Introduction
The implementation of 4G mobile communication technology in the UK has become very expensive for Apple in light of the High Court of England and Wales’ decision last month in Optis v. Apple. The court held that Optis’s standard-essential patents (‘SEPs’) were infringed by Apple. The court added that it was willing to decide the value of royalty to be paid by Apple to Optis in the context of Apple being viewed by the court as an ‘unwilling licensee’. The repercussions could extend to claimed damages (approximately $7 billion).
The outcome of the case is likely to jeopardise Apple’s position in the UK market, with some commentators even raising the possibility of an end to iPhone sales in UK and a restriction of services and upgrades to current customers. At the same time, the case on the other hand may bolster the UK’s perceived position as a welcoming legal jurisdiction for SEP owners.
Background
The case arises from the contentions raised by the non-practising entity Optis (and its partners, PanOptis Patent Management and Unwired Planet LLC). Optis claims that Apple’s iPhones, which implement the LTE cellular standard, infringe upon their standard essential patents on 3G and 4G. The case is multi-jurisdictional, and was first litigated in favour of Optis in a Texan Court in August 2020, wherein it was found that Optis’ patent rights had been “wilfully” infringed by Apple with Optis granted the relief of $506 million. The Texas damage award was then reversed in April 2021 by US District Judge Rodney Gilstrap who emphasized the question of whether the royalty was consistent with FRAND terms, leading to a retrial (Optis Wireless Technology v. Apple Inc., 19-66, U.S. District Court for the Eastern District of Texas).
Thereafter, in 2020, Optis took Apple to court in a UK lawsuit over the same SEPs. As the case stands, following the second in a series of four technical trials in June 2021, the High Court of England and Wales (Mr. Justice Meade) has held that Apple infringed Optis’ patent rights. Meade J has also stated that any decision the court makes on the FRAND royalty amount the iPhone maker must pay would apply worldwide, not just to its UK sales (in line with the UK Supreme Court decision last year in Unwired Planet v Huawei). The High Court will also verify whether Apple’s action renders it an ‘unwilling licensee’.
The ‘Unwilling Licensee’
Apple will be subject to another hearing in 2022 before the English High Court which will determine the aforementioned global level royalty rate to be paid to Optis. An essential aspect of this concerns whether Apple ought to be labelled an unwilling licensee. In UK law, the noncompliance with a court-determined FRAND royalty value is the key element that would make Apple an unwilling licensee; a finding which – the UK judicial argument goes – is consistent with the approach taken by the Court of Justice of the European Union (CJEU) in Huawei v. ZTE.
Apple finds itself in a vulnerable situation as an implementer, whereby they need to comply with the rate determined by the court to avoid an injunction. Apple’s fear of being deemed an unwilling licensee, and being forced to cease using the technology in question via an injunction, may force Apple to settle in the current case.
Yet Apple claims the right to question the value of the court-determined royalty without being labelled an unwilling licensee. The approach adopted by the High Court – Apple argues – would essentially facilitate a situation wherein Apple ends up giving a blank cheque in lieu of the patented technology. As Apple’s lawyer put it, “there may be terms that are set by the court which are just commercially unacceptable”. Apple’s own Statement on FRAND Licensing of SEPs stipulates that a willing licensee is not merely considered unwilling if ‘it refuses arbitration, challenges the merits, or resorts to litigation because the SEP owner does not offer FRAND terms.’ This has been echoed by the Fair Standards Alliance in their own position paper (Fair Standards Alliance is an association whose aim is to support innovative technology companies in making sure that SEP licensing is conducted on what they refer to as ‘real’ FRAND terms).
Conclusion
The case is another indicator that the UK Supreme Court decision in Unwired Planet v Huawei – which gave the green light for UK courts to formulate global royalty rates for essential technologies – has created a perception that the UK is a welcoming jurisdiction for enforcement of the rights of SEP holders. This will likely lead to increased filings. However, several critics argue the surge of patent cases in UK may create a situation where a single jurisdiction is empowered to frame precedents for a global (territorial) patent system. This is viewed as problematic since there might be jurisdictional clashes if other countries designate themselves in a similar fashion. The controversy reflects the complexity created by the fact that patents are territorial but the FRAND commitment is made globally.
In this specific case, Optis find itself in a strong position, as the English High Court has both held against Apple for patent infringement, and also wielded the power to decide a global FRAND value. In doing so, it has increased further the attractiveness of the UK courts for SEP holders who might emulate Optis’ actions in this case, impacting the broader Internet of Things ability to use standards and giving rise to political consequences far beyond the average SEP case.
(Dr Enrico Bonadio and Dr Luke McDonagh are Fellows of the Innovators Network Foundation for 2020-21)
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I find it strange, that a UK court would decide on a worldwide licence rate.
Firstly, as far as I can tell, both companies are US-entities (are they?). Should then not the US-courts be the best forum for a worldwide licence?
Secondly, in which countries are there actually Optis patents? Most probably there are countries not covered…
Thirdly, would the UK court then not have to decide on validity and infringement under all relevant foreign patent laws, taking into account the foreign jurisdiction? I don’t know if this is the case here, but generally the validity and infringement need not be decided uniformly across the world (say because of different jurisdiction, priority rules, different coverage of earlier rights, etc.).
Lastly, what would happen if in the US-proceedings a different rate is set? Or in China, in Germany or wherever?
Read Huawei v. Unwired Planet if you want to understand. The authors have not explained that properly. This is a UK patent case. Apple infringe UK patents. They will face a UK injunction. Unless the Court funds that the patent holder has not offered a FRAND license. Which the Court might decide to be worldwide because the standard, products, patent portfolio and market are all global. Still, Apple do not need to accept the license but the consequences are rightly that it will face a UK injunction.
Actually, it is precisely my point, that it is a UK patent (or the UK part of an EP-patent).
Let’ s do a Gedankenexperiment: The UK supreme court sets a worldwide license and license rate for a given patent from a family. Then, a few years later, courts in the US, Germany, Japan, … find the local patents invalid, a Chinese court finds the patent is not infringed. Of course, the UK court could add ASIs to avoid this embarrassment.
What happens then? Is the worldwide license still valid? What kind of redress does the “infringer” have to reduce the license rate? What if courts in different countries set different license terms?
I am sorry, but for me it is quite hard to imagine a case, where the setting of a worldwide license by a national court could be FRAND (pun intended).
To take things a step further: could a court in a country not covered by the family set a worldwide license? Why not? It might be a good “business” proposition for some small island nations (no I don’t mean the UK, I was thinking of Pacific or Caribbean countries). Then again, maybe North Korea would be interested to become the favourite SEP-litigation country…
What was decided by the UKSC was not a royalty level, but that the royalty shall take into account the whole portfolio under FRAND conditions.
The sum at stake is in any case not negligible!
The problem is that the UK courts take the right to decide on a global portfolio that is on a level which goes well above the case of the patent at stake.
The problem is that UK courts decide upon patents not challenged as such and for which their competence is more than doubtful.
I see here the attempt of British courts and of the British legal profession to compensate the loss of trade due to Brexit.
The danger is that some firms might simply withdraw from the UK market and in the end the British consumer will suffer from it.
Apple is clearly envisaging such a move.