Monday, November 15, 2021

Optis v. Apple, Nokia v. OPPO, and the Risk of Judicial Error

Law-and-economics literature talks a lot about the risk of error, including the risk of judicial error, as a reason for or against various rules and standards.  Error costs, for example, are a standard consideration in the law-and-economics analysis of property rules versus liability rules, as I have discussed, e.g., here.  Outside of antitrust law, however, where the balancing of type I (false positive) and type II (false negative) errors has become something of a commonplace, you don’t see courts address the risk of judicial error all that much.  (At least, that’s my impression; though I suppose you could argue that anytime a court considers whether to grant a preliminary injunction, its consideration of the potential irreparable harm to the parties if the ruling goes against them is an implicit acknowledgment that its analysis could be wrong.  There is no legally cognizable harm, after all, if the court decides correctly.)  Anyway, I mention this here because one thing that struck me in the recent decisions by Mr. Justice Meade in Optis Cellular Technology LLC v. Apple Retail UK Limited and by His Honour Judge Hacon in Nokia TechnologiesOy v. Oneplus Technology (Shenzhen) Co., Ltd. both address the risk of judicial error, to some extent, albeit by way of concluding that it isn’t a substantial concern in either case.

Both decisions have received considerable attention elsewhere, so I won’t go through an exhaustive analysis of either.  (For discussion of Optis, see, e.g., Tess Waldron’s Law360 article What SEP Holders Can Take Away from UK’s Apple Ruling and Nick Fischer and Graham Burnett-Hall’s article UK-Optis Cellular v. Apple Retail on EPLaw.  For discussion of Nokia, see, e.g., Florian Mueller’s post In Nokia v. OPPO jurisdictional decision, UK court affords limited deference to Chinese determination of global patent portfolio licensing terms on FOSS Patents, and James Nurton’s Judge Upholds UK Power to Set FRAND Terms on IPWatchdog.)  Suffice to say that in Optis the court concluded that, following a determination that certain Apple products infringe an SEP owned by Optis, Apple will be enjoined from selling infringing products in the U.K. unless it commits to whatever global FRAND license the court determines at an upcoming FRAND trial—thus rejecting Apple’s position that it should be allowed to wait and see what the terms of that license will be before committing—and that in Nokia the court denied OPPO’s motion to stay, on forum non conveniens or case management grounds, proceedings between the parties in England pending a Chinese court’s determination of a global FRAND license.  Neither decision strikes me as a big surprise, given past decisions in the U.K.  But I will say something about the judges’ discussions of the risk of judicial error.

First, in Optis Apple advanced the risk of judicial error in setting FRAND terms as a reason for allowing Apple to defer committing to accepting those terms, without being enjoined from selling in the U.K. market in the interim.  (Apple’s expert, Professor Joseph Farrell, had labeled the option of committing to take whatever FRAND license the court will set in advance of knowing what its terms will be the “Sight Unseen” or “SU” situation, and the option of allowing the licensee to choose whether to accept the terms only after the court had set them the “Informed Choice” or “IC” situation.  The court agreed with Optis that the terms were a bit fraught, but decided to use them for convenience without prejudging the merits.)  Although Mr. Justice Meade rejects this argument, in part on the ground that the procedure Apple advocated would be asymmetric in its effects, he does give it respectful consideration in the following portions of the opinion:

Risk of the UK Court making an error


215.     Apple argued that it was relevant that the UK Court might make an error in assessing FRAND; the rates it set might not, in fact, even be within the FRAND range.  Prof Farrell touched on this.  The IC rule could address the problem by allowing the implementer to reject rates set by the Court in error, it was said.


216.     Of course it is the case that the Court might make an error.  However, with all the procedural tools and support provided it ought to be unlikely.  In addition, it is still more unlikely that the Court would make an error which actually takes the rate set outside the FRAND range.  And there is the possibility of an appeal in the event of a serious error, especially an error of principle.


217.     Furthermore, the making of an error by the Court is an aspect of litigation risk for which responsible parties can and do make allowances.


218.     In any event, the possibility of an error by the Court can in my view only be a very minor factor put alongside the other issues at play if, as I conclude, the IC rule creates a systematic risk of pushing rates in a downwards-only direction, even to a below-FRAND level.


219.     I also have regard to the one sidedness implicit in the argument: under IC the implementer gets to reject a rate which is set too high through an error, but the SEP owner has to live with a rate set too low in error, if the implementer accepts it.


220.     Prof Farrell accepted (and so did Ms Beckwith) that apart from the possibility of error by the Court, SU did not put pressure on implementers to accept supra-FRAND rates.  This is obvious because, error aside, a FRAND determination will decide a FRAND rate and implementers will know that.  It was another instance where the expert evidence was really just argument.

Second, although the court in Nokia denied OPPO's motion to stay, it rejected Nokia’s argument that a reason for doing so was that the Chinese court would set rates incorrectly (read:  too low).  In this regard, Mr. Justice Hacon observes:

97.     . . . I cannot assume that a Chinese court is bound to impose a flat rate consistent only with what is appropriate for sales in China. . . .


98.    The principal point is that, as both Nokia and the defendants agreed, the Chongqing Court, if and when it rules on royalty rates, will do so justly. I fully endorse that agreement. The rates will therefore be FRAND. The authors of Dicey, Morris and Collins on The Conflict of Laws, 15th ed., set out at 12-030 seven propositions which may derived from the speech of Lord Goff in Spiliada. Although Lord Goff was speaking in a different context, it seems to me that his seventh proposition, as distilled in Dicey, applies equally to the question of a stay as a matter of case management:


                        "Seventhly, a stay will not be refused simply because the claimant will thereby be deprived of 'a legitimate personal or juridical advantage', provided that the court is satisfied that substantial justice will be done in the available appropriate forum."

Both decisions raise questions that I will need to think about some more.  In general, I think that Judge Hacon is right (if this is what he means) that as a matter of comity courts shouldn’t assume that their counterparts in other parts of the world will render erroneous decisions.  On the other hand, FRAND itself isn’t a preexisting fact about which there can be only one determination that corresponds with reality.  It is a party or judicial construct, and one that may vary quite a lot depending on the precise methodology applied; and there remain several methodological differences over which courts and others continue to disagree, as I noted here.  Ultimately, Judge Hacon opines that a global tribunal probably would be the optimal solution to global rate-setting, and he recognizes that until we have one in place there is a substantial risk of forum shopping, with its attendant risks  of “races to the top” and “races to the bottom.”  (See paras. 116-18 of the decision.)  This seems a very candid take on the matter, and it is to be hoped that if enough people come to this realization that we may at some point have a better system in place for determining the terms of these global licenses.

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