo says it’s discriminatory to offer a SEP-only license if the standard practice (by the same company) is to license its entire portfolio.
Rather than give that claim short shrift, Mr Justice Richards elected to allow Lenovo to further develop that argument.
Therefore, it’s too early to be terrified. It’s still fairly likely that Mr Justice Richards will ultimately make the right decision, but if he did not, the appeals court is just going to see that what Lenovo wants is not workable:
- Huawei v. ZTE requires the SEP owner to make only one FRAND licensing offer.
- But the antitrust laws (in the EU, UK, U.S. and elsewhere) also clearly prohibit tying. SEPs confer market power, non-SEPs normally (exceptions are few and far between) don’t. Tying a non-SEP license to access to a SEP license would get SEP holders into trouble in many countries. Therefore, a single offer relating to SEPs as well as non-SEPs would be illegal for some other reasons.
- As a result, SEP owners who routinely grant total portfolio licenses would have to make two alternative offers: a SEP-only offer (to steer clear of tying) and a total portfolio offer (because of the “discrimination” argument that Lenovo makes).
- One major company is known to do so voluntarily: Qualcomm offers a SEP license and, optionally, a license to its non-SEPs on top. That was discussed (not only, but also) in FTC v. Qualcomm. But one cannot expect everyone to do so.
- The problem with making this a requirement related to Huawei v. ZTE is that there would have to be two offers by a SEP owner, but the implementer could then choose to make a counteroffer to only one of them. That would be a major asymmetry. It would also create a lot of new legal uncertainty.
All that Lenovo seeks to achieve is a situation in which patentees that routinely license their entire portfolios cannot enforce any patents against it: Lenovo would always run to the UK, ask for a FRAND determination, argue that a SEP-only offer is discriminatory, and in the end no injunction could issue over any kind of patent by an owner that routinely licenses a mixed SEP/non-SEP portfolio.
While Mr Justice Richards’ decision makes it sound like the further proceedings are an opportunity for Lenovo to address any deficiencies of its original claim, they are actually a chance for InterDigital’s lawyers to explain more clearly to Mr Justice Richards what implications it would have if Lenovo succeeded. The claim as well as the decision to let it go forward belong on the dustbin of FRAND litigation history.