Interdigital Technology Corporation v Lenovo Group Ltd

Hearing dates: 2 nd & 3 rd May 2023

APPROVED JUDGMENT

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. This judgment was handed down remotely by circulation to the parties' representatives by email. It will also be released for publication on the National Archives and other websites. The date and time for hand-down is deemed to be Tuesday 27 ^th June 2023 at 10.30am.

THE HON Mr Justice Mellor

INTRODUCTION

Following my FRAND Judgment (in its Confidential version [2023] EWHC 538 (Pat) and in the public version [2023] EWHC 539 (Pat) but generally ‘the FRAND Judgment’ or ‘the Main Judgment’), there were two sets of issues left outstanding.

The first concerned confidentiality of my FRAND Judgment i.e. whether I should remove some of the redactions in the current public version of the FRAND Judgment. I heard argument on the confidentiality issues at a hearing just before Easter on 5 ^th April and I have issued a separate Judgment on those issues.

This judgment deals with the second set of issues, the subject of the hearing on 2 ^nd & 3 ^rd May 2023, essentially those left outstanding between the parties. These are:

i) Whether I should award interest on the principal sum of $138.7m which resulted from my comparables analysis covering the period from 2007 to the end of 2023 regarding InterDigital's portfolio of 3G, 4G and 5G Patents, and if so, at what rate or rates?

ii) What the appropriate order should be as to the costs of the FRAND trial.

iii) The resolution of certain issues arising on the terms of the Licence.

iv) Whether I should grant permission to appeal.

v) The final form of my Order.

INTEREST

In the FRAND Judgment at [552] I said I remained undecided whether interest should be awarded on ‘past royalties’ and indicated I would hear submissions on the point. On hand down of the FRAND Judgment, I gave directions that each side should serve a Statement of their Case on Interest and an exchange of pleadings took place. It is not necessary to set out all the elaboration raised in the Statements of Case and I summarise the positions of each side as follows.

InterDigital's position was summarised in this passage:

7. InterDigital maintains its position that it would be right, fair and in accordance with FRAND and the ETSI IPR Policy, and the approach taken to the past in the Judgment itself, for interest to be awarded, and that this should be calculated at a rate of 4% p.a. (an agreed rate asserted by Lenovo to be FRAND for late payments), else at a higher rate of 5 – 10% in accordance with the comparable licences and the expert evidence, or such a rate as the Court thinks fit. It should be compounded, quarterly.

InterDigital reminded me of various passages in my FRAND Judgment at [202], [205], [522], [529], [540] and [550], all of which are apposite but which it is unnecessary to repeat here.

InterDigital also reminded me that it was common ground between Messrs Bezant and Meyer that the economically correct approach was to convert past royalties to present value using a relevant interest rate to reflect the time value of money (compare Bezant 4 [2.15] and Mr Meyer XX at T10/p1522 lines 4–16). Mr Djavaherian also opined that the detrimental effects to the licensor of delay can be addressed, at least in part, through the payment of interest (Djavaherian 2 [3.15] and XX at T8/pp1064 and 1072–1075).

Accordingly, InterDigital concluded:

11. It is accordingly appropriate as a matter of principle and policy, supported by the evidence of the experts, and in accordance with the Judgment, that the sums payable under a FRAND licence should reflect interest in respect of past sales. That reflects how a willing licensee would behave, reduces the incentive for implementers to delay agreeing FRAND terms and making FRAND payments, supports the policy and principles underlying the ETSI FRAND obligation and provides an economically just result”.

Annexed to InterDigital's Statement of Case was a schedule showing the rate and type of interest in all the comparable licences. There was significant variation – the rates vary between 3 and 18%, on bases varying between simple interest and interest compounded monthly, quarterly and annually. Perhaps the most common combination was 10% compounded annually, but there was no discernible pattern, aside from renewals carrying the same interest as before. A table showing the rates in the Lenovo 7 was also presented, but those data presented no consistent picture at all.

As for the rates specifically referred to:

i) It is true that in the draft licence, the parties had already agreed interest on late payments should be 4%, compounded quarterly;

ii) Attention was drawn to the fact that Mr Meyer applied a discount rate of 10%, a figure supported by evidence from Mr Brezski who said in his witness statement that InterDigital has generally applied time value of money discounts reflecting InterDigital's weighted cost of capital at a rate of 10.5%.

iii) InterDigital also relied on their cost of debt of 5%, also applied by Mr Meyer.

iv) In their Reply Statement of Case, InterDigital asserted that their cash and short-term investments were raised in part by debt, principally through the issue of convertible bonds issued in 2011 of $230m with an effective rate of interest of 7%, 2015 of $316m at 5.89% and 2019 of $400m at 6.25%. This was in response to the data set out in Lenovo's Statement of Case which detailed the figures for ‘Cash on Balance Sheet’ and ‘Cash/Short term investments’ drawn from InterDigital's financial statements from December 2007 to December 2021. Those combined figures went above $1bn in December 2013 and continued to rise to $1.64bn in 2021. These data were relied upon by Lenovo in support of their allegation that, had any sums been paid over at an earlier date, they would have just been added to the short-term balances and further, that InterDigital had not pleaded or proved that it made any losses as a result of payment being delayed. InterDigital's reply to those allegations was to the effect that it was necessary for their business to carry such large short-term balances in case there was delay in a major licensee renewing their licence.

Lenovo's position can be summarised as follows:

i) Their first set of arguments were to the effect that there was no power to award interest in these circumstances. I was presented with a learned analysis of all the jurisdictional bases on which the English Court could award interest, culminating in the assumption that InterDigital's claim to interest was a contractual one, based on the FRAND obligation but tempered by the assertion that the ETSI IPR Policy and ETSI Guide makes no mention of ‘interest’.

ii) Their second set of arguments were that it would not be FRAND to award interest in the circumstances of this case, relying on a selection of quotes from my FRAND Judgment, including on InterDigital's conduct. Lenovo also made a point that hold out by both licensor and licensee should be discouraged. Lenovo contended that an award of interest would encourage hold out by licensors, providing no incentive to make FRAND offers at an early stage because they will know/expect to receive compensation at the FRAND rate at some point in the future, with interest on top.

iii) If, which they denied, any interest was to be awarded, Lenovo contended no interest should be awarded from any date earlier than November 2018 and the rate should be no higher than the Bank of England base rate +1% on a simple (non-compound) basis.

The elaboration in the arguments on interest from both sides is explained by the estimates provided as to the total sums which would be payable on the principal sum of $138.7m at various rates and...