A patent clash with international ramifications will be rejoined in the UK tomorrow as Optis and Apple square off at a planned five-day appeal court hearing over terms for a fair, reasonable and non-discriminatory, or Frand, license to Optis’s portfolio of cellular connectivity standard-essential patents. If the UK is to stay a preferred destination for SEP disputes, judges will likely need to fine-tune a lower court's Frand analysis — especially as other high-profile cases there inch closer toward a declaration of global license terms.
Optis Cellular Technology will tomorrow renew its longstanding legal feud with Apple as it makes its case to UK appeal judges over why the terms ordered by a lower court for a license to its portfolio of standard-essential patents, or SEPs, were neither fair nor reasonable.At issue is a final High Court judgment in 2023 and a follow-on ruling last year (see here and here). These, for various reasons, left both parties displeased.
While that balance of displeasure could, on its own, arguably be interpreted as a sign that trial judge Marcus Smith got it right, it’s unlikely that the judgment will emerge completely unscathed in the coming Court of Appeal challenge.
Permission to appeal more than two dozen aspects of Smith’s handling of the case have been granted, including his determination of what constitutes fair, reasonable and non-discriminatory, or Frand, terms.
— Free to impose —
Optis and its co-plaintiffs Optis Wireless Technology and Unwired Planet International filed the underlying lawsuit in the UK in 2019, accusing Apple of infringement in connection with functionality in cellular devices such as the iPhone, iPad and Apple Watch that permit communication with base stations.
The case was bifurcated, with the UK courts first holding several technical trials on infringement and essentiality, ultimately decided in favor of Optis, on a subset of its portfolio. Then Smith was saddled with assessing Frand, if he found jurisdiction to order global license terms.
In dealing with the issue, Smith aligned with the UK Supreme Court’s 2020 decision in Unwired Planet v. Huawei. Once a valid UK patent is deemed infringed and essential to a standard, Smith ruled, “the freedom to impose terms regarding the licensing of entirely untested and worldwide intellectual property rights exists.”
As for what Apple owes Optis, the trial court ordered the US tech giant to pay $5.13 million annually, up front and for five years, for a total of $25.65 million in prospective royalties.
Smith set the figure by taking the annual rate for a worldwide license for the total stack of 4G SEPs of $1.35 billion, then calculating that Optis had only a relevant share of 0.38 percent of that in relation to the licenses that Apple required. Looking backward, Smith said Apple also owed Optis $30.78 million, covering infringement from 2017 until the date of the judgment.
With interest added, Smith’s findings left Apple on the hook in the UK for approximately $62 million — more than Apple proposed but significantly less than what Optis believes it is entitled to.
— ‘Deferred for consideration’ —
In US litigation, Optis has thus far fared better, but its case there remains in limbo.
It sued Apple in the Eastern District of Texas and won twice at trial. Jurors in 2020 awarded the SEP owner $506 million for Apple’s infringement of five US patents, but a damages-only retrial was later ordered by Judge Rodney Gilstrap, who called into question whether the amount awarded was Frand.
In May 2022, the second jury lowered the award to Optis to $300 million.
Apple went to the US Court of Appeals for the Federal Circuit to seek review of the district court's blessing of this latter verdict and for the findings of infringement by the first jury, while Optis cross-appealed the decision to order a second trial at all.
Briefing was stayed in August 2023 in deference to the UK proceedings — which would moot the US case by rendering Apple a licensee of the US patents — but that stay was lifted in March 2024 and briefing completed one month later. Apple promptly moved to reinstate the stay, but in June the court issued an order indicating that the request was “deferred for consideration.”
Since that time the docket has more or less been dormant.
The parties were asked to confirm their availability for oral arguments between December 2024 and May 2025, but a hearing on the cross-appeals remains unscheduled.
A request last week by MLex for clarification on the status of proceedings went unanswered by the Federal Circuit.
— Hold up, hold out ‘inevitable’ —
In the UK, the parties are now geared up for five straight days of appeal court argument.
Expect Optis this week to heavily criticize Smith for glossing over implementer hold out when considering the comparable licenses submitted by Apple and whether that hold out was, in turn, rewarded in the form of a discount from a beleaguered patent owner.
The trial judge had given short shrift to those concerns.
Among his findings were that “a certain degree of hold up and hold out is to be expected as inevitable,” that such tactics are “intrinsic to any hard commercial negotiation for a license,” and that hold up and hold out are “normal manifestations of parties seeking to negotiate an outcome that serves their own interests.”
Apple will undoubtedly take issue with that as well, albeit from an opposing viewpoint. Before Smith, Apple unsuccessfully argued that Optis had unduly delayed negotiations and refused to offer a license on Frand terms, in an abuse of its dominant position.
Also likely to face substantial pushback from both parties this week will be Smith’s “unpacking” of comparable licenses, which in many instances involved lump-sum payments, and his valuation of SEPs in proportion to the overall standard “stack” — in this case, since its inception, 2G GSM, 3G UMTS and 4G LTE.
While the UK Court of Appeal is already grappling with other high-profile SEP disputes (see here and here), those cases have less to do with the assessment of Frand terms, in their current procedural posture, and more to do with whether SEP owners can be forced to accept a global Frand determination sought and secured by an standard implementer in the UK.
That said, the parties in those cases will undoubtedly be paying close attention to this week’s hearing.
Should the Court of Appeal find that Ericsson and Nokia cannot avoid requests by Lenovo and Amazon, respectively, for UK-ordered global Frand determinations, then how the UK courts arrive at those determinations will be of paramount importance for SEP owners and their bottom line.
The difference, at least for Optis, could be worth billions of dollars.
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