“The ongoing SEP case between InterDigital and Lenovo has led to a number of interesting and reportable decisions. In the latest iteration, handed down on 21 March 2024 ([2024] EWHC 596 (Ch)) Mr Justice Richards makes further determinations on applications for interim applications which builds on Teva v Novartis, as well as considering a cross-application by InterDigital for a stay”
By way of recap, this case concerns a portfolio of telecommunications patents - all of which have been declared as standard essential patents (“SEPs”). The SEPs were held to be valid and infringed by Lenovo and a FRAND licence rate was determined by Mellor J in March and June 2023. The appeal to this decision will be heard in June 2024. A result of Mellor J’s judgments was a global licence setting a FRAND rate of US$ 17.5 cents per device, but such licence expired on 31 December 2023. With no licence in place, InterDigital has issued proceedings in Germany against Lenovo, seeking injunctive relief (“German Proceedings”), and Lenovo issued proceedings in the English Courts (these “English Proceedings”) requesting that the English Court determine FRAND terms for a global licence to commence on 1 January 2024.
Lenovo has, as part of the English Proceedings, made an application requesting that the English Court make a declaration setting the proposed terms of an “interim” FRAND licence and that the declaration itself expresses in terms that such licence rates are FRAND. Notably, Lenovo did not request that InterDigital be required to enter into such licence, and instead offered to pay the sum of USD$ 17.5 cents into court if InterDigital did not accept. InterDigital made a cross-application requesting that the English Court stay the English Proceedings as they relate to FRAND matters in favour of the German Proceedings to allow proper determination of the issues.
The facts of these applications are relatively complex, but three issues of particular interest arise from the judgment, which are summarized below:
- Whether, considering the facts of the case and following Teva v Novartis [2022] EWHC 2779(Pat)), a declaration should be made in the terms requested by Lenovo;
- The approach of the German courts and whether they do, in fact, make “FRAND” licence determinations in practice; and
- In light of the determination on point (2) above, whether a stay should be granted of the English Proceedings in favour of resolution of the German Proceedings.
The decision in Teva v Novartis set the tone that the Patents Court is taking a more conservative view in respect of declarations, particularly in the context of scrutinizing the alleged “spin-off” value of such declarations in Europe and whether this is the exclusive, or principal, purpose of such declarations.
ANALYSIS - INTERDIGITAL V LENOVO
Whilst both Lenovo and InterDigital provided fact evidence and expert evidence on matters of German Law, none of the evidence was cross-examined, and therefore Mr Justice Richards was required to assess all such evidence as presented to him and is not in a position to prefer one conclusion over another, save to determine where there is a divergence of opinion.
CONSIDERATION OF THE LENOVO APPLICATION
Mr Justice Richards applied the principles relating to the assessment of whether an interim declaration should be granted, including those arising from N v Royal Bank of Scotland [2017] EWCA 253 and British Airline Pilots' Association v British Airways Cityflyer Limited [2018] EHC 1889 (QB). Whilst Mr Justice Richards acknowledged that the American Cyanamid criteria are not irrelevant, an assessment of the merits is more appropriate in this type of case, as well as a careful consideration of the impact of any such declaration on the parties. Finally, Mr Justice Richards considered the Teva v Novartis jurisprudence as to whether such a remedy should be granted given the relative immediacy of the German Proceedings.
Without wishing to ruin the ending, Mr Justice Richards determined that the interim declaration requested by Lenovo should not be granted. This decision was based on a number of factors, but the most persuasive appeared to be that:
- Lenovo is not under threat of an interim injunction in the UK and therefore there would be limited direct benefit to Lenovo of this declaration in the jurisdiction (save for limitation of risk of accrued interest on unpaid royalties once a FRAND licence was agreed);
- The declaration itself would not determine a FRAND licence, merely state that certain terms would be FRAND if agreed between the parties. This is not the same, and substantially reduces the significance of the declaration in the UK;
- The rate (USD$ 17.5 cents) was determined to be FRAND for the period between 2007 and 2023, which principally related to 3G and 4G technologies. With the advent of 5G, Mr Justice Richards had little evidence to suggest that the previous rate would indeed be FRAND and could not make that determination on the evidence before him;
- InterDigital argued persuasively that notwithstanding the “interim” nature of the declaration, this would likely impact on the behaviour of other potential licensees and give rise to insistence on lower licensing rates in negotiations, even where circumstances were different;
- The principal benefit of the declaration sought (although whether the German courts would consider the declaration persuasive was a matter of disagreement by the experts) was to provide evidence that Lenovo was a “willing” licensee, and such evidence could be placed before the courts in the German Proceedings.
In light of the above factors, and with particular reference to the Teva v Novartis decision, Mr Justice Richards determined that whilst it is possible that InterDigital commenced the German Proceedings solely to seek a “supra-FRAND” rate from Lenovo using the injunction risk, the fact that the core benefit of the declaration appeared to be dissuading the German court from granting an injunction in the German Proceedings meant that the application should be refused. The fact that Mr Justice Richards could not be sure that any such licence within the declaration would be FRAND in nature was also persuasive.
Mr Justice Richards’ decision is therefore consistent with the Teva v Novartis approach and reiterates to parties in the English Courts that the court is not in the practice of exercising its discretion in order to influence foreign proceedings. A party must, if it wishes to obtain interim relief, set out persuasive arguments as to why the declaration sought is significant in the jurisdiction, with international “spin-off” benefits being ancillary, or certainly not more substantial than the local impact.
GERMAN PROCEEDINGS AND INTERDIGITAL'S STAY APPLICATION
The nature of German proceedings relating to FRAND/SEP matters and InterDigital’s application for a stay of the English Proceedings were inherently linked in this judgment by Mr Justice Richards. Consideration was given in this judgment to the approach taken by the German courts to SEP and FRAND matters, and whether the ongoing English Proceedings would be taken into account by the court in the German Proceedings. It was agreed as a matter of fact, that no determination of the terms of a global FRAND licence nor a royalty rate for a FRAND licence have been determined by the German courts.
Some disagreements were apparent in the fact evidence and expert evidence, but having analysed the evidence before him, Mr Justice Richards determined that he was satisfied that even “Orange Book” proceedings do not lead to the determination of an equitable licence rate, nor a FRAND licence unless both parties have agreed to enter into the terms of an Orange Book licence, where the court is then empowered to determine a royalty rate. In the absence of a party being willing to enter into such an Orange Book licence, Mr Justice Richards therefore understood that the German Proceedings could not result in a FRAND licence being determined or imposed on InterDigital and Lenovo based on the facts before him. Consideration was also given to the potential impact of a stay on Lenovo, which could, in Mr Justice Richard’s opinion, include an inability to rely on the English Proceedings as evidence of “willingness” to determine a FRAND licence with InterDigital, as well as the expedition application of Lenovo (to determine FRAND matters in the English Proceedings) being weakened due to arguments by InterDigital claiming it did not have time to properly prepare for such application due to the stay and German Proceedings.
The most persuasive factor in denying the stay application appeared to be that Mr Justice Richards did not consider that the court’s power to stay English proceedings in favour of parallel proceedings where “the earlier resolution of those issues in foreign proceedings would better serve the interests of justice” was engaged or necessary to be exercised here. This was principally on the basis that the German Proceedings (nor any mandated arbitration) would not determine a FRAND licence.
CONCLUSIONS
This decision strikes an interesting balance between the “non-interventionist” approach enshrined in Teva v Novartis in relation to Lenovo’s interim application for a declaration, and maintenance of the position established in Unwired Planet v Huawei that the English courts should continue to set the terms of global FRAND licences.
Of particular note was the distinction drawn between the ability of the English courts to make such determination for the benefit of the SEP holder and licensee, and the German court’s requirement that the parties agree a form of licence (Orange Book licence) before it would proceed to make a determination on a royalty rate to be applied. There clearly remains a distinction between the scope of declaratory power of the English court and the German court in relation to these matters.
Depending on the English court’s approach to the level of royalties and FRAND terms, the UK looks set to continue to be perceived as a beneficial forum for “willing” licensees hoping for prompt resolution of international disputes relating to SEPs.
