Thursday, November 17, 2022

Court of Appeal Dismisses Appeals in Apple v. Optis FRAND Dispute

On October 27, the Court of Appeal for England and Wales handed down its decision in Optis Cellular Technology LLC v. Apple Retail U.K. Limited, [2022] EWCA Civ 1441.  The opinion is by Lord Justice Arnold, joined by Lady Justice Asplin and Lady Justice Elisabeth Laing.   Not surprisingly, in view of the U.K. Supreme Court's decision in Unwired Planet, the court rejects Apple’s claim that it is entitled to, in effect, wait and see whether it will take a court-determined FRAND license, without being enjoined from practicing the U.K. patent in suit during the interim; and it also rejects Optis’ argument that an implementer is permanently deprived of a FRAND defense if it does not commit, irrevocably, to accept a FRAND injunction immediately upon a finding of infringement and validity.  I have excerpted what I view as the key portions of the decision below, though reading the full text (including the court’s occasional references to each party’s arguments in terms such as “hopeless” and “impossible”) is worthwhile:


3  The essential issue raised by the appeals is whether the proprietor of a patent declared essential to a standard (a "standard-essential patent" or SEP) who has undertaken to the European Telecommunications Standards Institute ("ETSI") to grant licences on fair, reasonable and non-discriminatory ("FRAND") terms is entitled to an immediate injunction once it has been held by the court that the patent is valid, essential and has been 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 is 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 or not to take a licence on those terms. Optis' position is 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. The judge held that neither side was correct, and that the right answer is that the 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 (a so-called "FRAND Injunction" with the modification that the injunction bites 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). The issue turns primarily on the proper interpretation of clause 6.1 of the ETSI Intellectual Property Rights Policy ("the ETSI IPR Policy"). . . .


64   As I have explained, the upshot of Trial B on 25 June 2021 was that Apple was found to be infringing EP744. Normally, when a party is found to be infringing a patent, an injunction will follow as a matter of course. (This is not to say that an injunction is an automatic remedy: it is a discretionary remedy which may be refused or qualified where it would be disproportionate, but such cases are rare.) Furthermore, although Optis had by then committed to enter into a Court-Determined Licence, Apple had not.


65  By their ground 1, Apple contend that the judge erred in law in concluding that, properly construed, clause 6.1 requires a beneficiary of the stipulation pour autrui created by 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. Apple contend that any person who seeks a licence in good faith is a beneficiary of the ETSI Undertaking, and therefore protected from an injunction, regardless of whether that person commits to take a licence upon terms determined to be FRAND by the court. The implementer is only obliged to take a licence (or else be injuncted) once both (a) a SEP has been found valid and infringed and (b) the FRAND terms of a licence have been determined.


66  In my view the fundamental problem with this contention is that it involves 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. Apple do not challenge the Supreme Court's analysis of the context and purpose of clause 6.1 (not that such a challenge would be open to Apple in this Court anyway). Instead, Apple point out that the Supreme Court was not addressing the issue which arises in this case, because the question as to the appropriate relief only arose in Unwired Planet after the FRAND terms had been determined. That is a factual distinction between the circumstances of that case and those of the present one, but it does not diminish in any way the relevance of the Supreme Court's analysis. Apple characterise this case as only being concerned with an "interim" position between a finding of validity, essentiality and infringement and the determination of FRAND terms, and thus as different to other forms of hold out, but as the judge pointed out at [340] Apple's case involves a substantive loss of rights for the patentee in respect of an ageing (and time-limited) property right. . . .


71 Apple also argue interpreting clause 6.1 in this way requires the implementer to sign a blank cheque, and that the implementer should be protected against the risk that the court determines FRAND terms that are uncommercial or unviable. I disagree. The judge's interpretation only requires the implementer – as the price for not being restrained from continuing to infringe a valid patent that it has been found to be infringing – to commit to taking a licence on terms which the court objectively determines to be FRAND. That is not a blank cheque: as the judge found on the basis of the expert licensing evidence at [227], implementers are able, with information from research organisations, the ETSI database and SEP owners during negotiations, to estimate what a FRAND rate is likely to be. Moreover, as the judge essentially found on the basis of the expert economic evidence at [197]-[210], it is improbable that terms which are objectively FRAND will be uncommercial or unviable (as opposed to involving a higher royalty rate than the implementer wants to pay). 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. . . .


76 Fourthly, Apple argue that the judge's interpretation deprives an implementer who has 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. The key words in this argument are "once its terms are known". 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. If the implementer wants to avoid the normal consequences of having been found to infringe, it can commit to taking a Court-Determined Licence. If the implementer does not want to commit to taking a Court-Determined Licence, then it should be restrained from infringing (unless it changes its mind, which the judge's interpretation permits it to do). 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. . . .


82  Turning to Optis' appeal, by their ground 1 Optis contend that an implementer who fails to commit to take a Court-Determined Licence on having been found to infringe a SEP becomes permanently disentitled to rely upon the SEP owner's ETSI Undertaking.


83  I do not accept this contention. In my judgment the judge was correct for the reasons he gave at [300]-[302]. . . . 


86 . . . There is no reason why an implementer should not be able to change its mind for commercial reasons and every reason why it should be able to do so given that a key purpose of the ETSI IPR Policy is to ensure access to technology covered by SEPs. Optis argue that competition law would stop the SEP owner charging excessive royalties, but this misses the point that clause 6.1 is intended to prevent hold up occurring in the first place rather than merely providing a remedy for it after the event. Moreover, the royalties permitted by competition law might exceed those permitted by the SEP owner's FRAND obligation.

At the very end of the decision, under the heading “Postscript,” Lord Justice Arnold repeats a point he has made in print before, namely that the optimal solution to these global FRAND disputes would be for the SSOs to require mandatory arbitration:

115 These appeals illustrate yet again the dysfunctional state of the current system for determining SEP/FRAND disputes. Apple's behaviour in declining to commit to take a Court-Determined Licence once they had been found to infringe EP744, and their pursuit of their appeal, could well be argued to constitute a form of hold out (whether Apple have in fact been guilty of hold out is an issue for Trial E); while Optis' contention that an unqualified injunction should be granted would open the door to hold up. Each side has adopted its position in an attempt to game the system in its favour. 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.

 For discussion of the decision, see, e.g., here and here. 

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