InterDigital Technology Corporation v Lenovo Group Ltd

Hearing dates: 10–14 June 2024

Public Approved Judgment

This judgment was handed down remotely at 10.30am on [date] by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

The Court has before it an appeal by the Claimants (“InterDigital”) and a cross-appeal by the Defendants (“Lenovo”) against an order of Mellor J dated 27 June 2023 made for the reasons given in the judge's judgments dated 16 March 2023 ( [2023] EWHC 538 (Pat) (confidential version), [2023] EWHC 539 (Pat) (initial public version) and [2023] EWHC 1538 (Pat) (revised public version), “the main judgment”) and 27 June 2023 ( [2023] EWHC 1578 (Pat), “the FOO judgment”). Both appeals concern the amounts payable by Lenovo for a licence on fair, reasonable and non-discriminatory (“FRAND”) terms of InterDigital's portfolio of patents which have been declared essential (“standard-essential patents” or “SEPs”) to the European Telecommunications Standards Institute (“ETSI”) 3G, 4G and 5G standards.

The judge held that Lenovo should pay a lump sum of $138.7 million for a licence covering sales by Lenovo from 1 January 2007 to 31 December 2023 together with interest at 4% compounded quarterly amounting to $46.2 million, a total of $184.9 million. InterDigital claims that the judge should have held that Lenovo must pay a lump sum of $388.5 million together with interest at 4% compounded quarterly amounting to $129.3 million, a total of $517.8 million. Lenovo claims that (i) the judge should have held that nothing was payable in respect of the period prior to 27 August 2013, and therefore the lump sum payable was $108.9 million, and (ii) the judge should not have ordered the payment of interest at all, alternatively that any award of interest should be at a lower rate, simple interest and/or for a shorter period.

The bases for these claims all relate in one way or another to a common underlying question, which is the correct treatment of past sales by implementers such as Lenovo when determining what terms are FRAND. InterDigital contends that, although the judge found that licences granted by InterDigital to other implementers in the past had been affected by non-FRAND factors, the judge wrongly failed to take those factors into account when setting the lump sum payable by Lenovo. Lenovo contends that the judge was wrong to hold that Lenovo should pay a royalty in respect of sales made prior to a relevant limitation period and that the judge was wrong to hold that Lenovo should pay interest in respect of past sales.

InterDigital also contends that the judge should have made a declaration that InterDigital was a willing licensor. This is an entirely distinct contention to the principal claims referred to above. It raises issues both as to whether InterDigital was indeed a willing licensor, and as to what purpose would be served by making the declaration sought.

The issues raised by these appeals are important ones. This case is only the second case in which the courts of England and Wales have determined what terms of a global licence of a portfolio of SEPs are FRAND following the precedent set in Unwired Planet International Ltd v Huawei Technologies Co Ltd [2017] EWHC 2988 (Pat), [2017] RPC 19 (Birss J, “ UPHC”) affd. [2018] EWCA Civ 2344, [2018] RPC 20 (CA, “ UPCA”) affd. [2020] UKSC 37, [2020] Bus LR 2422 (SC, “ UPSC”). Furthermore, it is the first case in which the issues of principle as to the correct treatment of past sales by implementers have been raised for determination.

The general background to disputes of this nature

Standards exist so that different manufacturers can produce equipment which is interoperable. This has a number of advantages, of which the following are probably the most important. First, it enables different manufacturers to produce different components of a system. This spreads the investment required and enables specialisation. Secondly, it enables additional types of device to be connected to a system, producing network effects. Thirdly, it means that manufacturers of the same type of device can compete with each other on both quality and price. Fourthly, it gives users of devices that comply with the standard the confidence that they will work anywhere. Standards are central to the development of modern technology, and their advantages are now familiar to many people worldwide through the development of telecommunications standards from 2G to 5G. As this example shows, standards have enabled major technological advances to be rapidly developed and commercialised in recent years. This has required huge investments to be made in research and development.

Standards are set by standards-development organisations (“SDOs”), also known as standards-setting organisations (“SSOs”), such as ETSI. SDOs such as ETSI typically have an intellectual property rights (“IPR”) policy which requires companies participating in the development of a new standard to declare when technical proposals they contribute are covered by SEPs (or, more usually at that stage, applications for SEPs). A patent is said to be standard-essential if implementation of the standard would necessarily involve infringement of the patent in the absence of a licence. Once a proposal is declared to be covered by a SEP, the patentee is required to give an irrevocable undertaking to grant licences of the SEP on FRAND terms. If the patentee declines to give such an undertaking, the proposal is not incorporated into the standard and some other technology is used instead. In this way a balance is struck between the interests of patentees and of implementers. Patentees are ensured a fair reward for the use of their inventions, and implementers are guaranteed access to those inventions at a fair price. This balance is in the public interest, because it encourages patentees to permit their inventions to be incorporated into standards and it encourages implementers to implement those standards. Because standards are global in nature, and are implemented by businesses which trade globally, the obligation to license SEPs on FRAND terms is also a global one.

In order to make IPR policies involving the licensing of SEPs on FRAND terms fully succeed, there are two particular potential evils that must be avoided. Although terminology is not entirely consistent, these evils are generally known as “hold up” and “hold out” respectively. In simple terms, “hold up” occurs if a patentee is able to ensure that a SEP is incorporated into a standard and implemented by implementers in circumstances which enable the patentee to use the threat of an injunction to restrain infringement to extract licence terms, and in particular royalty rates, which exceed the reasonable market value of a licence of the patented invention (i.e. treating the SEP as akin to a “ransom strip” of land). “Hold out” occurs if an implementer is able to implement a technical solution covered by a SEP without paying the reasonable market value for a licence (or perhaps anything at all). It will be appreciated that the FRAND undertaking is designed to prevent hold up by giving the implementer a defence to a claim for infringement and hence to an injunction, while the patentee's ability to obtain an injunction to restrain infringement of a SEP by an implementer which is an unwilling licensee should prevent hold out.

Avoidance of hold up and hold out depends upon the existence of a well-functioning dispute resolution system, because it is in the interests of patentees to maximise the royalty rates they can obtain for licensing their SEPs, while it is in the interests of implementers to minimise the royalty rates they pay. In the absence of a negotiated agreement between a patentee and an implementer as to the terms of a FRAND licence, which may be facilitated but cannot be guaranteed by mediation, a dispute resolution system is required to resolve disputes. The IPR policies of SDOs such as ETSI do not provide for any international tribunal to determine such disputes. It follows that, in the absence of an agreement to arbitrate, the only dispute resolution systems available to such parties are the national courts competent to adjudicate upon patent disputes.

It is generally accepted, however, that patents are territorial. That is to say, they are proprietary legal rights created by the law of a nation state which confer a monopoly within the territory of that nation state, but not outside it. (The unitary EU patent now confers a monopoly within the territory of the participating EU Member States, but that does not detract from the basic principle.) Thus an inventor wishing to patent their invention must apply for a patent in every state in which they wish to obtain a monopoly: in any state where they do not obtain a patent, the invention may be...