InterDigital v Lenovo: An assessment of FRAND terms and negotiations

In a rare consideration of FRAND terms, the UK High Court has recently handed down a judgment in the case of InterDigital v Lenovo.

This decision focuses on what terms are considered to be FRAND – i.e. being Fair, Reasonable And Non-Discriminatory. This is only the second UK judgment in this area (see our blog on a previous UK FRAND decision - English court keeps its FRANDS close and its SEPs closer), as the vast majority of cases settle out of court through commercial negotiations.

Background

InterDigital, an American company, holds various patents relevant to 3G, 4G and 5G technology.

InterDigital's patents had been declared essential (standard-essential patents, or SEPs) to the operation of the 3G, 4G and 5G standards set out by the European Telecommunications Standards Institute (ETSI). As SEPs, InterDigital is therefore required to allow third parties to use those patents by way of a licence on FRAND terms.

Lenovo, a Chinese company, needed to use InterDigital's technology in its products. There have been previous trials between these parties relating to technical issues concerning the validity and essentiality of the various patents. However, this judgment concerns whether the licensing of the patents from Interdigital to Lenovo were on FRAND terms.

Assessment of the licences

Mr Justice Mellor carried out a review of comparable licences, and decided that Lenovo should pay a royalty of $138.7 million (a rate of $0.175 per cellular unit) for its global use of InterDigital’s technology in its products from 2017 to the end of 2023. This represents about 40% of the amount originally claimed by InterDigital.

Mr Justice Mellor also determined that none of the licensing deal offers made by either party in their negotiations to date were FRAND. However, there was insufficient evidence that Lenovo was unwilling to take a licence. Had Lenovo been held to be unwilling, then it would have been subject to a FRAND injunction. After reviewing the draft judgment, Lenovo agreed to take a licence and so any question of injunction was avoided.

The decision also provides further guidance as to how the parties negotiating such licences should conduct themselves. Particularly helpful was the judge's comment that patent-holders should be transparent in relation to other FRAND licences offered – a move that would provide much needed clarity for potential licensees.

A further hearing is scheduled for 5 April 2023, after which a more detailed judgment is expected.

Final thoughts

For now, only the courts of UK and China have granted a global FRAND licence. With the anticipated opening of the Unified Patent Court in June 2023, it will be interesting to see how that forum assesses and grants FRAND licences. Given the opportunity for centralised relief and quick decisions, it seems likely that both patent-holders and the users of SEP technology should embrace the UPC.

Whilst InterDigital appears to be happy with the granting of a royalty per se, an appeal is already on the horizon as the company believes the decision "did not accurately reflect the company's licensing programme". Further, yet another FRAND ruling is due soon in the case of Optis v Apple. We will report back once the next decisions are handed down.