InterDigital v Lenovo – UK Court of Appeal largely upholds first instance decision

The UK Court of Appeal has issued a substantial decision in follow up to the FRAND judgment of Mr Justice Mellor handed down in 2023 in Interdigital v Lenovo. The decision largely upholds Mellor J's findings, including that SEP holders can obtain licence fees for sales falling outside normal limitation periods. However, the Court also looked in detail at the royalty calculations undertaken at first instance and increased the amount of past royalties due to InterDigital. This will be welcome news for SEP holders, after the UK court's first instance royalty rates were viewed as largely favouring Lenovo.

It is worth noting that the Court of Appeal panel included Arnold LJ and Birss LJ, both very experienced patent judges. Lord Justice Birss, in particular, is well known in the SEP world for issuing the UK's first judgment setting global FRAND licence terms in the Unwired Planet case. This latest decision of the Court of Appeal further cements UK jurisprudence on FRAND, providing parties with clearer expectations as to the approach on the UK.

Past licence fees

At first instance the Court had ordered Lenovo to pay a lump of $138.7 million for a licence covering sales in the period 2007-2023, together with interest of $46.2 million (a total of $184.9 million). Lenovo had argued that this period reached back beyond limitation periods in many jurisdictions, which in some cases were as short as three years. This effectively meant Lenovo would be paying licence fees for a period in which InterDigital could not claim damages in a normal patent infringement claim.

Mellor J found that the process of assessing FRAND licence terms was not the same exercise as determining past damages. A willing licensor and licensee would have agreed to pay royalties for all sales from day one and so it was right that in setting a FRAND licence agreement the lump sum for past damages should cover the whole period of past sales. In keeping with the UK's approach to FRAND rate setting, the Court's position is that it is not ordering payment of royalties outside a limitation period but rather that the FRAND licence is the price to pay to avoid a UK injunction. If the infringer does not wish to accept the court determined licence terms then it is free to accept an injunction in the UK, which would be the normal remedy in patent infringement proceedings.

The Court of Appeal has upheld this approach. Like Mellor J at first instance, the Court of Appeal judges noted that to do otherwise would effectively reward implementers for their delay in taking a licence ('hold out'), which would hinder the resolution of future licensing disputes. The Court of Appeal also upheld the first instance finding that 4% interest should be applied annually to past sales. These findings will be welcome news for SEP holders considering UK FRAND proceedings.

Per unit royalties

At first instance Mr Justice Mellor had found that the only licence that was comparable was a licence with LG from 2017. He used this, subject to certain adjustments, to find a per unit rate of $0.175. InterDigital appealed on the basis that (1) the per unit figure taken from the LG licence should be higher ($0.61 instead of $0.24 per unit) and that (2) the adjustment applied should have been higher (0.803 instead of 0.728). The net result of this would be a lump sum payment of $517.8 million (including interest), instead of the $184.9 million determined at first instance.

The Court of Appeal noted that Mellor J had accepted the per unit rate taken from the LG licence was not FRAND, being subject to heavy discounting for past royalties, yet he had declined to make any correction for this in the licence calculations. The Judges found that on its face this approach was inconsistent. Lord Justice Arnold therefore proceeded to carry out a detailed analysis into the basis for Mellor J's calculations and Lenovo's submissions on these issues, demonstrating that even at the appellate level the UK courts are willing to get into the weeds on FRAND licence calculations. Arnold LJ ultimately decided that the $0.61 rate put forward by InterDigital was too high and applied a per unit rate of $0.30. In doing so, the Court used the best information available to it in the appeal proceedings, accepting that neither party had asked for this issue to be remitted back to the first instance court, and acknowledging that the $0.30 figure was not precise.

The Court of Appeal also accepted that the adjustment ratio (a mechanism used to compensate for differences between developed and emerging markets, and other distinctions between LG and Lenovo) should be revised up from 0.728, opting for a ratio of 0.75. The net result of these adjustments was a pre-interest lump sum royalty of $178.3 million. This is certainly higher than the $138.7 million determined at first instance and so a move in favour of InterDigital, although still significantly lower than the $388.5 million that it originally sought.

Time to judgment

Lord Justice Birss also noted towards the end of the decision that the first instance judgment had taken a significant amount of time to prepare – trial took place in January/February 2022, while judgment was only provided in draft form to the parties in March 2023. In a hint that the courts will be expecting judgment to be prepared faster in future cases Birss LJ stated: "I cannot help but wonder if the problem [of inconsistency in the first instance judgment] is a symptom of the length of time taken to produce the judgment…I am surprised that it took so long to produce the draft judgment, which was sent to the parties on 1 March 2023. This is a very heavy case but it is not that heavy." A shorter time from trial to judgment in the UK courts would be welcome to all patent court users, FRAND and otherwise.