The UK High Court of Justice issued its long-anticipated decision establishing a global Fair, Reasonable and Non-Discriminatory (FRAND) royalty rate for a patent portfolio essential to 3G, 4G and 5G cellular technologies. InterDigital Tech. Corp. et al. v. Lenovo Group Limited, Case No. HP-2019-000032,  EWHC 529 (Pat) (Mar. 16, 2023) (Mellor, J.)
InterDigital owns a portfolio of standard essential patents (SEPs) that have been declared essential to the European Telecommunications Standard Institute’s (ETSI) 3G, 4G and 5G cellular technology standards. InterDigital sought to license the SEPs to Lenovo, which implements these cellular standards in its mobile phones, tablets and PCs. After the parties could not agree on the terms under which Lenovo should take a license, InterDigital filed a lawsuit. The High Court held several technical trials in which it found that Lenovo infringed certain of the patents.
Based on the result of the technical trials, the High Court determined that InterDigital had established the right to a FRAND determination of its portfolio. The parties presented two issues regarding FRAND. The first issue was whether the InterDigital license offer was FRAND, and if not, what terms would be FRAND for a license to Lenovo of the InterDigital patent portfolio. The second issue was whether InterDigital was entitled to an injunction based on the parties’ negotiation conduct, including whether InterDigital acted as a willing licensor and whether Lenovo acted as a willing licensee.
The High Court concluded that Lenovo should pay InterDigital a FRAND rate of $0.175 per cellular unit for a worldwide license to InterDigital’s portfolio. The $0.175 rate yields a lump sum payment of $138.7 million for sales from 2007 to the end of 2023. The Court’s FRAND rate determination was closer to Lenovo’s offered rate of $0.16/unit than to InterDigital’s demand of $0.498/unit.
In determining the appropriate FRAND rate, the High Court analyzed whether InterDigital’s proposed rate was comparable to the rate in InterDigital’s other license agreements for SEPs. InterDigital argued that its license offer to Lenovo was consistent with “program rates” under which it had already licensed its SEPs to other companies. The Court, however, rejected InterDigital’s program rates as comparable because the other licenses included volume discounts ranging from 60% to 80% of InterDigital’s program rate. InterDigital argued that Lenovo was not entitled to the same type of steep volume discount and, therefore, those licenses with discounts applied were not comparable licenses for Lenovo. The Court disagreed, finding that the volume discounts applied to those licenses “do not have any economic or other justification” and that their primary purpose was to “shore up InterDigital’s chosen program rates.” The Court further observed that the primary effect of the volume discount in the other licenses was to discriminate against smaller licensees, which is exactly what FRAND is supposed to avoid.
InterDigital tried to bolster its argument that its program rate was FRAND by applying a top-down cross-check. The top-down approach starts with the cumulative value of all royalties that should be paid on FRAND [...]