“Future FRAND negotiations would benefit from increased transparency”

After a long wait, the UK has once again confirmed its jurisdiction to calculate a FRAND rate between a patent holder and patent implementer. Earlier in March, judge James Mellor of the UK High Court finally handed down his decision in the case between patent holder InterDigital, and patent implementer Lenovo. He determined that Lenovo should pay an $138.7 million lump sum royalty rate – $0.175 per cellular unit, less than 40% of InterDigital’s previous offer – to the patent holder for the unit sales period 2007 to 2023.

The FRAND trial between InterDigital and Lenovo was the culmination of several years’ litigation between the two parties over standard essential patents in the UK. The main issues began in summer 2021, when the High Court found InterDigital’s EP 2 485 558 valid and essential to the 4G communications standard.

From here, the parties commenced the FRAND deliberations, with judge Richard Hacon denying the NPE’s injunction request against Lenovo the following December. Multiple technical trials, with corresponding decisions, have followed. While the patent implementer has avoided an injunction, however, the judgment can also be used as a blueprint for parties in the future to make their licensing rates more transparent.

Transparency to the fore

The judgment’s assessment of the actions of both licensee and licensor has caused much discussion in European patent circles. It also shows the UK courts continuing the trend, which began with Colin Birss’ judgment in Unwired Planet vs. Huawei, of rate setting during FRAND discussions. However, a clear thread running throughout the decision is an increased need for parties to ensure their past patent licensing agreements are more accessible, in order to encourage greater market transparency going forward.

As Mellor notes, the parties could have reached a FRAND rate far quicker – and perhaps without the need for litigation – should ‘the basics of each SEP licence [be] made public.’ Patent holders should be transparent in relation to other licenses offered to companies undergoing other FRAND negotiations.

As such, leaning on previous FRAND discussion between the patent holder and other licensees would open the door to a more efficient system in the future, which could also ensure clearer case law. Patent owners could avoid the court seeing them as unwilling, while patent users might avoid having to pay a rate which stretches over multiple units over multiple years.

Without more transparency, Mellor suggests, parties involved in future FRAND discussions will face similar hurdles as those between Lenovo and InterDigital – for example, the court’s blanket rejection of a top-down rate provided by the patent holder. The court also found Lenovo a willing licensee, although the company argues that it could have confirmed this sooner, should the NPE’s have made its previous rates public.

Avoiding a drawn-out process

That is not to say the parties eschewed transparency completely. InterDigital had previously embarked on a ‘transparency initiative’, under which it published its rates behind the so-called 5G Extended Offer. According to the judgment, however, this did not go far enough: “it did not result in a transparent licensing programme”. Lenovo had also put forward “requests for more transparency regarding the calculations behind InterDigital’s offers and FRAND rate structure, and more information about other InterDigital licence agreement.”

Naturally, a certain amount of power play between parties must be taken into account. But observers must also consider that the UK patent courts have only handed down one previous judgment regarding FRAND rates in Unwired Planet vs. Huawei. Thus, case management around such issues remain a grey area. The level of transparency required to positively benefit both parties in future negotiations is likely to be found through a series of trial and error.

At the very least, both parties acknowledge the importance of heightening transparency to aid negotiations when it comes to finding licensing rates. But in making, as the judge notes, the basics of SEP licensing rates public, parties could avoid a lengthy bout of negotiations, as well as the costs of years-long litigation. In this instance, Lenovo could have perhaps avoided paying 16-years’ worth of unit sales.

European Commission weighs in

A recent, apparently leaked, draft legislation by the European Commission also appears to place greater emphasis on licensing transparency. On 28 March, Reuters reported that the commission is developing a ‘royalty process’, whereby the EUIPO will maintain a list of SEPs and their holders which must then sign up with the EUIPO to charge patent fees or take legal action.

Apparently, the commission wants to ensure that SEP holders and implementers conclude FRAND licensing negotiations before entering into litigation. The draft document indicates the EU will give parties a maximum term of nine months to reach agreements. Reuters, quoting the draft document, says, “The FRAND determination procedure should simplify and speed up negotiations concerning FRAND terms and reduce costs,” citing it as a necessity “because disagreements about the FRAND terms are the main reason to seek recourse in courts.”

Currently, the EUIPO is mostly concerned with copyright and trademark issues, with experts criticising their little expertise in patents. But, while EU countries and the EU Parliament must agree on the proposals before they come into law, the EU seems to be taking more steps to take matters concerning FRAND licensing transparency into its own hands. If market reaction is anything to go by, the impact on SEP holders and patent implementers could be stark. With the commission expected to publish its draft legislation on 26 April, a key factor will be how it may consequently interact with UK and UPC court jurisprudence.