This is part (nearly, but not quite the end) of a long saga. The interesting point to emerge is the role the UK courts have established as a global forum for settlement of disputes over standards-essential patents (SEPs). We will try to be brief.

 

The story to date

 

Optis is a patent licensing firm that includes Unwired Planet who have been in dispute with Apple for some years over SEPs for 3G (UMTS) and 4G (LTE) cellular radio technology. The dispute has been fought out through the courts in the UK and US. The UK High Court split the dispute into four technical trials (trials A-D) on the merits of Optis’s patents, plus a fifth trial (Trial E) on what should be the terms of a fair, reasonable and non-discriminatory (FRAND) licence that an SEP owner, such as Optis, is obliged to grant to an implementer such as Apple.

 

In the course of 2020, ’21 and ‘22, Optis faired reasonably well in the technical trials. They won three out of four at first instance but one of those wins was overturned on appeal. That is to say, some of their patents were deemed valid and infringed and others not (see table for details). Optis required only one patent to be valid and infringed to force Apple into the final trial (trial E) on what should be the terms of the licence.

 

Negotiations on licence terms, in the meanwhile, were not progressing.   It has previously been held by the UK Supreme Court that, in SEP licensing, there may be a range of terms that can be FRAND, rather than a single set of terms that might apply to all implementers in all circumstances.[1] Apple contended that they had made an offer to pay royalties within such a range. Optis had rejected that offer but were willing to grant a licence under whatever terms the Court might ultimately determine were FRAND.

 

Before entering the final trial to determine the terms, Optis asked for another trial (trial F) on a narrow point of whether or not Apple must be bound by whatever might be the outcome of the final trial.   This is because Apple took the view that, if found to be infringing, Apple could withdraw from the UK market if it did not like the terms of a global FRAND licence set by a UK court.  Apple did indeed hint that it would withdraw iPhones from the UK market, causing quite a storm at the time  [Macworld, 1 July 2021, Daly Express, 14 July 2021]. Optis, on the other hand, said this made Apple an unwilling licensee and therefore not entitled to a FRAND licence and that the Court should therefore immediately issue an injunction against Apple. (Apple had given gave a contingent undertaking in October 2020 which was almost no undertaking at all).

 

Trial F took place before trial E, because the Court saw a possibility of settlement between the parties on the outcome of this point without necessitating Trial E. If the parties could agree a licence there would be no need for the Court to fix its terms.

 

Trial F

 

At trial, Apple brought forward an expert in economics who characterised the dilemma faced by  Apple as that of taking a licence “sight unseen”  or permitting Apple to see the terms of the license and make an “informed choice” as to whether to accept the terms or submit to a Court injunction and withdraw from the UK market. Apple, in effect, argued that the terms ultimately imposed by the Court might be high and not “truly FRAND” and that Apple might yet seek to negotiate lower terms in order to stay in the UK market or withdraw and seek lower terms in other jurisdictions. Apple argued that it ought to have that option.

 

The Court was unimpressed. The Court said that whether Apple had to take a licence “sight unseen” or not, the terms set by the Court would not be “super-FRAND”. Under a sight-unseen rule, the highest rate that can result is that which the UK Court considers to be FRAND. Apple’s proposed “informed choice” rule could result in a lower rate but not a higher rate.

 

Trial F was decided in September 2021 and the court found in favour of Optis on the point that Apple must give an unconditional undertaking to accept a licence under FRAND terms determined by the Court, and Apple did so shortly after the trial.  Apple appealed, while Otis appealed on a separate point that Apple were disentitled to a FRAND licence (and Optis were entitled to an injunction) if Apple were acting as an unwilling licensee.  Such a finding might entitle Optis to negotiate from a position of greater strength (at least for the UK).

 

The Court of Appeal upheld all the findings of Mr. Justice Meade at first instance. Apple must accept global FRAND licensing terms set by the UK Court or face an injunction, but Apple does not permanently lose the benefit of the ETSI IPR policy by merely indicating its unwillingness to accept such terms. 

 

Lord Justice Arnold described the state of the current system for determining FRAND licences for SEPs as “dysfunctional”. Each side was “gaming the system” and the only way to put a stop to such behaviour is for standards determining organizations such as ETSI to make legally-enforceable arbitration a part of their IPR policies.

 

Comment

 

Although neither side overturned any part of the lower court’s decision, Optis is the overall winner in that Apple was forced to give the undertaking to accept, on a global basis, whatever terms the UK court may impose in Trial E or face an injunction for the UK market.

 

The outcome of Trial E, which was heard in July 2022, is eagerly awaited by the industry. One way to make the dysfunctional system function is for the Court to settle licences on sufficiently clear and public terms for parties to know what will be determined to be “truly FRAND”. A single decision cannot answer that question for all circumstances. Economists debate ranges of licensing terms in negotiating theory, but “fairness” in the sense of distributive justice requires guidance from courts. 

 

The ETSI IPR Policy was a long time in negotiating. There were many interested parties and it would take a mammoth effort to make binding arbitration a part of the policy. Binding arbitration in a near-vacuum of court precedent could lead to rough justice. Major developers of standards, who invest heavily in development are very wary of signing up to new and untested systems of justice. The UK court is building a track record for fairness in determining FRAND licences and the world watches and waits for its decision.

  

	Patent Nos.	Winner at First instance	Winner on Appeal
Trial A	EP1230818	Optis	Apple
Trial B	EP2229744	Optis	Optis
Trial C	EP2093953 (plus, EP2464065 & EP2592779)	Apple
Trial D	EP2187549 & EP2690810	Optis

 

[1] Unwired Planet v Huawei Technologies [2017] WHC 711 (Pat)