Optis Cellular Technology LLC v Apple Retail UK Ltd

Hearing dates: 25 February – 3 March 2025

Approved Judgment (Public)

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.

This is the public version of the judgment handed down on 1 ^st May 2025. The unredacted version of the judgment is [2025] EWCA Civ 553. In this public version a number of details have been redacted on grounds of confidentiality. These redactions will be reviewed after the appeals from the confidentiality order made by High Court on 17 June 2024. These appeals are listed for 8/9 July 2025.

This appeal is about what terms of a mobile telecommunications technology standards essential patent licence are fair, reasonable and non-discriminatory (FRAND). It arises from the order of Mr Justice Marcus Smith dated 16 February 2024 which declared that a licence in the terms annexed to the order were FRAND. The case arises because the respondents (Apple) sell products such as the iPhone which implement various mobile telecommunication standards, and the appellants (Optis) have a portfolio of patents which have been declared to the relevant standard setting organisation (the European Technology Standards Institute, ETSI) to be essential to these standards. These are called standards essential patents or SEPs. In this litigation at least some of the UK patents in the Optis portfolio have been held to be valid and essential at trial (including appeals). Thus, today, both sides wish to enter into such a licence but cannot agree on its terms. The terms have been settled by the court. The court's jurisdiction to undertake this task in these cases is now well established. It is based on the contractual effect of the undertaking given by the patentee to ETSI as part of the declaration process under the ETSI IPR policy, see Unwired Planet v Huawei [2020] UKSC 37 (and see also InterDigital v Lenovo [2024] EWCA Civ 743).

From now for convenience I will refer to the implementer Apple and the SEP holder Optis in the singular. As an implementer Apple is entitled to insist that the terms of a licence on offer from the holder of a SEP portfolio (Optis) are FRAND. If the SEP holder offers a FRAND licence but the implementer declines to sign up, then the SEP holder is entitled to insist on a so-called FRAND injunction from the national court restraining infringement within this territory of patents found to be valid and essential (i.e. infringed). A FRAND licence may well be one which is in global terms (see the Supreme Court's Unwired Planet judgment (above) which I will call UPSC). In the present case it is not in dispute that the FRAND licence here would be global in nature. A FRAND injunction is an injunction which contains a proviso that it ceases to have effect if the defendant enters into a FRAND licence. As the authorities make clear, the purpose of this scheme is to mitigate so-called “hold up” by the SEP Holder or “hold out” by the implementer. I will come back to hold up and hold out.

As ever the major dispute is about how much money is due from the implementer to the SEP holder, but there are other disputes about the terms too. In this judgment I will address the money. My lord Arnold LJ will address the other licence terms, including an issue about a parallel judgment of the US Court in the Eastern District of Texas (EDTX).

The judge decided that, leaving aside interest, the licence fee to be paid by Apple should be a lump sum derived from an annual lump sum of $5.13 million per year added up for eleven years making a total of $56.43 million. The eleven years consist of the licence being treated as running for five years from the date it was to be entered into (although the term is more complicated than that), plus six years past sales. Apple supports this conclusion.

By comparison Optis argues that this amount is much too low. Optis contends that what ought to be done is to use a SEP licence between Optis and Google as the best comparable licence, and if that is done, as explained in more detail below, one could take a figure provided by its expert Mr Bezant using what he called “simple” unpacking to derive a dollar per unit (DPU) rate of $[ XA]. When that is scaled appropriately this would imply a fee of $[ XB] per unit for Apple. The actual licence fee would be a lump sum derived from that per unit fee based on time and sales volumes. The details of that calculation do not matter at this stage. To give an indication of what sort of annual sum that per unit fee would imply, I will use a rough estimate of 220 million annual sales of units by Apple. The real annual figures vary over time and are confidential, but for comparison's sake 220 million is a useful figure. That would produce an annual fee of $[ XC] per year (220m x $[ XB]), plainly a far larger sum than the judge's $5.13 million. Using the judge's approach, (although these aspects of the judge's approach are also disputed) for eleven years the $[XC] indicative figure would give an indicative total, absent interest, of $[ XD]. At trial Optis had contended for a figure as large as $7.4 billion, but either way these figures put into context the potential financial significance of this appeal. Another way of illustrating the difference between the parties using the rough annual sales number of 220 million is to divide the judge's $5.13 million figure by that number. This works out at about $0.02 DPU, as compared to the $[ XB] DPU Optis now contends for.

The proceedings up to trial

In 2012 Apple launched a 4G (LTE) enabled iPhone. In 2017 negotiations between Apple and Optis began but never reached a conclusion. In February 2019 Optis filed a claim form against Apple in the Patents Court. The claim was for patent infringement relying on 8 UK patents and sought a declaration about the terms of a FRAND licence. On almost the same day Optis filed a complaint against Apple in the EDTX, alleging infringement of certain US patents. All the patents are in the Optis SEP portfolio.

The UK proceedings were case managed as a series of technical trials addressing the patents (trials A to D) listed to be heard between October 2020 and January 2022, to be followed by this case, as trial E, in June/July 2022 to settle the terms of a FRAND licence. In summer 2020 the need for a further trial, trial F, crystallised.

In the meantime the EDTX proceedings had advanced such that by September 2021, following a retrial before a second jury, the EDTX court issued a verdict finding that the five US patents in issue were valid and infringed, and awarding Optis a lump sum of $300 million for past and future sales.

Turning to trial E, following directions from the docketed judge Marcus Smith J, the parties exchanged position statements and evidence setting out their positive cases in January 2022. Trial E began on 13 June 2022 and ran for 5 weeks.

Both sides called factual witnesses about their respective approaches to licensing negotiations both in general and in the particular cases in issue, and they called economics experts and expert accountants. The accountants were Ms Gutteridge, called by Apple, and Mr Bezant, called by Optis.

Although the parties were far apart on what the answer to the financial question was it is relevant to see that there was substantial common ground about aspects of the approach to answering that question. The parties had disclosed various relevant licences they each had entered into. Included within other aspects of their cases, each side sought to use selected licences as the best comparable licence(s) from which to derive information to allow the court to answer the financial question. Although which licences were the best comparables was highly contested, each side advanced a case which included an approach of selecting the best comparable(s) from the available licences.

Another aspect of common ground was about something called unpacking. In some of the disclosed licences the licence fee was expressed as a per unit royalty. Two common ways of expressing a per unit royalty are as a percentage of the selling price of the unit or as a fixed sum per unit. In this case these two kinds are called ad valorem and DPU respectively. In other licences the agreement consisted of or included a lump sum payment. Both sides advanced cases which involved working out what useful information could be derived from the licences. For the licences in which the licensee had paid a lump sum that lump sum was “unpacked” into an estimate of the per unit royalty which that lump sum had, in effect, capitalised. This is an estimate and involves taking various factors into account, but as I say both sides took this approach. Three obvious factors which have to be taken into account when moving from lump sums to per unit royalties are some estimate of the number of units the parties had in mind, whether the agreement is a...