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Entitlement to the "FRAND bargain" explored by Court of Appeal

Posted on 16 December 2022

Security Abstract

Following Mr Justice Meade's first instance decision in "Trial F" in this case, the Court of Appeal recently considered, and dismissed, appeals by both Optis and Apple. This is one of a large number of cases currently being considered by the English courts in relation to Standard Essential Patents ("SEPs"), which patent-holders are required (under the policies of the relevant standard setting organisation) to license to implementers on Fair, Reasonable and Non-Discriminatory ("FRAND") terms. Following the 2017 decision in Unwired Planet, in which Mr Justice Birss (as he then was) found that it was possible to set the terms of a global FRAND licence (a decision which was upheld by the Supreme Court) following a finding of patent infringement, the English Court has increasingly been requested to determine the terms of such licences.

Optis v Apple is one of these cases – with Optis requesting that the English Court set the terms of a FRAND licence. "Trial F" in this action, however, was the first of its kind – an attempt by Optis to dis-entitle Apple from its right to a FRAND licence as a result of Apple's failure to commit to entering into a licence on any terms set by the Court.

The Court of Appeal upheld the judge's finding at first instance, concluding that it is only after the finding of infringement and validity that an implementer is required to offer such an undertaking.

The decision is also notable for the postscript from the Court of Appeal, bemoaning the "dysfunctional state of the current system for determining SEP/FRAND disputes". It remains to be seen what impact this statement will have on companies litigating in this area.

Optis v Apple – the History  

Trials A, B, C and D were traditional technical patent trials and are relevant only insofar as Optis was successful in "Trial B" (also before Meade J) in obtaining a finding that its patent was valid and had been infringed by Apple. The Court of Appeal went on to uphold that decision.

Trial E, which will determine the terms of a FRAND licence as a result of the finding of infringement of the patent in Trial B, had not taken place at the time of Trial F (although it did subsequently take place in June and July 2022, before Marcus Smith J, and judgment is awaited.)

First Instance Decision

In September 2021 and in advance of Trial E, Trial F was listed to determine: (i) Optis' claim that Apple was permanently disentitled from relying on Optis' Undertaking under the ETSI (European Telecommunications Standards Institute) policy (to provide a licence to its patents on FRAND terms) on the basis that Apple had refused to undertake to enter into a global licence on any terms settled by the court, and (ii) Apple's defences to that claim.

As summarised by the Court of Appeal, Meade J's decision on this question addressed four main issues: (1) the proper interpretation of clause 6.1 of the ETSI IPR Policy which provides that a standard essential patent holder must give an irrevocable undertaking that it is prepared to grant irrevocable licences on FRAND terms, (2) the effect of Apple's competition law arguments, (3) the exercise of the Court's discretion as to whether or not to grant an injunction, and (4) whether a contingent undertaking given by Apple impacted the other conclusions.

Meade J did not agree with Optis that Apple had permanently lost its right to a FRAND licence if it did not commit to enter into a "Court-Determined Licence" before a finding of a valid and infringed patent. However, he did agree that, once there was such a finding, an implementer had to give an undertaking to take such a licence.

The judge rejected Apple's competition law arguments, along with its argument that injunctive relief should be withheld as a matter of discretion. He also concluded that the contingent undertaking did not alter his other conclusions.

The effect of this decision was a determination that the "FRAND bargain" is not unilateral, and that implementers cannot benefit from it as a shield to an injunction in circumstances where they do not have an intention to enter into a licence on FRAND terms.

The judge gave Apple a window to consider his judgment and elect whether to make such a commitment or to be subject to an injunction. Apple duly offered an undertaking which was accepted by the Court and no injunction was ordered. However, Apple went onto appeal the decision.

Appeal

Apple appealed on four grounds:

  1. Ground 1: The judge erred in law as to the construction of clause 6.1 of the ETSI IPR Policy.
  2. Ground 2: The judge erred in law in his application of his construction of that clause to Apple.
  3. Ground 3: The judge erred in law by not taking into account Optis' abuse of a dominant position.
  4. Ground 4: Optis had no pleaded case for a FRAND injunction.

Optis was given permission to cross-appeal on three grounds:

  1. Ground 1: The judge erred in finding that an implementer who failed to commit to taking a Court-Determined Licence does not become permanently disentitled.
  2. Ground 2: The judge erred in his conclusion that Mr Justice Birss' decision on remedies in Unwired Planet militated strongly against the grant of an unqualified final injunction.
  3. Ground 3: The judge erred in failing to recognise that his finding allowed Apple to obtain a tangible benefit through access to a lesser form of injunction.
Interpretation of the ETSI IPR Policy

The Court of Appeal dealt with Optis' grounds and Apple's grounds 1 and 2 together, as they all related to the proper interpretation of clause 6.1. of the ETSI IPR Policy. In doing so, the Court of Appeal quoted extensively from the Supreme Court's decision in Unwired Planet (discussed in our article here), which had analysed Clause 6.1 in depth.

Apple's contention was that any person who seeks a licence in good faith is a beneficiary of the ETSI Undertaking and therefore protected from an injunction. The Court of Appeal disagreed, not least because the High Court had determined that Apple's interpretation would promote 'hold out' by implementers i.e., implementers refusing to enter into a licence for the patented technology, either to avoid paying anything at all or to reduce the rate to below what would be FRAND.

Apple's other arguments – including that there is a distinction between those who seek licences and those who take licences; that the judge's interpretation at first instance required the implementer to sign a "blank cheque"; and that the judge's construction would enable the SEP owner to avoid negotiations – were all dismissed. Similarly, Optis' appeal was also firmly dismissed, with the Court of Appeal fully supportive of Meade J's first instance decision.

Competition Law

Apple's third ground of appeal was that the grant of injunctive relief would facilitate Optis' alleged abuse of a dominant position.

Its main argument was that injunctive relief would reward Optis' assumed breach of competition law and (relatedly) that it would "whitewash" prior abusive conduct. Arnold LJ dismissed these arguments, noting that "the decision to grant or withhold an injunction looks to the future, whereas Apple's complaint is about the past". If there was any finding of an abuse, Apple would be compensated for that abuse through an award of damages.

Procedural Objection

Apple's fourth and final ground of appeal related to Optis not having included a FRAND injunction in its pleadings. In addition, Optis had previously made an amendment application to plead that Apple should be subject to a FRAND injunction, which Apple had opposed.

The Court of Appeal dismissed this appeal also on the basis that section 37(2) of the Senior Courts Act 1981 confirms that the court may grant an injunction "on such terms and conditions as the Court thinks just". CPR Rule 16.2(5) meanwhile provides the Court may grant any remedy to which a claimant is entitled even if that remedy is not specified in the claim form. In any event, Optis' Particulars of Claim included a claim for "[f]urther or other relief".

Most importantly, Optis had a claim for an unqualified injunction. The FRAND injunction now sought was a more limited form of the injunction sought by Optis, and it was therefore always within the court's discretion.

Postscript

Despite the interesting and novel legal questions tackled by the Court of Appeal, perhaps the most interesting part of the judgment was the postscript, in which Arnold LJ criticised the "dysfunctional state of the current system for determining SEP/FRAND disputes", pointing out that both parties had adopted their positions to game the system in their favour. Arnold LJ concluded that "the only way to put a stop to such behaviour is for SDOs [standards-development organisations] like ETSI to make legally-enforceable arbitration of such disputes part of their IPR policies".

This commentary follows HHJ's Hacon's comments in Nokia v Oppo, where he also concluded that the "current unevolved framework for the settlement of a global licence between owners of SEPs and implementers is plainly not satisfactory".

We are currently awaiting the decisions in the Trial E "FRAND Trial" in these proceedings, as well as the FRAND Trial in InterDigital v Lenovo. Nokia v OnePlus, Philips v Xiaomi and Godo Kaisha IP Bridge v Huawei are just three of the other FRAND cases currently before the English Court, in addition to litigation elsewhere in the world. It will therefore be interesting to see whether the Court of Appeal's plea for arbitral resolution will have any impact, or whether the English Courts' significant and growing expertise in dealing with FRAND disputes will only serve to encourage parties to continue to bring actions in this jurisdiction. It would seem likely that, in the absence of a requirement to arbitrate, patent-holders will want to ensure that a less-experienced (or favourable) court is not seised of FRAND issues and will continue to bring actions before the English Courts.

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