Oral Hearings in UK Optis/Apple Global FRAND Case Indicate Justices Will Modify High Court Ruling

Last week, oral hearings concluded at the UK Court of Appeal in the ongoing patent licensing dispute between wireless communication developer Optis and consumer device giant Apple over 4G standard essential patents (SEPs) owned by Optis and practiced by Apple devices. While a ruling is not expected for another month or so, several signs point to the Court of Appeal adjusting the May 2023 ruling by Mr Justice Marcus Smith at the High Court of England and Wales in a way that increases the damages for patent infringement that are ultimately awarded to Optis.

Global FRAND License in UK Court Would Moot Nine-Figure Damages Ruling in U.S.

Although Justice Smith’s May 2023 ruling awarded $62 million to Optis as a lump sum reasonable royalty with interest for Apple’s infringement of 4G SEPs, that total pales in comparison with damages verdicts that Optis has earned in litigation against Apple elsewhere. Although currently stayed on appeal at the Federal Circuit, the Eastern District of Texas ordered Apple to pay $300 million in damages after the tech giant failed to win a motion for a third trial in the case back in May 2022.

Unlike the United States, UK courts since Unwired Planet have been willing to set global fair, reasonable and non-discriminatory (FRAND) royalty rates in SEP infringement disputes. Without a successful outcome in the UK litigation, Optis’ U.S. judgments would be mooted as Apple would become a licensee to the U.S. patents under the UK court’s ruling.

Perhaps the most controversial aspect of Smith’s lower ruling is the methodology employed to arrive at his $62 million reasonable royalty, a figure which Smith determined himself without crediting expert testimony from either Optis or Apple. Excluding comparable licenses provided by both parties in the case, including those that reflected past holdout from Apple, the royalty rate determined by Justice Smith included “heavy discounting for the past[, which] is the paradigmatic feature of a real life license that is not FRAND,” counsel for Optis told the UK Court of Appeal on the first day of oral hearings .

On appeal, Optis argued that the court’s FRAND rate should have unpacked the comparable licenses into dollar values per unit, then multiplied by Apple’s sales volume, which Optis contends would result in a billion-dollar lump sum royalty. On the bench, at least Lord Justice Guy Newey seriously questioned why Justice Smith would have disregarded the damages methodologies proposed by either side in the case. In response to Justice Smith’s conclusion that certain aspects of determining a FRAND license was outside of the experts’ expertise, Lord Justice Newey noted on the third day of hearings that, “[Justice Smith] does it himself, and he is not an expert and even if he were an expert, he would not be entitled to treat himself as one.”

Apple Says Alleged Patent Holdout is Legitimate Disagreement with Royalty Rates

Ruling on damages in a way that ultimately rewards Apple’s holdout efforts is particularly galling given Apple’s internal corporate strategies aimed at devaluing SEPs to reduce licensing costs and infringement liability. Those corporate efforts are the focus of the iProtectInnovation public campaign coordinated by a corporate affiliate of Optis in conjunction with the company’s appeal of Smith’s ruling. This campaign features several case studies from global litigation against Apple leading to discovery or rulings highlighting Apple’s pattern of licensing holdout behavior. This includes internal documentation from Apple’s corporate presentations reflecting corporate desires to “Reshap[e] FRAND” by only entering licenses that used the smallest salable unit practicing the invention as the royalty base, a corporate policy made explicitly on Apple’s webpage on FRAND licensing.

Although counsel for Apple conceded Smith’s lack of qualifications to ignore expert testimony in shaping a FRAND rate, Apple argued that any alleged delay in entering into a licensing agreement for Optis’ SEPs would not violate Apple’s own FRAND obligations if the company legitimately felt the proposed royalty rate was too high. Further, although Justice Smith employed inconsistent phraseology at points of his decision where expert testimony was discredited, Apple contended that the surrounding context of the language of Justice Smith’s decision made it clear that the judge felt that expert testimony from either side was unhelpful in deriving answers to the issues in this case. Apple’s counsel, Dr. Jon Turner, told the Court:

“Below, between the parties at the trial, the case for Optis was they were advocating an ad valorem approach to a patent licence for Apple, in line with the comparables that they were presenting. Apple was opposing it. The judge said, ‘I want assistance’… His frustration was that he did not get the assistance that he wanted to help him decide, for example, that important question, either from the parties or from their accountancy experts.”

Optis’ case at the UK Court of Appeal could result in a remand to the High Court of England and Wales, where the case would be reassigned to a judge other than Justice Smith. Alternatively, a new global FRAND rate could be determined by the appellate court, which would allow Apple to further protract the appellate proceedings, although Optis would not have to relitigate its damages theory. With five days of hearings concluded at the appellate level, the UK Court of Appeal’s decision could reach 100 pages or longer and could take the court one to two months to deliver.

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Author: weyo
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