UK Court says implementers must either commit to taking a court-determined Fair, Reasonable, and Non-discriminatory (FRAND) licence once a patent trial has been won or face an injunction in Optis v. Apple.
Optis v Apple is a Standard Essential Patent (SEP)/FRAND case. The implementer works the standard to which a SEP holder's patents are essential. The patent holder approaches the Implementer to seek a FRAND licence (or the implementer might make the first approach to seek a FRAND licence). In an ideal world negotiations commence and a FRAND licence is agreed. But all too often negotiations stall or simply fail to start or the parties fail to agree the licence (typical flash points are the royalty rate or lump sum payable, geographical coverage, term, licensed standards and licensed products).
At this point, the implementer is continuing to work the standard without paying a licence fee and so the next step is litigation or arbitration. The patent holder can sue for patent infringement or the implementer might seek a rate-setting determination in certain jurisdictions, typically China. Where the patent holder sues for patent infringement, the implementer can seek to enforce the patent holder's undertaking to ETSI to grant a FRAND licence to anyone who seeks one. Should the implementer do this then, if the patent holder is successful, the implementer has the option – enter into the FRAND licence or be enjoined. The big question is – when? When does an implementer have to put their cards on the table and commit to take the FRAND licence? Don't forget that the patent holder, when providing their undertaking to ETSI has already committed to grant a FRAND licence.
When does an implementer have to commit to take the court-determined FRAND licence?
This issue of 'when?' came before Mr Justice Meade in the Optis v Apple case. Optis had succeeded in the patent trial which resulted in a judgment holding that the asserted patents were essential and valid. Apple had refused to give an unqualified commitment to take the FRAND licence to be determined by the UK Court. Optis argued that Apple was being unwilling by reserving to itself a right to reject the court's findings once it had chance to review them, thereby enabling it to further delay having to pay royalties to Optis. Furthermore, Optis stated that Apple should provide the commitment to take the licence once it was found to have infringed an essential and valid patent, that is, on receipt of judgment. The refusal to do so made Apple an unwilling licensee and therefore no longer entitled to rely on the FRAND undertaking as a defence to an injunction. Optis argued that in the absence of a timely commitment, a permanent injunction should be ordered now, obviating the need to conduct a lengthy and costly FRAND licence determination trial.
It did not matter whether Optis had abused its dominant position on the facts
Apple said that Optis had abused its dominant position in various ways, in particular by making offers which, it said, are so far in excess of FRAND that they disrupted negotiations and so Optis should not be entitled to an injunction. The UK Court held that Apple's competition defence was defeated because Optis had at the very least, committed to offering Apple any FRAND licence terms which will be set by the UK Court in due course. In this way, any danger of excessive royalties or abusive conduct in negotiations had been removed.
Court finds that Apple was unwilling and should be injuncted unless it committed to enter into a court-determined FRAND licence
The court held that Apple is not entitled to rely on Optis undertaking to ETSI unless it committed to enter into the FRAND licence to be determined by the court. The court said that the commitment should have been given once the finding of infringement of a valid and essential patent had been made. However, the Judge was mindful that this is a new development and so he afforded Apple 'a short time' to consider whether it wishes to offer an undertaking. This 'short time' is clearly not going to be afforded to other Implementers in the future.
The Judge explained "Apple is infringing Optis' patent rights. It therefore needs a licence now if it is not to be acting unlawfully [Court emphasis]... Apple is able to call for and take a FRAND licence whenever it wants, it needs to do so now. Otherwise it is infringing now, even though a licence is open to it. On the authority of [Unwired Planet Supreme Court decision], there should then be an injunction…When there has been a finding of infringement of a valid patent the implementer can have a licence if it wants one, and it can carry on practising the relevant patent, but only if it intends to do so under a licence. In the procedure adopted in this Court, that will require the giving of an undertaking [to accept the Court determined FRAND terms]"
Apple to appeal?
The court will hear the parties on whether to grant permission to appeal early next week and the form of order hearing at which the commitment or the injunction will be formalised is listed for 11 October. We, together with the rest of the SEP/FRAND community are watching this space with avid interest.
If you have any questions about this article, please contact Alex Brodie or Seiko Hidaka.