Out-Law News 6 min. read

Apple patent ruling clarifies UK choices for tech implementers

A new ruling by the Court of Appeal in London has clarified that technology standard implementers, such as Apple, must accept a court-determined royalty for standard-essential patents or face an injunction in cases where those patents have been found to be valid, essential and infringed.

The court upheld an earlier ruling by the High Court of England and Wales in a dispute that has multiple strands between Apple and patent holder Optis Cellular Technology. Its judgment is applicable to standard-essential patents (SEP) subject to the intellectual property rights (IPR) policy of ETSI, the standard-setting body.

Optis is bound to license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms in accordance with the ETSI IPR policy. However, the two companies have been unable to agree on what constitutes a FRAND licence for use of the patents globally.

Apple has been accused of being unwilling to agree a licence to use a number of SEPs owned by Optis. There have been six separate trials and three appeal hearings in relation to the dispute before the courts in England and Wales to-date.

The Optis patent relevant to the latest Court of Appeal ruling was deemed, last summer by the High Court, to be valid, essential and infringed by Apple.

Because Optis and Apple cannot agree on what constitutes a FRAND licence in this case, the High Court will determine the issue for them. A trial on this issue took place in June and July this year but a ruling has still to be issued.

Last year, based on the earlier infringement finding, Optis asked the court to impose an injunction against Apple to restrain Apple from infringing that patent. The High Court ruled at that time that, to avoid an injunction, Apple had to give an undertaking to take whatever licence is set by the court, though it gave Apple time to consider its judgment before it acted on its ruling. Both Apple and Optis appealed against the High Court ruling and it is on their appeals that the Court of Appeal has now ruled.

Patent law expert Mark Marfé of Pinsent Masons said: “At the heart of the appeal was the question: on what basis is the holder of a SEP entitled to an injunction in the event the SEP is found to be valid and has been infringed by the implementer of a technology standard?”

“Apple’s position, being that of the implementer in this case, was that the SEP holder is not entitled to an injunction until the court has determined what FRAND licence terms should be and the implementer has considered those terms. Optis’ position, as holder of the relevant SEP, was that an implementer that fails to commit to take a court-determined licence on having been found to infringe a SEP becomes permanently disentitled to rely upon the SEP holder’s undertaking under the ETSI IPR policy to grant a licence on FRAND terms,” he said.

The High Court previously held that neither side was correct.

Marfé said: “The High Court judge identified a middle ground, that the SEP holder is entitled to an injunction unless and until the implementer undertakes to take a licence on the terms subsequently determined by the court to be FRAND. In that scenario the injunction bites on the implementer unless the implementer undertakes to take a licence on terms to be determined to be FRAND. However, a failure not to give such an undertaking initially does not permanently prevent the implementer from relying on the SEP’s undertaking under the ETSI IPR policy to grant FRAND licences.”

“The Court of Appeal has now upheld the High Court judge’s previous decision. It means that once the UK court finds that a SEP is valid and infringed, the implementer must give an undertaking to enter into a FRAND licence to avoid an injunction – even though the terms of that licence are still to be determined,” he said.

The proper interpretation of the relevant clause - clause 6.1 - of the ETSI IPR policy, under which a SEP holder undertakes to license its SEPs on FRAND terms, was at the heart of the Court of Appeal’s consideration. Marfé said the outcome of the appeal illustrated how FRAND case law has evolved in the UK since the landmark ruling of the Supreme Court decision in the case of Unwired Planet v Huawei in 2020, which also revolved around the application of the ETSI IPR policy.

Marfé said: “The Court of Appeal’s decision is not surprising in light of the Supreme Court’s earlier findings that the ETSI IPR policy must be interpreted in a way that benefits both the SEP holder and the implementer. The Supreme Court found that availability of an injunction ensures that an implementer has a strong incentive to negotiate and accept FRAND terms for use of the SEP. At the same time, the IPR policy imposes a limitation on a SEP holder’s ability to seek an injunction. That limitation is an ‘irrevocable undertaking’ to offer a licence of the relevant technology on FRAND terms, which if accepted and honoured by the implementer would exclude an injunction.”

“The Court of Appeal ruling also provides helpful guidance, confirming that on a proper reading of the IPR policy, the implementer does not permanently lose its right to rely on clause 6.1 if it does not commit to enter into a court-determined licence either as soon as the SEP owner indicates that it is willing to do so or when there is a finding of validity and infringement of an SEP. The Court of Appeal determined that there is no reason why an implementer should not be able to change its mind for commercial reasons and every reason why it should be able to do so given that a key purpose of the ETSI IPR policy is to ensure access to technology covered by SEPs,” he said.

In giving the judgment on behalf of himself, Lady Justice Elisabeth Laing, and Lady Justice Asplin, for the Court of Appeal, Lord Justice Arnold criticised the appeals raised by Apple and Optis. He said they illustrated examples of “the dysfunctional state of the current system for determining SEP/FRAND disputes”. Lord Justice Arnold has, in the past, commented favourably on the use of arbitration to resolved FRAND disputes previously and, in a postscript to this judgment, invited standards-setting organisations (SSOs) like ETSI to make legally enforceable arbitration of such disputes part of their IPR policies.

FRAND disputes have traditionally arisen in the conventional telecoms industry, with the dispute between Apple and Optis, which pivoted on ETSI’s telecom specific standards, being a case in point. Such disputes are, however, increasingly expected to permeate into technology-rich sectors where new products and solutions depend on wireless communications, such as the Internet of Things (IoT).  

The extent to which the present decision impacts such sectors remains to be seen, in part because of different IPR policies set by other SSOs. The UK courts have interpreted the ETSI IPR policy in a manner favourable to SEP holders, who are entitled to an immediate injunction once the court has held that the patent is valid, essential and infringed by the implementer unless the implementer undertakes to take a licence on terms which ultimately the court determines are FRAND. 

Sarah Taylor, patent expert at Pinsent Masons said, though, that this contrasts with the existing IPR policy of the Institute of Electrical and Electronics Engineers (IEEE), which sets technology industry standards such as those relating to Wi-Fi.

Taylor said: “The existing IEEE IPR policy has commonly been viewed as pro-implementer, as it required a SEP holder to succeed at an appeal court before it could seek injunctive relief.  However, amendments to the policy have been proposed which would remove this requirement and would permit an SEP holder to request an injunction earlier in the process. This is important because it means that the patent holder may seek an injunction against an unwilling licensee at an earlier stage, and perhaps may redress the balance and circumvent protracted negotiations.  However, it means bringing the dispute before a court, perhaps at an earlier stage.”

The proposed amendments to the IEEE IPR policy are due to come into effect on 1 January 2023, but neither implementers nor SEP holders are satisfied with the revisions.

“Regardless of whether or not they take effect, it serves to highlight the need for clear and robust SSO IPR policies to avoid issues that obstruct access to technology covered by SEPs. Such issues are likely to continue to become more common with the advent of new, innovative technologies which require the implementation of standards”, said Taylor.  

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