Optis v Apple cements UK's importance as a global FRAND rate jurisdiction

The UK’s High Court has said that relying on suitable comparable licences remains key to determining a global rate in UK fair, reasonable and non-discriminatory (FRAND) litigation.

The ruling in the long running dispute between Apple and Optis cements the role of the UK as an important forum for standard-essential patents (SEPs) disputes.

The UK is one of only two jurisdictions—the other being China—where the courts will determine a global FRAND rate. This decision means that the UK will continue to be an important forum for the resolution of such disputes in a balanced manner.

The decision by Mr Justice Marcus Smith means that Apple must pay Optis an upfront lump sum of more than $25 million to continue implementing technology patents owned by Optis in devices it manufactures on a global basis.

The court imposed a so-called ‘FRAND’ licence on the businesses after it was unable to reach consensus on terms relevant to Apple’s licensing of Optis’ SEPs relating to various cellular standards.

Apple is not bound to accept the FRAND licence, but it could face a sales ban in the UK in respect of its devices if it does not do so.

SEPs protect technology believed to be essential to implementing a technical standard such as 4G and 5G. A standard compliant device cannot be operated without necessarily using the patented invention.

Standards are developed by businesses working together under the auspices of standard-setting organisations (SSOs), which require SEP holders to make SEPs available for others to use by way of a licence on fair, reasonable and non-discriminatory (FRAND) terms.

Disputes on what are FRAND terms often arise in the context of SEP licensing negotiations. Litigation can then follow if the parties are unable to agree.

Six trials lead to final determination

The dispute between Optis and Apple has been multi-faceted.

Four technical trials took place in the UK to determine whether certain patents Optis was seeking to enforce against Apple were valid, essential to the relevant standard and infringed by Apple’s commercial activities in the UK.

A further trial revolved around when technology implementers, like Apple, are bound to accept court determined FRAND licence terms. In that regard, in 2022 the Court of Appeal ruled that implementers must accept a court-determined royalty for SEPs or face an injunction where those patents have been found to be valid, essential and infringed.

Apple was recently granted permission to appeal that ruling before the UK Supreme Court.

The new ruling, which followed a sixth trial between Apple and Optis, involved the High Court determining FRAND terms for future licensing by Apple of Optis’ patent portfolio.

The court found that the FRAND licence should apply on a worldwide basis, following the lead of the UK Supreme Court in the landmark ruling in the Unwired Planet v Huawei case in 2020 and the High Court in its ruling in the InterDigital v Lenovo case this year which substantially endorsed and following the principles established in the first instance Unwired Planet decision.

Relevant comparators approach

The court considered that an annual royalty rate of $5.13 million was appropriate for Apple to pay Optis to account for future use of its patent portfolio under the licence. It reached that determination after considering the terms of other licensing agreements both Apple and Optis had shared with the court as relevant comparators albeit, preferring Apple’s comparable to determine a FRAND rate. The court considered that it had to “unpack” the licences to ensure they could be relied on as true comparators in this case.

While the licence would run until the last patent in the portfolio expires, the judge determined that Apple should only need to pay five years’ worth of the annual royalty rate to cover all future use. He said that sum, of $25.65 million, needs to be paid upfront to Optis by Apple.

Smith J also considered Apple’s liability for past infringement of Optis’ patents. He concluded that Apple was liable for damages over six years, from 2017 to end of 2022, payable at the annual rate of $5.13 million. In total, Apple was therefore found liable for $30.78 million, plus interest, for past infringement of Optis’ patents.

Transparency and the availability of valid comparable has often been an issue in such disputes, but this decision provides a large amount of information from which both implementers and SEP holders may take guidance in future negotiations.

Mark Marfé is a partner at Pinsent Masons. He can be contacted at:  mark.marfe@pinsentmasons.com

Carissa Kendall-Windless is a senior associate at Pinsent Masons. She can contacted at:  Carissa.Kendall-Windless@pinsentmasons.com