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Optis v Apple

27 October 2022 - Case No. [2022] EWCA Civ 1411

http://caselaw.4ipcouncil.com/english-court-decisions/uk-court-appeal/optis-v-apple
Hold-out Essentiality Huawei framework Abuse of market power Damages Willingness ETSI declaration Country by country licensing Hold-up Technical and FRAND-related trials Antitrust Patent validity FRAND determination FRAND commitment FRAND rate (calculation) Patent infringement Royalty determination Injunctions Alternative Dispute Resolution Arbitration FRAND defence

A. Facts

Optis owns patents declared as (potentially) essential to the practice of wireless standards developed by the European Telecommunications Standards Institute (ETSI). ETSI requires patent owners to commit to make standard-essential patents (SEPs) accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions (ETSI FRAND commitment).

Apple is a global manufacturer of electronic devices complying - among others - with ETSI standards.

In February 2019, Optis filed an action against Apple before the High Court of Justice of England and Wales (High Court) based on eight UK patents. The High Court listed four technical trials dealing with the validity, essentiality and infringement of the patents in suit. A further trial concerning Optis' request for injunctive relief (injunction trial) was scheduled as well, which will be followed by another separate trial, in which the High Court will determine the terms of a (global) FRAND licence to Optis' portfolio as well as address certain competition law issues (FRAND trial).

On 16 October 2020, the High Court delivered a judgment in the first technical trial, finding that the patent in suit is valid, essential and infringed. [1] On 25 June 2021, the High Court confirmed the validity and infringement of another patent in suit.Optis v Apple, High Court of Justice, judgment dated 25 June 2021, [2021] EWHC 1739 (Pat). In June 2022, the Court of Appeal dismissed Apple’s appeal against this judgment; cf. Court of Appeal, judgment dated 13 June 2022, [2022] EWCA Civ 792.

On 27 September 2021, the High Court gave a judgment in the injunction trial. [3] The High Court ruled that Apple was (presently) not entitled to rely upon Optis' FRAND undertaking towards ETSI (and, thus, avoid an injunction), because Apple refused to commit to take a licence on the terms that the High Court will set in the FRAND trial. The High Court held that a 'FRAND-injunction' (which would seize to have effect, if Apple would sign a FRAND licence with Optis in the future) would be the proper relief here. Both parties appealed. After the ruling was issued, Apple made an undertaking to accept the court-determined FRAND licence in the terms advised by the High Court. By order dated 25 October 2021, the High Court refused to grant an injunction. With the present judgment, the Court of Appeal (Court) dismissed the appeals of both parties and confirmed the decision of the High Court dated 27 September 2021 in the injunction trial. [4]
 

B. Court's reasoning

As several grounds of appeal advanced by both parties concerned the content and substance of the ETSI FRAND commitment, the Court's analysis focused in particular on the proper interpretation of the relevant provision, namely Clause 6.1 of the ETSI Intellectual Property Rights Policy (ETSI IPR Policy). [5] Furthermore, the Court elaborated on specific aspects regarding the impact of arguments rooted in competition law on the availability of injunctive relief. [6] Finally, the Court addressed certain procedural issues raised by Apple, ultimately dismissing the respective objection. [7]
 

Clause 6.1 ETSI IPR Policy / ETSI FRAND undertaking

The key question was whether an implementer who – despite having been found to infringe a valid SEP – refuses to commit in advance to the FRAND terms subsequently determined by the court, can rely upon SEP owner's FRAND undertaking under Clause 6.1 ETSI IPR Policy to fend off an injunction.

Following the interpretation of Clause 6.1 laid down by the UK Supreme Court in Unwired Planet v Huawei [8] (Unwired Planet), the Court assumed that the ETSI FRAND undertaking constitutes a 'stipulation pour autrui' under the applicable French law, which resembles a contract for the benefit of a third party. [9] The Court stressed that Clause 6.1 should be interpreted 'in a manner which avoids both hold up by the SEP owner and hold out by an implementer'. [10]

The Court disagreed with Apple who had suggested that under Clause 6.1 an implementer is obliged to take a licence (or otherwise get injuncted) only once the court has found a patent to be valid and infringed and has determined the terms of a FRAND licence. [11] The Court pointed out that said interpretation of Clause 6.1 'would undermine a key part of the purpose of the ETSI IPR Policy'. [12] What is more, the Court noted that Apple did not challenge the finding of the High Court in the first instance trial, which based on expert economic and licensing evidence concluded that Apple's interpretation 'would tend to promote hold out by implementers'. [13]

The Court further explained that beneficiaries of the ETSI FRAND undertaking are those who agree to take a licence 'on terms that are objectively FRAND'. [14] Apple had argued that Clause 6.1 defines beneficiaries as those who (just) 'seek' a licence (and not those who take or commit to taking a licence). [15] The Court stressed that 'seeking' a licence in terms of Clause 6.1 does not mean 'seeking the option of taking or declining a licence which is FRAND.' [15] The Court added that only if a licence is taken, the implementer can raise a FRAND defence to the infringement of a SEP. [15]

Furthermore, the Court dismissed Apple's contention that the FRAND undertaking under Clause 6.1 imposes obligations only upon SEP owners and not upon implementers. [16] On the contrary, 'the implementer cannot have the benefit of clause 6.1 without accepting the burden.' [16]

The Court disagreed with Apple's view that committing in advance to the court's FRAND determination would equal signing a 'blank cheque', which would entail a risk of agreeing to 'uncommercial or unviable' terms. [17] The Court pointed out that implementers are in a position to estimate the amount of the FRAND royalty based on information gained from research organisations, the ETSI database or the SEP owner. [17] What is more, it is 'improbable' that the court-determined terms, 'which are objectively FRAND will be uncommercial or unviable (as opposed to involving a higher royalty rate than the implementer wants to pay).' [17] Should an implementer not be able to afford to pay FRAND royalties, then – according to the Court – it 'ought not to be practising the patented invention, and therefore should not be seeking a licence.' [17]

The Court further explained that requiring from an implementer who was found to infringe a valid patent to commit to the court's FRAND determination is in line with the objectives of the ETSI IPR Policy. [18] The Court accepted that the ETSI IPR Policy envisages that SEP owners and implementers will shape FRAND agreements through negotiations. [18] Absent agreement, however, both ETSI (i.e., para. 4.3 ETSI IPR Guide) and the case-law (UK Supreme Court in Unwired Planet and the Court of Justice of the EU in Huawei v ZTE [19] ) recognise that a national court must resolve the dispute, which presupposes that the court will be able to 'enforce its determination against both parties': this can be achieved, on the one hand, by withholding an injunction from a SEP owner unwilling to accept the court's FRAND determination and, on the other hand, by granting an injunction against an implementer that fails to commit to take a licence on the FRAND terms set by the court. [20]

In this context, the Court stressed that – in contrast to Apple's opinion – the above interpretation of Clause 6.1 does not enable SEP owners to avoid negotiations, by launching infringement proceedings, committing to accept the FRAND terms set by the court, and demanding the implementer to do so as well. [21] The Court reiterated that implementers are only required to commit to the court-determined FRAND terms after a finding of validity and infringement. [21] Moreover, according to the case-law of the Court of Justice of the EU both SEP owners and implementers are obliged by competition law to engage in negotiations. [21]

Addressing Apple's argument that implementers should – even after a finding of infringement in trial – still have the choice to either take a licence on the court-determined terms or submit to an injunction, the Court found no reason why implementers should be entitled to that 'luxury'. [22] If an implementer refuses to commit to accepting court's FRAND determination, then it should be 'restrained from infringing', because otherwise 'hold out by implementers would be promoted.' [23] In the eyes of the Court, this would hold particularly true, if implementers would be allowed, as Apple had suggested, to wait until the final FRAND determination that is not subject to appeal. [23]

The Court then turned to the question of whether an implementer declining to commit to the court's FRAND determination after a finding of infringement permanently forecloses the right to rely upon the SEP owner's ETSI FRAND undertaking. The Court held that this is not the case: The implementer would (still) be a beneficiary under Clause 6.1, 'if it changes its mind subsequently.' [24] The Court found that 'there is no reason why an implementer should not be able to change its mind for commercial reasons […] given that a key purpose of the ETSI IPR Policy is to ensure access to technology covered by SEPs.' [25] As far as Optis had argued that implementers are sufficiently protected by competition law against potentially excessive royalty demands of a SEP owner, the Court elaborated that 'clause 6.1 is intended to prevent hold up occurring in the first place rather than merely providing a remedy for it after the event.' [25] The Court also pointed out that 'the royalties permitted by competition law might exceed those permitted by the SEP owner's FRAND obligation.' [25] The fact that the undertaking pursuant to Clause 6.1 is irrevocable further 'suggests that it should be open to an implementer to enforce it at any time, regardless of whether the implementer has previously decided not to do so.' [26]

Considering the above, the Court confirmed the conclusion of the High Court in first instance that a so-called 'FRAND injunction' was the appropriate relief in the present case. [27] Optis had requested an unqualified injunction, arguing that Apple was no longer entitled to invoke Optis' FRAND commitment towards ETSI. The Court held, however, that Optis is bound to its FRAND commitment irrespective of the fact that Apple can presently not enforce this undertaking due to its unwillingness to commit to the court-determined FRAND terms. [28] Moreover, given the fact that Apple could subsequently change its mind in this respect, the Court noted that the relief granted should already at this stage make provision for this possibility. [29]
 

Competition law

Besides that, the Court confirmed that a potential abuse of market dominance on the side of Optis would not get in the way of granting injunctive relief in the case at issue. [30] In brief, Apple had argued that the Court should withhold an injunction until it would have decided in the following FRAND trial whether Optis had abused a market dominant position or not (Article 102 Treaty on the Functioning of the EU).

The Court explained that even assuming that Optis abused a dominant position 'by disrupting meaningful negotiations prior to launching this litigation', this fact would offer no 'strong reason' for withholding an injunction. [31] Such 'strong reason' is, however, required, considering that 'withholding an injunction to restrain infringement of a patent which has been found to be valid, essential and infringed will tend to leave the SEP owner with an inadequate remedy and to promote hold out.' [31]

Furthermore, the Court reasoned that a potential abuse would have 'no continuing effect', given that Optis had committed to grant a licence to Apple on the terms which the High Court would set in the FRAND trial. [31] Consequently, Apple would have access to a FRAND licence; the only obstacle was Apple's unwillingness to accept the High Court's FRAND determination. [31]

Moreover, the Court dismissed Apple's argument that granting an injunction would 'whitewash' Optis' abusive behaviour, by stressing that – if the High Court established such abuse – Apple will be compensated by an award of damages, which is an adequate remedy having a sufficiently deterrent effect on potential future abuses. [32]
 

C. Other issues

Apart from the above, the Court also reflected upon the general background and particularities of FRAND-related disputes. [33] The Court pointed out that avoidance of hold-up and hold-out in the context of FRAND licensing 'depends upon the existence of a well-functioning dispute resolution system'. [34] Although standards are 'global in nature' and the FRAND undertaking is 'also a global one', standard development organisations (SDOs), including ETSI, have not established an international tribunal to deal with FRAND disputes. [35] Accordingly, 'SEPs must be enforced territory by territory', since national courts, generally, cannot exercise jurisdiction over patents granted abroad. [36] The Court expressed the view that this fact gives implementers 'an important tactical weapon', by placing 'a significant burden' on patent owners. [37] What is more, the resulting 'war of attrition' tends to favour implementers, as delays in enforcement bear 'the potential to starve patentees of income from licensing.' [37]

Having said that, the Court suggested that the present appeals 'illustrate yet again the dysfunctional state of the current system for determining SEP/FRAND disputes'. [38] Each party attempted to 'game the system in its favour': Apple's refusal to commit to accept the court-determined FRAND terms 'could well be argued to constitute a form of hold out […]', while Optis' pursuit of an unqualified injunction 'would open the door to hold up.' [38] The Court concluded that '[t]he only way to put a stop to such behaviour is for SDOs like ETSI to make legally-enforceable arbitration of such disputes part of their IPR policies.' [38]
 

  • [1] Optis v Apple, High Court of Justice, judgment dated 16 October 2021, [2020] EWHC 2746 (Pat). In November 2021, the Court of Appeal confirmed the finding of validity, but reversed the findings of essentiality and infringement of the patent in suit; cf. Court of Appeal, judgment dated 10 November 2021, [2021] EWCA Civ 1619.
  • [2] Optis v Apple, High Court of Justice, judgment dated 25 June 2021, [2021] EWHC 1739 (Pat). In June 2022, the Court of Appeal dismissed Apple’s appeal against this judgment; cf. Court of Appeal, judgment dated 13 June 2022, [2022] EWCA Civ 792.
  • [3] Optis v Apple, High Court of Justice, judgment dated 27 September 2021, [2021] EWHC 2564 (Pat).
  • [4] Optis v Apple, Court of Appeal, judgment dated 27 October 2022, [2022] EWCA Civ 1411.
  • [5] Ibid, paras. 58-91.
  • [6] Ibid, paras. 92-100.
  • [7] Ibid, paras. 101-113.
  • [8] Unwired Planet v Huawei Technologies, UK Supreme Court, judgment dated 26 August 2020, [2020] UKSC 37.
  • [9] Optis v Apple, Court of Appeal, judgment dated 27 October 2022, [2022] EWCA Civ 1411, para. 59.
  • [10] Ibid, para. 63.
  • [11] Ibid, para. 65.
  • [12] Ibid, para. 66.
  • [13] Ibid, para. 67.
  • [14] Ibid, paras. 68-81.
  • [15] Ibid, para. 68.
  • [16] Ibid, para. 69.
  • [17] Ibid, para. 71.
  • [18] Ibid, para. 73.
  • [19] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [20] Optis v Apple, Court of Appeal, judgment dated 27 October 2022, [2022] EWCA Civ 1411, para. 73.
  • [21] Ibid, para. 74.
  • [22] Ibid, paras. 76 and 80.
  • [23] Ibid, para. 77.
  • [24] Ibid, paras. 83 and 85.
  • [25] Ibid, para. 86.
  • [26] Ibid, para. 87.
  • [27] Ibid, paras. 89 et seqq.
  • [28] Ibid, paras. 89 et seq.
  • [29] Ibid, para. 91.
  • [30] Ibid, paras. 94 et seqq.
  • [31] Ibid, para. 94.
  • [32] Ibid, paras. 96 et seq, and para. 99.
  • [33] Ibid, paras. 4-15.
  • [34] Ibid, para. 8.
  • [35] Ibid, paras. 6 and 8.
  • [36] Ibid, paras. 9 and 10.
  • [37] Ibid, para. 11.
  • [38] Ibid, para. 115.