December 20, 2022
This judgment demonstrates perfectly the problems involved in deciding Standard Essential Patent/FRAND disputes. As Lord Justice Arnold said in a postscript to this judgment, these appeals illustrated “yet again” the “dysfunctional state of the current system for determining SEP/FRAND disputes”. Arnold LJ said that Apple’s behaviour in declining to commit to take a court-determined licence once it had been found to infringe Optis’ Standard Essential Patent, and its pursuit of an appeal, could “well be argued to constitute a form of hold out”, while Optis’ argument that an unqualified injunction should be granted would “open the door to hold up”. In Arnold LJ’s view, each side had adopted its position “in an attempt to game the system in its favour” and that “the only way to put a stop to such behaviour is for SDOs like ETSI to make legally-enforceable arbitration of such disputes part of their IPR policies”.
In this ongoing litigation, Optis alleges that Apple has infringed eight telecommunications Standard Essential Patents (SEPs) by Apple’s 3G and 4G connected devices.
Four technical patent trials (Trials A – D) have been heard. In Trial A the court found one of the patents, which subsequently expired, to be valid, essential and infringed, although the findings on essentiality and infringement were then overturned by the Court of Appeal. In Trial B, the court found a second patent, which has not expired, to be valid, essential and infringed and Apple’s appeal was dismissed. In Trial C, the court found that the patents in question were invalid. Optis has appealed this decision and the hearing is scheduled for March 2023. In Trial D, the court found that the patents were valid, essential and infringed. Apple has appealed this decision and the hearing is scheduled for May 2023.
Trial E, concerning the terms of a FRAND licence and Apple’s claim of a dominant position by Optis, has been heard and judgment is awaited.
In Trial F, the question was whether the proprietor of a SEP who has undertaken to ETSI to grant licences on FRAND terms is entitled to an immediate injunction once it has been held by the court that the patent is valid, essential and infringed by an implementer unless the implementer has undertaken to take a licence on such terms as are subsequently determined by the court to be FRAND.
Apple’s position was that the patentee is not entitled to an injunction until such time as the court has determined what terms are FRAND and the implementer has had the opportunity to decide whether to take a licence on those terms.
Optis’ position was that the patentee is entitled to an immediate and unqualified injunction if the implementer has not by then undertaken to take a licence on terms to be determined by the court as FRAND.
Meade J had held that neither side was correct, and that the right answer was that the patentee is entitled to an injunction unless and until the implementer undertakes to take a licence on terms to be determined subsequently by the court to be FRAND, a so-called “FRAND Injunction”.
In October 2021, Meade J accepted an undertaking given by Apple, and on that basis refused to grant an injunction against Apple to restrain it from infringing the patent that had been the subject of Trial B.
Both parties then appealed the decision in Trial F.
The issue on appeal turned primarily on the proper interpretation of clause 6.1 of the ETSI IPR policy (which is governed by French law).
Lord Justice Arnold noted that in Unwired Planet International Ltd v Huawei Technologies (UK) Co Ltd  UKSC 37 (UPSC), the Supreme Court held that clause 6.1 must be interpreted in a manner which avoids both hold up by the SEP owner and hold out by an implementer. Hold up by the SEP owner is avoided by ensuring that the SEP owner is held to its ETSI undertaking. Hold out by the implementer is avoided by allowing the SEP owner to enforce its normal right under the general law to obtain an injunction to prevent infringement of the SEP by the implementer, save to the extent that this would be inconsistent with the SEP owner’s ETSI undertaking.
Apple contended that Meade J had erred in concluding that clause 6.1 requires a beneficiary of that clause to commit to take a licence as soon as it is established that it is infringing a valid SEP, irrespective of whether the FRAND terms of that licence have yet been determined by the court. It argued that a party who “seeks” a licence in good faith is a beneficiary of the ETSI undertaking, and therefore protected from an injunction, regardless of whether it commits to take a licence upon terms determined to be FRAND by the court. It said that the implementer is only obliged to take a licence (or else be injuncted) once both: (i) a SEP has been found valid and infringed; and (ii) the FRAND terms of a licence have been determined.
Arnold LJ said that the problem with this interpretation was that it meant interpreting clause 6.1 in a way that would undermine a key part of the purpose of the ETSI IPR policy, including clause 6.1, as analysed in UPSC, i.e. to prevent hold out.
As for “seeking” a licence (as set out in the last sentence of clause 6.1), as opposed to committing to take a licence, Arnold LJ agreed with Meade J that “seeking” must include agreeing to take a licence on terms that are objectively FRAND. Otherwise, the implementer would only be seeking the option of taking or declining a licence which was FRAND. Further, Arnold LJ said, it is only if a licence is taken that the implementer can have a defence to infringement of the SEP.
Arnold LJ also said that Apple was not correct to say that clause 6.1 imposes obligations upon SEP owners and not implementers. As Meade J had said, an implementer cannot have the benefit of clause 6.1 without accepting the burden. Clause 6.1 is a stipulation pour autrui under French law, and is equivalent to a contractual obligation for the benefit of a third party. The question was who can enforce that stipulation and in what circumstances.
Apple also argued that Meade J should have held that Apple was “seeking” a licence because it had made an offer that was FRAND. However, Arnold LJ said, there can be more than one set of terms that are FRAND and the simple fact was that Apple was not prepared to commit to taking a court-determined licence because of the possibility that a court would set a FRAND royalty rate that was higher than that offered by Apple.
Arnold LJ also said that the court’s determination of the licence terms would be objectively determined, and Meade J’s decision did not effectively require Apple to “sign a blank cheque”, as Apple argued. The court would examine expert licensing evidence, information from research organisations and other evidence. It was therefore improbable that terms that were considered by the court to be objectively FRAND could be uncommercial or unviable, as Apple contended. In Arnold LJ’s view, if an implementer genuinely cannot afford to pay a royalty which is FRAND, it ought not to be practising the patented invention, and therefore should not be seeking a licence.
Arnold LJ also rejected Apple’s argument that Meade J’s interpretation was inconsistent with the policy objectives of the ETSI IPR policy, which envisage the SEP owner and the implementer negotiating a licence on FRAND terms. In Arnold LJ’s view, although it is preferable that SEP owners and implementers negotiate licences, if the parties cannot agree terms the court must step in. Further, to achieve the twin purposes of the ETSI IPR policy, i.e. to avoid hold up and hold out, it is necessary, in the absence of agreement between the parties, for the court to be able to enforce its determination against both parties. The court can only do this against the SEP owner by withholding an injunction if the SEP owner is unwilling to abide by its ETSI undertaking, and it can only enforce against the implementer by granting an injunction if the implementer is unwilling to take a licence on terms determined to be FRAND.
Apple also argued that Meade J’s interpretation deprived an implementer who had been found to infringe a SEP of the choice between taking the court-determined licence, once its terms are known, and submitting to an injunction. In Arnold LJ’s view, however, there was no reason why an implementer who had been found to infringe a SEP was entitled to the luxury of being able to wait until the court had determined what terms were FRAND before deciding whether to take a licence on those terms or not, and to continue to infringe the SEP in the meantime. If the implementer wanted to avoid the consequences of infringement, it could commit to taking a court-determined licence. If the implementer did not want to commit to taking such a licence, then it should be restrained from infringing. Otherwise, hold out by implementers would be promoted.
Arnold LJ also rejected Apple’s argument that Meade J had been wrong to find that unless the court stopped it, Apple intended to work the patent without a licence in the period between judgment after Trial F and judgment after Trial E. Arnold LJ said that it was Apple’s own case that it was entitled to wait until after the court had determined the FRAND terms of a licence following Trial E before deciding whether to take a licence on those terms or submit to an injunction. Therefore, Apple clearly intended to work the patent without a licence in the intervening period.
Apple also argued that Meade J had been wrong to find that an assumed abuse of a dominant position by Optis under competition law (as alleged by Apple) did not justify withholding an injunction.
Arnold LJ disagreed. As Meade J had said, withholding an injunction to restrain infringement of a patent would leave the SEP owner with an inadequate remedy and promote hold out. A strong reason was required to justify withholding an injunction. The assumed fact that Optis had abused a dominant position by disrupting meaningful negotiations before launching this litigation did not provide such a reason. The decision to grant or withhold an injunction looked to the future, whereas Apple’s complaint of abuse of a dominant position was about the past. The assumed abuse had no continuing effect because Optis had accepted that it must grant a licence, had pleaded its case on FRAND to the court’s satisfaction and had stated that it would abide by the court’s decision as to what terms were FRAND. All that Apple had to do to obtain a licence on FRAND terms was to accept the court’s determination.
Arnold LJ also rejected Apple’s argument that Meade J’s approach was to “whitewash” any prior abusive conduct of the SEP owner. Arnold LJ said that Apple would be compensated for any abuse by a damages award and Meade J had been correct to hold that financial remedies would be an adequate remedy for Apple.
Optis argued that an implementer who fails to commit to take a court-determined licence having been found to infringe a SEP becomes permanently disentitled to rely on the SEP owner’s ETSI undertaking through the award of a permanent injunction.
Arnold LJ held that Meade J’s granting of a FRAND injunction was consistent with the purpose of clause 6.1, i.e. to balance access to SEPs and fair reward for SEP owners. Optis’ interpretation would promote hold up. Further, while it was correct for Optis to say that in the scenario of this case, the implementer, i.e. Apple, was not within the class of beneficiaries of clause 6.1, the argument ignored the fact that the implementer would be within the class of beneficiaries if it subsequently changed its mind, and it should be allowed to do so given that a key purpose of the ETSI IPR policy is to ensure access to technology covered by SEPs.
Both appeals were dismissed. (Optis Cellular Technology LLC v Apple Retail UK Ltd  EWCA Civ 1411 (27 October 2022) — to read the judgment in full, click here).