On 10 May 2023, Mr Justice Smith handed down the FRAND judgment in Optis v Apple [2023] EWHC 1095 (Ch).
The judgment relates to “Trial E” - the “FRAND” trial and follows technical trials A-D concerned with questions of validity and/or essentiality in respect of certain patents. There are three particularly important themes arising from the judgment. First, the UK Court’s re-affirmation that it is willing and capable of determining a global FRAND rate. Second, how the Court will go about determining that rate. Third, the relevant licence fee in these particular proceedings.
As many readers will know, in the telecommunications industry, if a patent is deemed essential to an industry wide standard then it is referred to as a Standard Essential Patent (SEP). The European Telecommunications Standards Institute (ETSI) requires SEP holders to license use of their SEPs to implementers on Fair Reasonable And Non-Discriminatory (FRAND) terms. In this recent judgment, the Judge explained the concepts of “Hold Up” and “Hold Out” in the context of industry standards and patent rights. The Judge further explained that, without a FRAND regime, patentees may disrupt or “Hold Up” technical developments in the field by prohibiting use of their SEP without excessive royalties being paid. At the other end of the spectrum, the national nature of patent monopolies makes it difficult for patentees to enforce their rights globally; infringers can rely on this reality to “Hold Out” from seeking a global licence.
In relation to the Courts of England and Wales having the jurisdiction to determine a global FRAND rate, the Judge explained the approach the English Courts would take to parties disregarding their FRAND obligations. In the “Hold Up” scenario, a patentee would be refused an injunction where the implementer was willing to take a FRAND licence. In the “Hold Out” scenario, the patentee would be granted an injunction where the implementer refused to take a licence on FRAND terms. It was further explained that the essence of these extremes was the same: to attach such adverse consequences to the refusal to negotiate so as to render it commercial impossible to ignore the FRAND regime. This forces the parties to seek to agree a FRAND licence and where they cannot, it was held that the Court could, as part of the remediation process – determine the terms of a global FRAND licence. The Judge referred to the Supreme Court’s finding in Unwired Planet and held that the basis for the UK Court’s jurisdiction was twofold. First, the ability to determine a global FRAND licence arises “out of a combination of the jurisdiction (exclusive to the granting state) of determining the validity and infringement of a national patent and the contractual promise to offer a FRAND licence.” Second, “the FRAND undertaking does not limit the court to imposing terms only in relation to patents which are established as valid and infringed. Granted, the SEP Owner must show infringement (and so validity) as well as essentiality in relation to a UK SEP in order to trigger the jurisdiction, but once the jurisdiction has been triggered, the freedom to impose terms regarding the licensing of entirely untested and worldwide intellectual property rights exists.”
In relation to how the Court will go about determining a suitable rate the Judge explained that “comparables” can be of enormous value in answering the FRAND question. “Comparables” were explained to be transactions sufficiently similar to the FRAND licence between Optis an Apple which was being determined. It was explained that a comparable that was fairly negotiated, between a willing buyer and a willing seller, and was genuinely similar to the present case would have significant evidential value. Both sides relied upon what they termed “comparable” licences in support of their case. A heavy redacted annex to the Judgment details (or rather, does not publically detail) the summary of the essential terms of those licences.
In relation to the fee determined to be FRAND in these particular proceedings, the Judge held that a rate of $5.13m per year was FRAND and further that an annual rate for 5 years was appropriate for the length of the licence concluding that Apple should pay, up front (and with no discount for accelerated payments) $25.65m to Optis by way of licence fee for future use. The Judge also held that a further $30.78m (plus interest) was due for past infringements. Whilst it might appear than this is a large sum of money, it should be kept in mind that it has been reported that Optis were seeking a considerably larger amount.
Of course, whilst the FRAND terms have been determined (subject to appeal), Apple is not obliged to enter into the licence. However, if Apple refuses to take the licence then it is to be expected that an injunction in the UK will follow. Additionally, failure to accept the licence would mean Apple is not released from past infringements. The Judge explained that “the principal sum that Apple must pay to obtain a release from past infringements will … be six times US$5.13m, that is US$30.78m”. However, this rate is based on a global rate and so in the event that a licence is refused, Optis would likely only be entitled to a fraction of the sum to compensate for past infringement in the UK.
It is also worth noting that on 6 April 2023, the Supreme Court granted permission to appeal in related Apple v Optis proceeding [2022] EWCA Civ 1411. These proceedings examine whether an SEP holder is entitled to an immediate injunction once it has been held by the Court that their patent is valid, essential, and infringed unless the implementer has undertaken to take a licence on such terms as are subsequently determined by the Court to be FRAND.
