Lenovo Group Ltd v Telefonaktiebolaget LM Ericsson (PUBL)

Hearing date: 18 February 2025

Approved Judgment

This judgment was handed down remotely at 10.30am on 28 February 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

This appeal requires us once again to consider whether a willing licensor of a portfolio of patents declared essential to one or more European Telecommunications Standards Institute (“ETSI”) standards (“standard-essential patents” or “SEPs”) would grant an implementer of those standards who has undertaken to take a licence to that portfolio on the terms to be determined by the Patents Court to be fair, reasonable and non-discriminatory (“FRAND”) an interim licence pending that determination. It is the third appeal on this issue to come before this Court in quick succession following Panasonic Holdings Corp v Xiaomi Technology UK Ltd [2024] EWCA Civ 1143, in which the Court declared that a willing licensor in Panasonic's position would grant Xiaomi an interim licence, and Alcatel Lucent SAS v Amazon Digital UK Ltd [2025] EWCA Civ 43, in which the Court held that Amazon had a real prospect of success on their claim for a declaration that a willing licensor in Nokia's position would grant Amazon an interim licence, and therefore Amazon should be permitted to amend their statements of case to advance that claim. In the present case Richards J declined to make a declaration that a willing licensor in the position of the Defendants (“Ericsson”) would grant the Claimants (“Lenovo”) an interim licence (or, to be more exact, cross-licence) for the reasons given in his judgment dated 19 November 2024 [2024] EWHC 2941 (Pat). The essential question on the appeal is whether Panasonic v Xiaomi was a decision confined to the specific facts of that case, as Ericsson contend, or whether the underlying reasoning is applicable more widely, as Lenovo contend. Once again, I granted permission to appeal and expedited the appeal because of the urgency of the matter. It is to be hoped that our decision in this case will provide the Patents Court with sufficiently clear guidance to avoid, or at least reduce, the need for further such appeals. It is therefore appropriate to reconsider the applicable principles. Most of these stem from the judgment of the UK Supreme Court in Unwired Planet International Ltd v Huawei Technologies Co Ltd [2020] UKSC 37, [2020] Bus LR 2422 (“ UPSC”), which is of course binding on this Court, and subsequent decisions of this Court working out the implications of that judgment.

It is right to acknowledge at the outset that, as in the previous two appeals, matters have moved on since the first instance hearing due to the developments in the underlying litigation both in this jurisdiction and elsewhere. As a result, the issues have been clarified. This is no reflection on the judges who heard the applications at first instance.

The general background to disputes of this nature

Although I have set out the general background to disputes of this nature in a number of judgments, it is worth doing so once again in order to put the issues and arguments in context. I have added a couple of points to previous accounts.

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 ad hoc 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 freely used by other parties. It follows that patentees typically own families of corresponding patents in many countries of the world, although the costs of patenting everywhere are generally prohibitive.

The competence of the courts of one state to adjudicate upon a claim for infringement of a patent granted by another state is a complex and contested question, but it is (or at least was until very recently) generally accepted that, even if they have jurisdiction over the parties...