Global FRAND rate set by UK court in Optis v Apple patent dispute

Mark Marfé and Carissa Kendall-Windless of Pinsent Masons were commenting after the High Court in London set the terms of a licence for Apple’s use of standard-essential patents (SEPs) owned by Optis Cellular Technologies (Optis) that it considered to be fair, reasonable and non-discriminatory (FRAND).

“The UK is one of only two jurisdictions – the other being China – where the courts will determine a global FRAND rate,” said Marfé. “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 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 High Court in London imposed a ‘FRAND’ licence on the businesses after they were unable to reach consensus on terms relevant to Apple’s licensing of SEPs owned by Optis, which relate to cellular connectivity.

Apple is not bound to accept the FRAND licence, but it could face a sales ban in the UK in respect of popular iPhone and iPad models if it does not do so.

SEPs are patents that protect technology believed to be essential to implementing a technical standard – in other words, 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), such as the European Telecommunications Standards Institute (ETSI), which oversees the development of communications standards vital to many businesses. SSOs like ETSI require SEP rights 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. Disputes have arisen in many jurisdictions including the UK, Germany and France, as well as in the US and China.

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

Four technical trials took place before the UK courts to determine whether the relevant patents Optis was seeking to enforce against Apple were valid, essential to the relevant standard and infringed.

A further trial revolved around when technology implementers, like Apple in this case, are bound to take a FRAND licence. In that regard, the Court of Appeal ruled last year that technology standard implementers must accept a court-determined royalty for SEPs or face an injunction in cases 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 determined 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 earlier this year.

The court considered that an annual royalty rate of $5.13m 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. 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 set by the court would run until the last patent in the portfolio expires, the judge, Mr Justice Marcus Smith, 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 $25.65m, needs to be paid upfront to Optis by Apple.

In his ruling, Mr Justice Marcus Smith 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 $5.13m. In total, Apple was therefore found liable for $30.78m, plus interest, for prior infringement of Optis’ patents.

“This is a balanced decision, with sound analysis of the numbers provided by the economists involved,” said Carissa Kendall-Windless of Pinsent Masons. “Transparency and the availability of comparables 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.”