Optis V Apple – An unwilling Licensee?

The English approach is more commercially minded. But determining a FRAND amount is expensive and slow. It has also been widely misunderstood as the English Court imposing a global royalty rate on the parties, and this has led to jurisdiction disputes which exacerbate the delay and expense. The European approach of simply deciding whether or not to grant a final injunction may be less commercial, but it has the merit of being fast and cheap, jurisdictionally uncontroversial, and poses enough of a risk that parties will come to the negotiating table.

The approaches may become more aligned following Meade J’s decision in the latest in the series of trials in Optis Cellular Technology LLC and Ors (“Optis”) v Apple Retail UK Limited and Ors (“Apple”). This trial dealt with Optis’ claim that Apple is an ‘unwilling licensee’, and has lost the right to claim a FRAND licence. If so, Optis said, the court should proceed straight to issue an injunction without going through a trial to determine what a FRAND rate would be.

Optis was largely, but not completely, successful in this argument.

Background

Optis owns former Ericsson patents that are essential to cellular standards. It is engaged in a multi-jurisdictional battle to persuade the iPhone manufacturer to take a licence. In the English proceedings, Optis claims that Apple's devices, by implementing the UMTS and LTE cellular standards, infringe eight of Optis's SEPs. In the first two technical trials Birss J and Meade J agreed, respectively holding that Apple infringed two of Optis’ standards-essential patents, and confirming their validity. In a third trial Apple argued that Optis could not enforce these patents because Ericsson had declared them too late. Meade J comprehensively dismissed this argument (see report here).

After being found to infringe, Apple gave Optis a conditional undertaking that it would enter into a Court-determined licence unless:

• it was decided that Apple could enforce Optis’ ETSI undertaking after the FRAND trial without having given a prior commitment to enter into a licence; or
• it was decided that Apple could not enforce Optis’ ETSI undertaking at all (i.e. it ought to be injuncted now), regardless of whether Apple gave the Contingent Undertaking at any point.

All of these steps were further conditioned on all appeals being exhausted. Meade J described the terms as being rather convoluted, but he summarised them as “Apple undertakes to take the licence at the rate determined by the Court, unless its undertaking is found to be unnecessary, or too late”.

The stage was set for a FRAND trial to take place to determine a FRAND rate to the Optis portfolio. This is currently listed for a long trial in June and July 2022 before Marcus Smith J. However, there was one further matter to be determined: whether Apple was a willing licensee.

Unwillingness

According to Optis, after the determination of the first two technical trials Apple has not agreed unconditionally that it will take a licence on the FRAND terms determined by the Court.

Optis claimed that Apple is taking the benefit of Optis’ FRAND undertakings, without accepting any burden. If Apple would not agree to commit to taking whatever the licence the Court determined to be FRAND, then (Optis said) Apple is an unwilling licensee. It should no longer be entitled to rely on Optis’ FRAND undertaking as a defence to an injunction, or in the context or any competition law issues.

Issues and findings

There were four issues before the court:

1. interpretation of Clause 6.1 of ETSI’s IPR policy, which defines Optis’ obligation to offer a FRAND licence;
2. whether that allegation that Optis had abused its dominant position could be dismissed at this stage;
3. whether, because an injunction is a discretionary remedy, it may only be issued at the end of all proceedings; and
4. whether the conditional undertaking given by Apple was or was not in effect.

1. CLAUSE 6.1 OF THE ETSI IPR POLICY

Optis is not a member of the European Telecommunications Standards Institute (“ETSI”). But it has given licensing undertakings under Clause 6.1 of ETSI’s IPR policy. Under Clause 6.1 the owner of a SEP patent may undertake that it is prepared to grant irrevocable licences to that patent on FRAND terms.

Optis argued that an implementer (such as Apple) who wanted to take advantage of a SEP holder’s FRAND undertaking must negotiate constructively or, if no agreement is reached, must commit to take a licence on terms determined by a Court. This commitment arises, Optis says, either when the SEP holder gives the undertaking, or when there is a finding of validity and infringement. In other words, it must be made in advance of knowing the Court-determined FRAND licence terms. If the implementer does not commit, then it is not a willing licensee and irretrievably loses the right to a FRAND licence.

Apple argued that Clause 6.1 is triggered whenever the implementer seeks a licence, and that that can occur at any time. Apple was entitled to wait until the Court’s decision on FRAND terms before making a commitment.

Meade J found that the right interpretation of Clause 6.1 is that ‘any person interested in implementing an ETSI standard must be entitled to have a licence on FRAND terms on demand….’ (paragraphs 278-279).

So, Meade J agreed with Apple about the timing. However, he found that:

“what such a person must be entitled to is to have and take a licence, and to operate under a licence. Clause 6.1. does not change the position that a party without a licence may potentially be injuncted.

In other words, Apple may be entitled to take a licence at any point. But, by holding off making a commitment, it has elected not to take a licence yet. So, it is presently operating without a licence. It is not entitled to do that, and should be injuncted.

Meade J therefore concluded that that it is not the intention of clause 6.1 for a party using the technology of a SEP to be able to take the benefit of the patentee’s FRAND undertaking in terms of immunity from being sued, without the corresponding burden of taking a licence.

2. COMPETITION LAW

Apple alleged that Optis has: (i) never made a FRAND offer; (ii) only made offers so much larger than FRAND that they could not be reasonably negotiated; and (iii) therefore abused its dominant position. Apple accused Optis of using this trial to obtain royalty rates far in excess of FRAND. In contrast, Apple had made a FRAND offer in negotiations.

Meade J held that whether Apple’s offer was indeed FRAND, and whether Optis’ offers were above FRAND or so high as to disrupt negotiations, is a matter for the later FRAND determination trial. Because of this, Apple said (and Meade J agreed) that these points must be assumed in its favour for the purposes of this trial.

Optis argued that as long as it complies with the Court’s FRAND terms and Apple does not, there can be no finding of abuse. It argued that this followed from Birss J’s judgment in Unwired Planet.

Meade J found that the point was not so easily determined. Although Birss J had dismissed the competition claim in Unwired Planet after Huawei had not committed to taking a FRAND licence, this was merely one factor and he took into account other factors. Meade J concluded that it was not possible to conclude ahead of Trial E whether or not Optis had behaved abusively.

3. DISCRETION

Apple argued that an injunction is a discretionary remedy, and the court could award damaged in lieu of an injunction. That discretion could only be exercised once the FRAND trial had taken place.

Meade J rejected Apple’s arguments on discretion, but he did find ‘that Apple ought in fairness to be allowed to consider its reaction to this judgment before any injunction’.

4. SCHRODINGER’S UNDERTAKING

As Meade J had held that Apple did have to provide Optis with a binding commitment to the FRAND terms that will be decided in order to avoid an injunction. That would ordinarily mean that the undertaking fell away. However, because his decision was open to appeal, it was not yet possible to say whether the undertaking did or did not apply.

Conclusions and commentary

In summary:

• As it stands, Apple is not entitled to rely on Optis’ FRAND undertaking to ETSI, and can only do so if it commits to enter into the FRAND licence to be determined by the Court at the FRAND trial next June.
• Meade J was unable to conclude whether Apple’s allegations that Optis has abused its dominant position will succeed; this would be determined after the FRAND trial. This would not however delay an injunction.
• Apple is liable to be injuncted from infringing the patent found to be valid and infringed, but Apple may take a short time to consider this judgment and decide whether it will offer some commitment or undertaking.

Apple therefore needs to make a decision. It needs to decide now whether it will commit to take the licence determined by the Court in June, or it may face an immediate injunction against infringement in the UK. The injunction would be a “FRAND injunction”, in other words it will be lifted if Apple later agrees to pay a FRAND rate.

The effect of this judgment is to bring forward the date at which the infringer must either commit to take a licence, or cease infringement, to the end of the Technical trials. It helps to alleviate some of the delays in resolving the dispute. But, however unwilling he may be, the infringer in the UK does not forfeit his ability to obtain a licence through the court process. In that respect, the UK and Europe still differ.