Apple, Optis held to be ‘gaming the system’ in SEP ruling
Justice Richard Arnold upheld a 2021 ruling decreeing that Apple must accept FRAND terms | Organisations urged to make legally enforceable arbitration part of IP rights policies.
The English Court of Appeal has concluded that Apple should not be allowed to wait to see the terms of a court-ordered fair, reasonable, and non-discriminatory (FRAND) licence before committing to the licence.
The decision, handed down yesterday, 27 October, affirmed a September 2021 ruling, which held that Apple must accept the terms of the FRAND agreement even before they were determined.
The proceedings, held last week, centred on a licensing dispute involving standard essential patents (SEPs) between the tech giant and Optis Cellular Technologies.
Justice Richard Arnold also criticised both parties’ behaviour, claiming that each adopted their positions “in an attempt to game the system in its favour”.
He added that the “only way” to stop this behaviour is for standards-development organisations to make legally enforceable arbitration of these disputes part of their IP rights policies.
Neither side is ‘correct’
Apple had argued that a patentee is not entitled to an injunction until the court has determined what terms are FRAND, and the implementer has the opportunity to decide whether or not to take that licence.
Optis, meanwhile, argued that the patentee is “entitled to an immediate and unqualified injunction if the implementer has not by then undertaken to take a licence on the terms to be determined by the court as being FRAND”.
Justice Arnold held that neither side was correct, with the right answer being that a patentee is entitled to an injunction unless and until the implementer undertakes to take a licence on the terms subsequently determined by the court to be FRAND.
This so-called ‘FRAND injunction’ will bite unless the implementer undertakes to take a licence on terms to be determined to be FRAND (rather than unless the implementer takes a licence on terms which have already been determined to be FRAND).
Hold out problem
With regard to Apple’s stance, Justice Arnold said: “The argument assumes that an implementer who has been found to infringe a SEP is entitled to the luxury of being able to wait until the court has determined what terms are FRAND before deciding whether to take a licence on those terms or not, and to continue to infringe the SEP in the meantime. But I see no reason why the implementer should be entitled to that luxury.”
He added that an implementer wanting to avoid the normal consequences of having been found to infringe, should commit to taking a court-determined licence. But he emphasised that if it doesn’t want to commit to this, then the implementer should be restrained from infringing (unless it changes its mind).
“Otherwise, as the judge found, hold out by implementers would be promoted. I would add that, as counsel for Apple accepted, the logic of Apple's argument is that the implementer should not have to commit even once there is a first instance decision as to what terms are FRAND, but only when there is a final appellate decision against which no further appeal is possible. That, of course, would make the hold out problem even worse,” said Justice Arnold.
Gary Moss, partner at EIP, who represented Optis, welcomed the outcome as a “logical application of the Supreme Court’s guidance” in Unwired Planet.
“It has endorsed the view we've always taken, which is that in return for taking the benefit of the SEP holder’s commitment to ETSI to grant FRAND licences, implementers should be obliged to accept the FRAND licence that is determined by the court.
“That is the price they have to pay to avoid being subject to the normal relief for infringement of a valid patent, namely an injunction. It will be interesting to see what effect this decision will have on SEP holders and implementers, and the courts, going forward and whether it changes their behaviours in any way.”
A new route for FRAND disputes
Other lawyers agreed that the judgment was an important one for future disputes involving FRAND. Tom Furnival, partner and patent attorney at Mewburn Elli s, observed that Justice Arnold’s comments were ‘on-beam’ with the industry’s feelings. “The current IP policies set out by the SDOs are too vague and require too much work by the courts to determine what is and isn’t ‘hold-out’ or other dubious pre-litigation conduct. One only needs to look at the string of ‘suit-anti-suit’ cases springing up to see that there are issues with the current system.”
Also commenting on the decision, William Warne, senior associate at Bird & Bird, said: “Not only does it uphold Justice Meade’s decision on the scope of the undertaking an implementer needs to give to avoid a FRAND injunction following a finding of patent infringement, it also gives further guidance into how parties can satisfy their FRAND obligations."
He added that the court had confirmed the Supreme Court’s decision in Unwired Planet, that patentees can discharge their FRAND obligation by offering ‘a licence’ on FRAND terms and, where there are more than one set of FRAND terms, the patentee can choose which terms to offer.
“Given that there are several ongoing cases before the English Court where a party is seeking a global FRAND determination in another jurisdiction, this judgment may offer a route to resolving a situation where there are multiple FRAND determinations,” he explained.
Sophie Lawrance, competition law partner at Bristows, noted that the Court of Appeal and Supreme Court have uniformly endorsed the decisions of first instance judges on global FRAND determinations and related jurisdictional issues. “A first instance UK decision on these issues is therefore a highly reliable indicator of the ultimate outcome, and litigants can be increasingly certain about the ways in which such cases will be handled," she said.
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