InterDigital v Lenovo & Motorola
 EWHC 539 (Pat)
This judgment concerns the determination of FRAND terms in this action. It is the first judgment to determine FRAND terms since the High Court decision in Unwired Planet v Huawei  EWHC 2988 (Pat). This judgment will be of interest to all parties involved in FRAND negotiations given its potential impact on those negotiations in future (subject to any appeals).
Going into trial, the parties’ FRAND offers were $80m (Lenovo) and $336.7m (InterDigital) for a six-year licence (to the end of 2023) covering all past sales. The parties both contended that their respective offers were FRAND (with Lenovo including a +/- 15% adjustment to identify the FRAND range, said to reflect the imprecision in unpacking a blended rate for past and future sales from the comparable licences). Lenovo relied on the seven InterDigital licences with the largest counterparties as comparables (the Lenovo 7). InterDigital relied on 20 licences with smaller companies (InterDigital 20) and a top-down cross-check.
The Court held that neither party's offer was FRAND or within the FRAND range. Instead, based on a comparables analysis, a rate of $0.175 per device was FRAND. Based on Lenovo's sales data in the relevant period (to 31 December 2023 and all unlicensed past sales), that equated to a lump sum of $138.7m. The Court focused on one particular comparable licence (LG 2017) within the Lenovo 7, which it then adjusted (i) to account for different sales mixes by standard, and (ii) to reflect different sales mixes by geography (specifically, the split between developed and emerging markets). The issue of whether interest should be awarded was adjourned to the final order hearing.
On the selection of comparable licences, the Court noted that there was no evidence that the Lenovo 7, which included LG 2017, were impacted by hold-out. The Court also noted the evidence of Lenovo's expert that the Lenovo 7 accounted for nearly 98% of the cellular units licensed by InterDigital. It focused on LG 2017 in particular given the similarity to Lenovo, holding that the similarity of Lenovo to the relevant licence counterparty was a relevant factor (and that the other licences did not assist because of the difference in situation with Lenovo). In contrast, the Court concluded that the InterDigital 20 were not really comparables for numerous reasons, and also took issue with the approach InterDigital had taken to unpacking comparable licences using subjective factors (which distorted the unpacked rate).
On the approach to unpacking comparable licences, the Court emphasised that an objective approach should be taken. The Court was critical (on the facts) of using the subjective evidence of the licensor (for example, how it accounted internally for past and future sales in relation to licence payments). Further, the only discounts that the Court considered to be FRAND were those relating directly to the time value of money. Large volume discounts resulted in discrimination against smaller licensees and should not be considered FRAND. In particular, on the facts they appeared to have no economic justification but rather appeared designed to 'shore up' the program rates.
Similarly, the Court held that there was no justification for discounting past sales, which should be paid for in full. Further, the Court found that limitation periods had no role in the relationship between a "willing licensor" and a "willing licensee" and accordingly were irrelevant when looking at past sales. Equally, substantial discounts for past sales should not be used artificially to inflate unpacked future rates.
The Court dismissed InterDigital's top-down cross-check as of “no value” in “any of its guises”. The primary reason for this was factual: it supported InterDigital's case on its comparables analysis and the fact that the results of that analysis had been held not to be FRAND was a “solid reason” to dismiss the cross-check. The Court also criticised the cross-check as being “crude” and subject to other substantive and procedural shortcomings.
The Court also made a number of other interesting findings. First, it found that the price of a device that infringes the SEPs in question should be irrelevant to the royalties payable on that device (hence the rate held to be FRAND was not an ad valorem rate). Second, it found that it was important to apportion for other standards (Wi-Fi and HEVC in this case), which InterDigital's valuation expert did not do (together they were held to comprise 13% of the value of a licence). Third, it commented that a FRAND injunction ought to have been granted following the finding that a potential SEP was valid, essential and infringed, and that InterDigital was not entitled to an unqualified injunction. Fourth, although of limited relevance, the Court held that both parties had been "unwilling" at times, though ultimately that was of limited concern given the right to undertake to enter into the Court-determined FRAND licence.
The judgment is also notable for its postscript on the case management of FRAND cases. In particular, the Court explains that active case management is beneficial in FRAND cases, which should include agreement on a common data set to be used by both parties in their unpacking analyses, and also draws the attention of parties to the English Court's disclosure regime as a means to improve transparency in FRAND licensing negotiations.
A more detailed analysis document may be found here.