The UK High Court has handed down its sixth judgment in the dispute between Apple and Optis concerning standard essential patents, in doing so cementing the terms of a FRAND licence between the two companies. While Optis has succeeded in gaining a lump-sum payment agreement of $56.43 million plus interest, which covers five years of the annual royalty rate as well as Apple’s past infringement, the court has criticised Optis’ reliance on the first-instance Unwired Planet decision to “leverage the findings in the decision in order to negotiate higher royalty rates, or the royalty rates that they wanted, with their counterparties.”

The court also deviated from the InterDigital vs. Lenovo judgment in that it calculates infringement from when Optis asserted its patent portfolio against Apple, rather than accounting for all past infringement by the implementer. However, presiding judge Marcus Smith criticised the NPE’s rate calculation, although he ultimately rejected both companies’ FRAND methodologies.

He also cleared both parties of unlawful hold out or hold up. But this decision, taken alongside the UK’s previous two FRAND decisions, indicates that the country’s approach towards patent holders is not canonical.

Apple and Optis, round six

Peter Damerell, partner at IP boutique Powell Gilbert, acknowledges that there are certain similarities between the UK’s two most-recent FRAND judgments. He says, “The judgment continues the recent trend of the UK judges attempting to find a balanced approach to determine FRAND licensing terms that discourages both SEP owners and implementers from taking more extreme positions.”

Damerell continues, “For example, the court rejected Apple’s ‘smallest saleable patent practising unit’ approach, and Optis’ assertions as to the extremely high quality of its portfolio. The judge also sought to adopt an approach that would not incentivise implementers from delaying in licensing discussions by including payment for past sales and interest.”

Thus, while the court also criticised Apple’s methodology for calculating the appropriate licensing rate, it ordered the US company to pay a much lower royalty rate than might be expected. The rate covers all current and future Apple products. However, the judgment also continues previous reliance on ‘comparables’, which Smith describes in the judgment as “transactions sufficiently similar to the licence between Optis and Apple that I must value”. Colin Birss had also referred to these as method of calculation in the Unwired Planet vs. Huawei judgment.

London-based Pinsent Masons partner Mark Marfé says, “As it stands, the UK is one of very few courts that will determine a global FRAND rate and so will continue to be an important forum. As confirmed in the recent InterDigital FRAND decision, relying on suitable comparable licences remains key to determining a global rate in UK FRAND litigation. In the Apple vs. Optis decision, the judge considered the most important factor when considering comparables to be the relative bargaining positions of the parties to the negotiation. He held that this is critical to determining whether the bargain ultimately struck is one that reflects economic realities and is fair.”

Go your own way

Damerell adds, “While the overall result in this particular case appears to be more favourable to Apple than to Optis, this seems in large part to be because the judge was unimpressed by the lack of evidence to support Optis’ assertions of the high quality of its portfolio and Optis’ reliance on licence agreements with very small market participants.”

Tess Waldron, partner at Powell Gilbert, says, “Marcus Smith has taken a pragmatic approach to determining FRAND licensing terms, allowing the parties to fight hard in negotiation and ultimately giving short shrift to conduct-based arguments. Following Richard Meade’s previous judgment in this case and James Mellor’s findings in InterDigital vs. Lenovo, it seems clear that the willing licensee/willing licensor dynamic will play a peripheral role in UK cases in the future, with the focus being much more on determining the FRAND licensing terms in question.”

Thus, the UK patent market remains confident that the country’s courts, and its patent judges, remain a solid alternative to other European jurisdictions – including the UPC. Michael Burdon, partner at Simmons & Simmons says, “The decisions of the mainland European courts and tribunals focuses on behaviour – often for pragmatic reasons, in the absence of rate-setting, to decide whether or not to award an injunction. The English courts are considering commercial terms in an environment in which both parties have agreed in principle to the licence.”

Burdon continues, “They are both willing, and to the extent they might not have been in the past, that is irrelevant for the purpose of determining the FRAND rate. That is consistent with the English approach to damages which are generally compensatory not punitive – assessed by reference to the hypothetical reasonable bargain which would have been struck.”

UK still attractive forum

For Michael Burdon, that SEP holders will continue to use UK courts for litigation is clear. He explains that this is true, “especially in the absence of other internationally credible rate-setting fora, and the absence of another forum in which the SEP user can, in effect, be compelled to acknowledge and accept the rate-setting decision”.

“Let’s not forget, these cases are exceptional”, he says. “The vast majority of companies negotiate and agree the terms of the licence. There are very few disputes where the difference between the parties will be that large that it will justify this type of expensive epic battle. Optis is only the third English FRAND decision – the rules of engagement are becoming clearer, but there is always room for disagreement and dispute which will require resolution.”

Open for business

Mark Marfé also notes how, through its clear FRAND determinations, the UK’s jurisdiction is beneficial for businesses which operate in this space, particularly in light of the UPC’s recent launch. So far, its jurisprudence with regard to SEPs and FRAND remains unclear. Similarly, in light of the EU Commission’s proposals regarding a European FRAND regulation – which include stricter monitoring of the standard essentiality of SEPs and more transparent licensing – some parties may seek an alternative forum to Europe to litigate their SEPs.

Marfé continues, “In this case, the judge preferred Apple’s comparable licences. Apple’s licence counterparties were ‘big beasts’ in the cellular connectivity sector and well able to look after themselves. The judge commented that while Apple had negotiated with Optis in a ‘hard but fair’ way, there was nothing improper about this. Notably, the fact Optis sued Apple after not getting the deal it wanted was an indication to the judge that there are limits ‘even to Apple’s negotiating strength’.”

Tess Waldron says, “While implementers have historically been nervous of the UK’s approach to determining global FRAND terms, this judgment – as well as James Mellor’s judgment in Interdigital vs. Lenovo – may well give implementers more confidence that the UK courts will critically assess FRAND licensing offers made by SEP owners, with the facts and expert evidence relied on by the SEP owner being thoroughly tested by the court.”

Leading up to FRAND

When the dispute began, Optis originally claimed that Apple’s 3G and 4G devices infringed eight standard essential patents which form part of its wider PanOptis portfolio. In the first trial, which took place in 2020, presiding judge Colin Birss found now-expired patent EP 12 30 818 valid, essential and infringed (case ID: HP – 2019 -000006). During the second trial, Richard Meade also found EP 22 29 744 B1 valid, essential and infringed.

Trial F, which preceded Trial E, saw the Court of Appeal dismiss an appeal by Apple against an order that it must take a FRAND licence from Optis. In doing so, both parties agreed on a court-determined FRAND licence. The decision was widely discussed since it might mean, in the future, that implementers will be expected to take court-determined licences or face an injunction where an SEP is valid and infringed.

Anthony Trenton

Trial A and Trial B, both technical trials, have now also come to a close, although Trial B ended in disappointment for Apple. Presiding judge Richard Meade found an Optis patent valid, essential and infringed.

Trial C, which took place in October 2021, centred on three separate Optis patents. Ultimately, the judge found these to be invalid. Trial D ended when the High Court upheld Optis’ allegation that Apple infringed its patents EP 21 87 549 B1 and EP 26 90 810 B1. JUVE Patent is not yet aware if Optis will appeal the result of the current FRAND judgment.

New judicial approach

The UK courts’ third FRAND decision also marks the third different UK-based judge to render said decision. In this instance, Marcus Smith was presiding judge leading the proceedings. Michael Burdon notes how the background of the judges is a key factor in their varying approaches to FRAND decisions. “James Mellor is a full-time, lifelong patent person, with a degree in engineering and a stellar career at the patent bar, where commercial issues and money are rarely front and central in the dispute – it’s all about the injunction,” says Burdon.

Gary Moss

“Marcus Smith studied law and practised commercial and regulatory law. He is the Competition Appeals Tribunal president, and is also assigned to the Financial List, the Upper Tribunal (tax) and the Administrative Court. InterDigital is a well-reasoned pragmatic solution, while Optis starts with quite a detailed theoretical economic analysis of the market and then applies it to the available facts.”

Thus, the UK is unlikely to adopt a uniform approach to calculating global FRAND rates based purely on the expertise of its judges.

Peter Damerell also notes, “While there are some similarities in the approaches taken to determining the FRAND licensing terms in the three UK FRAND determinations to date, Marcus Smith’s judgment is a stark reminder that every case will be decided based on the judge’s own assessment of the arguments and evidence before them.”

Regular teams turn out

Throughout proceedings, Optis has continued to work with EIP, with a team headed up by partner Gary Moss. Once again, the IP boutique worked alongside Osborne Clarke and especially partner Arty Rajendra. She provides specialist expertise when it comes to FRAND and competition law.

Arty Rajendra

EIP and Osborne Clarke have previously made a name in their coordination in the Supreme Court case between Unwired Planet and Huawei. Again, both firms acted for the NPE. This relationship with Optis marks the continued strengthening of EIP’s place in the telecommunications market. It has steadily developed this through work for other clients such as IP Bridge, which it represented in a series of SEP proceedings against Huawei.

Apple again turned to WilmerHale, with a team led by Anthony Trenton, who has led the US firm through multiple other trials. Annsley Merelle Ward, who the firm recently made partner, was also involved alongside Trenton. WilmerHale also involved competition law expertise, with partner Cormac O’Daly being involved alongside the patent partners.

For Optis
8 New Square (London): Adrian Speck, Tom Moody-Stuart, Isabel Jamal, Thomas Jones, Jennifer Dixon
Brick Court Chambers (London): Sarah Ford, Emily MacKenzie
EIP (London): Gary Moss
Osborne Clarke (London): Arty Rajendra (partner)

For Apple
11 South Square (London): Brian Nicholson, David Ivison
Blackstone Chambers (London): Michael Bloch, Warren Fitt
Brick Court Chambers (London): Sarah Love
Monckton Chambers (London): Jon Turner, Kassie Smith, Ligia Osepciu
WilmerHale (London): Anthony Trenton, Annsley Merelle Ward (both partners), Cormac O’Daly (competition law partner); associates: Christina Guazzi (counsel), Alex Calver, Kelly Burrowes, Mari Sierra; paralegals: Alex Ferrigno, Edward Mount

UK High Court, London
Marcus Smith (presiding judge)