Interdigital Technology Corporation v Lenovo Group Limited

Judge Hacon :

Introduction

“By refusing and/or failing to undertake to take the licence the subject of the Court’s FRAND determination, the Defendants and each of them are not entitled to rely on the Claimants’ undertaking to ETSI under clause 6.1 of the ETSI IPR Policy”

“With effect from 14 days from the order, the Defendants (and each of the), either by themselves or through their agents, affiliates, through third parties or howsoever otherwise, are prohibited from infringing EP 558. The aforesaid injunction shall cease to have effect if the Defendants enter into a licence on FRAND terms which covers EP 558, and is subject to a liberty to apply in the event that any FRAND licence that is entered into ceases to have effect for any reason.”

Earlier directions for the resolution of InterDigital’s claim to an injunction

“Trials to determine the validity, essentiality and/or whether the accused products fall within the scope of the claims of the remaining Patents (such trials together with Technical Trial A and Technical Trial B referred to herein as the “Technical Trials”) and a trial to determine all remaining non-technical issues including, but not limited to, FRAND and joint tortfeasance issues (the “Non-Technical Trial”) shall be listed as follows:”

“[13] The dispute before me for the purposes of Trial F crystallised in summer 2020. By that stage of the proceedings, Trial E had already been fixed, but there was no finding that any of the patents in dispute was valid and infringed.

[14] Optis raised before Birss J, by way of an application to amend its pleaded case, the question of whether Apple is an ‘unwilling licensee’ (in the sense discussed below) and therefore disentitled from relying on Optis' FRAND commitments to ETSI. It sought a separate trial, with the goal that it might be able to obtain an injunction if successful at a technical trial, without waiting for Trial E.

[15] Apple resisted the prospect of having a separate Trial F, arguing that the issues overlapped significantly with those to be resolved at Trial E and should therefore be dealt with at the same time. Birss J rejected Apple's submissions, finding that the issues to be dealt with at the two trials could be distinguished and that there was a real prospect that the determination of a Trial F might lead to the possibility of settlement between the parties: see [2020] EWHC 2033 (Pat) .

[16] Birss J made clear that his directions were not for preliminary issues, but for the sequencing of issues within the proceedings as a whole. He said that if it proved that decisions on issues which were only for determination at Trial E turned out to be necessary to decide whether Optis was entitled to an injunction, then that was simply Optis’ problem.”

“(2A)

(a) A declaration that the Defendants and each of them are and have been unwilling FRAND licensees by refusing and/or failing to submit to the outcome of this Court’s FRAND determination; and

(b) A declaration that, by reason of paragraph 2A(a) aforesaid, the Defendants and each of them are not entitled to enforce the Claimants’ FRAND obligations against them.”

“… I am not persuaded that on case management grounds I should order this case, fundamentally, because there is not enough time between when [InterDigital] wants to have [a] separate trial and the FRAND trial to make it worth the significant disruption that it would cause to the timetable to schedule this case in position. I am not convinced that this makes sense.

This is, in terms of its timing, very different from a situation in the Apple case. The application to do it comes later into time and it would end up being closer in time to the FRAND trial to make it not worth a candle to separate the two issues.”

Whether the issues raised were decided in Optis

Lenovo’s stance regarding the terms to be settled at the FRAND trial

“136. … Lenovo is prepared to commit to a licence on FRAND terms. It is and has for a long time been prepared to commit to a licence settled by the United States court incorporating a determination by the Chinese court. It is indeed prepared to commit to a licence settled by this Court, so long as a mechanism is provided for ensuring that the determination of the United States and Chinese courts in the existing proceedings are given effect.

137. What it should not be forced to do is to commit, in advance of [the FRAND] trial, to take a licence settled by this court alone which either does not or may not give effect to the decisions of either IDC’s home court (the US) or its home court (China), and which on IDC’s case would in fact settle and put an end to those foreign proceedings …”

The Optis Injunction Judgment

“[21] I have found the terms of the Contingent Undertaking rather convoluted, but essentially what it says is that Apple undertakes, if it is found to have infringed a valid and essential patent (which it has following Trials A and B), to take the licence which the Court determines to be FRAND at Trial E, subject to two provisos.

[22] The two provisos are these:

i) If it is Finally Decided (which means appeals are exhausted) that Apple does not need to give the undertaking in order to enforce Optis' undertaking to ETSI to give FRAND licences.

ii) If it is Finally Decided that Apple ought to be injuncted even if it gives the undertaking. This arises because of Optis' case, discussed below, that Apple already and irreversibly missed the chance to invoke its right to a FRAND licence under the ETSI undertaking.

[23] So in a nutshell, by way of the Contingent Undertaking, Apple undertakes to take the Trial E licence unless its undertaking is found to be unnecessary, or too late.”

“[55] The first and most fundamental issue is the proper interpretation of clause 6.1 of the ETSI IPR policy.

[56] Clause 6.1 is as follows:

‘When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory ("FRAND") terms and conditions under such IPR to at least the following extent:

- MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;

- sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;

- repair, use, or operate EQUIPMENT; and

- use METHODS.

The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate.’

[57] Although not a member of ETSI, Optis has given undertakings within the regime of clause 6.1 in relation to the patents in issue in these proceedings.

[58] The issue of the interpretation of clause 6.1 involves the following sub-issues :

i) What is the applicable French law? The scope of dispute is narrow and mainly relates to the fact that clause 6.1 does not, Apple contends, explicitly state any obligation on the part of the implementer to agree to take a FRAND licence. The parties disagree about whether the French law applicable to this kind of contract requires the explicit statement of such an obligation.

ii) What is the relevant context for interpreting clause 6.1? The parties generally agree that the overall goals of clause 6.1 and the balance which it seeks to strike can be identified from the CJEU and domestic case law that I have identified above, but have deployed expert evidence from licensing and economics experts to develop their arguments that their competing interpretations of the clause better serve those goals and respect that balance.

iii) In the light of the relevant French law and context, what does clause 6.1 mean?

a) Optis says that an implementer which wants to take advantage of a SEP holder's FRAND undertaking must engage constructively in negotiations and if no agreement is reached must commit to take a licence on terms decided by a Court. The implementer's commitment must, Optis says, be given either when the SEP holder unequivocally commits to give a FRAND licence, or, alternatively, when there is a finding of validity and infringement. Failing that, Optis says that the implementer is not a willing licensee, and irretrievably loses the right to a FRAND licence. Thus Optis contends that an implementer must commit to a Court-determined FRAND licence in advance of knowing its terms.

b) Apple on the other hand says that clause 6.1 contains no limitation other than that the implementer seeks a licence. Accordingly, an implementer can meet that minimal requirement at any time, and is entitled to wait until the Court's decision about what FRAND terms are, and then make a decision. Apple also notes that French law has a principle of good faith in the performance of contracts, and it says that that is the solution for a case where an implementer which says it wants a licence is actually holding out. But Apple says that that requires a fact-sensitive assessment.”

“[10] The policy statements which provide the internal context include the objectives set out in clause 3 of the IPR Policy. They include the statement in clause 3.1 that the IPR Policy:

‘seeks to reduce the risk to ETSI, MEMBERS, and others applying ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable."

That statement clearly reveals a policy of preventing the owner of an Essential IPR from ‘holding up’ the implementation of the standard. But that policy is to be balanced by the next sentence of clause 3.1 which speaks of seeking a balance, when achieving that objective, ‘between the needs of standardization for public use in the field of telecommunications and the rights of the owners of IPRs.’ The importance of protecting the rights of the owners of IPRs is declared in the second policy objective (clause 3.2) in these terms:

‘IPR holders whether members of ETSI and their AFFILIATES or third parties, should be adequately and fairly rewarded for the use of their IPRs in the implementation of STANDARDS and TECHNICAL SPECIFICATIONS.’

This objective seeks to address the mischief of ‘holding out’ by which implementers, in the period during which the IPR Policy requires SEP owners not to enforce their patent rights by seeking injunctive relief, in the expectation that licence terms will be negotiated and agreed, might knowingly infringe the owner's Essential IPRs by using the inventions in products which meet the standard while failing to agree a licence for their use on FRAND terms, including fair, reasonable and non-discriminatory royalties for their use. In circumstances where it may well be difficult for the SEP owner to enforce its rights after the event, implementers might use their economic strength to avoid paying anything to the owner. They may unduly drag out the process of licence negotiation and thereby put the owner to additional cost and effectively force the owner to accept a lower royalty rate than is fair.”

“[14] It appears from this brief review of the IPR Policy in its context that the following conclusions may be reached. First, the contractual modifications to the general law of patents are designed to achieve a fair balance between the interests of SEP owners and implementers, by giving implementers access to the technology protected by SEPs and by giving the SEP owners fair rewards through the licence for the use of their monopoly rights. Secondly, the SEP owner's undertaking, which the implementer can enforce, to grant a licence to an implementer on FRAND terms is a contractual derogation from a SEP owner's right under the general law to obtain an injunction to prevent infringement of its patent. Thirdly, the obtaining of undertakings from SEP owners will often occur at a time when the relevant standard is being devised and before anyone may know (a) whether the patent in question is in fact essential, or may become essential as the standard is developed, in the sense that it would be impossible to implement the standard without making use of the patent and (b) whether the patent itself is valid. Fourthly, the only way in which an implementer can avoid infringing a SEP when implementing a standard and thereby exposing itself to the legal remedies available to the SEP owner under the general law of the jurisdiction governing the relevant patent rights is to request a licence from the SEP owner, by enforcing that contractual obligation on the SEP owner. Fifthly, subject only to an express reservation entered pursuant to clause 6.2, the undertaking, which the SEP owner gives on its own behalf and for its affiliates, extends to patents in the same patent family as the declared SEP, giving the implementer the right to obtain a licence for the technology covering several jurisdictions. Finally, the IPR Policy envisages that the SEP owner and the implementer will negotiate a licence on FRAND terms. It gives those parties the responsibility to resolve any disputes as to the validity of particular patents by agreement or by recourse to national courts for determination.”

“[139] Clause 6.1 of the ETSI IPR Policy creates what is referred to in French law as a stipulation pour autrui. It is a type of contract where one party, the promisor (the SEP owner, in this case Optis) is required by another party, the stipulator (ETSI), to carry out an act of performance for the benefit of a third party (the implementer, in this case Apple).

[140] The obligation to carry out the act of performance, which in the present case is to grant a licence to essential patents on FRAND terms, can be enforced by the stipulator or the beneficiary.

[141] The stipulation must be accepted by the beneficiary.

[142] Usually, the stipulation only confers a benefit on the beneficiary. It may, however, also impose a burden.

[143] Beneficiaries may be a named individual or individuals, or they may be a category of people (an example referred to in argument was the poor of a particular municipality).

[144] Where the beneficiaries are defined by reference to a category, it is by the process of contractual interpretation that I described in my judgment in Trial B that French law determines the meaning and scope of the category.

…

[154] I therefore agree with Optis that French law does not require that that obligations on the beneficiary of a stipulation pour autrui have to be explicit. They may be implicit. Whether they exist and if so what they are is a matter of contractual interpretation.

[155] Under French law, it is required that the beneficiary be identified, or capable of being determined at the time of the performance of the promise. This was common ground and recorded in the agreed statement of French law issues.

[156] A further aspect of French law which is relevant to the arguments before me is the principle of good faith that applies to the negotiation, formation and performance of contracts under French law. It includes a duty of loyalty and a duty of cooperation.

[157] There was some lack of clarity at the start of the trial about whether the principle applies to the beneficiary of a stipulation pour autrui, but by closing submissions it was common ground that it does.

[158] It was common ground that the principle is a very flexible one which has to be assessed in concreto , i.e. in the light of all the circumstances.

[159] The significance of the principle of good faith to the arguments before me was that Apple said that if Optis was obliged to rely on it, then the assessment in concreto could not be carried out until Trial E. Apple reinforced this by pointing out that good faith is presumed (as Prof Caron accepted), so if Optis wished to argue that Apple had not acted in good faith, it would carry the burden of proving it.”

“[165] The first situation he called ‘Sight Unseen’ or ‘SU’ where the licensee, finding itself in litigation with a SEP holder, had to commit to taking a FRAND licence set by the Court in advance of knowing the terms, and in a situation where the licence would be worldwide. In other words, the situation under clause 6.1 for which Optis contends. When I say "terms" in this context, I really mean price.

[166] The second situation he called ‘Informed Choice’ or ‘IC’, where the same licensee could choose whether or not to take worldwide FRAND licence terms set by the Court, but knowing what those terms were, after the Court's decision. In other words, the situation for which Apple contends.

[167] Under IC, the potential licensee could reject the terms found by the Court once those were set, but at the price of being injuncted in the UK. That would mean the parties' dispute would be unresolved, and the SEP holder would have to pursue litigation in another jurisdiction. Prof Farrell envisaged that the potential licensee would not necessarily actually leave the UK market, because the parties, as part of what he called a ‘post-rejection process’ might still settle against the background of the Court's rate to avoid that. If so, the rate would inevitably be lower than that set by the Court.

[168] As Dr Niels pointed out, the terms ‘Sight Unseen’ and ‘Informed Choice’ are loaded ones, freighted with the connotation that the former is unfair and worse than the latter. Nonetheless they are convenient and were used throughout the evidence. I will also use them, without any prejudgment of their merits.”

“[275] I thus come, at last, to the actual interpretation of clause 6.1. Apple made the point in its opening and closing submissions that the interpretation of clause 6.1 needs to be ‘robust to, and justified in, all possible factual scenarios’, including in particular, it said, where the implementer has made a FRAND offer and the SEP owner has only made offers so far above FRAND that they disrupt negotiations (in other words the facts to be assumed pending Trial E). This was a rather tendentious way of making a valid point, which is that clause 6.1 applies to parties of all kinds and sizes, and has effect internationally. It has to be applied in relation to the UK, which is the task facing me, but also around the world, and its interpretation should therefore not be undertaken exclusively or excessively through the lens of UK litigation practice. Other territories will not have the situation where there is a significant gap between finding validity and essentiality and then later FRAND terms.

[276] I have already identified from the ETSI IPR Policy itself, and from Huawei v ZTE and UPSC the balance which clause 6.1 must serve. As, I have also said, those cases and UPSC in particular make clear that hold-out by implementers is to be deprecated.

[277] I have already expressed my view, based on the analysis in those cases and on the expert evidence before me, that the IC approach that Apple takes would provide a tool which could be used by implementers, if they so decided, to carry out or support hold-out.

[278] In my view, the right interpretation of clause 6.1 is that any person interested in implementing an ETSI standard must be entitled to have a licence on FRAND terms on demand to a patentee which has given the relevant undertaking. That is the class of beneficiaries, and it is a very broad one. It is consistent with the ETSI regime of making standards widely available that there should be no restriction in terms of what the beneficiary wants to do commercially, as to manufacture, sales or the like – the acts which in the absence of a licence would be an infringement.

[279] However, what such a person must be entitled to is to have and take a licence, and to operate under a licence. Clause 6.1. does not change the position that a party without a licence may potentially be injuncted. Thus I essentially accept Optis’ point that it is not right and not the intention of clause 6.1 for a party using the technology of a SEP to have the benefit of the patentee's FRAND undertaking in terms of immunity from being sued, without the corresponding burden of taking a licence.

[280] Optis expressed this in terms of the beneficiaries of the stipulation created by clause 6.1, and says that to be a beneficiary the potential licensee must commit to take a licence on FRAND terms set by a Court in default of agreement. Apple's position was also expressed in terms of the beneficiaries; it contended that Optis’ argument did not fit with the words of clause 6.1, was unduly narrow, and created an implicit obligation (to give the commitment to take a licence), which was not permitted by French law.

[281] Apple put the matter this way: it said that the parties were agreed that absolutely any implementer can have a licence under clause 6.1 as a beneficiary (this was certainly Apple's position), and that to succeed Optis either had to argue that although entitled to a licence in general Apple was precluded because it was in breach of the obligation of good faith that accompanies contractual performance under French law, or it had to ‘read in’ the obligation to commit to a licence. Apple said that the first was fact sensitive and would require resolution of issues reserved to Trial E, and that the second was not possible under French law, or wrong.

[282] I do not think this was in fact how Optis argued the case, though. As I have said, Optis’ case was founded on the dictum of Kitchin LJ in UPCA at [54] where he referred to implementers negotiating in good faith and where necessary committing to a licence to be determined by a Court in default of agreement. The first of those does indeed sound fact sensitive and perhaps similar to the French law concept of good faith in contractual performance, but Optis has always contended that the requirements are cumulative and that the second, committing to a licence, is a hard-edged requirement. It therefore does not accept the very first step in the way that Apple characterised its (Optis’) case.

[283] I do however accept that there is some force in the criticism made by Apple that Optis’ formulation of the class of beneficiaries (the need for a ‘commitment’), and its arguments generally, have been framed too much in the specific context of UK proceedings, with too much of an eye to the period which elapses in UK practice between a finding of infringement of a valid patent, and a FRAND trial. But I do not think this matters much. The key concept and key argument for Optis was the one I have mentioned above, of the implementer not having the benefit of the FRAND undertaking without accepting the burden.

[284] Optis sought to reinforce its argument by contending that on Apple's view it would not be possible to tell whether an implementer fell within the relevant class at the time of performance of the SEP owner's promise, but only later when FRAND terms were identified. I do not agree with this as such because Apple's class of beneficiaries is so broad as to be easy to determine at any time; it just requires that the implementer says it is interested in a FRAND licence. Optis’ argument does however flag a different timing issue which I think is very important and come to below: the implementer needs a licence when it is found to infringe, but on Apple's analysis does not actually take one until later, and may never take one at all.

[285] So I would express the class of beneficiaries of the stipulation of clause 6.1 as: any undertaking which wants a licence to work a relevant standard by any commercial activities, and which intends to work the standard under a licence from the SEP owner. This meets the balance envisaged by the ETSI IPR Policy because it places no limitation at all on access to the standards other than the need to respect FRAND terms. Whether or not this might be fact sensitive in some cases, it is not in the present case, since Apple intends, unless the Court stops it, to work without a licence for period from now until Trial E. It will also not be fact sensitive in any case where the implementer declines to commit to a licence on FRAND terms but wants to work the technology of a patent that it has been found to infringe.

[286] Not expressing the analysis in terms of giving a commitment avoids the problem of the interpretation being too tied to UK procedure.

[287] Had it been right and necessary to decide whether a commitment to take a licence at some later point could and should be implied under French law, I would have held that it could and should. I have dealt with the relevant French law above. Given my other reasoning I think it is very obvious that ensuring there was not the ability for implementers to work the standard without a licence was the intention of ETSI. I accept Apple's point that clause 6.1 has an express obligation on implementers in some circumstances to grant cross-licences, and it could be a factor against implying other obligations, but it is of very modest weight, and if the matter has to be approached by the implication of an obligation, then an obligation necessary to make the whole balance of clause 6.1 work clearly should be implied.

[288] That is how I would analyse matters in terms of beneficiaries and (if necessary) implied obligations, but I think there is a simpler way to look at matters. As matters stand, Apple is infringing Optis’ patent rights. It therefore needs a licence now if it is not to be acting unlawfully. So even if clause 6.1 has no limitation at all as to its beneficiaries, as Apple contends, and Apple is able to call for and take a FRAND licence whenever it wants, it needs to do so now. Otherwise it is infringing now, even though a licence is open to it. On the authority of UPSC , there should then be an injunction. In French law terms, one would just say that the stipulation does not take effect and confer on Apple the benefit of a FRAND licence until it is accepted.

[289] The way for Apple to remedy this situation as a matter of this Court's procedure is to give an undertaking to take whatever licence is set at Trial E. That would ensure that its intention was to operate under a licence. One might debate at what point after it gave such an undertaking Apple would actually become licensed. This was not argued in any detail before me. Since French law (on the basis I am proceeding) does not require a specific price for a valid patent licence it may be possible that a licence comes into effect immediately. It is however not necessary to decide this, however, since Optis does not, as I understand it, say there should be an injunction if the undertaking is given.

[290] Apple emphasised repeatedly that the interpretation of clause 6.1 that Optis argued for and which I have essentially accepted must be of general application, and that its own situation emphasises that the interpretation bites on companies which ‘want’ a licence and which are ‘willing’ to become licensees. It relies in particular on the fact that it has made a licence offer within the FRAND range (as I assume for the purposes of this trial). The trouble with the submission is that Apple only ‘wants’ a licence and is only ‘willing’ in a limited sense. Its offer within the FRAND range does put it in a different situation from that of Huawei in the Unwired litigation, but falls critically short of agreeing to take a licence on the point within the FRAND range that the Court settles at Trial E. It only ‘wants’ a licence on its own terms and at a time of its own choosing, and then only conditionally; it reserves the right to say no altogether. Its contention is that it ought to be able to use Optis' technology for another year and then, if it declines to take the FRAND terms on offer, never to have had a licence. This cannot be what ETSI intended by clause 6.1. The fact that my approach to clause 6.1 means that Apple is not currently entitled to a FRAND licence does not cause me to doubt my conclusion.”

“[12] Trial E is, as matters stand, the only way by which a global FRAND rate for the [Optis portfolio of patents] can be set by a Court anywhere in the world. I asked Counsel for Apple a number of times what other option there might be for bringing the global dispute between the parties to a resolution, but Apple made no suggestion in response.”

The expert evidence

“whether a potential licensee’s right to rely upon a stipulation pour autrui may be affected by its conduct, and in particular whether (and if so when) it must give an unequivocal commitment to enter into a FRAND licence whatever the terms may be and whatever tribunal is selected by the SEP holder to determine those terms in default of agreement.”

“8.8 In the context of ETSI such a persisting disagreement merely directs the parties to turn to a court for FRAND determination. That is the specific remedy implied by the ETSI Licensing Declaration to break the deadlock caused by unsuccessful negotiations, irrespective of the good or bad faith of each party. That option is available to each party at any time and results from the nature of the ETSI Licensing Declaration being a stipulation de contrat pour autrui. The availability of that court remedy is independent from the real or imagined conduct of the other party.

8.9 More specifically, it is my professional opinion that a prospective FRAND licensee does not breach its duty under French law to act in good faith by declining to submit automatically and without qualification to the outcome of the specific dispute resolution process proposed by the IPR holder, in advance of that outcome. In circumstances where the implementer makes reasonable counter proposals for the determination of the terms of the licence, it does not depart from the standard of acting as a reasonable and hones businessperson, aiming for the formation of the contract in a fashion that it finds appropriate to preserve its interests would.”

“8.11 I fail to see any rule which, under French contract law, would lead to the conclusion that the concept of ‘willing licensee’ may act to impair or overrule the continuing effect of and right and obligations imparted by the ETSI Licensing Declaration. This is particularly the case in circumstances where that Declaration has expressly been said to be, and legally is, irrevocable. As the Declarant’s commitment is expressed to be irrevocable and this accords with my interpretation of the underlying French law (as detailed in section 5.5 above), this leads me to the conclusion that a third-party shall always benefit from the ETSI Licensing Declaration and shall always be able to enter into a licence on FRAND terms. That is the case even if the conduct of that third-party with respect to the promisor has not at all times been above reproach.

8.12 To conclude, it is my professional opinion that where a prospective licensee has been shown to have conducted negotiations with a Declarant in bad faith and caused the latter to spend time and money in vain before resorting to a court to obtain an objective determination of what FRAND terms are, the only remedy available to the latter in response to the bad faith of the third-party will consist in damages compensating those costs. Whether the third-party beneficiary can be said to be a willing licensee or not has no bearing on this reasoning. The concept of ‘willing licensee’ was built up to determine when a Declarant may or may not seek an injunction without committing an abuse of dominant position in the sense of European competition law. The circumstances characterising an unwilling licensee may occasionally overlap with the circumstances characterising a breach of the duty to conduct negotiations in good faith, but the concept of a willing/unwilling licensee remains a different legal issue. It was not designed to modify, let alone disrupt, the legal regime attached by French law to the duty to conduct negotiations in good faith. Thus the so-called ‘unwilling licensee’ is still entitled to a licence on FRAND terms in the future.”

Discussion and Conclusion