“The judge indicated that Lenovo would be subject to a FRAND injunction if it did not accept the license terms. After having studied the draft judgment, however, Lenovo said it was prepared to take a license.”
Lenovo has been ordered to pay InterDigital a lump sum of $138.7 million for a global FRAND (fair, reasonable and non-discriminatory) license covering sales of cellular devices from 2007 to December 31, 2023, in the second full FRAND trial to be decided by the UK courts, following the landmark Unwired Planet case. (Interdigital Technology Corporation & Ors v Lenovo Group Ltd (FRAND Judgment – Public Version)  EWHC 539 (Pat).)
In his redacted judgment published on March 15, Mr. Justice Mellor found that neither InterDigital’s August 2021 license offer (which amounted to $337 million) nor Lenovo’s counter offer (which comprised a lump sum of $80 million +/-15% for all sales in the six-year term to the end of 2023 with a full release for all past sales for no additional consideration) were FRAND or within the FRAND range.
A Landmark Judgment
This has been a huge dispute that has already lasted over three years. The FRAND trial alone took place over 17 days in January to February 2022, with further evidence in December 2022 and submissions in January this year. InterDigital served some 23 witness statements from 10 fact witnesses as well as 17 expert reports, while Lenovo served 13 expert reports. The resulting judgment runs to nearly 1,000 paragraphs.
In addition to the FRAND trial, there have been five technical trials between the parties. Three of these have resulted in rulings (either at first instance or an appeal) that InterDigital’s patents are valid and essential, while the fourth judgment is awaited. As Mr Justice Mellor stated: “At the time of the [FRAND] trial, InterDigital had established their right to a FRAND determination and their position has only been strengthened by subsequent events.”
The litigation concerns Lenovo’s cellular products that implement 3G, 4G and/or 5G standards. From Q3 2013 to Q2 2021 the company sold about 487 million devices (1.1% were 2G, around 30% 3G, 69% 4G and 0.6% 5G). China accounted for 22.6% of sales, Latin America for 34.6%, the U.S. for 12.9% and Europe for 9%. According to the judgment, Lenovo is the ninth largest mobile handset manufacturer globally.
InterDigital licenses its standard essential patents to several other manufacturers, namely Samsung, Apple, Huawei, Xiaomi, LG Electronics and ZTE. It first approached Lenovo in 2008 and discussions proceeded intermittently, including after Lenovo acquired Motorola Mobility in 2014.
InterDigital made various lump sum, running royalty and hybrid offers, culminating in the August 2021 offer, but Lenovo did not accept them. It launched patent actions against Lenovo in London and in Delaware in August 2019. Lenovo subsequently brought an action in China.
Following the approach taken in Unwired Planet, which was approved by the UK Supreme Court, Mr. Justice Mellor’s main task was to determine a worldwide FRAND license between the parties. To do this, he had to resolve a number of disputed points.
For example, the judge decided that the same rate should apply to past and future sales. This finding was based on two grounds: (1) InterDigital retained significant room for maneuver in the way it apportioned an overall lump sum consideration to a past release so its favored allocation to past and future “was somewhat artificial” and (2) in the judge’s words, “FRAND is not concerned with and should not be affected by either one party’s internal justification for the sum paid or received, nor with the way in which one party seeks to deal with those sums in its accounts, whether they are internal or made public, particularly when these internal justifications and financial reporting do not form part of the licence agreement.”
He also made three key findings of principle regarding the FRAND determination. First, he rejected the argument for a limitation period, saying that a willing licensee would not seek to avoid making payments of FRAND royalties by taking advantage of limitation periods. Second, he found that the scale of the volume discounts assumed to have been applied by InterDigital resulted in discrimination, and that InterDigital’s ‘program rates’ were not realistic indicators of FRAND rates for their SEP portfolio. Third, it was necessary to set aside any subjective views from the SEP licensor or SEP licensee.
Both parties presented comparable license agreements, InterDigital selected 20 and Lenovo seven. Of these, the judge said an agreement between InterDigital and LG in 2017 was “the best comparable and the best place to start” due to the mix of 3G, 4G and 5G sales and the split between developed and emerging markets.
Based on this, he concluded that a willing licensor and willing licensee would agree to a per-unit rate of $0.175 per cellular unit. Using sales figures going back to 2007, that yielded a lump sum payment of $138.7 million.
InterDigital had proposed a “top-down cross-check” but the judge was unpersuaded by “any part of” this, saying it was not supported by his analysis of the comparable licenses.
Determination and Reaction
Mr. Justice Mellor also addressed whether each party had acted as a willing licensor/licensee. He found that, by consistently seeking supra-FRAND rates, InterDigital did not act as a willing licensor. For the most part, Lenovo did conduct itself as a willing licensee during negotiations but ultimately the test would be whether it accepted the Court’s determination.
The judge indicated that Lenovo would be subject to a FRAND injunction if it did not accept the license terms. After having studied the draft judgment, however, Lenovo said it was prepared to take a license.
In a statement, InterDigital’s Chief Legal Officer, Josh Schmidt, said: “We welcome the Court’s decision as the first major SEP FRAND judgment that recognizes that a licensee should pay in full for the past infringement of standard essential patents and we agree with the Court that this could be a powerful way of guarding against patent holdout in the future. However, we plan to appeal, as we believe that certain aspects of the decision do not accurately reflect our licensing program.”
John Mulgrew, Vice President, Deputy General Counsel and Chief Intellectual Property Officer, said: “With this judgment, the Court has confirmed that Lenovo is, and always has been, a willing licensee – even in the face of InterDigital’s supra-FRAND offers and behavior as an unwilling licensor.” He added: “We are pleased that this judgment reinforces FRAND’s critical role in facilitating transparent and equitable licensing practices for standardized technologies – enabling the proliferation of affordable innovation to customers around the world.”
A fuller version of the judgment is expected to be published following a further hearing at the beginning of April.
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