Tuesday, June 27, 2023

Mr Justice Mellor declares Lenovo the overall winner of FRAND dispute with InterDigital, awards fee-shifting but InterDigital is awarded interest of $46 million

In March I described the outcome of the InterDigital v. Lenovo FRAND dispute before the High Court of Justice for England and Wales as a resounding victory for the defendant and predicted that other net implementers, such as OPPO, stood to gain from it. Of course, such decisions can and this one is indeed going to be appealed--which is also a safe assumption with respect to an even higher-profile recent FRAND ruling by the same court, Mr Justice Marcus Smith's Optis v. Apple decision, which I heard Optis intends to appeal.

My description of the outcome as a major win for Lenovo has been validated by a follow-up judgment. According to Lenovo's press release, the actual decision should become available later, and the court declared Lenovo "undoubtedly the overall winner," a finding that entitles Lenovo to recovery of the bulk of its litigation costs.

A press release by InterDigital highlights two other aspects of the decision: primarily the fact that the amount to be paid by Lenovo goes up from $138.7 million to $184.9 million due to interest on past royalties, and also the fact that the court granted the parties the right to appeal certain aspects of the judgment.

Mr Justice Mellor's original judgment expressed surprise over the fact that InterDigital had not sought interest on past royalties. Lenovo had been using InterDigital's IP for well over a decade without paying. In the March decision, Mr Justice Mellor invited InterDigital to seek interest now, and determined that $46.2 million was the correct amount.

I heard that the interest award must be paid now sa opposed to be placed into escrow.

The March decision was mentioned at a Brussels event related to the European Commission's proposal for a regulation on standard-essential patents (SEPs). Someone close to Apple referenced it in the context of whether small and medium-sized enterprises (SMEs) are at risk of paying supra-FRAND royalties as they lack the resources and sophistication to defend themselves as effectively as larger players. Someone from the net licensor camp clarified that SMEs were not involved in the license agreements with third parties that Mr Justice Mellor declined to accept as comparable agreements because the licensees were smaller companies than the ones that Lenovo pointed to (such as Apple, Samsung, and LG). So the ones who argue that legislative intervention is needed to shield SMEs from SEP abuse can't point to the UK InterDigital v. Lenovo ruling as evidence of SMEs being overcharged--the "smaller" licensees referenced in that decision were still pretty sizable. However, a reasonable argument can be made that if SEP holders were to go after SMEs (which is not the case yet, at least not to a noticeable extent), SMEs would likely--actually, almost definitely--end up paying supra-FRAND royalties.

InterDigital's problem remains (as the interest award changes nothing about it) that the company tends to cave to large implementers: the likes of Apple and Samsung get discounts that are not just high but next to irrational. As a result, InterDigital's headline rates have a credibility problem when companies like Lenovo or OPPO (with OPPO clearly being a high-volume implementer as well) are sued.

InterDigital has only one revenue stream: license fees, and most of that revenue comes from a small group of companies: major smartphone makers. The rest of the industry took note of the fact that Apple is not paying InterDigital more than in the past, and while litigation with Apple could have been costly and protracted, the terms of that agreement do nothing to persuade a company like OPPO (whose devices sell at a much lower average per-unit price than Apple's) to cave to InterDigital's demands. And unlike Lenovo, OPPO is in a far stronger position to convince courts that it is a willing licensee.