Posted: October 7th, 2021
Optis Cellular v Apple Retail  EWHC 2564 (Pat)
In a lengthy and complex decision reaching over 80 pages, Mr Justice Meade has given judgment in the latest in a series of trials in the UK’s Patents Court between the claimants (“Optis”) and defendants (“Apple”) concerning Optis’ standard essential patents (SEPs) and the FRAND obligations which apply to them.
Two previous trials had established that two of Optis’ SEPs were valid, essential and infringed. One of those patents had expired, the other had not. A trial is due to take place in June 2022 (“Trial E”), at which the court will decide what the terms of a global FRAND licence should be and whether Optis’ approach to the negotiations with Apple breached competition law.
The key question addressed by the court in this judgment was whether Apple should be subject to an injunction now, given there was an Optis patent that was in force and had been held to be valid and infringed, or whether any decision regarding the grant of an injunction should be deferred until Trial E. As explained in more detail below, the judge held that, unless Apple committed unconditionally to enter into a licence from Optis on whatever terms were held at Trial E to be FRAND, Optis should be entitled to an injunction.
At this trial Optis alleged that Apple was an “unwilling licensee” because Apple had failed to commit unconditionally to taking a FRAND licence on the licence terms to be determined at the upcoming Trial E, and that Apple should therefore no longer be entitled to rely on Optis’ FRAND commitments. Accordingly, Apple should be subject to an injunction if Optis was successful in any of the “technical trials” in establishing that one or more of its SEPs were valid and infringed. (Two technical trials had already taken place and two more were pending.)
Furthermore, Optis argued that the injunction should be in the unqualified form of injunction usually awarded to successful patentees for patents other than SEPs, as opposed to the “FRAND” injunction usually awarded in respect of SEPs. The latter provides that the injunction will be discharged if the infringer enters into a FRAND licence.
There were four main issues between the parties:
1. The proper interpretation of clause 6.1 of the European Telecommunications Standard Institute’s (“ETSI”) IPR policy, and whether Apple could rely on Optis’ undertaking to ETSI that it would grant a licence to a potential licensee under that clause.
2. Apple’s allegations that Optis’ conduct had breached competition law, which were going to be decided in Trial E, and whether these allegations meant that no injunction could be imposed until they had been decided. Optis argued that it was not possible for Optis to have breached competition law, given that Optis had agreed unconditionally to accept whatever licence terms were determined to be FRAND by the court at Trial E and Apple had not. Additionally, Optis argued that, even if its conduct had been in breach of competition law, it was still entitled to an injunction.
3. Whether, as a matter of ensuring the correct exercise of the court’s discretion, it was necessary to wait until Trial E before deciding whether an injunction should be imposed on Apple.
4. The relevance of a contingent undertaking that had been given by Apple. Apple had given an undertaking that it would enter into the FRAND licence to be determined at Trial E, unless it was decided that this undertaking was either unnecessary, or too late.
Issue 1 – Clause 6.1 of the ETSI IPR Policy
The vast majority of the technical discussion in the judgment revolved around this issue. The judge (Meade J) reviewed in detail the judgments issued in the Unwired Planet v Huawei litigation, in particular that of the UK Supreme Court, and the operation of standards setting organisations, including ETSI and the objectives of ETSI’s IPR Policy, including the objectives of preventing “hold up” and “hold out” by parties to FRAND negotiations.
Clause 6.1 of the IPR Policy requires a SEP-owner to give an irrevocable undertaking to grant FRAND licences. The key issue in dispute was whether clause 6.1 put an obligation on an implementer to give a commitment to take a FRAND licence on terms that would be later determined by the court.
The ETSI IPR policy is governed by French law. The legal effect of clause 6.1 is to create a “stipulation pour autrui” – an obligation which a third party can enforce against the IPR holder. After an extensive summary of previous case law, including English, French and CJEU authorities, and expert evidence relating to economics and licensing (which the judge did not find very useful), Meade J concluded that the correct interpretation of clause 6.1 was that “any person interested in implementing an ETSI standard must be entitled to have a licence on FRAND terms on demand to a patentee which has given the relevant undertaking”. There could be no restriction regarding the implementer’s commercial plans.
However, clause 6.1 entitled an implementer to “have and take” a licence and to “operate under” a licence. It did not change the position that a person operating without a licence could potentially be subjected to an injunction. Accordingly, an implementer could not take the benefit of the patentee’s undertaking under clause 6.1 of the ETSI IPR Policy to grant a licence on FRAND terms without the implementer accepting the corresponding burden of taking such a licence.
As for the class of the beneficiaries of the “stipulation” under clause 6.1, the judge held that this was any undertaking that wanted to work a relevant standard by any commercial means and which intended to work the standard under a licence from the SEP owner. That is, it would not include an undertaking that did not intend to respect FRAND terms.
Accordingly, if Apple wished to benefit from Optis’ undertaking under clause 6.1 to grant FRAND licences, Apple had to undertake that it would accept whatever licence was determined at the forthcoming Trial E to be FRAND. Apple could not defer its agreement to those terms until the outcome of Trial E was known. Without such an undertaking from Apple, Apple was not entitled to rely on Optis’ undertaking under clause 6.1.
The judge also noted that there was a simpler way of looking at matters: Apple had been held to be infringing Optis’ rights. Apple therefore needed a licence immediately if it was not to be acting unlawfully (regardless of the scope of the beneficiaries under clause 6.1). It followed from the Supreme Court’s Unwired Planet judgment that there should be an injunction unless Apple had agreed to enter into the FRAND licence, even if as a matter of UK procedure the terms of that licence would not be set until Trial E.
In addition, Meade J held that an implementer will not permanently lose the right to a FRAND licence by failing to commit to one initially. He accepted that there may be a number of reasons why an implementer might decline to commit to a FRAND licence, and it would be unfair and unprincipled to permanently punish what might have been a mere misjudgement.
Issue 2 – Alleged Breaches of Competition Law
Apple had made numerous allegations of breaches by Optis of competition law by reason of Optis’ approach to the licence negotiations, such as seeking to impose unfair licence terms and making offers requiring payment of royalties far in excess of a FRAND level. Apple argued that the court should not grant any injunction against Apple until these allegations had been decided by the court (at Trial E). Optis argued that there could not be a finding of abuse as long as it has committed to accept the court’s FRAND terms whilst Apple had not.
The judge rejected Optis’ argument: whether or not Optis had in fact abused its position needed to be determined at Trial E. However, Meade J also held that it would be wrong to prevent the grant of an injunction against Apple, even in circumstances where Apple might later be successful in establishing the alleged abuse of position at Trial E.
The Supreme Court in Unwired Planet had made a very clear decision that the normal position was that there should be an injunction against an infringer and had stressed that this should be the case where the infringer had the means to obtain a licence – as Apple had – but had not done so. Optis had agreed to enter into a licence on the terms that the court determined to be FRAND and therefore there was no possibility of a grant of an injunction leading to Apple having to pay exorbitant fees. On the other hand, damages in lieu of an injunction would not be an adequate remedy for Optis as, in the absence of an injunction, there was a threat of more litigation internationally and thereby hold-out. This would frustrate the goal of the ETSI FRAND regime.
Issue 3 – Exercise of the Court’s Discretion
Meade J had already found that there was a “powerful interest” in SEP owners being granted injunctions where infringement is found, and that, provided that they respected their own FRAND commitments, and provided that there was no abuse of dominance which the court needed to address by refusing an injunction (which was not the case here), an injunction will generally be granted. In those circumstances the court will have little discretion to decide otherwise.
Issue 4 – Apple’s Contingent Undertaking
The judge had held that Apple had to give a binding commitment to take a FRAND licence in order to avoid an injunction, not a contingent one. However, the judge recognised that this judgment might be appealed and noted that his judgment in the technical trial that had held Optis’ SEP to be valid and infringed was under appeal. He also noted that his decision, that it was still not too late for Apple to make an unqualified commitment to take a FRAND licence, might also be the subject of an appeal.
It was therefore not possible, in Meade J’s view, to say whether Apple’s contingent undertaking would or would not apply.
As things now stand, and subject to any appeal, Apple must now decide whether it will give an unqualified undertaking to enter into a licence on whatever terms are determined to be FRAND at Trial E, due to take place in June and July 2022. If Apple refuses, it will be subjected to a “FRAND injunction”, meaning that unless and until it submits to a FRAND licence it will be prohibited from infringing Optis’ patent, effectively excluding relevant Apple products from the UK market.
A copy of the judgment can be read here.
Headnote by Nick Fischer and Graham Burnett-Hall – Marks & Clerk Law LLP