standard essential patent/SEP Archives

UK High Court Issues Landmark Global FRAND Rate Decision

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, [2023] 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 [...]

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Fifth Circuit Takes U-Turn, But Still Concludes Automotive Supplier Can’t Force SEP Holder to Issue License

In response to a petition for panel rehearing, the US Court of Appeals for the Fifth Circuit withdrew its prior decision finding that an automotive parts supplier did not have constitutional standing to pursue an antitrust lawsuit against owners of standard essential patents (SEPs). The Court issued a new opinion summarily affirming the district court’s original decision finding constitutional standing but dismissed the case based on lack of antitrust standing. Continental Automotive Systems, Inc. v. Avanci, LLC et al., Case No. 20-11032 (5th Cir. June 21, 2022) (Stewart, Ho, Engelhardt, JJ.) (per curiam).

Continental sued several SEP holders and their licensing agent, Avanci, for violation of Sections 1 and 2 of the Sherman Antitrust Act based on Avanci’s refusal to license the SEPs on fair, reasonable and nondiscriminatory (FRAND) terms. Avanci moved to dismiss, arguing that Continental lacked both constitutional standing and antitrust standing. The district court found that Continental had constitutional standing because its lack of success obtaining licenses on FRAND terms was an injury. However, the district court found that Continental lacked antitrust standing and therefore dismissed the lawsuit. Continental appealed.

The Fifth Circuit issued its original opinion in March 2022, finding that Continental’s theory of injury was insufficient to confer constitutional standing. The Court explained that Avanci’s refusal to sell licenses did not result in a cognizable injury to Continental, and that Continental had no rights to enforce FRAND contracts between the individual patent holders and the standard setting organization (SSO) since Continental was not part of the SSO to which the SEP holders belonged. The Court also found that even if Continental was contractually entitled to a license on FRAND terms, the SSO contract had not been breached because the individual patent holders fulfilled their obligations to the SSO by actively licensing Continental’s customer, which meant that the SEP licenses were (derivatively) available to Continental on FRAND terms. Finding that Continental lacked constitutional standing, the Court did not reach the issue of whether Continental lacked antitrust standing.

Continental filed a petition for panel rehearing and rehearing en banc. Numerous third parties, including legal and economic scholars, industry associations and tech companies, also filed amici briefs supporting Continental, arguing that the Fifth Circuit wrongly found that Continental was not an intended beneficiary of the FRAND obligations that the SEP owners made to the relevant SSO.

On June 14, 2022, the Fifth Circuit issued an order withdrawing its March 2022 opinion. A week later, the Court issued a new opinion summarily stating that “[h]aving reviewed the district court’s detailed order, and considered the oral arguments and briefs filed by the parties and amicus curiae, we AFFIRM the judgment of the district court that Continental failed to state claims under Sections 1 and 2 of the Sherman Act.”

Practice Note: Although the ultimate outcome did not change, the Fifth Circuit withdrew its previous finding that third-party beneficiaries to SSOs did not have constitutional standing to file a lawsuit.