联合王国

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Neutral Citation Number: [2023] EWHC 1583 (Pat)

Case No: HP-2019-000032

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
PATENTS COURT

Rolls Building Fetter Lane,
London, EC4A 1NL

Date: 4^th July 2023

Before :

THE HON MR JUSTICE MELLOR

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Between :

(1) INTERDIGITAL TECHNOLOGY CORPORATION (2) INTERDIGITAL PATENT HOLDINGS, INC. (3) INTERDIGITAL, INC. (4) INTERDIGITAL HOLDINGS, INC.

Claimants

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(1) LENOVO GROUP LIMITED (2) LENOVO (UNITED STATES) INC. (3) LENOVO TECHNOLOGY (UNITED KINGDOM) LIMITED (4) MOTOROLA MOBILITY LLC (5) MOTOROLA MOBILITY UK LIMITED

Defendants

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Adrian Speck KC, Mark Chacksfield KC, Isabel Jamal, Thomas Jones and Edmund
Eustace (instructed by Gowling WLG) for the Claimants
Daniel Alexander KC, James Segan KC, Ravi Mehta and William Duncan (instructed by
Kirkland &Ellis International LLP) for the Defendants

Hearing dates: 13^th-14^th, 17^th-21^st, 24^th-28^th &31^st January, 2^nd-3^rd, 8^th-11^th February 2022
Further evidence 7^th &13^th December 2022. Further submissions 13^th January 2023.
Draft Judgment sent to the parties 1^st March 2023

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APPROVED JUDGMENT – REVISED PUBLIC VERSION

Remote hand-down: This judgment will be handed down remotely by circulation to the parties or their representatives by email and release to The National Archives. A copy of the judgment in final form as handed down should be available on The National Archives website shortly thereafter but can otherwise be obtained on request by email to the Judicial Office (press.enquiries@judiciary.uk).. The deemed date of hand down is 10.30 am on Tuesday 4^th July 2023.

Mr Justice Mellor:

1. This is my judgment from the FRAND trial in this action. It is organised as follows:

Topic/Heading

Notes concerning this Judgment

INTRODUCTION

The scope of this dispute

The Trial

THE EVIDENCE of fact

Observations on the witnesses of fact

THE EXPERT EVIDENCE

Accountancy

Patent Counting and Patent Counting Studies

SEP Licensing

Hedonic Regression

French law

Chinese law

US Law

FACTUAL BACKGROUND

InterDigital

The development of InterDigital’s licensing ‘program’

Lenovo

Overview of licensing discussions

Lenovo’s position in the Global Market for mobile handsets

APPLICABLE PRINCIPLES

Previous Case Law

PRINCIPLES APPLICABLE TO CONDUCT

The ETSI IPR Policy

The Unwired Planet Judgments

UPHC

Optis F

Optis F CA

Other ETSI materials: The ETSI Guide

Other ETSI Materials: the FAQs page

How The Issues on Clause 6.1 and French Law Evaporated

Other proceedings between these parties

Chinese and US Law

PRINCIPLES APPLICABLE TO THE COMPARABLES &TOP-DOWN CASES

UPHC

TCL v Ericsson

THE COMPARABLES CASE

The SEP Licensing Landscape

Unpacking of the allegedly comparable licences

THE INTERDIGITAL/BEZANT APPROACH TO UNPACKING AND COMPARISON..76

Mr Meyer’s criticisms of Mr Bezant’s approach

The effects of Mr Bezant’s treatment of past sales

Mr Bezant’s unpacking of the Lenovo 7

Mr Bezant’s derivation of separate rates per standard

HEVC and Wi-Fi

Non-handset sales

Early termination of Samsung 2014

The Overall Effect

THE LENOVO/MEYER APPROACH TO UNPACKING AND COMPARISON

The emergence of LG 2017 as an ‘awesome’ comparable

THE APPROACH TO PAST SALES

My analysis

FRAND – GENERAL PRINCIPLES

My analysis

Points of Principle which arise in this case

1) Value to the SEP licensor vs royalty payments

2) Volume Discounts

Discussion

InterDigital’s Other Discounts

My Analysis

3) Do Limitation Periods have a role to play?

4) How to eliminate or discourage hold-out

5) The treatment of and InterDigital’s discounting in relation to past sales

Should interest be awarded on past royalties?

6) The role of subjective and/or ex post facto views, more generally

The Effects of my findings on the points of principle

7) Is the effect discriminatory against Lenovo?

FRAND – LICENSING TERMS

The general features of the licence required by Lenovo

The cases on comparable licences

The Lenovo 7

The InterDigital comparables

InterDigital’s alternative case based on LG 2017

MY ANALYSIS OF THE LENOVO 7

Samsung 2014

My analysis

Huawei 2016

Apple 2016

LG 2017

ZTE 2019

Huawei 2020

Xiaomi 2021

Two other PLAs relied upon

RIM 2012

Innovius 2019

Were the Lenovo 7 all the result of hold-out?

Mr Meyer’s three economic adjustments

(1) Adjusting for sales distribution by cellular standard

(2) Adjusting for sales distribution by geography relative to emerging markets

(3) Sales distribution by geography relative to patent coverage

My request for further analysis

Weighting

Mr Meyer’s weighting process(es)

My assessment of Mr Meyer’s three adjustments

Conclusions on the comparable licences

INTERDIGITAL’S TOP-DOWN CROSS-CHECK

The patent counting studies

Hedonic Regression

THE RESPECTIVE CASES ON CONDUCT

The Negotiations

The Offers made by the Parties

Did InterDigital act as a Willing Licensor?

Did Lenovo Act as a Willing Licensee?

Consequences

OVERALL CONCLUSIONS

Case Management of FRAND Trials

POSTSCRIPT

ANNEX

Notes concerning this Judgment

2. There are two versions of this FRAND Judgment: the full version [2023] EWHC 538 (Pat), which comprises 225 pages, is available only to the parties and those in the appropriate level of the confidentiality regime because it contains a considerable amount of information confidential to one of the parties and/or third parties. It was handed down on 16^th March 2023, along with an initial public version of that Judgment [2023] EWHC 539 (Pat). Subsequently, I received submissions from the parties and a wide range of interested parties, resulting in my judgment on the confidentiality issues [2023] EWHC 1577 (Pat). This revised public judgment implements the decisions I made in that judgment on the confidentiality issues. There are two points I should mention. First, as I explained in that Judgment at [12] and [52], before issuing the 539 Judgment, I took a robust view of claims to confidentiality to ensure that the public version of my FRAND Judgment set out the important parts of my reasoning, with the consequence that I have removed relatively few of the redactions in this revised version. Second, there was particular attention paid to one particular diagram (X1) at [586] and various tables, including one at [577]. Although the full diagram and table remain confidential, I decided I could reveal some limited information without causing harm to those claiming confidence. In relation to X1 at [586] and the table at [577], added text is set out in italics. That apart, redactions made to various diagrams are evident. Redactions in the text are indicated (for the National Archives) [REDACTED] or by the abbreviation [RED] to preserve formatting. Any attempts to estimate or reverse-engineer figures by reference to the size of the redaction would be unwise since there is no correspondence.

3. To aid understanding, in the Annex I have set out the paragraph in the Judgment where various terms and abbreviations used by the experts in the comparables analysis are defined.

INTRODUCTION

4. This litigation is essentially a dispute between the Claimants (who I shall refer to as InterDigital¹) and the Defendants (Lenovo) as to the terms on which Lenovo should take a licence to InterDigital’s portfolio of Patents which have been declared essential (i.e. Standard Essential Patents or SEPs) to the European Telecommunications Standards Institute (ETSI) 3G, 4G and 5G Standards. The proceedings were case managed into 6 trials: five technical trials and this FRAND trial. The purpose of this FRAND trial is to identify what terms are Fair, Reasonable And Non-Discriminatory.

5. When this FRAND Trial occurred, two out of the five planned Technical Trials had taken place. InterDigital prevailed in Trial A and the Court of Appeal has recently dismissed Lenovo’s appeal: [2023] EWCA Civ 34. Lenovo prevailed initially in Trial B, although my decision in that trial has very recently been overturned: see [2023] EWCA Civ 105. Three further Technical Trials were scheduled after this FRAND/Non-Technical Trial, and indeed I have heard Trials C and D. InterDigital have prevailed in Trial C and no appeal has been filed. I aim to deliver judgment in Trial D shortly. It remains to be seen whether Trial E is required. At the time of the trial, InterDigital had established their right to a FRAND determination and their position has only been strengthened by subsequent events.

6. The parties identified two headline issues for me to determine:

i)The first was whether InterDigital’s January 2020/5G Extended Offer is FRAND and if not, what terms are FRAND for a licence to Lenovo of the InterDigital patent portfolio? This headline issue resolved into two major parts: first, the comparables case and second, the top-down cross-check. These are familiar concepts.

ii)The second was what remedy is appropriate and in particular, whether InterDigital is entitled to an injunction in respect of the ‘Asserted Patents’ (and if so, in what form), in so far as the Asserted Patents are held valid and essential? This issue resolved into three parts: first, whether Lenovo was a willing licensee during the extensive negotiations which occurred prior to the commencement of this action; second, was InterDigital a willing licensor during those negotiations; third, the consequences of Lenovo’s failure to commit to take a FRAND licence.

7. On the second headline issue (which needs a little more introduction), InterDigital maintained that Lenovo is not entitled to enforce the ETSI undertaking, because they did not fall within the class of beneficiaries of the ETSI undertaking, as defined by Meade J. in Optis F. InterDigital maintained this case on two separate bases:

i)The first was termed ‘the fact sensitive case’, in which InterDigital relied on Lenovo’s alleged general conduct in negotiations. InterDigital alleges that Lenovo adopted at all material times a strategy of deliberate hold-out and that their conduct demonstrates that Lenovo has – despite protestations to the contrary – had no intention to work the standard under a licence from InterDigital. Accordingly, so InterDigital’s case goes, Lenovo have not been and are not a beneficiary of the ETSI undertaking. On this basis, InterDigital sought an unqualified injunction against Lenovo.

ii)The second was termed ‘the fact insensitive case’, in which InterDigital relied upon the two alternative ways in which Meade J. found Optis to be entitled to injunctive relief in Optis F at [285] and at [288]/[341]. InterDigital says each of those two ways apply here and do not depend on or require any finding of fact as to Lenovo’s conduct. On this basis, InterDigital sought a FRAND injunction.

8. Lenovo’s counter-attack on the fact sensitive case was their allegation that InterDigital had not conducted themselves in negotiations as a willing licensor. More broadly, Lenovo submitted that, when assessing the remedies for InterDigital, the Court should have regard not only to Lenovo’s behaviour but also InterDigital’s throughout the negotiation process. Lenovo’s argument was that a SEP licensor cannot for years and years only offer supra-FRAND rates and conduct themselves to try to extort supra-FRAND rates from licensees and then purport to overwrite that behaviour retrospectively by agreeing to the Court-determined FRAND rate, whilst casting the blame on others. More specifically:

i)Lenovo alleged that every offer InterDigital made to Lenovo was at multiples of the rates they were offering and agreeing with other substantial entities during the same period. Lenovo characterises this as an act of discrimination particularly focussed on Lenovo. Lenovo says this got worse when InterDigital took unreasonable positions in the lead-up to and in the context of this litigation. InterDigital’s offers went up and InterDigital attempted to support them by adopting an unsupportable set of comparables. Lenovo also point out (correctly) that the very licences which InterDigital put forward as comparables during negotiations were not included in the comparables adopted for this case.

ii)Lenovo also allege that InterDigital’s whole licensing ‘programme’ was unreasonable and non-FRAND because (i) the ‘program rates’ were not updated from 2012-2020 despite licences being routinely granted below those ‘program rates’ (ii) forcing negotiations to be wholly cloaked by NDAs to avoid any transparency in respect of its licensing programme (iii) refusing to give transparent information or assurances about other licensees for years and (iv) providing huge volume discounts to discriminate intentionally against smaller players.

9. I emphasise that so far I have been summarising various allegations made by one side against the other. Whether any of them are justified and if so, to what extent, are points I consider later.

10. I found the notion that InterDigital really wanted an unqualified injunction against Lenovo to be unreal. As I remarked during the trial, the only reason InterDigital was trying to obtain an injunction against Lenovo was to force Lenovo to take a licence. In fact, the last thing that InterDigital as a SEP licensor wants is to take an implementer off the market. They want the implementer on the market, selling products which are standard compliant and paying royalties on them.

11. I also found the notion that InterDigital might be entitled to an unqualified injunction against an implementer like Lenovo to be unreal, unless Lenovo had unequivocally refused to take a FRAND licence. I shall explain my view in greater detail below, but there is a very simple reason for it. InterDigital’s undertaking to ETSI is ‘irrevocable’. InterDigital cannot revoke its undertaking to license on FRAND terms, whether generally or in respect of any particular implementer.

12. InterDigital’s arguments about injunctive relief, it seems to me, are driven not by a desire to keep Lenovo’s standard compliant products off the market (i.e. in the future) but much more by a desire to obtain recompense for the long period during which Lenovo has been selling standard-compliant products and not paying any royalties to InterDigital. On the current state of this action, ever since judgment was handed down in Trial A regarding EP558, Lenovo has continued to infringe a valid patent. Furthermore, it has managed to avoid, through various tactics, making any unqualified commitment to take whatever FRAND terms are determined by this Court. Understandably, InterDigital points to this latest conduct as simply further hold-out by Lenovo. More generally, a strong theme running throughout InterDigital’s case is that Lenovo benefits from any delay. This theme chimes with the way in which each side suggested that past events should be dealt with, a point I consider in much more detail later.

13. It is worth recording my rather basic understanding of how it comes about that an implementer like Lenovo is able to use the standardised technology, perhaps for many years before being licensed to use it. The development of each generation of standardised mobile phone technology has been part of a remarkable success story taking years of collaborative effort by the many companies involved and their highly skilled individual engineers. At a particular point in the development, various specifications which make up a particular release of an overall standard are frozen. Development usually continues, with additional features being added in later releases, but the freezing of specifications is an important step which, in time, leads to products being launched onto the market embodying a particular release/generation of technology, of which the principal generations, 2G, 3G, 4G and 5G are well-known. As Mr Brismark touched upon in his evidence, originally companies made their own chipsets which implemented the 2G standardised technology. Perhaps not surprisingly, that model was not sustainable and soon just a few specialised chipset manufacturers came to dominate the market. As I understand matters, each manufacturer developed and marketed a range of chipsets which provided a range of features, but all implemented, for example, 3G technology as set out in the various ETSI specifications. That was the whole point.

14. In practice therefore, any company wishing to make a 3G mobile phone could do so by purchasing an appropriate 3G chipset. So too, with 4G and 5G. Some, but not all of the technology utilised in each generation is covered by patents. Again, some but not all of those patents cover technology which is considered to be or is in fact essential to the operation of the standard. Other patents cover technology which is not essential but may be optional and desirable to include. A very considerable number of patents have been declared to a Standard Setting Organisation (SSO) to be essential, the number increasing with each generation. Over-declaration is a known issue.

15. However, by manufacturing mobile devices incorporating purchased chipsets which embody the technology set out in the relevant standard, an implementer is able to start using the standardised technology before it has obtained the necessary licences to all the SEPs which are essential to the standard. As the history of this case demonstrates, many years can pass before an implementer takes a licence and the treatment of past (unlicensed) sales is a major issue in the comparables part of the case.

16. This brief overview explains, I hope, why I have divided this judgment into three major sections in which I deal with first, the comparables case, second, the top-down analysis and third, the allegations regarding conduct. I propose to deal with those matters in that order for two main reasons: first, because it is clear that the comparables analysis is the primary if not exclusive indicator of the appropriate FRAND financial terms, the top-down analysis being deployed by InterDigital only as a cross-check; and second, because I believe that the various allegations as to conduct can only really be assessed against the backdrop of my conclusion as to the appropriate FRAND terms. It is those terms which will help me to identify whether InterDigital or Lenovo made FRAND offers, whether InterDigital was making unreasonably high demands, whether Lenovo unreasonably refused to engage at various points, and generally the causes of the inability of these two parties to reach a deal during the 11 years between first contact between the parties and the issue of this claim by InterDigital.

17. Naturally before embarking on those sections, I need to orient myself correctly. I am able to do this with the considerable assistance I can derive from the existing caselaw in the UK, by paying attention to existing caselaw in both the US and China and by identifying further points which emerge from the ETSI materials which are applicable to the circumstances of this case. Before I can explain how the existing caselaw assists me, it is necessary to set out, in much more detail, the basis of the disputes which I have to resolve.

18. The final point I wish to make by way of introduction is that I have left entirely out of account any views I formed of the validity or significance of individual patents considered at any of the Technical Trials. I have had to consider just three of InterDigital’s patents in those trials. It would be wrong to allow my views on just three patents to influence, one way or another, the licensing of InterDigital’s entire portfolio of patents said to be standard and essential.

The scope of this dispute

19. Although it will be seen later that over the years InterDigital made a number of offers (actually 14) to Lenovo, and Lenovo made a limited number (2) of counter-offers, a total of four offers were pleaded to be FRAND – two from each side –but the trial concentrated on the following two.

20. The first offer was referred to as the ‘5G Extended Offer’. Although the full terms of the offer are more complicated, InterDigital summarised it as follows:

21. This offer embodies the ‘program rates’ which InterDigital has published on its website since early 2020, as part of its ‘transparency’ initiative. It should be noted that the stated royalty rates reflect the embedded discounts, hence the stated 4G ‘program rate’ is 0.5% for example.

22. I should add that in its oral opening, InterDigital agreed that the Court should determine a lump sum. In his fourth report, Mr Bezant (the accountancy expert called by InterDigital) calculated the lump sum from the 5G Extended Offer as $337m, made up as follows:

23. It is obvious that the past makes up a very substantial proportion of any overall lump sum (about 2/3, in Mr Bezant’s calculation). In his lump sum calculation, Mr Bezant worked on the basis that the licence would have an effective date of 1 January 2018 (albeit signed on 1 January 2023) with a six-year term ending on 31^st December 2023, with Lenovo paying royalties on sales up to six years prior to the effective date (i.e. from 1 January 2012). The total handset sales in his Appendix 31 amount to 675.7m units (accepting there may be an error in the total caused by rounding in App31). Thus, the total of $337m indicates a blended per unit dollar rate of $0.498. On these figures, each cent in the rate accounts for roughly $6.6m.

24. At first sight, the choice of 1 January 2018 as the effective date appears random, having no relation to the commencement of this action in August 2019 nor any other immediately relevant date. It is explained by the terms of the 5G Extended Offer which is specified as having an effective date of 1 January 2018 (in common with InterDigital’s November 2018 offer, see below). I assume InterDigital favour this effective date because it allows them to reach back to include sales from 1 January 2012, on an apparent assumption that a 6-year limitation period applies.

25. Mr Meyer (the accountancy expert called by Lenovo) also worked on the basis that the limitation period ‘in many jurisdictions’ extends back a maximum of 6 years from the date of the start of proceedings. Hence, he considered Lenovo’s ‘past sales’ to be those in the period from Q3, 2013 to (the end of) 2020. He also calculated adjusted figures for the period 2007 to 2020, representing the longest period for which historical sales figures were available, but also reflecting the fact that Lenovo and InterDigital had been negotiating since 2008.

26. The second offer focussed upon at trial was referred to as Lenovo’s Lump Sum Offer, which was pleaded shortly before trial on 14th December 2021. In essence what is proposed is a lump sum payment of $80m +/-15% for all sales in the 6-year term to the end of 2023 with a full release for all past sales for no additional consideration. Those basic terms are to be read with Lenovo’s markup of the lump sum licence terms. The figure of $80m is chosen as the approximate mid-point of two lump sum figures, namely $65.4m and $99.6m, the former being calculated using weighted average past and future rates of $0.07 and $0.20 from what Lenovo alleges to be the six most probative comparable licences, and the latter figure being calculated based on a blended rate of $0.16. On these figures, each cent accounts for approximately $6.22m.

27. In connection with its Lump Sum Offer, Lenovo draws attention to the ninth offer made by InterDigital in November 2018 and withdrawn in February 2019. That was also a lump sum offer which Lenovo says is consistent with its Lump Sum Offer and supports a finding that its Lump Sum Offer is FRAND. In the November 2018 offer, Lenovo says that InterDigital represented that $120m was an appropriate part of the overall lump sum to attribute to a 10-year 3G/4G/5G licence from 2018-2028 with a release for all sales prior to 2018. For its part, InterDigital says its offer does not indicate that Lenovo’s offer is FRAND. It points out that it was an offer made after 10 years of attritional negotiation, in an attempt to reach a deal.

28. Lenovo’s Lump Sum Offer was made after service of Mr Bezant’s first and second reports. Understandably, in those reports, Mr Bezant addressed Lenovo’s ‘Pleaded Case’ which he summarised as follows:

i)Term: 6 years from date of the agreement.

ii)Licensed Standards: 2G, 3G, 4G, 5G.

iii)Territory: Worldwide, but incorporating the FRAND/RAND decisions of the US and Chinese courts.

iv)Royalty Payments: a per unit rate subject to an annual cap:

a) Either a single blended global rate, adjustable for outcomes of the US and Chinese proceedings, no higher than $0.12 with a 50% reduction for sales in China; or

b) A global licence with separate regional rates no higher than: $0.06 for sales in China, Rest of World, Emerging Markets and non-patent countries; and $0.12 for sales in the USA and RoW Developed Markets including the UK.

v)Past sales: released for no additional payment.

vi)Discounts/Other Terms: Most favoured licensee i.e. InterDigital would need to offer to Lenovo the same terms as it grants to any similarly situated licensees in the 12 months following the effective date.

29. Although this Pleaded Case was overtaken and replaced by Lenovo’s Lump Sum Offer, this pleaded position does explain some of the analysis which was undertaken.

30. The analysis by each expert of InterDigital’s 5G Extended Offer and Lenovo’s July 2018 Offer (see further below) illustrates some of the differences between them and the complications to which they can give rise.

31. For his part, Mr Bezant’s LERs (Licensee Effective Rate) derived from the 5G Extended Offer were: Past: $0.50; Future: $0.57 and Blended: $0.53.

32. For the 5G Extended Offer, based on IDC data of Lenovo’s 2G, 3G, 4G and 5G unit sales, Mr Meyer calculated that Lenovo would pay a per-unit rate of $0.81, taking into account the volume discount applicable to 2021 sales. Although not identified as such, this was a future rate only. Mr Meyer calculated that offer to represent a present value (PV) lump sum (LS) payment of $418.4m.

33. Mr Bezant pointed out in his second report that this was overstated, contending there were four flaws in Mr Meyer’s approach: (i) first, that he had used retail not wholesale Average Selling Prices (ASPs); (ii) second, he had applied volume discounts to the past sales, whereas InterDigital did not apply such discounts to past sales; (iii) third, he had assumed the 4G/5G split would remain constant into the future and (iv) fourth, he had assumed ASPs would remain constant, whereas Mr Bezant said that ASPs were expected to decline over time. There were also differences in the periods which Mr Meyer had considered.

34. It appears the most significant flaw was the use of retail and not wholesale ASP data. Having seen Mr Bezant’s use of wholesale ASP data in his first report, Mr Meyer agreed that was more appropriate and presented, in his second report, revised calculations. So, by the time Mr Meyer read Mr Bezant’s second report, he had already revised his calculations using wholesale ASPs presented in his (Mr Meyer’s) second report. His revised combined rate implied by the 5G Extended Offer was $0.51.

35. In his second report, Mr Bezant corrected the alleged flaws and presented the following comparison.

36. Mr Bezant was of the view that the differences which remained (e.g. in their combined rates) were the result of (a) Mr Meyer not applying a prepayment discount, whereas Mr Bezant had done so; (b) the experts using different data sources – Mr Meyer used IDC data and Mr Bezant Strategy Analytics ('SA') data.

37. The other offer which was discussed by the experts was Lenovo’s July 2018 Offer, in which Lenovo offered an ad valorem (AV) 0.07% rate across all 2G, 3G, 4G and 5G units. Based on Lenovo’s unit sales and the net sale price of Lenovo’s devices, Mr Meyer calculated that the offer amounted to a blended per unit rate of $0.18 based on 2021 sales data or $0.14 per unit based on Q3, 2013-Q4, 2020 sales data. Utilising wholesale sale prices, he recalculated both these figures as $0.11 per unit.

38. Mr Bezant did not analyse Lenovo’s July 2018 Offer in his first report because it had not been pleaded.

39. In response to Mr Meyer, Mr Bezant identified a number of differences in their respective analyses, including (a) whether the 4 year-term ran from July 2018 or from 1 January 2021; (b) whether royalties would be paid at the stated rate on past sales or not (Mr Bezant assumed there was no past release because none was explicitly stated in the offer); (c) the period of the past release period, if applicable; (d) whether cellular PCs and tablets should be included or not; (e) the difference between using retail or wholesale ASP data; (f) whether it was appropriate to use the same by-standard split for 2022 and 2023 (derived from the actual in 2021); and (g) whether it was appropriate to assume that Lenovo’s ASPs would remain constant in 2022 and 2023 or were likely to decline. The application of Mr Bezant’s views on those points resulted in the following comparison table.

40. The debate continued in Mr Bezant’s third report.

41. I do not find it necessary or helpful to resolve any of these disputes over the analysis of the 5G Extended and July 2018 Offers. I consider there is enough information to be able to make a comparison with the rates I decide are FRAND, in so far as any comparison is necessary. However, these disputes give a flavour of the considerable extent of the disagreement between the forensic experts as to the correct approach to unpacking, selecting comparable agreements and, ultimately deriving a rate or rates for Lenovo in the FRAND range.

42. For differing reasons, each side says the other’s approach and offer is flawed. In order to decide whether either of the two is in the FRAND range or what is FRAND in this case, in very general terms I take the same approach as that of Birss J. in Unwired Planet International Ltd v Huawei Technologies (UK) Ltd &Anr [2017] EWHC 711 (Pat) (the public version) (‘UPHC’). However, the issues I have to decide are different in a number of respects. It will be recalled that UP had acquired its portfolio as a spin-off of part of the larger Ericsson portfolio. In his comparables analysis, Birss J had a couple of UP licences, which he rejected as comparables, plus a series of Ericsson licences, some of which he regarded as useful and one in particular he selected as the best place to start. The rate(s) he derived from the Ericsson comparables then had to be scaled to fit the UP portfolio. Birss J. also conducted a top-down analysis and found it, on the evidence before him, to be a useful cross-check which served to confirm the rates he derived from his comparables analysis.

43. In this case, InterDigital have conducted their licensing program for a number of years, amassing a total of about 72 licences. A considerable number of those were ruled out by the parties on account of their age. InterDigital selected initially a group of 15 of their Patent Licence Agreements (PLAs) for their comparables case, later increased to 20 – which I shall call the InterDigital 20. For their part, Lenovo’s chosen comparables were those with the six largest undertakings in the mobile phone field. Mr Meyer’s analysis in his first and second reports was limited to the latest PLAs with these undertakings. By the time of his third report, Mr Meyer had added Huawei 2016 to his analysis, culminating in 7 PLAs. I shall refer to these as the Lenovo 7. At times, when discussing how certain issues developed, it is appropriate to recognise that Mr Meyer’s original analysis was limited to 6 PLAs, and, where necessary, I shall refer to the original 6 as the Lenovo 6.

44. There was no overlap between the parties’ chosen comparables. So, in this case a considerable number of possible comparable licences were put before the Court.

45. As I indicated above, InterDigital also proposed a top-down case as a cross check for their primary comparables approach. As is well known, top-down approaches have been applied in various cases including UPHC, TCL v Ericsson, In Re Innovatio IP Ventures and Huawei v Conversant (see further at paragraphs 165-166 below). The experts in this case accepted that in principle, top-down analyses can be informative. However, the general category of ‘top-down’ embraces a wide range of possible approaches and this case is a prime example of the fact that the devil is in the detail.

46. The general approach is very simple. The relevant formula is:

ARB_TOTAL = ARB_InterDigital / Share_InterDigital

Where: (i) ARB is Aggregate Royalty Burden,

(ii) ARB_TOTAL is the implied royalty for the total stack of 4G SEPs, by way of example,

(iii) ARB_InterDigital is the aggregate royalty for InterDigital’s 4G SEPs, and

(iv) Share_InterDigital is InterDigital’s share of 4G SEPs.

47. InterDigital seeks to establish its share of 3G, 4G and 5G SEPs by reference to various patent counting studies, principally from PA Consulting. InterDigital seeks to establish the level of a reasonable total royalty stack in two ways: first, through ‘hedonic regression’ analyses and second, through public statements made by various third parties.

THE TRIAL

48. The trial took place over 17 days with an allocated 4 days of pre-reading, 2 of which were interspersed between hearing days. For the complexity of some of the expert evidence and the volume of material, even 4 days of pre-reading was woefully inadequate within which to master the materials and the myriad issues. I was supplied with over 50 bundles of material, with further bundles (mostly slim) of cross-examination materials. The largely introductory material in the Opening Skeleton Arguments (but with considerable detail in various Annexes) comprised over 360 pages, with the Closing Skeleton Arguments accounting for a further 400 pages.

49. Oral openings accounted for the first two days of trial. Certain of InterDigital’s fact witnesses were cross-examined on days 3 and 4. Mr Brismark’s evidence accounted for day 5, Mr Bezant for days 6 and 7, Mr Djavaherian for day 8 and Mr Meyer for days 9 and 10. The French law experts gave evidence on day 11. Days 12 and 13 were devoted to evidence on the Top-Down case, with Dr Peters and Dr Putnam on day 12, and Dr Kakaes and Dr Wang on day 13. Understandably, there was then a break to allow the parties to complete the preparation of their Written Closings. Oral closing argument occupied days 14, 15, 16 and about half of day 17.

50. The forensic accountancy evidence (from Messrs Bezant and Meyer) was unnecessarily complicated for several reasons including (a) the fact that each expert used different data in their unpacking analyses and (b) they worked to differing definitions of what constituted past sales. As in UPHC at [227], I was presented with ‘a blizzard of figures’. Even checking an individual value often took considerable time. It was usually necessary to locate an equivalent figure in the initial analysis, trace the response to it, check or locate the revised value, and check the detailed calculations in one or more of the exhibits, which were sometimes large Excel spreadsheets. By the end of the trial, I was left with the strong impression that cases of this type require extensive and much closer case management than occurred in this case, not least in an attempt to ensure that at least there is agreement as to the data which is used for the purposes of analysis. This impression was strengthened during my preparation of this judgment. I have to discuss other case management issues below regarding the development of the Top-Down case and, in particular, the Hedonic Regression analysis.

51. This trial was originally listed for 15 days and, when case managing other FRAND disputes, I have noticed that nearly all FRAND trials have been estimated at 15 days. This occurs at an early case management stage, when the action as a whole is being divided into technical trials and a FRAND trial and long before anyone has a clear idea of the scale of the issues which actually have to be determined at the FRAND trial itself.

52. In this case, the parties evidently decided they were going to (try to) fit everything into the original estimate. In order to do this, the parties wisely decided not to cross-examine where there were no disputes of real significance for example, on the expert evidence of US and Chinese Law. It also meant that cross-examination of important witnesses had to be restricted. After the trial had concluded, I was left with the impression that some important points in the evidence had not been the subject of proper challenge or, in some cases, any exploration at all in cross-examination or adequate focus in submissions, and this impression only increased as I prepared this judgment. Certain important issues were mentioned, if at all, only in passing but several were not adverted to at all.

53. Looking back at the trial, what happened in cross-examination was each side attempted to damage the case presented by the other side and promote their own case, as one expects to take place. InterDigital also attempted to suggest a measure of equivalence between the analyses of Messrs Bezant and Meyer, and I have to consider this below. I observe that this sort of FRAND case is not well suited to adversarial litigation because there is (and was in this case) very little, if any, exploration of the middle ground between the positions taken by the two sides. Whilst it is possible that the Court will adopt one side’s analysis wholesale, in practice this is unlikely. The consequence is that the Court is likely to be much more interested in the middle ground between the two side’s positions.

54. This is another reason why, in my view, much closer case management is required over future FRAND cases and trials. The pre-trial review (PTR) must be a proper review of the case and the issues which the parties wish the Court to decide at the trial. This may require the Judge to engage in several days pre-reading prior to the PTR to ensure he or she is on top of the issues. There was no opportunity to do that in this case. There was a brief PTR (lasting about ½ day) but this did not provide an opportunity to get properly on top of the issues, not least because important expert reports were served after the PTR and all the issues had yet to crystallise.

THE EVIDENCE OF FACT

55. The evidence, in the form of witness statements, expert’s reports and exhibits was extremely voluminous. It is neither practical nor necessary to discuss all the evidence in this judgment. In these sections, I provide a brief summary of the evidence and my views on the witnesses, in so far as they are material.

56. InterDigital served some 23 witness statements from 10 witnesses. Here I summarise the various deponents and an outline of the topics dealt with.

57. Richard Brezski is the Chief Financial Officer of the Third Claimant, the ultimate parent company of the InterDigital Group. In his witness statement, he explains InterDigital’s approach to revenue recognition including how they account for past sales and any non-monetary consideration. His statement went in unchallenged.

58. Bradley Ditty is the General Patent Counsel of the Fourth Claimant. He oversees InterDigital’s patent activities. He provides an overview of the InterDigital patent portfolio, including its size over the years, makeup and geographical scope. Again, his evidence was not challenged.

59. Anthony Grewe retired from InterDigital in April 2021 but was Vice President of the Licensing Group of the Fourth Claimant from 2015 until his retirement. He joined InterDigital in January 2011 being progressively promoted in the Licensing Group. In his first witness statement, he explains InterDigital’s approach to licensing negotiations but also summarises his recollection of certain of the PLAs in which he had some involvement with Huawei, ZTE, Apple, Samsung, Asustek, Pegatron, Wistron, NEC, RIM and Acer.

60. In his second witness statement, Mr Grewe addressed questions which had been raised by Lenovo concerning the various discounts in InterDigital’s licensing arrangements.

61. In his third witness statement, Mr Grewe was asked to consider questions arising from paragraph 6.6 of the first expert report of Mr Djavaherian (also referred to by Mr Meyer in his first report at [59]), and from Meyer 1 at [102].

62. William J. Merritt was the President and Chief Executive Officer of the Third Claimant between May 2005 and April 2021, having commenced his employment with InterDigital in January 1996 as Vice President, Legal. He became General Counsel in 1998 and General Patent Counsel in 2001. In his first witness statement he gives an overview of InterDigital’s business, InterDigital’s general approach to licensing and the licensing program, including a section on unsuccessful negotiations, InterDigital’s negotiations with Lenovo and then his recollections of his involvements with the following InterDigital PLAs with Huawei, ZTE, LG, Apple, Samsung and Innovius.

63. In his second witness statement, he addressed volume discounts and regional sales mixes. In his third witness statement he addresses the November 2018 Offer made by InterDigital to Lenovo.

64. Julia Mattis is Vice President, Deputy General Licensing Counsel at the Third Claimant, a position she has held since January 2020. Originally qualifying as a lawyer in 2004, she commenced employment with InterDigital in February 2010 and has had a number of promotions in the patent licensing team. In her current role, she leads the legal team which is responsible for supporting the licensing business. Her team is responsible for all the legal negotiations for InterDigital’s licensing deals and converting the commercial deal into an executable licence. She has given a total of four witness statements.

65. In her first, she starts by explaining her role and background. Then she explains InterDigital’s January 2020 License offer to Lenovo. She summarises her recollections of a number of the PLAs which are in issue in this action, namely Huawei, ZTE, Apple, Fairphone, Innovius, Fujitsu, Panasonic, Wistron, Sharp, NEC, RIM, Quanta and Acer.

66. In her second witness statement, Ms Mattis covered her recollection of a recent PLA, designated the ‘2021 Sharp PLA’ and similarly, in her third, she covered a further recent PLA, designated the 2021 Xiaomi PLA.

67. For her fourth witness statement, Ms Mattis was asked to and did explain the relationship between InterDigital and the Signal Trust.

68. Sireesha Ancha is a Managing Consultant at PA Consulting Group. She has been employed by PA since April 2006. She provides evidence about PA Consulting, and specifically about the Patent Essentiality Reports which have been prepared by engineers at PA, how the reports are compiled and something of the status of those reports in the market. In her first witness statement, although she describes all the PA Reports relating to various standards, she explains the methodology employed for the 3G, LTE and LTE-A Reports. In her second witness statement she addresses the 5G Report.

69. Shival Virmani is the Head of Mobile Patent Licensing and a Vice President at the Third Claimant. In his first witness statement, he explains his recollection of the patent licensing negotiations between InterDigital and Lenovo in his role as the primary contact at InterDigital between April 2010 and June 2011 and after he re-joined InterDigital in January 2019. In his second witness statement, he provides his recollections of the negotiations which led to PLAs with Blu and Doro, and in his third, with Xiaomi.

70. John Garland runs his own business providing licensing negotiation support to clients including InterDigital. He summarises his recollection of his involvement in the negotiations which led to the PLAs between InterDigital and Blu and Doro. He was not required for cross-examination.

71. Michael B. Levin is a US lawyer. He gives evidence of the status of the proceedings between the parties in the United States District Court for the District of Delaware (claims for patent infringement and declaratory relief by InterDigital and breach of contract (InterDigital’s ETSI FRAND commitments) and violations of the Sherman Act by Lenovo) and in the Patent Trial and Appeal Board (PTAB) (Lenovo’s challenges to the 8 InterDigital patents asserted in the infringement claim).

72. Dr Fang Qi is a Chinese lawyer. In his first witness statement Dr Qi gives an overview of the proceedings in China between the parties:

i)There are proceedings brought by Lenovo in the Beijing Intellectual Property Court in which Lenovo requests that the Court determine FRAND licensing conditions for all Chinese 3G, 4G and 5G SEPs owned by InterDigital.

ii)There are also a series of invalidity petitions filed by Lenovo at the China National Intellectual Property Administration (CNIPA) in which Lenovo challenges the validity of 17 of InterDigital’s Chinese Patents. He relates that hearings have been held in all 17 cases, of which 9 were held invalid (and InterDigital has appealed), 5 were held valid (in respect of 2 of those cases, both sides have appealed, and for a further case, Lenovo has appealed) and 3 were partly invalid (Lenovo has appealed in 2 of those cases).

73. In his second witness statement, Dr Qi provided an update:

i)In the Beijing Intellectual Property Court proceedings, InterDigital’s jurisdiction challenge was dismissed in a judgment dated 8^th November 2021. Even allowing for an appeal, Dr Qi considers it likely that a first instance judgment will be handed down towards the end of 2023.

ii)At the CNIPA, Lenovo has filed one further appeal in respect of an InterDigital patent held to be valid. Dr Qi does not indicate when all the appeals are likely to be determined or whether the FRAND proceedings are dependent on the outcome of the invalidity petitions.

74. Lenovo called no fact witnesses. In their case on conduct, InterDigital made much of Lenovo’s failure to call the key personnel on Lenovo’s side who were involved in the negotiations with InterDigital, with particular stress being placed on the absence of evidence from Mr Ira Blumberg. I will consider this later.

Observations on the witnesses of fact

75. Mr Grewe was called as InterDigital’s first witness. He was a satisfactory witness but tended to be guarded in his answers, although not as guarded as Mr Virmani (see below).

76. As befits his long experience, Mr Merritt was a careful but engaging witness who was very ready to talk about the licensing negotiating process in this field. Having been in charge of InterDigital’s business for such a long period, it was to be expected that he was ready to defend all of InterDigital’s actions in the long negotiating history with Lenovo. Naturally, he was challenged on his characterisation of Lenovo as the worst or among the worst licensee he had dealt with, but he maintained that view. However, it was apparent to me at various points when he was being cross-examined on some of the documents from the negotiations that he was applying hindsight. In other words, in full knowledge of the importance to InterDigital’s case of portraying Lenovo as ‘an unwilling licensee’, Mr Merritt was re-interpreting events from that standpoint.

77. Ms Mattis was only cross-examined for a relatively short time, but she gave clear and open answers. She was a good witness, albeit her evidence is not that material to anything I have to decide. Part of her cross-examination was conducted in private because it related to the Xiaomi 2021 PLA.

78. The final factual witness was Mr Virmani. In his cross-examination it was quickly apparent that Mr Virmani was not going to add anything to what can be seen from the face of the documents. Whenever he was asked about an email he had written or received, his answer was along the lines of ‘that is what the document says’. He came across as a very literal and defensive witness with no independent recollection of any of the negotiating history. To the limited extent that he did add anything to the documents, I find he was essentially programmed to characterise Lenovo as unreasonable. I discuss one particularly egregious example in the Conduct section of this Judgment. He gave views which did not appear to me to be consistent with the contemporaneous documents and so likely to be driven by hindsight.

79. Looking more generally at InterDigital’s factual evidence, the purpose of it was clear. It was to characterise Lenovo as the unwilling licensee and InterDigital as the patient (sometimes overly patient) licensor trying everything in its power to achieve a deal. As I indicate elsewhere in this judgment, I do not find it possible to reach any concluded view as to the reasonableness of the conduct of the two sides without taking into account where the Court ends up on valuation.

THE EXPERT EVIDENCE

80. I received a total of 17 expert reports served on behalf of InterDigital and 13 served on behalf of Lenovo. I introduce here each of the areas on which expert evidence was given, the respective experts and some brief views.

Accountancy

81. Mark Bezant was the expert instructed on behalf of InterDigital in relation to accounting matters. He served four reports with substantial Appendices, a number of which were very large Excel files which could only be supplied in electronic form.

82. Paul Meyer provided equivalent evidence on behalf of Lenovo, serving three reports, also with substantial and detailed Appendices.

83. The evidence of Messrs Bezant and Meyer is central to the comparables part of the case which I discuss in much greater detail below and my decisions in that part of the case reflect the degree to which I felt able to accept their evidence.

84. Mr Bezant has a great deal of experience giving expert forensic accountancy evidence in litigation and in IP cases. He gave such evidence before Birss J in UPHC. He was a careful and considered witness and I am satisfied he was trying to assist the Court to reach a fair outcome, bearing in mind some of the fundamental assumptions on which his analysis had proceeded. He was expertly cross-examined by Mr Segan KC.

85. Naturally I have to discuss a number of aspects of Mr Bezant’s evidence in the comparables analysis. However, in general, I found his evidence less useful than that of Mr Meyer precisely because of the fundamental assumptions on which he (Mr Bezant) proceeded. On reflection, I found some of those assumptions to be unrealistic, which perhaps indicates he had identified too much with InterDigital’s case.

86. As will appear below, I had more confidence in some parts (but not all) of Mr Meyer’s approach. Both experts (and their teams) did an immense amount of work, often under pressure, and I am very grateful for all the work which was done.

87. Furthermore, as I discuss below, after the trial had concluded I made requests for further analysis and assistance from these experts. Messrs Meyer and Bezant co-operated to produce the requested materials within a short space of time and made brief observations on them in line with my requests. I am very grateful to them for carrying out these additional tasks.

Patent Counting and Patent Counting Studies

88. Ruud Peters was instructed on behalf of InterDigital to provide his expert opinion in relation to the issues concerning the patent counting studies pleaded by InterDigital as part of their top-down cross check.

89. Apostolos ‘Paul’ Kakaes provided expert evidence on these topics on behalf of Lenovo.

SEP Licensing

90. Gustav Brismark was asked to address the Court on behalf of InterDigital in relation to industry practices regarding licence terms and negotiations for SEP licences. Subsequently, he was asked to comment on the parties’ respective positions on the licence terms and their negotiations.

91. Mr Brismark was cross-examined over a full day. At first, he gave the impression of being careful and considered in his answers. He was obviously extremely knowledgeable based on his long experience in running Ericsson’s substantial licensing operation for many years. However, as his cross-examination progressed, I formed the distinct view that his opinions came from the viewpoint of the licensor, and from the particular Ericsson viewpoint as licensor. In that regard, his evidence indicated to me that Ericsson was an unusual SEP licensor in that (a) it published its rates long before others started to do so and (b) it had a portfolio which was generally considered to be one of the strongest in the SEP field.

92. There were two particular areas of Mr Brismark’s evidence which gave me some concern.

93. First, in his written reports he was asked to review the course of negotiations between InterDigital and Lenovo and he presented what, on the face of it, was a review from an independent expert. He confirmed in cross-examination that he had not taken account of valuation when conducting his review i.e. he did not consider the valuation of any of the offers made by InterDigital or Lenovo. This was not quite accurate. Although he had in the main refrained from commenting on any of the offers, he did describe one of Lenovo’s offers as ‘low-ball’. This was revealing. It meant, in my view, that he had implicitly adopted the position of InterDigital as licensor and had analysed the negotiations on the implicit assumption that InterDigital had made reasonable offers and it was Lenovo holding out.

94. This was confirmed in further cross-examination as to some of the details of the negotiating history. This revealed that Mr Brismark had not taken an even-handed view. In his review, he was ready to criticise Lenovo for periods of delay, but he did not mention equivalent or even longer periods of delay which were attributable to InterDigital. Mr Brismark nonetheless maintained his view that the negotiating history revealed deliberate delaying tactics on the part of Lenovo. To the extent that such issues need to be resolved, they are issues for the Court and not for the experts.

95. Overall, I was puzzled as to how anyone could reach conclusions effectively as to whether Lenovo was an unwilling licensee without considering the all-important valuation of the offers which were under discussion. In other words, how can a final conclusion be reached until it is possible to review the negotiating history against what is found to be FRAND. To give a hypothetical example, if what is found to be FRAND happens to coincide with even what the licensor considers to be a low-ball offer and the licensor has maintained much higher offers for years, then any periods of delay or failure to reach agreement take on a very different hue than if the FRAND rate is in line with the much higher offers.

96. When reviewing the negotiating history, I find that Mr Brismark lost sight of his duty to present an independent and objective view.

97. Second, in his first report and during cross-examination, Mr Brismark maintained that he had never experienced hold-up from a licensor. This was a striking statement, perhaps in part explained by his unusual experience at Ericsson but perhaps more so by his definition of ‘hold-up’. He said:

‘47. …‘hold-up’ refers to behavior of the licensor and is a theory which assumes that SEPs confer market power which enables a patentee to hold up the licensee by denying them access to a market unless they pay license rates which are above what a FRAND rate should be.’ (my emphasis)

98. He explained further in his second report, in the following passage where he summarised what he considered to be Mr Djavaherian’s position and then responded:

‘52 Mr. Djavaherian's overall position appears to be that smaller licensees are more likely to agree to terms that are supra-FRAND, and that SEP owners are regularly structuring SEP license agreements in order to have rates "appear higher". I disagree to both of these positions.

53 I consider that these claims are unsupported and are at odds with my experience from licensing over the past 15 years. It is my experience that licensors have no ability to force (and 'hold-up') a licensee into signing an SEP license agreement on terms they do not agree to, as licensees can rely on FRAND commitments made by the SEP owner when negotiating the license agreement terms and in the meantime continue to sell products and generate revenues, while using the patented SEP technologies. As I describe in my First Report (see paragraph 47), I am not aware of any evidence that 'hold-up' exists or has caused harm in the mobile telecommunications market.’

99. When I raised this definition with him, Mr Brismark confirmed my view that ‘denying access to a market’ was done by actually obtaining (and I infer, enforcing) an injunction or exclusion order against the products of the licensee. At this point, he then started talking (for the first time) about something different, what he called ‘hold-up power’ i.e. the mere threat of litigation by a licensor to force a licensee to pay above a FRAND rate. He said ‘I have not experienced that there is such a thing as hold-up power’. It may be that his experience at Ericsson was unique in that regard, but I strongly suspect that many licensees have experienced some degree of hold-up pressure from licensors. In terms of how this licensing market works, I consider it is unrealistic to say there is no hold-up power. Once again, this was Mr Brismark taking a very licensor-centric view.

100. David Djavaherian was instructed on behalf of Lenovo to give equivalent evidence. Subject to what I say below, I found him to be a good witness.

101. InterDigital criticised Mr Djavaherian’s evidence because, although he discussed hold-up, he made no mention of hold out at all. They were also critical of his attempts to minimise the effects of hold out, in particular his points that (a) any detrimental effects of delay can be addressed by the SEP holder suing the implementer at an earlier stage; and (b) the SEP holder can always borrow against his portfolio to fund litigation. The ‘fire-sale’ recounted in UPHC shows his evidence to be unrealistic.

102. However, having heard both Mr Brismark and Mr Djavaherian in the witness box and having considered their evidence generally, I have come to the clear conclusion that Mr Brismark was essentially expounding every point which could be made in favour of the SEP licensor with Mr Djavaherian providing the opposite viewpoint. In particular, Mr Brismark’s views were heavily influenced by what I consider to be his unusual and long experience at Ericsson. Notwithstanding those observations, I found the evidence from both experts very interesting and useful. These experts covered some fundamental issues in SEP Licensing, and some such issues were not touched on in cross-examination. Although I have not accepted every point made by Mr Djavaherian, nor rejected every point made by Mr Brismark, in general I found Mr Djavaherian’s evidence to be more balanced and realistic.

Hedonic Regression

103. Dr Jonathan Putnam on behalf of InterDigital explained hedonic regression analysis and presented the results of his analysis in relation to the additional benefit of 3G, 4G and 5G functionality. His first expert report was served on 6^th October 2021. He served a second (relatively lengthy) report on 29^th December 2021. Dr Putnam is clearly an enthusiastic proponent of hedonic regression in general and of the particular analysis he presented in this case.

104. Dr Elizabeth Wang on behalf of Lenovo reviewed Dr Putnam’s first report and responded to it in her first report which was served on 25 November 2021. She did not serve a second report. During her cross-examination, it became apparent that a second report from Dr Wang ought to have been prepared and served. Following Dr Putnam’s second report, Dr Wang had undertaken some further analyses, identified certain papers by way of response to papers he had cited and had a number of positive points in answer. Although she had discussed her responses to Putnam II with Lenovo’s lawyers, none of these additional points or materials were put to Dr Putnam in his cross-examination. Some of this material emerged in Dr Wang’s answers in cross-examination, which took InterDigital’s Counsel on this part of the case, Mr Chacksfield KC, and myself by surprise. As I made clear at the time, this was completely unacceptable and should not have been allowed to occur. I do not place the blame for this on Dr Wang, who was a careful witness. Rather, Lenovo’s lawyers ought not to have allowed this situation to develop. I discuss the consequences below in the context of the issues on Hedonic Regression.

French law

105. Dr Geneviève Helleringer provided evidence on French law on behalf of InterDigital and specifically relevant aspects of the French Civil Code relating to contracts and the concepts of stipulation pour autrui (SPA) and stipulation de contrat pour autrui (SCPA). Her report was properly restricted to providing evidence of French law.

106. Professor Phillipe Stoffel-Munck provided equivalent evidence on behalf of Lenovo, although, as he pointed out, Dr Helleringer’s approach was to explain just the principles of law whereas he delved further into how the issues arising under the ETSI regime would be decided under French Law. InterDigital therefore submitted that substantial parts of his evidence, where he opined on what a French Court would do on the issues before me, were inadmissible.

107. It is not profitable to debate precisely where the dividing line lay on admissibility. However, I have little doubt that the reason why the Professor was invited to express views on the application of the French law principles to the facts was so that his evidence could be deployed, as it was, before HHJ Hacon at the form of order (FOO) hearing in Trial A, to provide a foundation for Lenovo’s arguments (a) that the issue Lenovo wished to raise in this case had not been dealt with in Optis F and (b) the issue could not be resolved without cross-examination.

108. As matters turned out, the force of the evidence which persuaded HHJ Hacon to decline to grant an injunction at the Trial A FOO hearing rather evaporated in cross-examination, during which the Professor accepted it was a question of fact for this Court to determine.

Chinese law

109. Hong Ai gave evidence on Chinese law on behalf of InterDigital.

110. Professor Xiangjun Kong provided equivalent evidence on behalf of Lenovo

US Law

111. Richard S. Taffet provided evidence on US law on behalf of InterDigital and addressed the questions of how US courts approach setting FRAND terms and whether this is settled and various topics referred to in the Statements of Case on US law.

112. Professor Jorge L. Contreras provided evidence on US law on behalf of Lenovo.

113. There was no cross-examination on either Chinese or US law and I was left to read the various reports for myself. This was very interesting, but only revealed a few points which I comment on below.

FACTUAL BACKGROUND

114. What I set out in this section is drawn generally from the evidence and represents my findings.

InterDigital

115. InterDigital was founded in 1972. The following is taken from various of its regulatory filings:

i)Its various subsidiaries engage in technology research and development activities or in the prosecution, maintenance, enforcement and licensing of patents.

ii)Its patents relate to wireless communication technologies and video technologies and as of the 31st of December 2020 its regulatory filing suggests the group held a portfolio of approximately 28,000 patents and patent applications related to wireless to communications, video coding display technology and other areas relevant to the wireless communications and consumer electronics industries. Its patent portfolio is said to comprise patents that are essential or may become essential to cellular wireless standards including 3G, 4G and 5G technologies and other wireless standards including the IEEE 802.11 suite of standards (‘Wi-Fi’) and video codec standards (H.265/HEVC).

iii)InterDigital says it monetises such technologies through licensing and other revenue opportunities with the vast majority of its reported revenues earned from licensing products that allegedly incorporate InterDigital’s wireless technology patents including mobile devices such as cellular phones, tablets, notebook computers and wireless personal digital assistants; wireless infrastructure equipment; modems and components; dongles and modules for wireless devices and Internet of Things devices.

116. It is clear from data presented by Mr Meyer that InterDigital has an uneven geographical distribution of patent rights. For example, on Mr Meyer’s analysis InterDigital had the highest number of distinct patent families in the United States, with a total of 543 patent families, with Taiwan in second place with 357 distinct patent families, followed by Japan with 354 and China with 334. Germany, the UK, France and the Netherlands sit around the 250-260 mark. Argentina and Mexico are around the 150 mark, with Canada, Israel and Australia in the 110’s. After that, there is a long tail of countries with fewer than 100 distinct patent families: 3 in the 90’s, 8 in the 60’s by way of example, before the final 11 countries who have less than 10 distinct patent families, of which the last 5 have only 1 distinct patent family. Mr Meyer presented a heat map of InterDigital’s global patent coverage and, as he observed, the InterDigital Declared Cellular SEP Portfolio is most heavily concentrated in the US, China, Europe, Taiwan, Japan and South Korea. By contrast, InterDigital has relatively few patents in South and Central America, India, South East Asia, the Middle East and Africa.

The development of InterDigital’s licensing ‘program’

117. Mr Merritt described the mobile phone industry as nascent, at the time when he joined InterDigital in 1996, with only a very small number of companies engaged in technology development and licensing. He related that InterDigital were approached by a consultant representing a group of some 20-25 handset manufacturers who had come together to gain a better understanding of the licensing environment for GSM/2G, under the umbrella of the International Telecommunications Standards User Group (ITSUG).

118. Over 1997, Mr Merritt said he was involved in broad discussions with that group over licence structures and rates for running royalty (‘RR’) agreements. He recollects that they successfully negotiated a template form licence agreement which formed the basis for some of their early 2G licences, and these licences also formed the basis for InterDigital’s 2G rates in the 1-2% range, subject to various discounts. Other concepts which Mr Merritt said resulted from these discussions were volume discounts, pre-payments structures and floors and caps, even though Mr Merritt said the work with ITSUG focussed mainly on 2G RR licences. He said that ‘simultaneously’, they negotiated a number of 2G lump sum ('LS') licences for which, because they presented certain risks to the licensee, InterDigital was prepared to offer certain discounts, although he indicated that discounts for different term lengths were not prescribed until later.

119. These early developments are important, because Mr Merritt said those foundational concepts (developed in 2G licensing) remained part of the InterDigital ‘program’ from 1997 to 2019, even though he acknowledges that the rates and terms evolved over time.

120. InterDigital began to license 3G technology in the early 2000’s. Mr Merritt said that many market participants negotiated 3G licences with InterDigital because (a) they were familiar with their practices from 2G; (b) InterDigital’s long history of offering terms for essential patents that Mr Merritt contended were consistent with FRAND; (c) InterDigital’s ‘heavy’ participation in and contribution to 3G Standards and (d) InterDigital’s 3G portfolio. InterDigital adopted 3G rates which were based on but slightly higher than their 2G rates, but still in the 1-2% range, and subject to the same discounts.

121. Mr Merritt says that they went through a similar process in 2009 for formulating their 4G rates, using their 3G rates as a foundation but again increasing the rates ‘as a starting point for negotiations for LTE products’. In both cases, Mr Merritt considered the premium was justified because all licences are usually multimode: so a 3G licence included 2G and a 4G licence is usually a 4G/3G licence.

122.Over the period from 1997-2019 (which I note is a long period of time in the fast-changing world of cellular technology), Mr Merritt referred to a number of ‘significant changes and challenges in the mobile industry and in the licensing environment’. I need to take account of these later, so I will summarise his points.

123. First, he said that unit volumes were continuing to grow significantly. He said this presented a unique dichotomy. He attributed the rise in part ‘to the incredible success of companies like InterDigital in developing the wireless technologies’. New applications and services were developed leveraging this technology. Mr Merritt continued:

‘Given this, one would expect that everyone would place a high value on the inventions driving this technology. It is therefore strange that at the same time as wireless technologies became ever more important they also started to be viewed as a commodity and there began to be push-back, and downward pressure from some in the industry, on the royalties that the developers of wireless technology were receiving.’

124. Second, Mr Merritt referred to ‘a general anti-patent sentiment’, especially in the United States. He said in the US, the ability to secure an injunction for patent infringement was significantly curtailed. He referred to the Samsung v Apple dispute in which the US International Trade Commission (ITC) was prevented by the President of the USA from enforcing an exclusion order against the import of iPhones. Mr Merritt said the result of this pushback was that patent licensors faced a potential situation where they would have to sue an unwilling licensee in every country on every patent and collect damages, a costly and time-consuming process which would have been economically unviable.

125. Third, Mr Merritt said the Chinese manufacturers began to enter the mobile device market, focussing first on domestic sales and then slowly moving into the international market. He said they had a lack of experience of IP and a very different view of pricing of IPRs. As his example, he said they were the first to insist on a different, lower royalty structure for China, with the Chinese government also pushing the same concept. He said the result was downward pressure on royalties and the emergence of arguments on regionalisation.

126. Notably, Mr Merritt said that, despite this challenging environment, InterDigital’s licensing programme continued to operate well. He described how various regulatory challenges (in e.g. Taiwan in 2017 and before the ITC, in 2013 and 2014) to their licensing practices failed routinely to find any substantive issues with their program. He attributed their continued success to their flexible approach to licensing and that their approach ‘had been informed and validated through extensive interaction with customers’.

127. Against that rather InterDigital-centric backdrop, in order to get into more specific matters, it is necessary to start with an understanding of what Mr Grewe meant when he referred in his witness statements to the ‘program’:

‘Where I refer below to the ‘program’ I am referring to the body of information comprising the company's position as to the rates, caps, floors and discounts that were used as the basis for its offers to third parties at any particular time to ensure that we kept within the parameters of InterDigital's licensing activities. There was not a single document that encapsulated the 'program'. Instead it was a body of information which was known and followed by those of us who were involved in licensing and would have been incorporated in opening offers. As I will explain below the program also developed over time to reflect the deals we were concluding.’

128. Next, it is clear from Mr Grewe’s evidence that the ‘program rates’ from time to time were InterDigital's undiscounted ‘program rates’ as presented in their opening offers to companies.

129. Thus, in 2011, he said that InterDigital’s opening offers to companies were those which were set out in in the opening offer to Wistron dated 10 May 2011, being 1% for 2G, with a $0.75 floor, 2% for 3G and 4G only devices, with a $1.50 floor, and 2.5% for 4G multimode devices with a $2.50 floor. Then:

‘I recall that shortly after this, in 2012, we entered into the agreement with RIM / Blackberry and the rates, caps and floors set out in that agreement, together with the volume discount table referred to in our opening offer, became the new ‘benchmark' for the program.’

130. RIM had previous PLAs with InterDigital in 2003 and 2007. RIM 2012 took just over a year to negotiate and agree. It covered 2G, 3G and 4G handsets, various other devices and infrastructure. It had an effective date of 1 January 2013 and a five-year term. It was a running royalty licence with the following rates:

i)3G (CDMA2000) 1% of the ASP of ‘Basic Communication Devices’, with a floor of $0.50 and a cap of $1.20;

ii)3G (excluding CDMA 2000) 1.25% of the ASP of ‘Premium Communication Devices' with a floor of $0.50 and a cap of $2.00;

iii)4G-only: 1.25% of the ASP of ‘Premium Communication Devices’ with a floor of $0.50 and a cap of $2.00;

iv)4GMM: 2% of the ASP of ‘Premium Communication Devices’ with a floor of $1.50 and a cap of $2.75.

131. The parties agreed that for 2013, the prices for the Basic and Premium devices would be $95.70 and $312.30, with prices for future years based on data from internationally recognised organisations.

132. There was a prepayment credit of $11.2m from the prior PLA and RIM agreed to make a mandatory pre-payment of $105m, based on projections and agreed discounts for the first two years of the term, but which included a release on past 4G only and 4GMM sales (up to a limit of 10,000 devices).

133. Mr Bezant calculated LER per unit rates of 3GMM at $1.56 and 4GMM at $2.11.

134. As Mr Grewe also said:

‘We also have a number of discounting structures which form part of InterDigital's licensing program which we look to when negotiating a license and assessing internally whether that license is aligned with our licensing program. I have set out some of them below. Our rate and discounting structure has changed over time in an effort to provide additional transparency. For example, historically we used primarily a volume discount approach where a discount was applied to all sales as a licensee hit various volume thresholds. The volume discount used in the 2011 - 2018 time-frame was derived using a company's three year aggregated projected volume against a discount table for the projected 3 year volumes of a company. That discount was then applied across the term of the agreement. Since then, the volume discount has been arrived at by looking at a company's volumes by individual years and the volume from the discount table is arrived at by looking at the various volume thresholds within a given year (much like a US income tax table) to provide incremental discounts levels as the annual volumes increase.’

135. A volume discount table was included in InterDigital’s initial offer to RIM, but Mr Bezant assumed it only applied to LS licences and not to RR licences like RIM 2012. Although I am uncertain whether the document dates from InterDigital’s initial offer to RIM, in InterDigital’s disclosure, document F143 contains a table which is said to be the RIM volume discount table. The discounts are based on ‘Guaranteed Unit Volume’ over a 3-year period. If that volume was less than 5m units, the discount was 0%; volumes between 5 and 10 million attracted a discount of 3%. The size of the discount rose with increasing volumes, so for example, volumes between 25 to 100 m units attracted a 20% discount, 400-500m: 50%; 500-999m: 60% and >1 bn units: 75%.

136. Mr Grewe said they had to extrapolate the table for Samsung 2014 because Samsung’s 3-year volume was predicted to be in the [RED] range. Samsung qualified for an 80% volume discount.

137. The RIM volume discount table was used from 2013 to about 2018. Mr Grewe said they moved at the end of 2019 to more of a ‘tax table’ type structure for volume discounts, as part of the move to InterDigital’s new programme for licensing. A copy of the ‘tax table’ was set out in the January 2020 offer to Lenovo:

138. Using the example in the January 2020 offer letter, for an annual sales volume of 45m units, the top 5m units would attract a 20% discount, the 20-40m tranche a discount of 10% and the first 20m units, 0% discount.

139. From 2020 onwards, InterDigital published its ‘rates per standard’ on its website. Mr Grewe said that meant that InterDigital did not have to wait for a NDA to be agreed and signed before making an opening offer.

140. The website makes certain additional points clear:

i) These are the ‘program rates’ currently available for a SEP licence for handsets.

ii) The rates are ‘for informational purposes only, does not constitute a binding offer, and is subject to additional terms and conditions and execution of a definitive [PLA]’

iii) The pricing is for new licensees, covering sales from 1 January 2020.

iv)For ‘qualifying new handset licensees, additional discounts may apply based on duration of the agreement, product volumes, payment timing and structure, special market considerations and other factors.’

141. Before and after the 2020 rates were published, InterDigital applied a range of discounts in addition to the volume discounts. Mr Grewe discussed these in more detail in his second witness statement. Before doing so, he described how they might be applied. The following extracts give a flavour of his evidence on this point:

‘6. In preparing an offer to a prospective licensee InterDigital will, based on the information it has about a licensee and the proposed structure of the license, assess whether the prospective licensee may be eligible for certain discounts. A licensee may be eligible for discounts in accordance with InterDigital's licensing program based on a variety of factors. …

7. Prior to the publication of InterDigital's licensing program rates in 2020, the application of a discount in an opening offer, and whether that was explicitly stated, would depend on the level of discussions that had taken place before the opening offer was made, whether an NDA was in place, and how much we knew about the prospective licensee and the structure of licence they were looking for. Often, the opening offer (which would usually be running royalty but may set out both a running royalty and a lump sum or fixed fee offer - what is set out will depend on what conversations have already taken place) would set out the undiscounted rates and would state (either in the offer itself or the meeting discussing the offer) that discounts may be applied depending on certain factors (i.e. those outlined above). As aspects of the agreement were better understood during subsequent discussions, such as the length of term, type of payment structure and timing etc., the related discounts would be included in future offers, even if this was not explicitly stated in the opening offer…

8. I cannot think of an example of where a licensee might be eligible for a type of discount but was not offered it during the course of the discussions / negotiations, and cannot think of any reason why that would be the case. However, as is also explained in more detail below, any resulting discount calculated based on an initial assessment of eligibility is a starting point in the negotiations and may well be subject to change as the structure of the license becomes more clear (for example changes could be made to address information conveyed by the licensee and/or information that emerges from other sources), and as the top line number and payment structure of the license is negotiated between the parties.’

142. From these extracts and the one quoted in paragraph 134 above, I was left with the distinct impression that a licensee may well not be aware of the specific discounts which InterDigital included in various offers and that there was no guarantee that the discounts were uniformly applied. It was clear both from Mr Grewe’s evidence and from Mr Merritt’s evidence that InterDigital regard discounts as mechanisms which they can adjust in order to reach an agreed PLA.

143. The various discounts discussed by Mr Grewe in detail in his second witness statement are:

i) Fixed-fee discount: a licensee would be eligible for a fixed fee (FF) discount if it entered into a lump sum or fixed fee licence.

ii) Time value of money discount: typically around 10% per annum but higher at certain points, and in part based on InterDigital’s cost of capital. Mr Grewe described the FF discount as accounting for the value InterDigital places on the certainty of the sum they receive, whereas the Time Value of Money discount accounts for the increased value InterDigital places on money received today rather than in the future.

iii) Term discount: a licensee would be eligible for a term discount if it agreed to a licence of 3 years or more in length, with the discount increasing from 3% at 3 years to a maximum of 10% at 10 years.

iv) Pre-payment discount: which only applied to RR licences where sums were paid in advance.

v) Volume discounts: as above, although Mr Grewe stated that for LS licences, the volume discount was incorporated into the lump sum using sales forecasts. He also said he didn’t recall working on any RR agreements under the new programme prior to his departure from InterDigital on 2 April 2021. I note that Mr Bezant assumed that the volume discounts did not apply to RR licences, and there is no indication that anyone from InterDigital indicated he was mistaken.

vi) Regional Sales Mix Discount: a licensee is eligible if a proportion of their products are manufactured and sold in China primarily for use in China (‘China-only products’), which are subject to a 50% discount. Mr Grewe also mentioned Panasonic 2013 as an example where different 3G and 4G rates were set as between Japan and the Rest of the World. It appears a similar arrangement was provided in Panasonic 2017. I assume these Panasonic arrangements were the result of Panasonic being a ‘local king’ in Japan, so I need not consider them further.

vii) Renewal Discount: this is a discretionary discount, both in terms of when it might be offered and, if offered, the amount. Mr Grewe said the discount was something in the range of 5-20% and was available to be offered if a licence was renewed early or about the time a previous licence was expiring. He indicated that any discount was determined on a discretionary basis, taking account of the cost of litigation and the other party’s behaviour, such as their litigious and negotiating history.

144. Following receipt of Mr Grewe’s first witness statement, Lenovo requested a list of the discounts actually applied (and how they were determined in each case) if they were not determined in the same way for each licensee. I assume the request concerned each of the pleaded PLAs. Mr Grewe began his response to this request as follows in his second witness statement:

‘Given our usual negotiation process, it is very difficult to provide a list of the discounts 'actually applied' for each finalized license and how they were determined, other than as explained further below. I have explained above how offers are expressed with regard to discounts during negotiations. If Lenovo's request seeks identification of specific discounts 'actually applied' in the sense of applied precisely to a separately negotiated price at the end of a negotiation, it misunderstands the nature of the negotiation that follows from an initial offer to the conclusion of the license agreement.’

145. The ensuing paragraphs make it clear that any discussions regarding discounts are internal to InterDigital, a point confirmed by Mr Grewe’s final sentence in this section: ‘In other words, even if there were to be any specific discussion of discounts in the negotiation it would likely only be to increase them.’

146. In the course of his response, Mr Grewe made an interesting general point about the differing viewpoints of InterDigital and licensee:

‘28. As will be appreciated while InterDigital takes care to make sure the end result through the use of appropriate discounts is consistent with the program, many times the licensee is more focused on what the top line number looks like when extrapolated to a per unit basis so that they can compare the values against what they believe others may have paid for their licenses based on publically available information. As such, even though the publically available information does not necessarily provide all of the pertinent information, as part of the back and forth process, it is the top line number and the value of the license that queries from the licensee ultimately focused on, more so than individual discounts themselves.’

147. In particular, his observation about the focus of the licensee is consistent with the point made by Judge Selna in TCL v Ericsson (cited in paragraph 262 below) that ‘parties to these licence agreements generally care much more about the total amount they have to pay from the total value they receive’.

148. It is not necessary for me to rehearse all the evidence given by fact witnesses as to their recollections of what discounts were applied in which of the pleaded PLAs. In some early case management of this part of the case, Birss J. very sensibly refused to order full disclosure of documents evidencing how each of the pleaded PLAs were negotiated, although he did order disclosure of each side’s last stated position on various key topics such as volume and value of past sales, consideration for past sales or the implied effective rate, discounts, set-offs and uplifts, material non-monetary consideration and any key contextual information. By way of example, however, I refer to Mr Grewe’s evidence as to what discounts were applied in reaching one of the more recent PLAs, [REDACTED] (emphasis added):

‘The starting point would have been that [REDACTED] was eligible for a term discount, regional sales mix discount, volume discount, fixed-fee discount and a time value of money discount. Any movement on those would have been because of the particular negotiation and its particular context, and eventually we reached a place where both parties could live with the top line numbers even though the parties had differing views on [REDACTED] future sales mix and numbers as I explained at para 68 of my first witness statement. (This was in part due to each side having its own views built from the information available to that party.)’

149. So the only negotiating history in the case is that which involved Lenovo.

Lenovo

150. The Lenovo group of companies was established in 1984 with main headquarters in Hong Kong and China and operations centres in Beijing and, following the acquisition of IBM’s PC business in 2005, in Morrisville, North Carolina. Lenovo operates in 180 territories around the world. It has two core business groups: (1) an Intelligent Devices Group which includes PCs, tablets, smart devices, plus Lenovo’s mobile business and (2) the Infrastructure Solutions Group, which includes servers, storage, networking, software and services. Lenovo now includes Motorola Mobility, the legacy smartphone segment of Motorola, Inc, which Lenovo acquired from Google in 2014.

151. This action is concerned with Lenovo’s cellular products which implement one or more cellular standards – 3G, 4G and/or 5G – and these include mobile handsets, tablets and PCs.

152. Lenovo has manufacturing facilities in China, Brazil, India, Japan and Mexico and a fulfilment centre in the US where inventory is stored in preparation for the fulfilment of customer orders. Mr Meyer understands Lenovo's handsets to be primarily manufactured in China, Brazil and India, whereas its PC data centre and server businesses additionally utilised manufacturing facilities in Mexico and Japan. Accordingly, so Mr Meyer says, the fact that a substantial portion of Lenovo’s mobile phones are manufactured in Brazil and India, where InterDigital’s patent coverage is relatively low, and are then sold in low or no patent jurisdictions is relevant to the negotiation for a licence to the InterDigital Declared Cellular SEP portfolio as between InterDigital and Lenovo.

153. Mr Meyer also presented data indicating that between Q3 2013 to Q2 2021 Lenovo sold approximately 487 million cellular products, distributed between the generations of technology as follows: 2G: 1.1%; 3G: around 30%; 4G: just under 69%; 5G: 0.6%. In terms of geographical sales distribution over the same period, China accounted for the largest proportion of sales of Lenovo cellular products with 22.6% followed by the ‘Rest of the World’, 19.8%, Brazil, 16.7%, US, 12.9%, Europe, 9%, Mexico, 8%, what was termed the Rest of Latin America, 6.4%, Argentina, 3.5%, Canada, 0.5% and Japan, 0.4%. However, if I total all the LATAM countries, their share of Lenovo’s sales is 34.6%.

Overview of licensing discussions

154. In terms of licensing discussions between the parties, these began in 2008 with an initial letter from InterDigital to Lenovo Mobile Communications. In the early years the parties engaged with the delivery by InterDigital of claim charts, an initial term sheet and meetings, before Lenovo broke off discussions in an email in June 2011. Correspondence restarted in February 2012, but no progress was made. Discussions resumed in May/June 2013 against the backdrop of an announcement by Lenovo that it intended to bring its smartphones to the US market within a year. Lenovo’s acquisition of Motorola Mobility in October 2014 was also a significant event. From March 2015-September 2016 the parties were engaged in discussions regarding opportunities for R&D collaboration. In December 2015, InterDigital renewed an offer previously made to Lenovo in October 2013. Lenovo made its own offer to InterDigital in May 2016. As already mentioned, over the years, InterDigital made a total of 14 offers to Lenovo and Lenovo made 2. However, a fairly constant refrain from Lenovo was requests for more transparency regarding the calculations behind InterDigital’s offers and FRAND rate structure, and more information about other InterDigital licence agreements. It is apparent from the various offers made by InterDigital that it was trying various combinations of rates and terms to encourage a deal. Thus, there were a number of lump sum offers, running royalty and hybrid offers.

155. On 4 February 2019, InterDigital withdrew all previous offers but made an offer of a 5-year licence covering 3G, 4G and 5G (and Wi-Fi and HEVC) with the following rates: 3G: 1.5%; 4G: 2.0%; 5G: 2.0% (all being subject to various floors and caps) or, as I understand it, a proposal for a fixed fee of $134m upfront and a binding arbitration for past sales (which were not released).

156. This action commenced on 27 August 2019 accompanied with a further offer for a 6-year term, 1 January 2018 to 31 December 2023 at rates of 3G: 0.75%; and 4G: 1.00% (again with caps and floors), with a release for past sales in return for royalties at the same rates for ongoing sales, due in a lump sum payment within 30 days.

157. The next day, InterDigital commenced patent infringement proceedings against Lenovo in Delaware.

158. On 15 January 2020, InterDigital made a further offer, clarified in a letter dated 18 June 2020, which later became the basis for the 5G Extended Offer. In April 2020, Lenovo commenced anti-trust proceedings against InterDigital in Delaware and proceedings against InterDigital in the Beijing Intellectual Property Court seeking the determination of FRAND conditions for InterDigital’s Chinese portfolio of 3G, 4G and 5G SEPs. InterDigital made a further offer to Lenovo in May 2020 for a licence to 3G, 4G, 5G, Wi-Fi and HEVC technologies on the basis of the payment of a lump sum of $90m with an option to explore R&D collaboration to which InterDigital offered to consider allocating up to $9m and an option for up to 10% of the consideration to be provided by way of patent transfer.

159. In August 2021, InterDigital amended its January 2020 offer to include 5G. These amended terms are the 5G Extended Offer.

160. Finally, I should mention that, via a witness statement served for the form of order hearing in Trial A in around November 2021, InterDigital learnt that Lenovo had issued a claim in the Wuhan Court seeking a global FRAND determination for a licence to InterDigital’s 3G, 4G and 5G SEP portfolio starting in January 2024. At the time of the trial, InterDigital had yet to receive any formal notification of those proceedings let alone service of them. InterDigital pointed out that Lenovo has not sought a licence for the post-2023 period, nor asked InterDigital to extend the term of the FRAND licence being determined by this Court but InterDigital also acknowledged that those proceedings have no bearing on the issues I have to decide.

Lenovo’S position in the Global Market for mobile handsets

161. The global market for mobile handsets is highly competitive and volatile. Lenovo’s position varies by year (a point I consider later), but a general picture is provided by looking at market share data of the Top 20 Handset suppliers for 2013-Q2, 2021. Mr Meyer presented the following in his first report, based on data from IDC. The entities licensed by InterDigital are shown highlighted in yellow:

162. The data in the table demonstrate that the Top 20 handset suppliers accounted for nearly 79% of all handsets globally. Each of them sold more than 10m units per annum on average. In relation to the six entities which account for the Lenovo 7, they accounted for approximately 47% of global handset sales over the period. It may also be noted that none of the InterDigital 20 feature in this table.

163. As regards handsets, Lenovo’s sales volumes and market share peaked in 2014 with a market share of just above 5%, prior to that its market share was 3-4% and from 2016 onwards, it had dropped to between 2-3%, sitting at 2.11% in 2020. By 2020, Lenovo was ranked 10^th in the handset market, 4^th in the cellular tablet market and 1^st in the cellular PC market. Although Lenovo has sold and sells tablets and cellular PCs, the volumes are dwarfed by the handset sales which account for 91% of the total units covered by Mr Meyer’s analysis i.e. from 2013 to Q2, 2021.

164. Even making due allowance for changes from year to year, this table also demonstrates that Lenovo belongs in the top 10 global handset suppliers with volumes very close to, indeed slightly higher than, LG, and in amongst the six manufacturers who account for the Lenovo 7.

APPLICABLE PRINCIPLES

Previous Case Law

165. As to the first headline issue which I identified at the start, this is the second time the English Court has been called upon to determine what terms are FRAND. As to the second headline issue(s), aspects of the relevant principles have been addressed by Meade J. in the Optis v Apple litigation. Accordingly, my task has been significantly simplified by the relevant prior judgments in this area. Here I simply identify them and define my references to them:

i) The masterful analysis undertaken by Birss J. (as he then was) in the first case of this kind – Unwired Planet International Ltd v Huawei Technologies (UK) Ltd &Anr [2017] EWHC 711 (Pat) (the public version) (‘UPHC’), together with his later judgment on remedies [2017] EWHC 1304 (Pat) (‘UPHC Remedies’).

ii) The judgments on appeal from Birss J.: [2018] EWCA Civ 2344 (‘UPCA’) and [2020] UKSC 37 (‘UPSC’).

iii) Two judgments of Meade J. in Optis Cellular Technology LLC &Ors v Apple Retail UK Ltd &Ors in which he had to consider aspects of the ETSI IPR Policy. First, in Trial B [2021] EWHC 1739 (Pat) (‘Optis B’) and then in Trial F: [2021] EWHC 2564 (Pat) (‘Optis F’). Whilst preparing this judgment, the Court of Appeal heard and dismissed Apple’s appeal and Optis’ cross-appeal regarding Optis F: [2022] EWCA Civ 1411 (‘Optis F CA’).

iv) The judgment of HHJ Hacon on the form of order hearing in Trial A in this litigation, in which he declined to grant any injunction: [2021] EWHC 3401 (Pat) (‘Trial A FOO’).

v) Although I have not found it necessary to discuss it, I have also had regard to the ruling of the CJEU in Huawei Technologies Co Ltd v ZTE Corp Case C-170/13, ECLI:EU:C:2015:477 [2015] 5 CMLR 14 (‘Huawei v ZTE’).

166. The development of the correct approach to setting global FRAND terms is an international endeavour, even if particular steps have to be taken in different territories where considerations of law and practice may differ. During the trial before me, there was rightly extensive reference to the case law in other jurisdictions, notably from the US and China. Here I identify the relevant cases and define my references to them:

i) Huawei v InterDigital (2013) Guangdong High People's Ct. Civ. Third Instance No 305.

ii) TCL v Ericsson - TCL Comm. Tech. Holdings, Ltd. v Telefonaktiebolaget LM Ericsson Inc., Public Redacted Memorandum of Findings of Fact and Conclusions of Law 8:14-cv-00341 (C.D. Cal. Dec. 21, 2017) (Selna, J.).

iii) TCL v Ericsson (Federal Circuit) - TCL Commun. Tech. Holdings Ltd. v. Telefonaktiebolaget LM Ericsson Inc., 943 F.3d 1360 (Fed. Cir. 2019).

167. Reference was also made to other US decisions, in particular:

i) In re Innovatio IP Ventures LLC Patent Litigation Case No 11 C 9308, 2013 WL 5593609 (N.D. Ill Oct 3, 2013)

ii) Ericsson v D-Link - Ericsson, Inc., v D-Link Systems, Inc., 773 F.3d 1201 (Fed Cir 2014).

iii) CSIRO v Cisco - Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc., 809 F.3d 1295 (Fed. Cir. 2015).

168. I have noted certain differences in the US approach, but I did not detect that either side considered them material to my approach in this case:

i) First, see the point made by Birss J in UPHC at [97], where he referred to two sources of value for the patentee, one from the invention and the second from its incorporation into the standard. As I understand the position, in the US the FRAND rate is determined ‘ex ante’ (i.e. before the patented invention is adopted into the standard) to eliminate hold up. However, Birss J. noted the agreed evidence from the expert economists before him was that FRAND was not a scheme which meant that the patentee could not appropriate some of the value that is associated with the inclusion of his technology into the standard. For my part, I do not see how one can eliminate or distinguish the value of an invention being incorporated into a standard from the invention itself.

ii) Second, there may be a difference in approach on the ‘Non-Discriminatory’ element of FRAND. From a US perspective, ND does not mean that all licensees must be offered the same terms, merely that similarly situated licensees must be offered substantially similar terms. These terms are somewhat elastic.

169. It may be noted that much of the caselaw (and the issues of interpretation of clause 6.1 of the ETSI IPR Policy) relates to the Conduct part of this case, and I attempt to summarise the position on that part of the case first. On the Comparables part of the case, I have drawn considerable assistance from the judgments of Birss J. in UPHC and of Judge Selna in TCL v Ericsson, in particular, and I address those principles second.

PRINCIPLES APPLICABLE TO CONDUCT

The ETSI IPR Policy

170. In cases of this type, both parties invoke the ETSI IPR Policy and in particular clause 6.1 of that Policy, albeit it is invariably the case (at least to date) that the SEP owner and the implementer seek to interpret that provision in different ways. Clause 6.1 provides as follows:

"When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory ("FRAND") terms and conditions under such IPR to at least the following extent:

– MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;

– sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;

– repair, use, or operate EQUIPMENT; and

– use METHODS.

The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate."

171. My task in interpreting and applying clause 6.1 to this dispute is very considerably eased by the issues which have been resolved in previous judgments, in particular, UPHC, UPCA, UPSC, Optis F and Optis F CA.

172. The interpretation of clause 6.1 is a matter of French law. The parties have adduced evidence of French law to enable me to carry out that interpretation. However, Lenovo also reminded me of the effect of section 4(2) and 4(4) of the Civil Evidence Act 1972, as explained by Warren J. in Joint Stock Co. ‘Aeroflot-Russian Airlines’ v Leeds &Ors [2017] EWHC 150 (Ch). It is not necessary to discuss his reasoning in detail. It suffices to note his suggestion at [23] that:

“…. putting it at a high general level, one of the purposes of section 4(2) is to enable a person in a subsequent case to rely on the reasoned conclusions of a judge in an earlier case without the need to commission fresh expert evidence. Although there is a presumption under section 4(2)(b) that, where a finding or decision as to foreign law is adduced in evidence, that law is in accordance with the finding or decision, that is only a presumption. It is open to challenge, as the closing words of paragraph (b) ("unless the contrary is proved") demonstrate."

173. In accordance with that case, the parties seemed in agreement that, to the extent that Meade J. made findings as to French law in Optis F, I should follow them unless I was persuaded any were wrong. Naturally, the same point applies to UPHC, UPCA and UPSC. Since I am entirely in agreement with the findings which Meade J. made (and the appeals challenging them were dismissed), I am able gratefully to adopt his analysis, as well as the earlier analysis in UP.

The Unwired Planet Judgments

174. For any Judge having to adjudicate on this type of FRAND trial, the Judgment of Birss J. in UPHC repays careful consideration, both for the principles he set out but also for his observations on the practicalities of this type of trial, a topic to which I return below.

175. Although the issues narrowed in the appeals from his judgment, subject to only one point, his analysis was either not challenged at all or was upheld in the appeals. The one point concerned his conclusion at [164] that for a given set of circumstances there will only be one set of FRAND terms and only one FRAND rate.

176. In UPCA, the Court of Appeal disagreed:

"121. We have come to a different conclusion from that of the judge on the question whether there can be only one set of FRAND terms for any given set of circumstances. Patent licences are complex and, having regard to the commercial priorities of the participating undertakings and the experience and preferences of the individuals involved, may be structured in different ways in terms of, for example, the particular contracting parties, the rights to be included in the licence, the geographical scope of the licence, the products to be licensed, royalty rates and how they are to be assessed, and payment terms. Further, concepts such as fairness and reasonableness do not sit easily with such a rigid approach. In our judgment it is unreal to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of licence terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances. To the contrary, the reality is that a number of sets of terms may all be fair and reasonable in a given set of circumstances."

177. As Arnold LJ noted in Optis F CA at [61], the context and purpose of the ETSI IPR Policy in general and of clause 6.1 in particular, were authoritatively analysed in UPSC in the following important passage:

“7 . The purpose of the ETSI IPR Policy is, first, to reduce the risk that technology used in a standard is not available to implementers through a patent owner's assertion of its exclusive proprietary interest in the SEPs. It achieves this by requiring the SEP owner to give the undertaking to license the technology on FRAND terms. Secondly, its purpose is to enable SEP owners to be fairly rewarded for the use of their SEPs in the implementation of the standards. Achieving a fair balance between the interests of implementers and owners of SEPs is a central aim of the ETSI contractual arrangements.

The ETSI IPR Policy

8. The ETSI IPR Policy (‘the IPR Policy’) is a contractual document, governed by French law. It binds the members of ETSI and their affiliates. It speaks (clause 15(6)) of patents which are inevitably infringed by the sale, lease, use, operation etc of components which comply with a standard as ‘Essential IPR’. By requiring an IPR holder whose invention appears to be an Essential IPR to give an irrevocable undertaking to grant a licence of the IPR on FRAND terms, it creates a ‘stipulation pour autrui’, in other words an obligation which a third-party implementer can enforce against the IPR holder. The IPR Policy falls to be construed, like other contracts in French law, by reference to the language used in the relevant contractual clauses of the contract and also by having regard to the context. In this case, that context is both the external context and the internal context of the IPR Policy document itself, such as the policy objectives declared in the document.

9. The external context includes (i) the Guidance (above) which ETSI has produced on the operation of the IPR Policy, (ii) ETSI's statutes (above), (iii) the globalised market which ETSI and other SSOs were and are seeking to promote, which we have discussed in para 4 above, and (iv) the fact that ETSI is a body comprising experts and practitioners in the telecommunications industry who would be expected to have a good knowledge of the territorial nature of national patents, the remedies available to patent owners against infringement of their patents, the need to modify by contract the application of patent law to promote the development of a globalised market in telecommunications products, and the practice of the industry in negotiating patent licensing agreements voluntarily.

10. The policy statements which provide the internal context include the objectives set out in clause 3 of the IPR Policy. They include the statement in clause 3.1 that the IPR Policy:

‘seeks to reduce the risk to ETSI, MEMBERS, and others applying ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable.’

That statement clearly reveals a policy of preventing the owner of an Essential IPR from ‘holding up’ the implementation of the standard. But that policy is to be balanced by the next sentence of clause 3.1 which speaks of seeking a balance, when achieving that objective, ‘between the needs of standardization for public use in the field of telecommunications and the rights of the owners of IPRs’. The importance of protecting the rights of the owners of IPRs is declared in the second policy objective (clause 3.2) in these terms: ‘IPR holders whether members of ETSI and their AFFILIATES or third parties, should be adequately and fairly rewarded for the use of their IPRs in the implementation of STANDARDS and TECHNICAL SPECIFICATIONS.’ This objective seeks to address the mischief of ‘holding out’ by which implementers, in the period during which the IPR Policy requires SEP owners not to enforce their patent rights by seeking injunctive relief, in the expectation that licence terms will be negotiated and agreed, might knowingly infringe the owner's Essential IPRs by using the inventions in products which meet the standard while failing to agree a licence for their use on FRAND terms, including fair, reasonable and non-discriminatory royalties for their use. In circumstances where it may well be difficult for the SEP owner to enforce its rights after the event, implementers might use their economic strength to avoid paying anything to the owner. They may unduly drag out the process of licence negotiation and thereby put the owner to additional cost and effectively force the owner to accept a lower royalty rate than is fair.

11. Having looked at context, we turn to the operative clauses of the IPR Policy. A member of ETSI is obliged to use its reasonable endeavours to inform ETSI in a timely manner of Essential IPRs during the development of a standard or technical specification. If a member submits a technical proposal for a standard or technical specification it is obliged to inform ETSI of its IPRs which might be essential (clause 4.1). Clause 4.3 confirms that this obligation of disclosure applies to all existing and future members of a ‘patent family’ and deems the obligation in respect of them to be fulfilled if an ETSI member has provided details of just one member of the patent family in a timely manner, while also allowing it voluntarily to provide information to ETSI about other members of that family. A ‘patent family’ is defined as “all the documents having at least one priority in common, including the priority document(s) themselves’ and ‘documents’ in this context means ‘patents, utility models, and applications therefor’ (clause 15(13)). The patent family thus extends to patents relating to the same invention applied for and obtained in several jurisdictions. It shows an intention for the arrangement to apply internationally. This is important because the undertaking to grant a licence under clause 6, to which we now turn, extends to all present and future Essential IPRs in that patent family.

12. The key to the IPR Policy is clause 6, which provides the legal basis on which an owner of an Essential IPR gives an irrevocable undertaking to grant a licence and thereby protects both ETSI and implementers against ‘holding up’. Clause 6.1 provides so far as relevant:

‘When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory (‘FRAND’) terms and conditions under such IPR …’

It provides that the licences must at least cover the manufacture of equipment, the sale, lease or other disposal of equipment so manufactured, and the repair, use or operation of such equipment. FRAND licensing undertakings made pursuant to clause 6 are intended to bind all successors-in-interest in respect of a SEP, and upon transfer of a SEP the SEP owner is required to take steps to ensure that this is achieved (clause 6.1bis). The undertaking made in respect of a specified member of a patent family is applied to all existing and future Essential IPRs of that patent family unless specified IPRs are excluded in writing when the undertaking is made (clause 6.2). It is envisaged in the IPR Policy that this process will usually take place while ETSI is working to create a standard because clause 6.3 provides that, if the IPR owner does not grant the requested undertaking, relevant office-bearers in ETSI will decide whether to suspend work on the relevant parts of the standard or technical specification until the matter is resolved, or to submit any relevant standard or technical specification for adoption. Similarly, if, before a standard or technical specification is published, an IPR owner is not prepared to license an IPR, clause 8.1 provides for the adoption of a viable alternative technology for the standard or technical specification if such a technology exists. If such technology does not exist, clause 8.1 provides an option for work on the standard or technical specification to cease. If the refusal to grant a licence occurs after ETSI has published a standard or a technical specification, clause 8.2 provides the option of modifying the standard so that the relevant IPR is no longer essential.

13. Clause 6bis instructs members of ETSI to use one of the declaration forms annexed to the Policy. So far as relevant, the licensing declaration is an irrevocable declaration by the declarant and its affiliated legal entities that, to the extent that disclosed IPRs are or become and remain Essential IPRs, they (a) are prepared to grant irrevocable licences in accordance with clause 6.1, and (b) will comply with clause 6.1bis.

14. It appears from this brief review of the IPR Policy in its context that the following conclusions may be reached. First, the contractual modifications to the general law of patents are designed to achieve a fair balance between the interests of SEP owners and implementers, by giving implementers access to the technology protected by SEPs and by giving the SEP owners fair rewards through the licence for the use of their monopoly rights. Secondly, the SEP owner's undertaking, which the implementer can enforce, to grant a licence to an implementer on FRAND terms is a contractual derogation from a SEP owner's right under the general law to obtain an injunction to prevent infringement of its patent. Thirdly, the obtaining of undertakings from SEP owners will often occur at a time when the relevant standard is being devised and before anyone may know (a) whether the patent in question is in fact essential, or may become essential as the standard is developed, in the sense that it would be impossible to implement the standard without making use of the patent and (b) whether the patent itself is valid. Fourthly, the only way in which an implementer can avoid infringing a SEP when implementing a standard and thereby exposing itself to the legal remedies available to the SEP owner under the general law of the jurisdiction governing the relevant patent rights is to request a licence from the SEP owner, by enforcing that contractual obligation on the SEP owner. Fifthly, subject only to an express reservation entered pursuant to clause 6.2, the undertaking, which the SEP owner gives on its own behalf and for its affiliates, extends to patents in the same patent family as the declared SEP, giving the implementer the right to obtain a licence for the technology covering several jurisdictions. Finally, the IPR Policy envisages that the SEP owner and the implementer will negotiate a licence on FRAND terms. It gives those parties the responsibility to resolve any disputes as to the validity of particular patents by agreement or by recourse to national courts for determination.”

178. As Arnold LJ also noted at [62], there is much else in UPSC which is relevant not just to Optis F CA but also to all FRAND disputes, but to keep the length of this judgment within reasonable limits, I will cite Arnold LJ’s selection of the following additional paragraphs from UPSC:

“61. … Nor do we construe the IPR Policy as prohibiting the SEP owner from seeking in appropriate circumstances an injunction from a national court where it establishes that an implementer is infringing its patent. On the contrary, the IPR Policy encourages parties to reach agreement on the terms of a licence and avoid litigation which might involve injunctions that would exclude an implementer from a national market, thereby undermining the effect of what is intended to be an international standard. It recognises that if there are disputes about the validity or infringement of patents which require to be resolved, the parties must resolve them by invoking the jurisdiction of national courts or by arbitration. The possibility of the grant of an injunction by a national court is a necessary component of the balance which the IPR Policy seeks to strike, in that it is this which ensures that an implementer has a strong incentive to negotiate and accept FRAND terms for use of the owner’s SEP portfolio. The possibility of obtaining such relief if FRAND terms are not accepted and honoured by the implementer is not excluded either expressly or by necessary implication. The IPR Policy imposes a limitation on a SEP owner’s ability to seek an injunction, but that limitation is the 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.

…

90. … In the final analysis, the implementers and the SEP owners in these appeals are inviting a national court under the current IPR Policy to rule upon and enforce the contracts into which the SEP owners have entered. If it is determined that the SEP owners have not breached the FRAND obligation in the irrevocable undertakings they have given, they seek to enforce by obtaining the grant of injunctive relief in the usual way the patents which have been found to be valid and to be infringed. The English courts have jurisdiction to rule upon whether the UK patents in suit are valid and have been infringed, and also have jurisdiction to rule on the contractual defence relied upon by the implementers based upon the true meaning and effect of the irrevocable undertaking the SEP owners have given pursuant to the ETSI regime. In agreement with Birss J (para 793), we observe that Huawei is before this court without a licence in respect of infringed UK patents when it had the means of obtaining such a licence. …

…

“164. There are … no grounds in this case for a concern of the kind expressed by Kennedy J in the eBay case. The threat of an injunction cannot be employed by the claimants as a means of charging exorbitant fees, or for undue leverage in negotiations, since they cannot enforce their rights unless they have offered to license their patents on terms which the court is satisfied are fair, reasonable and non-discriminatory.

…

“166. … in a case of the present kind, an award of damages is unlikely to be an adequate substitute for what would be lost by the withholding of an injunction. The critical feature of a case of this kind is that the patent is a standard technology for products which are designed to operate on a global basis. That is why standard technology is essential, and why the patent-holders whose patents are accepted as SEPs are required to give an undertaking that licences will be made available on FRAND terms. Once the patents have been accepted as SEPs, it may well be impractical for the patent-holder to bring proceedings to enforce its rights against an infringing implementer in every country where the patents have been infringed. That is because … the cost of bringing enforcement proceedings around the world, patent by patent, and country by country, would be ‘impossibly high’.

“167. In those circumstances, if the patent-holder were confined to a monetary remedy, implementers who were infringing the patents would have an incentive to continue infringing until, patent by patent, and country by country, they were compelled to pay royalties. It would not make economic sense for them to enter voluntarily into FRAND licences. In practice, the enforcement of patent rights on that basis might well be impractical ... An injunction is likely to be a more effective remedy, since it does not merely add a small increment to the cost of products which infringe the UK patents, but prohibits infringement altogether. In the face of such an order, the infringer may have little option, if it wishes to remain in the market, but to accept the FRAND licence which ex hypothesi is available from the patent-holder. However, for the reasons explained in paras 164-165, that does not mean that the court is enabling the patent-holder to abuse its rights.”

179. Finally, and partly because Lenovo placed particular reliance on these paragraphs, I cite [114] and [119]. These paragraphs appear in the section of the UPSC judgment where the Court was dealing with whether the Non-Discrimination obligation was ‘general’ or ‘hard-edged’. In [113], the Court held the FRAND undertaking in clause 6.1 imports a single, unitary obligation, and continued:

‘114. The text of clause 6.1 lends itself naturally to being read in this unitary way. The “non-discriminatory” part of the relevant phrase gives colour to the whole and provides significant guidance as to its meaning. It provides focus and narrows down the scope for argument about what might count as “fair” or “reasonable” for these purposes in a given context. It indicates that the terms and conditions on offer should be such as are generally available as a fair market price for any market participant, to reflect the true value of the SEPs to which the licence relates and without adjustment depending on the individual characteristics of a particular market participant. Put another way, there is to be a single royalty price list available to all.’

180. The Supreme Court then went on to note that a powerful indication that the ND obligation is general and not ‘hard-edged’ was the fact that ETSI had considered and rejected the imposition of a ‘most favourable licence’ clause in the undertaking. The Court noted that a ‘most favourable licence’ term had been included in the 1993 draft IPR Policy, but was deleted from the undertaking in 1994. In [119], the Court noted that Judge Selna had also noted the deletion:

‘119. In TCL Communication Technology Holdings Ltd v Telefonaktiebolaget LM Ericsson Case No 8:14-cv-00341-JVS-DFM (CD Cal, Nov 8, 2017), the US District Court for the Central District of California noted the deletion and regarded it as providing guidance regarding the interpretation of the FRAND obligation (pp 13-14 and 91). The Court of Appeal, in the judgment below, took the same view: para 199. We agree.’

UPHC

181. As part of his discussion of the applicable principles in UPHC, I note that Birss J. in [89]-[97] referred to all the significant earlier cases including those I have mentioned above. In [92] he cited the succinct summary of the purpose of FRAND by the Guangdong High People’s Court in Huawei v InterDigital. Like Birss J. I agree with that summary.

182. On the Conduct part of this case, I refer to two discrete points in the Judgment of Birss J. in UPHC:

i) First, his characterisation of ‘hold up’ in [92], namely:

‘the ability of the owner of a SEP to hold implementers to ransom by reason of the incorporation of the invention into the standard by declining to grant them a licence at all or only granting one on unfair, unreasonable or discriminatory terms.’

ii) Second, his characterisation of ‘hold out’ at [95]:

‘The idea is that an unscrupulous licensee may use their economic strength to avoid paying anything to a patentee, unduly dragging out the process of licence negotiation, thereby putting the patentee to additional cost and forcing it to accept a lower royalty rate than is fair.’

Optis F

183. In the judgment of Meade J, I am well aware that his analysis followed a good deal of citation by him from UPSC, brief reference to UPCA, followed by a good deal of citation from UPHC and UPHC Remedies (see generally the whole section in Optis F from [71]-[134]). I do not propose to lengthen this judgment by repeating that citation, but I have all of it very much in mind.

184. Therefore, I can start by gratefully adopting and endorsing Meade J.’s analysis and interpretation of clause 6.1 of the ETSI IPR Policy from his Optis F judgment. I can summarise the relevant findings as follows:

i) Clause 6.1 applies to parties of all kinds and sizes and has effect internationally. Its interpretation should not be undertaken exclusively or excessively through a UK lens [275].

ii) Hold-out by implementers is to be deprecated [276]. That observation must be read in conjunction with the earlier section of his judgment on ‘Hold-out and Delay’ from [236]-[244]. Although his findings in that section were based on evidence he heard, the evidence which I heard supports the general points which Meade J. accepted at [240]-[241].

iii) 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. The class of beneficiaries is a very broad one [278].

iv) What such a person must be entitled to is to have and to take a licence, and to operate under a FRAND licence. It follows it is not the intention of clause 6.1 for a party using the technology of a SEP to have the benefit of the patentee’s FRAND undertaking in terms of immunity from being sued (or, I add, immunity from being injuncted from using the SEP) without the corresponding burden of taking a licence [279]. In other words, the key concept is that an implementer is not entitled to the benefit of the FRAND undertaking without accepting the burden [283].

v) The class of beneficiaries of the stipulation of clause 6.1 comprises any undertaking which wants a licence to work a relevant standard by any commercial activities and which intends to work the standard under a licence from the SEP owner [285].

185. Although Optis argued that to be a beneficiary under clause 6.1 the potential licensee must commit to take a licence on FRAND terms set by a Court in default of agreement, it is very clear from [283] that Meade J. saw the language of ‘commitment’ as being tied too much to UK practice, where there is a period between the finding of infringement of a valid SEP and the FRAND trial. Hence, he preferred to express his findings as I have set out above i.e. in terms of whether the implementer intended to operate under a licence.

186. Meade J. also decided that:

i) Had it been right and necessary for him to decide whether a commitment to take a licence at some later point could and should be implied under French law, he would have held that it could and should [287].

ii) There was also a simpler way to look at matters. In the situation which presented itself in that case, Apple had been found to be infringing one of Optis’s SEPs. Apple therefore needed a licence immediately if it was not to be acting unlawfully. Thus, Apple needed to call for and take a FRAND licence as soon as it was found to be infringing a valid SEP. In French law terms, Meade J. indicated that the stipulation does not take effect and confer on Apple the benefit of a FRAND licence until it is accepted [288].

iii) Therefore, the way for Apple to remedy the situation, as a matter of UK procedure, was to give an undertaking to take whatever licence was to be set at the FRAND trial in the Optis v Apple litigation [289].

187. As Meade J. also made clear, in that case Apple’s agreement to take a licence was contingent. For the purposes of Optis F, the Judge assumed (as Apple asserted) that it had made a licence offer within the FRAND range. However, Apple was still not prepared to commit to take a licence on the point within the FRAND range that the UK Court was to settle at Trial E. As Meade J. put it at [290]:

‘It only “wants” a licence on its own terms and at a time of its own choosing, and then only conditionally; it reserves the right to say no altogether. Its contention is that it ought to be able to use Optis’ technology for another year and then, if it declines to take the FRAND terms on offer, never to have had a licence.’

188. I recognise at once that Lenovo’s position is somewhat different, but, critically, at least at the start of trial, it also had a contingent willingness. Lenovo’s position shifted during the trial, but it remained contingent in at least one respect, namely, it would accept the FRAND terms in this judgment provided they were acceptable to it.

189. There are further points to note from Meade J.’s section on Interpretation of clause 6.1. The first is that, depending on the circumstances, the case for an injunction may be fact sensitive or fact insensitive. The second is to note that Meade J. rejected Optis’ argument that if an implementer fails to commit to take a FRAND licence at the relevant time (i.e. on a finding of infringement of a valid SEP) then it permanently loses its right to a FRAND licence (see [299]-[302]). Meade J. gave reasons why Optis’ position ran counter to the purpose of clause 6.1. I respectfully agree entirely.

190. As indicated above, InterDigital runs essentially the same argument here, as part of its fact sensitive case (as I understood it): because Lenovo failed to commit unconditionally at the time of the Trial A judgment to take a licence on whatever terms were determined to be FRAND at this trial, that they have lost the right to a FRAND licence. As I also indicated above, there is a simple and straightforward reason why such arguments cannot possibly succeed – it is because the SEP owner’s undertaking to ETSI is irrevocable. Thus, provided Lenovo adopt the position of a willing licensee, they are entitled to accept the benefit of that undertaking at any time.

191. Apple also argued that injunctive relief should be refused as a matter of discretion, on various grounds, one of which was that there were issues relevant to the exercise of the Court’s discretion which would only be determined at the FRAND trial and there is no detriment to the SEP owner in having to wait until the FRAND trial to obtain an injunction. On that last point, I note Meade J.’s reasoning at [340]:

‘As to the allegation that the SEP owner is not prejudiced by having to wait for its injunction, I have found above that damages are not an adequate remedy, and that (among other things) having to wait in a state of uncertainty as to whether other proceedings in other jurisdictions are needed is a form of potential hold-out which damages the patentee. To make the patentee wait for a year or more (it would have been two years had the patent in Trial A not expired) from infringement finding to FRAND trial would be almost like a compulsory licence, and that is not justified. It is not just a question of an interim position pending a further determination but a substantive loss of rights for the patentee in respect of an ageing property right.’

192. Having concluded that Optis was substantially correct about the meaning of clause 6.1 and that Apple should be injuncted unless it committed to taking a FRAND licence on the terms to be decided at the FRAND trial in that case, Meade J. gave Apple a short time to consider whether so to commit.

193. It is apparent from the parts of the resulting Order made by Meade J, cited in Optis F CA, that Apple did so commit, subject to exercising their right of appeal against Optis F, and gave an undertaking in the following terms, as the price for Apple relying on Optis’ undertaking to ETSI under clause 6.1 of the ETSI IPR Policy:

‘Apple undertakes to enter into a licence in the form that is determined to be FRAND at Trial E in these proceedings or, to the extent that there are any appeals of the judgment in Trial E, a licence that is finally determined to be FRAND on appeal.’

Optis F CA

194. Two of the four grounds on which Apple obtained permission to appeal and all three of the grounds on which Optis had permission concerned the proper interpretation of clause 6.1. Arnold LJ gave the judgment of the Court of Appeal, Elisabeth Laing and Asplin LJJ agreeing. I consider it is fair to say that the respective challenges on interpretation of clause 6.1 were dismissed in short order and in trenchant terms, as were Apple’s remaining grounds which were concerned with Apple’s argument based on the competition side of the case and a procedural objection.

195. Nonetheless the whole of the Judgment repays reading and there are passages in the Judgment of Arnold LJ which I find useful to keep in mind:

i) First, his explanation of the general background to the specific dispute between Optis and Apple at [4]-[15], all of which applies to this case, including his description of hold up and hold out at [7].

ii) Second, at [61] and [62], his citation of key paragraphs from UPSC, namely [7]-[14], [61], [90], [164] and [166]-[167] (which I have set out above), followed by this useful summary at [63]:

‘It can be seen from the Supreme Court’s analysis that clause 6.1 must be interpreted in a manner which avoids both hold up by the SEP owner and hold out by an implementer. Hold up by the SEP owner will be avoided by ensuring that the SEP owner is held to its ETSI Undertaking. Hold out by the implementer will be avoided by allowing the SEP owner to enforce its normal right under the general law to obtain an injunction to prevent infringement of the SEP by the implementer save to the extent that this would be inconsistent with the SEP owner’s ETSI Undertaking.’

Other ETSI materials: The ETSI Guide

196. In addition to the ETSI IPR Policy, ETSI also publishes the ETSI Guide on Intellectual Property Rights (‘the ETSI Guide’). The ETSI website states that the ETSI Guide ‘is intended to help ETSI members and any other party involved in ETSI’s standardization activities to understand and implement the ETSI IPR Policy. [The] Guide provides information on how to handle IPR matters in ETSI and does not replace the ETSI IPR Policy which takes precedence in all cases.’

197. For present purposes I highlight certain statements in the ETSI Guide which provide additional information for the interpretation of clause 6.1 and how parties are expected to conduct themselves. In the trial bundles I was presented with two versions of the ETSI Guide, dated 1 September 2004 and 19 September 2013, but there is no material difference in the statements I draw attention to. In fact, it appears that the ETSI Guide has grown over the years by the addition of additional guidelines but without existing guidelines being changed.

198. Section 4.1 of the ETSI Guide makes a number of points:

i) First, commercial issues ‘shall not be addressed within ETSI’, not least because discussing licensing issues would significantly delay the discussions in ETSI’s technical bodies.

ii) Second, ‘voluntary, unilateral, public, ex ante disclosures of licensing terms by licensors of Essential IPRs, for the sole purpose of assisting members in making informed (unilateral and independent) decisions in relation to whether solutions best meet the technical objectives, are not prohibited under ETSI Directives. Licensing terms from such disclosures may, in some circumstances, improve transparency for individual members in considering technologies for inclusion in STANDARDS and TECHNICAL SPECIFICATIONS.’

iii) Third, there is no obligation on any member to disclose any licensing terms related to any of its IPRs.

199. Next, sections 4.4 and 4.5, which I quote in full:

"4.4 Notice on the use of NDAs in IPR negotiations

“It is recognized that Non Disclosure Agreements (NDAs) may be used to protect the commercial interests of both potential licensor and potential licensee during an Essential IPR licensing negotiation, and this general practice is not challenged. Nevertheless, ETSI expects its members (as well as non-ETSI members) to engage in an impartial and honest Essential IPR licensing negotiation process for FRAND terms and conditions.

“4.5 Financial contingency

“Members developing products based on standards where there may be Essential IPRs, but there is uncertainty, have mechanisms available which they can use to minimize their risk. As a non-exclusive example, a member might wish to put in place financial contingency, based on their assessment of “reasonable”, against the possibility that further/additional license fees might become payable."

200. Section 4.4 is diplomatically worded. The widespread use of NDAs is ‘not challenged’, but the strain with the second sentence is evident. There is no doubt in my mind that the SEP universe would be able to converge on and agree FRAND terms very much more quickly if the basics of each SEP licence were made public (by ‘basics’ I mean the number of units covered, the royalty rates or total sum paid/payable and which standards are involved). In other words, the market for mobile telephony SEP licences would work very much more smoothly with transparency of what terms had been agreed in the past.

201. However, it is apparent that, for ETSI, to require transparency was a step too far. Instead, there is the stated expectation that those who are subject to the ETSI undertaking should engage in an impartial and honest licensing negotiation process for FRAND terms and conditions.

202. This has implications for how the SEP licensor should conduct itself as a willing licensor. Consider the following example: a SEP licensor makes an offer to licence an implementer on the basis of payment of a lump sum of $100m for a 10-year licence period. The implementer responds by saying it has insufficient information to be able to assess the offer and requests details, under an NDA, of other PLAs which the SEP licensor has concluded with similarly situated licensees. The SEP licensor does not provide the information. Subsequently, at a FRAND trial, after disclosure and expert evidence, the Court concludes that the FRAND rate for a 10-year licence is indeed $100m. Does that result mean the SEP licensor was a willing licensor? I consider it does not. As Birss J. said in UPHC, FRAND is a process. A willing licensor and willing licensee engage in that process to agree FRAND rate(s). It is not FRAND nor is a licensor acting as a willing licensor if it refuses to provide the information necessary for a willing licensee to evaluate an offer which has been made.

203. As to section 4.5, it seems to me that this financial contingency provision makes perfect sense. A willing licensee would set aside, whether notionally or otherwise, funds to pay for the licences needed to implement a particular standard, even where the precise amounts required may well be uncertain. Furthermore, pending agreement or determination as to the actual FRAND royalties due, a willing licensee might well make certain payments on account to demonstrate his willingness, although if he is being deprived of necessary information, these payments might well be on the low side.

Other ETSI Materials: the FAQs page

204. Finally, I was also provided with a version of the ETSI IPR Policy FAQs page from July 2014. Part of two answers in particular are revealing:

i) First, in answer 4: ‘It is the responsibility of each STANDARD user to contact directly the patent owner.’;

ii) Second, in answer 6: ‘It is necessary to obtain permission to use patents declared as essential to ETSI’s standards. To this end, each standard user should seek directly a license from a patent holder.’

205. These answers reinforce the point that a willing licensee does not sit back and wait for demands from SEP licensors. At the same time as setting aside funds to pay for the necessary licences, the willing licensee takes active steps to seek out the licences that it needs and, as a first step, this means making contact with the SEP owners, whose identities can be readily ascertained from ETSI.

How The Issues on Clause 6.1 and French Law Evaporated

206. At this point, it is convenient to deal with this topic, before returning to points which remain in issue.

207. Due, no doubt, to UPSC and Optis F, the parties were able to agree a good deal in relation to the ETSI IPR Policy and relevant issues of French Law. However, certain important issues remained. Lenovo’s position was that this case raised issues which had not been considered before, particularly in Optis. Lenovo emphasised that in Optis, Meade J was considering the situation where the only Court which could set global FRAND terms was the UK court, whereas here Lenovo point to the extant proceedings in the US and in China.

208. I must explain the scenarios which have been canvassed before me:

i) InterDigital’s initial position was that I should settle the terms of the global FRAND licence between these parties, amongst which should be what Lenovo called the ‘muzzle’ clause, requiring the abandonment of both the US and Chinese proceedings.

ii) At the other extreme, Lenovo’s initial position was that it was willing to give an undertaking to accept a FRAND licence settled by the UK Court (a) for at least the whole world except the US, China and non-patent countries or (b) for the whole world provided that InterDigital gave reciprocal undertakings to respect the decisions of the US and Chinese Courts for sales where the protection is governed by infringements in those jurisdictions.

iii) In between those extremes, various intermediate positions were hinted at during submissions including in particular the option where I set global FRAND terms, allow the parties to continue with the US and Chinese proceedings as they so wish and to provide a mechanism for adjusting the financial terms depending on any rulings which either the US or Chinese courts may make as to FRAND rates in their particular territories.

iv) Once again, there was an element of conditionality in Lenovo’s position. If Lenovo decides that the terms I set are acceptable, then I was left with the impression that Lenovo would not then continue with the US or Chinese proceedings, to the extent Lenovo would be able to bring them to an end within the powers of the court in question.

209. It is important to be clear about the foreign proceedings between these two parties, because Lenovo tended to be rather vague as to what was actually in issue or to be decided in the foreign proceedings.

Other proceedings between these parties

210. To my understanding, the existing position is as follows (and I recognise that the foreign courts are in charge of the scope of proceedings before them).

211. So far as the US proceedings are concerned, the following summary is based on the unchallenged evidence of Michael B Levin, who is a partner at the firm with conduct of InterDigital’s case(s) in the US against Lenovo.

212. In late August 2019, shortly after the commencement of this action, InterDigital brought a claim for patent infringement and declaratory relief in Delaware. Some 7 months later, Lenovo commenced a claim for breach of contract and violations of the Sherman Act in Delaware.

213. In part, Lenovo’s Delaware claims have been struck out, and in part consolidated with InterDigital’s claim. InterDigital say that as constituted, the US action will not settle the terms of a global (or even US) FRAND licence, although the parties do seek declarations relating to the parties’ FRAND conduct. The trial in the Delaware actions was, at the time of the relevant evidence, scheduled for December 2022, but there was a prospect that it might be delayed if the trial judge was elevated to the appellate bench. If the trial is not delayed, judgment would be expected in the first half of 2023.

214. In August 2020, Lenovo commenced a series of inter partes review proceedings (‘IPRs’) before the Patent Trial and Appeal Board (‘PTAB’), challenging the validity of the 8 patents asserted in InterDigital’s infringement claim. Of these petitions, 5 were denied institution, and 4 of those decisions are final. (At the time of trial) three petitions had been instituted and were due to be decided by February and April 2022, with a right of appeal to the US Court of Appeals for the Federal Circuit, in which an appeal typically takes a year or more to be determined.

215. Lenovo place particular reliance on the fact that on 14 May 2020, InterDigital made a proposal that FRAND terms exclusively should be determined by the Delaware court, in the following terms:

“Provided that it is agreed that doing so will fully resolve the parties disputes and proceedings, InterDigital is willing to consent to submitting to the Delaware District Court a single claim settling binding worldwide terms (including rates) for a FRAND licence for the Lenovo Group to the [InterDigital] 3G/4G Portfolio, provided also that your clients are also so willing and will proceed in Delaware without delay, and on condition that your clients provide an irrevocable undertaking [to be bound by the terms of a FRAND licence resulting from the Delaware District Court to the InterDigital 3G/4G Portfolio]”

216. Lenovo says it was amenable to such an approach in principle but made a counter-offer to the effect that the approach should incorporate the decision of the Chinese Court for products manufactured and sold either in China or for countries where there was no patent protection. Neither offer was taken up. Lenovo now accuses InterDigital of taking a position in this action inconsistent with its May 2020 offer.

217. Be that as it may, I received clear evidence from the US law experts that courts in the US will only set global FRAND terms when the SEP licensor and the potential licensee agree to such a determination. The position is that these parties have not so agreed.

218. So far as proceedings in China are concerned, the following is based on the unchallenged witness statement of Dr Fang Qi who has responsibility for InterDigital’s conduct of the proceedings involving Lenovo in China.

219. Various Lenovo companies commenced a claim on 10 April 2020 in the Beijing Intellectual Property Court against various InterDigital companies requesting the Court determine FRAND licensing conditions for all Chinese 3G, 4G and 5G SEPs owned by InterDigital. InterDigital responded with a challenge to jurisdiction, which was dismissed in a judgment dated 8 November 2021, which I understand has been appealed by InterDigital in circumstances where the appeal may take 3-4 months to be resolved. Whether an appeal takes place or not, Dr Qi considered a first instance judgment on the claim will be handed down towards the end of 2023.

220. Lenovo also commenced a series of invalidity petitions against 17 of InterDigital’s Chinese patents before the China National Intellectual Property Administration (‘CNIPA’). Decisions at first instance have been issued on all 17. Nine of those petitions have been upheld and the patent declared wholly invalid – InterDigital have appealed all of them. Five of the patents were held wholly valid, and four of those decisions have been appealed. The remaining three patents were partially invalidated, two of which were held valid on amended claims. InterDigital’s appeals were at the time of trial expected to be decided in about mid-2022. Lenovo’s appeals were predicted to move more slowly due to service requirements and were not likely to be heard until late 2022 or early 2023.

221. For present purposes, the key points are:

i) The Chinese proceedings will determine FRAND terms only in respect of China. Although the financial difference may be slight, as InterDigital pointed out, a global FRAND licence goes further than a territory by territory licence, since it explicitly licenses roaming across borders.

ii) The US Court is asked to rule on conduct, but, as I understand matters, will not determine the financial terms of a FRAND licence, whether for the US or elsewhere.

222. It seemed to me that these were important points which Lenovo continually glossed over in their argument, along with an even more important consideration which is this. This court will set FRAND terms. If Lenovo or InterDigital consider that my judgment is erroneous, then the appeal procedures in this country will remedy material errors. The same is true of any other jurisdiction which is able to set global (or even national) FRAND terms. Leaving appeal procedures aside, I consider a willing licensee (a) would have already committed to take a licence on the FRAND terms to be set by this Court, indeed that commitment would have been made at the latest on the hand down of the judgment in Trial A in this action (cf. Optis F) but (b) would not make its acceptance of FRAND terms set by this Court to be conditional in the way Lenovo defined its position (see paragraphs 208.ii) and 208.iv) above).

223. In its closing, Lenovo was anxious to distance itself from any language which suggested conditionality. Instead, the issue was now framed in terms of whether Lenovo’s lack of a commitment (so far) to take a licence on the terms determined by this Court made any difference since InterDigital’s ETSI undertaking was irrevocable – the implication being that Lenovo could decide to take the FRAND licence at any point but pertinently at the very moment the Court would otherwise grant an injunction against Lenovo to restrain infringement of EP558 or any other SEP owned by InterDigital and found to be valid and infringed.

224. This issue has a little history which I will briefly outline.

225. HHJ Hacon heard Technical Trial A and handed down his judgment on 29 July 2021, finding EP558 valid, essential and infringed by Lenovo. It took a long time for the form of order hearing to take place, eventually being heard on 29 and 30 November 2021. By that time, the written expert evidence of French law for this trial was complete (the first reports being served around 6 October 2021, with the reply reports served 19 November 2021).

226. Lenovo declined to undertake to take a global licence on the terms to be settled by the UK court without qualification. Before HHJ Hacon, Lenovo had two reasons why the question of whether the injunction should be granted could not be decided at that point. Only the second reason matters. Lenovo submitted that the grant of an injunction turned on matters not considered in Optis and which could only be resolved by full consideration at the FRAND trial following cross-examination of experts in French, Chinese and US law.

227. As recorded by HHJ Hacon at [57], Lenovo’s principal point was that their application raised new points of French law not considered by Meade J, namely whether an implementer benefits from the stipulation de contrat pour autrui created by the SEP owner’s undertaking and clause 6.1 of the ETSI IPR Policy even if it refuses to commit to take a licence settled by the court in which there has been a finding of infringement, provided it makes a reasonable proposal to commit to take a FRAND licence to be determined, in whole or in part, by a different court.

228. I note that HHJ Hacon was informed that on the working day before the hearing Lenovo had brought proceedings in China to settle a global licence, but only from the year 2024.

229. It seems to me, from HHJ Hacon’s discussion and conclusion at [58]-[63], that he was narrowly persuaded that Lenovo’s position (which he described as vague) did not unarguably disqualify them from the benefit of the stipulation de contrat pour autrui created by InterDigital’s undertaking and clause 6.1 of the ETSI IPR Policy. This was, at least in part, because ‘…Professor Stoffel-Munck’s evidence was forthright so far as it went and there was little by way of countervailing evidence from Professor Helleringer.’ Hence, HHJ Hacon declined to grant the relief sought by InterDigital, which included a FRAND injunction.

230. Lenovo’s position remained the same in its opening skeleton argument. Thus, Lenovo submitted:

‘175. The general law, as stated in Unwired Planet is that if an implementer refuses to take a FRAND licence an injunction may be granted unless and until they do. However, a major issue left unresolved by Unwired Planet and more recently Optis v Apple is by which court or courts such a licence should be determined (if global) and what the terms of such an undertaking should be. The present case differs significantly from the position in Optis v Apple [2021] EWHC 2564 (Pat), and [2021] EWHC 2759 (Pat), because of its commercial and regulatory history and the existence of past and current foreign proceedings.

176. In this case, the question of whether Lenovo is a willing licensee once the English Court has decided what FRAND terms are by English rights alone cannot be determined merely on the basis of whether it was/is willing to give to the English Court an unqualified undertaking to accept whatever the English Court decides is FRAND, in the absence of mirrored undertakings from InterDigital to respect the decisions of the US and Chinese courts. Lenovo has indicated that it is willing to give an undertaking to accept a FRAND licence, settled by this Court (a) for at least the whole world except the US, China and non-patent countries, or (b) for the whole world provided that InterDigital gives reciprocal undertakings to respect the decisions of the US and Chinese Courts for sales where the protection is governed by infringements in those jurisdictions.’

231. This position was also reflected in the list of issues of French law which remained in dispute.

232. Several things which occurred during the trial meant that, by the time of closing arguments, this issue had evaporated.

233. First, it became apparent during the cross-examination of the two experts that the supposedly key issue of French law had evaporated. Instead, the issues had transformed into issues of the intentions of ETSI i.e. questions of fact and not of French law at all.

234. Second, InterDigital agreed that, instead of determining FRAND rates, the Court should simply determine a lump sum. According to Lenovo’s markup of InterDigital’s 5G Extended Offer, for a lump sum licence, Lenovo does not seek a provision that allows rates from foreign courts to be plugged in.

235. In its written closing, Lenovo nonetheless identified two remaining fundamental points of French law being (i) whether the right conferred on implementers under the ETSI FRAND undertaking remains available at all times and (ii) whether an undertaking such as the ETSI declaration must be construed as a subset of stipulations pour autrui which contain a ‘corollary’ obligation, so that a licensee must be ‘willing’ in order to create the FRAND right in question.

236. As to the first issue, this was determined by Meade J. in Optis F, as I explain below. As to the second issue, the experts agreed that whether a beneficiary of the FRAND undertaking is ‘willing’ is not a question of French law at all but is simply a question of fact. On this basis, Lenovo submitted that there is no support in French law for InterDigital’s fact insensitive case.

237. I am bound to say that I am left with strong suspicions that:

i) Lenovo delayed the hearing of the Form of Order from Trial A until after it knew its expert evidence of French law would have been served.

ii) Professor Stoffel-Munck was encouraged to cover various issues in his report which, in reality, were not questions of French law at all, but, as transpired, questions of fact, so as to provide Lenovo with the arguments presented to HHJ Hacon against the grant of any injunctive relief on that occasion.

238. Although I have little doubt that the ingenuity of lawyers will be used to generate fresh, undecided issues surrounding the correct approach to injunctive relief in this type of case, this type of manoeuvring is to be deprecated and is more likely to be seen as such in the future.

Chinese and US Law

239. Finally, under this main heading, I must discuss the Chinese and US law evidence with which I was presented, along with a detailed list of issues of both Chinese law and US law which were agreed and those which were in dispute. The parties did not consider it necessary for there to be any cross-examination of any of the experts on Chinese or US law. Although I found the expert reports on both Chinese and US law very interesting and educational, I remain unconvinced that there are any disputes which are necessary for me to decide for the purposes of this judgment.

240. For present purposes, I consider it is sufficient for me to have regard to the approaches so far developed by the Chinese courts to deciding appropriate FRAND royalty terms. I can summarise as follows:

i) Chinese law does not dictate any particular approach. The approach to be taken depends on the circumstances of the case but is often tailored to the local market conditions. Chinese courts have adopted both approaches based on comparable licences as well as approaches based on a ‘top-down’ analysis. I also note that in Huawei v Conversant, the Nanjing Intermediate People’s Court relied on a hedonic regression pricing model to compare the market situation between China (as a developing country) and developed countries.

ii) The most recent significant development is the jurisdictional ruling in OPPO v Sharp ((2020) Zui Gao Fa Zhi Min Xia Zhong No. 517) issued by the Supreme People’s Court of the People’s Republic of China on 19 August 2021. The Supreme People’s Court held that the question of jurisdiction depends on the following factors, which were summarised by Professor Kong as follows (i) whether the parties had agreed to negotiate on global licensing of SEPs, during the licensing negotiations; (ii) the countries in which the SEPs in the portfolio are registered; (iii) the principal place where the SEPs are implemented, where the implementer operates and where the implementer generates revenues; (iv) the place of the licensing negotiations and the place where the licensing agreement was executed; and (v) the place where the property of the parties is available for seizure and enforcement.

iii) The experts were agreed that, in the light of OPPO v Sharp, Chinese courts would be very likely to find they have jurisdiction to settle global licences without the consent of one or more of the parties, and to exercise that jurisdiction.

iv) The experts were also agreed that senior Chinese judges are likely to read and be interested in decisions made by foreign courts which are closely related to the case they are deciding and that, for Chinese judges deciding FRAND cases, UPHC, TCL v Ericsson, HTC v Ericsson and Sisvel v Haier would come within that category.

v) Professor Kong was of the view that OPPO v Sharp reflects this trend and developments in legal policy in China – essentially to the effect that Chinese courts increasingly take the view that they should be determining what liabilities undertakings (especially Chinese ones) should have in respect of their activities in China.

vi) He was also of the view that Chinese courts would expect other courts to accord appropriate respect to their decisions and approaches where those other courts were seeking to regulate conduct in China (for instance by requiring payment to be made in respect of activities in China). In this regard, he relied on the fact that there have been several well-publicised instances recently of Chinese courts issuing anti-suit injunctions to prevent decisions of foreign courts purporting to override FRAND determinations underway in China.

241. Professor Kong was also asked to comment, following Sharp v OPPO, on how the Chinese courts would likely react to a US-based SEP owner attempting to obtain an order from the English court to require a Chinese company to undertake to take a global FRAND licence (covering activities in China and Chinese patents) determined only by the English court without regard to principles and decisions of the Chinese courts, while proceedings were ongoing in China to determine FRAND terms for China between the two undertakings. He was of the view that although this situation has not yet come before the Chinese courts, he did not think the Chinese courts would regard that as appropriate FRAND conduct by a SEP owner.

242. With the greatest respect to Professor Kong, I doubt his last proposition would be applied in the circumstances of this case because when this action commenced, it was not known that Chinese courts would set global FRAND terms. Furthermore, the Chinese proceedings were commenced about 10 months after this action commenced with Lenovo requesting the Chinese court to set FRAND terms for China only.

PRINCIPLES APPLICABLE TO THE COMPARABLES &TOP-DOWN CASES

243. Although I address this topic under its own heading, it may be noted that there are aspects of my analysis of the ETSI materials (above) which impact on the Comparables part of the case.

UPHC

244. In terms of the practicalities, the following points from the Judgment of Birss J. (as he then was) in UPHC I have found useful to keep in mind. The relevance of many is self-evident. For others, I found it useful to identify the point and then indicate how it applies in this case:

i) First, an observation he made at [168] (albeit in the course of his analysis leading to his conclusion that there is only one set of FRAND terms) concerning the diversity of terms in real agreements in the industry. The various allegedly comparable agreements in this case demonstrated that in any licence negotiation between a SEP owner and an implementer there are many moving parts. One set of adjustments will enable a deal to be reached with one implementer, whereas different adjustments are required for a deal with another. Thus, any notion that a SEP licensor has a fixed set of terms on offer to any implementer breaks down immediately as soon as negotiations commence.

ii) In this case, InterDigital’s evidence suggested that they had a set of terms as a starting point for negotiations and this set of terms changed over time. I say ‘suggested’ because this evidence was somewhat vague. I acknowledge that InterDigital published a revised set of terms in 2020. Prior to that, no contemporaneous document was produced as evidencing InterDigital’s set of starting terms. There was evidence that one of the smallest implementers accepted InterDigital’s starting set of terms without any negotiation at all, but this was very much the exception to the rule. In other words, InterDigital’s initial demand in any negotiation was very much an ‘opening bid’.

iii) Second, his confirmation at [169] that the Court’s jurisdiction is not restricted to the binary question of assessing whether a given set of terms is FRAND but extends to deciding between rival proposals and coming to a conclusion different from either side’s case on such a proposal.

iv) Third, the observations at [175] that:

‘Different licensees will have differing levels of bargaining power.’

‘...it would not be FRAND, for example, for a small new entrant to the market to have to pay a higher royalty rate than an established large entity.’

‘In my judgment, the FRAND rate ought to be generally non-discriminatory in that it is determined primarily by reference to the value of the patents being licensed and has the result that all licensees who need the same kind of licence will be charged the same kind of rate.’

v) Fourth, the observation at [191] that unpacking prior licence agreements involves significant uncertainties (even though on the facts before Birss J., the arguments about unpacking were relatively minor), plus the additional complications he mentioned at [196] caused by discounts, royalty floors, royalty caps, release periods and pass-through licences.

vi) Fifth, the observation at [269] that statements published by the SEP licensor in question or third party SEP licensors as to the total aggregate royalty or an individual company’s share have little value for the reasons he set out, including in particular that they are obviously self-serving. By contrast, in my view judicial statements as to appropriate total aggregate royalty figures for a particular generation of technology can be useful guidelines (cf. the figures cited by Birss J. at [478] for multimode 3G at 5.6% and for multimode 4G at 8.8%).

vii) Sixth, that the evidence before Birss J. was clear that willing parties would agree that a worldwide licence in that case would have a different rate for China and that he found the relevant factor was 50% at [583]. Furthermore, due to the fact that the number of relevant SEP families owned by UP in China was small (1 for 3G multimode and 5 for 4G multimode), Birss J. considered it appropriate to make further separate adjustments for China by comparison of those figures with the SEP families used to derive the benchmark.

viii) Seventh, at [587], Birss J. divided the world outside China into Major Markets (MM) and Other Markets (OM) by reference to the number of declared SEPs in force held by UP in the relevant countries, the thresholds being 2 or more declared SEPs for 2G and 3G and 3 or more for 4G. In the circumstances of that case, he applied the China rate to OM countries on the basis that the products were manufactured in China under licence. For MM countries, the benchmark rate was scaled by the ratio of relevant MM SEP families held by UP to the SEP families used to derive the benchmark (i.e. in the UK).

ix) Eighth, although it appears there was no particular issue before him as to the treatment of past sales as against future sales, it is apparent that the FRAND rates which Birss J. decided upon were applied uniformly to both past handset sales made by Huawei and to future handset sales. This point is also confirmed by his final finding that, to the extent that damages should be awarded (i.e. for the UK only), they would be at the same rate as the appropriate FRAND rate.

245. On the facts and analysis before him, Birss J. considered that one comparable in particular, which he designated in the non-confidential judgment as the Q licence, was the best place to start. From that licence he derived, from the unpacked rates, an appropriate rate (of 0.80%) to use as representative of the value E of Ericsson’s 4G SEP portfolio in licensing a multimode handset. His reasoning in [464] is opaque because of the redactions, but it is clear that from that 4G figure, he derived a single rate of 0.67% for 2G and 3G by scaling using a ratio derived by one of the experts from an unidentified licence. Based on this analysis, he was able to and did find appropriate FRAND rates for each of 2G, 2G/3G and 2G/3G/4G. I observe that, in any particular case, it will depend on the evidence as to whether the Judge decides it is possible and sensible to derive rates per multimode generation of technology.

246. Even though I regard the observations I quoted at paragraph 244.iii) above as self-evidently correct, I was nonetheless pleased to find them because they are at one with a consideration which I identified very early in my encounter with this trial. I express this as follows.

247. When a mobile phone, tablet or computer uses 3G, 4G or 5G technology covered by SEPs, the royalties payable should not depend on the price of the phone (or tablet or computer), which reflects many other features (e.g. screen size, processor power and other features) which are unrelated to the licensed technology even if dependent on it, as well as the status of the brand of phone or tablet – Apple being the paradigm example of a brand able to command substantial price premiums. Accordingly, in terms of SEP licensing, each unit should be viewed as a functional unit, functioning using the relevant generation(s) of the technology. I consider this approach is consistent with, indeed dictated by, the FRAND obligation so that the royalties paid and payable for each functional unit should be the same. I observe that in the ETSI materials there is no hint at all that FRAND licensing should be on a ‘profits available’ approach (cf. the old ‘Licenses of Right’ caselaw).

248. This consideration is fundamental to my approach. As will be seen, many of the creative ways in which InterDigital sought to explain their agreements with the largest market players are inconsistent with this consideration. In short, acceptance of such creativity would involve discrimination.

249. In my view, the corollary of those points also applies regarding SEP licensors. Differing SEP licensors have differing levels of bargaining power, and these levels may vary for a given licensor over time. A smaller SEP licensor should not be disadvantaged vis-à-vis an owner of a larger share of the SEP universe in a given generation of technology. At least in theory, each should recover their ‘fair’ share of the total royalty stack, based on the value of their SEP patents.

250. More generally, these considerations focus attention on the actual licence interaction between SEP licensor and implementer, rather than on their respective individual characteristics. One particular manifestation of this arises, in my view, in the unpacking of the lump sum licences in this case: the point being that what matters is the sum which is paid by licensee to licensor. What matters far less (or even not at all) is how the licensor then accounts for the receipt of that sum in its accounts.

251. From the public version of UPHC, I did not detect that any issue arose over the way in which lump sums were accounted for upon receipt by the licensor. In this case, InterDigital’s fact evidence indicated that, when accounting for a lump sum payment, InterDigital applied the GAAP 5 accounting principle.

TCL v Ericsson

252. There are several points about Judge Selna’s decision which need to be kept in mind when reviewing it:

i) First, Judge Selna’s decision was set aside on appeal on the ground that Ericsson had been wrongly deprived of their right under the Seventh Amendment to a jury trial on the issue of the release payment term. The United States Court of Appeals, Federal Circuit, decided that the release payment was in substance compensatory relief for TCL’s past patent infringing activity.

ii) The Court of Appeals did not need to and did not rule on other points raised by Ericsson in their appeal but Ericsson made three principal criticisms of Judge Selna’s methodology, the first two applying to his top-down analysis and the third to his assessment of comparables:

a) First, he erred in using a simple counting method which presumed each of Ericsson’s SEPs to possess equal value with all other SEPs in a standard, instead of measuring the incremental value each SEP added to the standard;

b) Second, the court used an unreliable method to compute Ericsson’s share of the total stack because of allegedly divergent approaches in calculating the numerator and denominator;

c) Third, Ericsson argued that the court’s analysis of the comparable licences was fundamentally flawed because, inter alia, it rejected dollar-per-unit royalty rates as per se discriminatory without pointing to any legal authority.

I have not assumed that Ericsson’s arguments are right or would have prevailed, but it is right to note the arguments which were made.

iii) I do not claim to have any experience of the significance of the constitutional right under the Seventh Amendment. However, I add that, in the light of my analysis of the ETSI materials, I question the conclusion of the Court of Appeals that the release term was in substance compensatory relief for TCL’s patent infringements in the context of a determination of worldwide FRAND terms. There are two points to consider:

a) The conclusion implies (particularly in the use of the term in substance) that the US Court has jurisdiction to determine worldwide damages for patent infringement or at least damages in every country where Ericsson owned a SEP. That might be the position in the US, but it is not the position in the UK. However, I note that Judge Selna dismissed Ericsson’s infringement claims and TCL’s invalidity attacks as moot in light of the relief granted in the release payment, because any damages from those infringement claims were already subsumed in the release payment determination. The conclusion of the Court of Appeals could be justified on the basis that the damages for patent infringement in the US alone justified a jury trial.

b) Leaving that point aside, on my analysis of the ETSI materials and obligations (see above), a willing licensee when accepting a Court’s determination of FRAND terms is willing to and does pay an appropriate rate for all past sales worldwide, thereby regularising the position of willing licensor and willing licensee. It is not a payment of damages for patent infringement and is not subject to the limitation period(s) which would apply to an award of such damages, even though the Court might well hold (as Birss J. did in UPHC) that the damages for infringement of the UK patents was the same as the UK FRAND rate.

iv) Second, various criticisms have been made of Judge Selna’s decision in the legal literature, and of his top-down approach in particular. I am bound to observe that commentators will always find points to criticise in judgments of this nature. These types of cases are not well suited to be determined in an adversarial system where each side presents a particular approach. Unless the Court accepts the entirety of one side’s case (which is unlikely), the Court is often having to plot a varying course between the two extremes represented by each side’s case and a course which may not have been the focus of either side’s submissions. The Court has to do the best it can in all the circumstances and utilising the evidence which the parties put before it. Again, I have not assumed that any of the criticisms are correct, but to the extent that they impinge on my approach, I have noted them.

253. Notwithstanding those points, Judge Selna’s decision repays study. In particular, I have found the following points – largely practical – useful and a number of these were specifically relied upon by Lenovo in its submissions:

254. First, I note Judge Selna’s characterisation of ‘hold up’, which is entirely consistent with that of Birss J. quoted above: ‘Hold up occurs when a patent holder seeks to extract more for the use of his patent than the value which the patent adds to a standard.’

255. Second, when he turned to consider TCL’s top-down case, he noted:

i) The appeal of a top-down approach is that it prevents royalty stacking;

ii) If the total aggregate royalty is properly based on the total value of the patents in the standard, it can also prevent hold up;

iii) A top-down approach cannot address discrimination and is not necessarily a substitute for a market-based approach that considers comparable licences.

256. Judge Selna decided to adopt a ‘simple patent counting system which treats every patent as having identical value’, an approach criticised by Ericsson on appeal. This is undoubtedly a simplification. However, to adopt any other approach requires considerably greater work in analysing the SEPs in question.

257. In deciding upon total aggregate royalty figures of 5% for 2G/3G and 6-10% for 4G, Judge Selna relied heavily on public statements made by Ericsson and other SEP owners. Although he acknowledged the approach of starting with a total aggregate royalty figure was not perfect, he considered it had merit because (1) he was relying on such public statements made to induce people to adopt and invest in each standard when the risk of hold-up was low; (2) these statements were made before the standard was adopted, providing the SEP owners with an incentive to be reasonable with their overall expectations and ‘greatly reducing the risk of hold up and royalty stacking’; (3) Ericsson was (at the time) both licensor and licensee, giving it a stronger incentive to be fair and reasonable; (4) Ericsson still stood by these statements; (5) they at least provided a ceiling for a FRAND rate.

258. To determine the denominator (i.e. the total number of industry-wide patent families relating to handsets which are essential to the 2G, 3G and 4G standards), Judge Selna had evidence from a very extensive essentiality study, supervised by Dr Kakaes. From the study, the total estimated numbers of essential patent families worldwide was: 2G: 446; 3G: 1,166; 4G: 1796. Ericsson challenged the results on the basis that the team spent an average of 20 minutes per patent, did not read the specifications, individuals were not qualified to undertake the work and for possible bias. The Judge refused to accept the process was inherently unreliable but adjusted the total number of SEPs in each standard downwards by 11.4% because, as a result of cross-checks on their conclusions, the team was found to have over-declared to that extent.

259. A number of the comparables which Judge Selna had to unpack were lump sum licences with some familiar names: Apple, Samsung, HTC, LG and ZTE. After setting out the agreed general approach to unpacking, Judge Selna made some general observations, then proceeded to discuss four common issues.

260. In his general observations, Judge Selna observed that, when unpacking the alleged comparables, there was no requirement to follow assumptions made by Ericsson in its ‘business cases’. After signing each licence, Ericsson created a business case to memorialise some of its projections and assumptions and to act as a ‘memo to file’. Judge Selna evidently distrusted these ‘business cases’ which he said represented nothing more that after-the-fact attempts to model certain projections. He observed that one expert sometimes followed the business case, sometimes agreed with the opposing expert and sometimes made his own assumptions and continued:

‘Sound methodology should preclude the experts from cherry-picking facts from the business cases or each other’s reports they choose to accept; rather, they must provide a factual basis for their opinions. The Court is very cognizant of just how easy it is to pick particular assumptions or approaches in order to manipulate the unpacking analysis to arrive at a preferred rate for each license. The more that the unpacking analysis can be manipulated, the less it represents what the parties actually agreed to do, and therefore the less useful it is to the Court.’

261. The first issue was the correct treatment of past or released sales. Judge Selna noted that the licence agreements themselves did not spell out any basis to allocate lump sum payments between past and future sales. He was also critical of an expert who based his analysis entirely on after-the-fact statements from Ericsson which he obviously regarded as unreliable because his approach ‘would invite SEP-holders to manipulate their internal discussions and opinions towards whatever their goals are for the next FRAND dispute.’

262. It is worth setting out the reasons why Judge Selna decided to treat released sales and released payments the same as projected sales and prospective payments and to calculate a single rate over the course of the combined licence and release period:

‘The Court generally views released sales as part and parcel of the forward-looking terms of the license agreements. The Court decides this based on a pragmatic view of the negotiations between sophisticated parties. When Ericsson and Apple negotiated their license agreement, they both knew that there were unlicensed sales, and they had even engaged in substantial litigation across the globe on that very issue. (Brismark Decl.#108). To then exclude released sales and the initial lump sum payment ignores the reality that, particularly for lump sum deals, the released sales are being paid for as part of the same transaction. The Court is therefore skeptical of any unpacking which ignores released sales and an initial lump sum payment for the purposes of determining a FRAND rate. The Court believes that parties to these license agreements generally care much more about the total amount they have to pay and the total value they receive, rather than whether a payment is labeled as a release from past liability or for the future license.’

263. Judge Selna also observed: ‘It is certainly possible that parties could specifically agree to different royalty rates for released and prospective sales, but that is not the case for any of the licenses the Court unpacked.’ The same is true of the comparables presented to me, and it is to be noted this is a different point to that which arises when the SEP owner recognises in its accounts a proportion of a lump sum payment as relating to the past.

264. The second issue Judge Selna addressed was how to apportion lump sum payments between multiple standards. He observed that each apportionment to a particular standard will affect each later standard and the more assumptions the experts make, the more the licence reflects the experts' decisions rather than the parties’ agreed upon royalties rates.

265. The third (and it would seem the fourth) issue concerned ‘Dollar-per-unit Rates, Caps and Floors’, which involves two separate concepts. Judge Selna noted that Ericsson had in the past entered into some licences with dollars-per-unit rates or licences with caps and floors, but he declined to adopt a dollar-per-unit approach (a point criticised in Ericsson’s appeal, but not resolved), or to impose caps or floors.

266. His reasons for rejecting a dollar-per-unit rate approach were, in summary, (1) it would be at odds with industry practice; (2) a % royalty better aligns the incentives of the SEP-holder and the licensee than a dollar-per-unit royalty. He considered this furthers ETSI’s express policy objectives of both rewarding SEP-holders and making their IP available to the public; (3) Ericsson had repeatedly reaffirmed that the royalties should be % running royalties; and (4) Judge Selna was of the view that there was no evidence that a package of SEPs has a fixed determinable value which would justify a fixed dollar-per-unit rate or a percentage rate as modified by caps and floors.

267. As can be seen from the fourth reason, Judge Selna moved to the separate issue concerning caps and floors. I will quote the relevant passages here because Mr Djavaherian relied upon them in his evidence:

‘[T]here is no support in the record that a package of SEPs has a fixed, determinable value which would justify a fixed dollar-per-unit rate or a percentage rate as modified by floors or caps. Brismark explained that Ericsson seeks to apply a floor to its license agreements so that it can obtain a certain minimum amount of revenue for itself. ... [O]n the stand Brismark explained that its existing caps and floors are solely the product of negotiations, not any sort of analysis of whether they are fair or reasonable.’ (p69)

268. Later, Judge Selna stated:

‘Ericsson's use of floors in its rates is itself discriminatory. In the absence of a credible showing that Ericsson's SEPs add a measurable incremental value, there is no basis for essentially discriminating on the basis of the average selling price where a floor would result in a higher effective rate for lower priced phones.’ (p113)

269. With respect, I do not find any of Judge Selna’s reasons for rejecting a dollar-per-unit rate persuasive. Furthermore, even if the prevailing industry practice is to agree upon running royalties (whether with caps or floors or not), that does not mean that running royalties are necessarily FRAND or that FRAND rates must be expressed in terms of running royalties. I will assess all these points later on the basis of the evidence before me.

270. Finally, I note that InterDigital made a series of detailed submissions comparing Judge Selna’s approach with that of Mr Meyer. These were highly fact dependent and I need not discuss them.

THE COMPARABLES CASE

271. Self-evidently, the Comparables part of this case divides into two main but closely related sections. The first section is concerned with the identification of relevant comparable licences. In turn, the identification process depends on the extraction of relevant information from existing PLAs. In this case, the experts took very different approaches. This part of the case was further complicated by the experts not only using different data, but also using different approaches to the identification of relevant data.

272. Once relevant comparable licences have been identified and the relevant information extracted, in the second main section it is necessary to consider how the information should be deployed to arrive at a FRAND rate or rates which are applicable to Lenovo.

The SEP Licensing Landscape

273. Whilst Mr Brismark and Mr Djavaherian disagreed on many points, there appeared to be broad agreement between them as to the current SEP licensing landscape, albeit they differed as to the reasons for certain features of that landscape. I can start with some points at a general level which were either not disputed or accepted, before moving onto more controversial points.

274. Mr Brismark said that the general situation about 20 years ago was one where implementers and patentees alike generally had a willingness to negotiate a SEP licence agreement, understanding that a deal had clear benefits compared to litigation. By contrast he said that today (and over the past 5-10+ years) there were many more disputes. Mr Brismark ascribed the cause to implementers engaging ‘much more frequently’ in hold-out. Mr Djavaherian disagreed and I return to this point later. But the general picture of more disputes is also confirmed by our experience in the Patents Court.

275. It is not necessary for me to relate in any detail the general stages of a licensing negotiation as related by the experts – Initial Contact, Technical Negotiations, Business Negotiations, backed up, much as a last resort by recourse to litigation or (much less frequently) arbitration.

276. Where agreements are reached, Mr Brismark indicated they were generally for a term between 5-7 years to allow for adjustment on renewal due to changes in the SEP portfolio structure and strength and the position of the implementer in the market in the meantime. Other general features of the landscape can be summarised as follows:

i) Licensors have to be flexible to get negotiated deals. This is reflected in the high degree of variation in InterDigital’s licences. I discuss this notion of flexibility in further detail below.

ii) The larger implementers favour lump sum deals. Those deals require some forecast of sales so that the licensor can value the agreement and determine an appropriate lump sum.

iii) The advantage to a licensor of a lump sum agreement is economic certainty; the licensor will receive the stated sums on the stated dates regardless of the sales performance of the implementer. Depending on how the payments are structured, a LS deal also gives the licensor the opportunity to offer a discount based on Net Present Value calculations, due to the accelerated receipt of royalties.

iv) Smaller licensees and/or those with an uncertain outlook or less bargaining power are likely to favour a running royalty agreement.

277. No discussion of SEP licensing can be complete without discussion of the concepts of ‘hold-up’ by a SEP licensor or ‘hold-out’ by an implementer who requires a SEP licence. I have already discussed what I found to be Mr Brismark’s unusual definition of ‘hold-up’. In general, I adopt the same definitions as Birss J. in UPHC (see above), which I believe to be the standard meanings of each term.

278. There is one general observation to be made about these terms. Every SEP licensing negotiation involves some degree of hold-up or hold-out (and probably both) for as long as the two sides fail to reach agreement. It depends on the eye of the beholder as to which is occurring. However, the mere failure to reach agreement does not necessarily mean that one side or the other is to blame – there may be a genuine disagreement as to the value to be attributed to a particular SEP portfolio and what terms are FRAND, which can only be determined by an independent tribunal.

279. I return to the notion of flexibility in SEP licensing. Mr Brismark discussed the various possible licence structures in his first report in paragraph 67 and continued as follows:

‘68 In my experience, in SEP licensing negotiations, it is quite common that a licensor will start by providing a term sheet offer based on a percentage running royalty, with floors and caps. This will give the licensee a very good understanding upfront of the economics of a deal. Having said this, in most negotiations the licensor will be asked to make offers in all of the structures discussed above as part of the negotiation. In the end, it is my experience that as a licensor you will need to show a great deal of flexibility on deal structure in order to get a negotiated deal in place.’

280. Mr Brismark made a similar point in his paragraph 75. Mr Djavaherian detected, in these passages, that Mr Brismark was suggesting that deal structure was more important than price. I am not sure that he was, but Mr Djavaherian was at pains to stress that the price is the key metric about which all the negotiations will centre.

281. Mr Brismark’s paragraph 68 does require a little unpacking. An offer based on a percentage running royalty gives the licensee a very good understanding of what the SEP licensor is demanding in its opening bid: this may or may not be at the licensor’s ‘program rates’. For smaller implementers, it may well be: for the larger players in the market, I suspect the licensor does not put forward its ‘program rates’. From that point on, the flexibility used to structure the final licence terms can serve to and often does obscure the overall economics of the deal. I acknowledge entirely that the introduction of this ‘flexibility’ comes about because each side is seeking to represent its own interests.

282. In his first report, Mr Djavaherian suggested that sophisticated licensees frequently reach agreements on rates far from the SEP licensor’s announced or ‘program rates’. Mr Djavaherian returned to this topic in his second report, developing it further in some particular observations concerning flexibility, a SEP licensor’s ‘program rates’, and what is ultimately agreed:

"2.24 Mr Brismark claims (paragraph 67 of Brismark 1) that "The most straight forward royalty structure is to have, per licensed standard, a blended global running royalty rate in percentage, with floors and caps". This might have been Ericsson's preferred structure, but I do not agree that this is necessarily the "most straight forward royalty structure." For example, a single flat rate would be simpler, as would a single lump sum payment (which would also require no further auditing in the license term). [fn 7].

2.25 Very commonly, major undertakings are not able to agree on a structure such as set out by Mr Brismark in paragraph 67; instead both parties frequently prefer a lump sum arrangement. In my experience, when licensors move away from what they consider to be their preferred "standard" terms (e.g ., the royalty structure referred to in Brismark 1), they often seek to introduce ambiguity regarding the rate actually being paid, or some other element of complexity or caveat to the overall deal, as a way of attempting to mitigate the risk (from their perspective) of that "non-standard" license setting a precedent for other potential licensees to follow. A change of license structure (e.g. to a lump sum or other structure, or combination of structures) often forms part of such tactics.

2.26 In particular, it is in the licensor's interest to seek to cultivate their collection of license agreements in such a way as to support the proposition that there exists (for any given point in time) a "standard" set of licensing rates which have been consistently applied and agreed to across the set of agreements, notwithstanding variability in the royalty structure, actual amounts paid and effective rates between licenses.

2.27 In order to perpetuate the perception of the existence of a standard "program rate", licensors sometimes seek to enter into a large number of simple licenses featuring a running royalty rate set at a high level at or around the alleged "program rate". In practice, these will typically be with less legally experienced or sophisticated and/or smaller-volume licensees for whom the total royalty to be paid under the license will not add up to a very high overall sum (and may be anticipated to come in below or near the cost of litigation to the licensee, as I described in paragraphs 5.9 and 6.6(b) of Djavaherian 1), and who will be relatively more inclined to simply accept royalty terms at or around the licensor's intended "program rate" and less motivated to negotiate rigorously to a lower rate. The account of InterDigital's initial negotiation with Wistron in relation to its 2012 license given at paragraph 64 of the First Witness Statement of Julia Mattis appears to be an example of such a license.

2.28 On the other hand, where a licensee is not prepared to accept the licensor's alleged "program rates" and negotiates vigorously and in good faith to agree on royalty terms amounting to a significantly lower effective rate, in order to maintain the perception that a standard "program rate" exists and is consistently applied, in addition to generally resisting disclosure of the terms of their other licenses to any potential licensee, a licensor may commonly attempt to limit the precedential value of licenses agreed at a lower effective rate by drafting and structuring such licenses in a complex way that may be more difficult to unpack (even if it were to be disclosed, e.g. in the context of litigation) and such that arguments can be made that the rates therein are in some way equivalent to, or consistent with, the licensor's alleged (higher) standard "program rate". Similarly certain recitals or clauses might be included in the license as 'reasoning' for a certain (higher) rate. Again, I do not consider these to move the dial. Once the operative terms of the agreement have been reached it often is in both parties' interests to make the license rate appear higher or more difficult to understand (see Djavaherian 1 at paragraphs 5.19(b) and 6.33).

2.29 In this regard, and as set at paragraph 2.21 above, Mr Brismark's evidence gives the impression that there is no room to negotiate on price. It is simply not the case, however, that a patentee is given free rein to unilaterally set a price for all licensees (and with little or no negotiation). The notion that those unilateral rates must then be accepted without question by licensees (and ultimately by reviewing courts) would lead to an unjustifiable approach in which there is no "check" on FRAND compliance beyond what a patent holder might unilaterally demand. Some licensors have been resistant to the idea that their licensing practices should be under any kind of external scrutiny (such as court or antitrust authority control) and wish to have free rein as to the terms they impose, keeping individual terms confidential. In my experience, potential licensees can place great weight on the decisions of courts and competition authorities as this is often the best evidence available to them as to what is reasonable for any given portfolio. As noted above, even a small sampling of relevant public court decisions demonstrates that licensor stated rates often are overstated.

2.30 The fact that parties can and do negotiate extensively on price is clear by reference to the different unpacked effective rates which were actually [emphasis in the original] paid by different companies, as set forth in the report of Mr Meyer (in contrast to the nominal “undiscounted” rates calculated by Mr Bezant, which are predicated on the acceptance of (a) InterDigital's position in relation to the existence of a standard "program rate"; (b) the legitimacy of characterizing any (lower) deviation from such rates as a "discount"; and (c) the appropriateness of reversing any "discounts" in an unpacking exercise to seek out and arrive at a nominal undiscounted "program rate"). Similarly, the degree to which parties in real-world negotiations negotiate on price can be observed with respect to Ericsson's own licensing program, in relation to which Ericsson made the following announcement in 2009 concerning its stated rates for 4G

"Ericsson expects to hold a relative patent strength of 20-25% of all standard essential IPR. Ericsson believes the market will drive all players to act in accordance with these principles and to a reasonable maximum aggregate royalty level of 6-8% for handsets. Ericsson's fair royalty rate for LTE is therefore expected to be around 1.5% for handsets."

2.31 Although Ericsson said it hoped to achieve a royalty of 1.5% for handsets, the unpacked rates for licenses reviewed in the TCL v Ericsson decision showed Ericsson in fact achieving licensing rates of between 0.31% and 0.66% as assessed by the Court and as shown in the graph below:

2.32 This clearly demonstrates that negotiation on price does, in fact, occur. Further, these negotiations can be complex and time-consuming. The market did not arrive at the royalty terms unilaterally sought by Ericsson but arrived at very different (and significantly lower) royalty terms, as did the reviewing authority in that case (the US court when the royalty terms were put up for independent analysis).

283. The cross-examination of Mr Djavaherian did not reveal whether he had formed those views before his involvement in this case or because of it. It does not matter which because I found his views particularly apposite as regards InterDigital’s licensing practices. I emphasise that I do not blame InterDigital for developing these practices – they are a natural reaction to having to operate in a difficult licensing environment.

284. However, based partly on the evidence from Mr Brismark and Mr Djavaherian, partly on the evidence of fact from InterDigital as to how its licensing practices have developed, partly on the expert accountancy evidence and partly on my conclusions below as to what is FRAND, I have come to the conclusion that InterDigital’s SEP licensing practices (and, I strongly suspect, of others in the same market) have become distorted by their attempts to secure licences of their SEP technology, against a picture of many (but not all) implementers not complying with their duty to act as a willing licensee.

285. I should add that Mr Brismark, in his second report, identified a counter-example from HTC v Ericsson 6:18-CV-00243-JRG (E.D. Tex. Dec 17, 2018), in which he said that the court determined that Ericsson’s offered 1% royalty per LTE phone with a $1 floor and $4 cap was in line with comparable agreements (this part of the decision being affirmed on appeal: 19-40566, 5^th Cir. Aug. 31, 2021). Mr Brismark commented that, given the general decline in licensing rates over the years, the adjudicated rate is fairly consistent with Ericsson’s announced LTE rate of 1.5% about 10 years earlier.

286. Finally, under this heading, there were some interesting discrete points made by the licensing experts which I must discuss.

287. First is Mr Brismark’s point (just mentioned) about the general decline in licensing rates over the years. In both his first and second reports he said that there had been a general erosion of royalty rates ‘over the past 10 years, largely due to systematic hold-out by implementers’. It is clear that Mr Djavaherian did not agree, for several reasons:

i) First, he referred to a series of court decisions (Microsoft v. Motorola, Unwired Planet v Huawei, Huawei v Conversant, and Innovatio v. Cisco et al.), where he said the rates determined to be FRAND by the court were well below the rates that had been sought in the private negotiations.

ii) Second, he made the point that for the larger licences, the unpacked rate is more likely to be attributable to the value of the underlying patents and less likely to reflect other factors such as the desire to avoid the costs of litigation or avoid protracted negotiation.

288. More generally, when the sums payable by the larger implementers (often lump sum deals) are at least a degree of magnitude higher than the costs of litigation, it seems logical to assume that the unpacked rate is more likely to represent the ‘true value’ of the licensed technology. By contrast, where the costs of litigation would be around or greater than the total sum payable under a licence, it is far more likely that the implementer has little choice but to accept what the licensor is demanding. Certainly, InterDigital’s licences seem to fit this logic.

289. The second point is Mr Brismark’s suggestion that high-end devices should command a higher absolute royalty than a low-end device utilising the same technology. He sought to justify this in the following passage which concludes with his suggestion as to how this is often reflected in practice:

"71 …The value that, for example, the LTE technology brings to a high-end smartphone with the latest camera technology and a large high-performance screen etc. is higher than the value LTE brings in a low-end device with less performance, a smaller screen etc. In the high-end smartphone, the LTE technology is more utilized since the phone will require higher speed and lower latency when communicating over the wireless network. Therefore, a higher royalty in the absolute is justified, whereas for a low-end device a lower royalty is justified. This is reflected in a royalty which is based on a percentage of the ASP. A percentage based running royalty combined with a floor and/or a cap is used as the standard structure by many licensors in industry and provides for the above mentioned effect, while still achieving a minimum absolute royalty amount and a maximum royalty amount.

72 In negotiations an implementer with predominantly high-end phones would typically argue that it should pay no more than the absolute amount (i.e. in dollars, euros or any currency agreed) the implementer with the lowest ASP on the market pays, thereby effectively asking to pay a much lower percentage royalty compared to its competitors. An implementer with low-end phones will, conversely, normally ask to pay no more than the percentage royalty of the implementer with the highest ASP on the market, while ignoring that there is an ASP cap in doing so and effectively asking to pay a much lower absolute amount per phone than its competitors. These are extreme positions to take and, in my experience, could be a sign of hold-out if insisted upon by a licensee.

73 However, as a general rule, companies with high ASP phones will prefer a structure with an absolute amount per device when negotiating, or at least insist on a cap. Conversely, companies with low ASP phones will prefer a straight percentage structure, without floor (for a low ASP player, the cap plays no role).

74 An effective way of striking a balance is to use a royalty based on a percentage of the ASP, but with caps and floors. This provides a relationship between the royalty paid and the price (and use of the standardized technology). At the same time the floor protects the licensor against business models which may have artificially low prices on a device, whereas the cap protects the licensee in instances where a phone is priced higher than the value the standardized technology enables [fn: To take an extreme example, if the phone is gold-plated for example]."

290. The subsidiary point concerns caps and floors. Mr Djavaherian touched on the issue of caps and floors in his paragraph 2.24 which I quoted above. In his footnote 7, he set out two observations made by Judge Selna in TCL v Ericsson (which I quoted in paragraphs 267 and 268 above).

291. The principal point is whether higher-end devices should bear a higher absolute royalty. If they do, in one sense, the result can be characterised as the higher-end devices subsidising lower end devices. Mr Brismark seeks to justify this point on the basis that in higher-end devices, the technology is ‘more utilised’. For myself, I have never encountered the suggestion before that the royalty in SEP licensing of mobile devices should depend on usage. SEP licensing is complicated (and therefore opaque) enough without the introduction of an assessment of usage (which would necessarily have to be of individual technologies). I have not been able to detect any hint in the ETSI materials that usage of individual devices should be taken into account. Rather, my understanding is that the royalty on a 4G/LTE phone, for example, is paid because of the potential of that device to utilise the technology. The same royalty is payable whether the device is very heavily used over mobile networks, or data is predominantly conveyed over Wi-Fi networks, or the device is put in a drawer and never used. Furthermore, there was no suggestion either that sums paid or payable under any of the allegedly comparable licences depended on usage.

292. In relation to Mr Brismark’s point therefore, I am inclined to view it as yet another creative justification put forward from the SEP licensor viewpoint to justify a higher royalty. I therefore leave it out of account.

Unpacking of the allegedly comparable licences

293. As will appear from the next two sections, Messrs Bezant and Meyer approached the process of unpacking and comparison in radically different ways. It is necessary to set out a reasonably lengthy explanation of their respective approaches in order to understand the issues which arose.

294. In addition to their adoption of different approaches, the two experts used different data in a number of respects. By way of example, for handset sales data, Mr Meyer used data from IDC, whereas Mr Bezant used data from SA. Although Mr Bezant said the data were ‘similar’, eventually InterDigital agreed that I should use IDC data. Notwithstanding that, it will be seen that the experts frequently arrived at and utilised radically different figures for total consideration and total unit sales for certain PLAs. The combination of the different approaches and the use of different data sources meant that comparisons were, at best, difficult to make.

THE INTERDIGITAL/BEZANT APPROACH TO UNPACKING AND COMPARISON

295. Due to the uncertainties in unpacking, InterDigital submitted that it is better to look across as broad a range of comparables as possible rather than focussing on a small subset of ‘the best’ comparables. They say doing so mitigates against the uncertainty inherent in any particular, single comparable licence skewing the analysis.

296. This approach was very much evident in Mr Bezant’s reports. Indeed, in his second report, he was explicit:

‘Mr Meyer relies on a small number of comparable licences, which reduces the reliability of his analysis

2.2 As explained in my First Report, a comparables analysis uses the effective rates implied by commercially negotiated licences, for the same or a similar set of rights to those in the subject licence, as a guide to the market value of those rights. The implied rates must be interpreted with care as there may be issues of reliability (in their calculation) or comparability (to the subject licensee).

2.3 Whilst certain differences in characteristics between licences can be adjusted for (e.g. the time value of money), the impact of other characteristics (such as a licensee’s market position or differences in the underlying circumstances of the licence negotiations) are not always directly observable or quantifiable.

2.4 I therefore consider it preferable to rely on more rather than fewer comparables and to consider what those datapoints imply (in terms of the value of the rights), in the round, taking account of both factors that can, to some extent, be adjusted for and those that cannot. This reduces the likelihood of reaching an incorrect conclusion based on a small number of datapoints that may be affected by unobservable factors (that have not therefore been adjusted for) or uncertainty in respect of the appropriate assumptions.’

297. Mr Bezant analysed all 27 licences relied upon by the parties (as well as others) and set out his opinion as to what can be derived from each one, pointing out the factors which, in his view, affected the reliability of each particular licence as a comparable.

298. There is one important point to note which Mr Bezant mentioned at the start of his first report. He was informed by InterDigital’s solicitors that InterDigital’s case as to the value of its portfolio of 3G, 4G and 5G SEPs is primarily based on 20 running royalty licence agreements entered into by InterDigital over time. The only possible inference is that these 20 PLAs were the InterDigital 20.

299. Mr Bezant was instructed to analyse the financial terms of each of the pleaded PLAs, including the 3GMM, 4GMM and 5GMM royalty rates implied in those licences. As I understand matters, this instruction was driven by the structure of InterDigital’s 5G Extended Offer, and there are some important points to note:

i) First, in that offer, ad valorem rates are offered for each generation of technology. This instruction gave rise to considerable complication in Mr Bezant’s analysis in that he had to determine rates (and sometimes a range) for each of 3G, 4G and 5G, having estimated Average Selling Prices (ASPs) for 3G and 5G and using historical data for 4G.

ii) Second, as stated in this offer, royalties would be paid, by generation, at the same rate for the past as for the future.

iii) Third, in his analysis Mr Bezant presented both ad valorem rates and $/unit rates.

300. Mr Bezant also developed a particular approach which he said was designed to put licences which encompass differing scopes and consideration onto common bases for comparison.

i) First, he derived for each licence the "Licensee Effective Rate" or "LER". Mr Bezant explained that this is the rate implied by the licence, incorporating: (i) all licence-specific terms, such as floors/caps, prepayments, term, regional and volume discounts, lump sum payments and payments for past release; and (ii) the characteristics of the specific licensee such as forecast sales volumes and ASPs. InterDigital suggested that this was the most basic level of unpacking that does not seek to normalise for any payment structure related discounts or licensee specific discounts that have been applied in the licence.

ii) Second, Mr Bezant derived what he called the "Common RR-Basis Rate" or "CBR". He explained that this is the rate implied by the licence, before payment structure-related discounts (such as fixed fee and time value of money discounts) are taken into account. In other words, InterDigital submitted, this level of unpacking seeks to back out the rate that is implied if the effect of any applicable payment structure-related discounts is disapplied. Mr Bezant said this means that the rates from licences with different payment structures are placed on a more economically comparable basis.

iii) Third, Mr Bezant derived the "Pre-Discount Rate" or "PDR", being the rate implied by the licence, before all other discounts that were given (based on InterDigital's fact disclosure and witness evidence) are taken into account. InterDigital submitted that this level of unpacking seeks to back out the rate that is implied if the effect of any other discounts, particularly licensee specific discounts, is disapplied. Mr Bezant was keen to stress that no-one actually pays the PDR – these are rates derived for the purposes of comparison only. To derive an actual rate for any particular licence, one takes the PDR and then adds in all the discounts to which the particular licensee is entitled.

301. Mr Bezant summarised his approach in the Figure set out below. There are many features of his approach which I will have to discuss below, but particular points to notice are:

i) His clear preference for RR licences over LS licences. This might imply a preference for ad valorem rates over $/unit rates, but I did not detect such a preference being expressed by Mr Bezant.

ii) The steps taken to calculate the PDR. Any ‘licensee-specific’ discounts (volume, regional, term and renewal) are unwound at this point but only after past sales have been removed. In other words, the PDR is a ‘future only’ rate.

302. Again, it is important to appreciate that Mr Bezant’s approach required him to calculate LERs, CBRs and PDRs for each of 3G, 4G and 5G.

303. Having calculated the CBR for each of the 27 PLAs (in some cases presenting a range), Mr Bezant then presented comparisons of the per unit CBRs and ad valorem CBRs implied by InterDigital’s 5G Extended Offer and Lenovo’s pleaded case to four ranges of comparable PLA. The ranges chosen by him were:

i) The first embraced all licences that include an implied rate for the given standard.

ii) The second range was based on range 1, from which licences which Mr Bezant considered to be less reliable comparables were excluded.

iii) The third embraced all RR and hybrid RR licences that include an implied rate for the given standard. He suggested that his estimated rates for these licences are more reliable than for LS and Hybrid LS licences.

iv) The fourth was based on the third, but again from which licences which Mr Bezant considered to be less reliable comparables were excluded.

304. Lenovo cross-examined Mr Bezant on the basis that, as one descended through these ranges, one got to the group of PLAs which he most favoured. He rejected this on the basis that ranges 3 and 4 were independent of ranges 1 and 2. There was, however, some truth in the suggestion because the consequence of Mr Bezant definitely favouring RR over LS PLAs and his exclusion of PLAs which he considered less reliable meant his results for range 4 were his preferred results.

305. This raises an issue as to precisely what opinions Mr Bezant was expressing when he commented on the reliability of results derived from a particular PLA, and the same goes for Mr Meyer. Although this was not spelled out explicitly, there is a distinction to be recognised between (1) an expert expressing the view that a single PLA or a particular group of PLAs are the best comparable(s) and (2) an expert expressing the view that the rates derived from a particular PLA or group of PLAs are more reliable based purely on the expert’s assessment of the uncertainties and difficulties involved in unpacking the PLA(s) in question. I understood Mr Bezant’s opinions on reliability to sit in the latter category. Specifically, I did not understand Mr Bezant to be offering any opinion as to which PLA or group of PLAs were the best comparable(s) in this case. By contrast, Mr Meyer was clearly expressing views in the former category. The difference in their approaches does not matter overmuch, because it is the reasons for their opinions which matter.

306. However, there is one important consequence for InterDigital’s case which I must note. None of InterDigital’s fact witnesses expressed any view about the InterDigital 20 and, as I have just explained, Mr Bezant did not do so either, nor did any other expert witness called by InterDigital. Although InterDigital’s FRAND Statement of Case was signed by a Mr Akerley, identified as Vice-President, Head of Litigation, he was neither asked to give evidence nor did Lenovo request to cross-examine him. Lenovo did not need to, because it was InterDigital’s choice as to what evidence to adduce in support of their case or in opposition to Lenovo’s case.

307. The somewhat surprising result is that there was no explicit support for InterDigital’s case based on its 20 pleaded comparables, apart, of course, from the analysis of those PLAs.

308. Reverting to the presentation of results in Mr Bezant’s first report, he presented results on different bases, but here I set out his estimates of the per unit CBRs and then of the per unit PDRs for 4G.

309. As appears from these two tables, all of the ranges presented are wide. It is striking, however, that Mr Bezant’s stated PDR ranges are effectively the same if one takes ranges 1 and 3 or identical for ranges 2 and 4. In other words, he managed to derive the same rates from all the PLAs relied upon and from just the RR PLAs.

310. The values set out in Tables 2-1 and 2-3 were revised slightly in Mr Bezant’s second report, but were set out by generation. The 4G CBR rate from the 5G Extended Offer reduced slightly to $0.61, and the 4G PDR reduced to $0.71 but the other 4G values were essentially unchanged.

311. Then Mr Bezant presented a series of plots showing his calculated LERs, CBRs and PDRs for both a per-unit rate $/unit and ad valorem rate as a % of limited ASP for each of 4GMM, 3GMM and 5GMM. These plots were revised and updated (adding Xiaomi 2021) in his second report, where Mr Bezant explained that he presented these plots in the order of 4G, 3G and 5G because of their value in InterDigital’s 5G Extended Offer: 64% of the forecasted PV adjusted consideration related to 4GMM sales, 24% to 3GMM and 12% to 5GMM sales.

312. It is not necessary for me to set out each of these plots. I will set out the corrected 4G LER, CBR and PDR plots and make some observations.

[REDACTED

REDACTED]

313. One important point to note about all Mr Bezant’s plots of this type is that they give equal weight to each PLA. I have to consider the issue of weighting further below.

314. In its Opening Skeleton, InterDigital referred to aggregated versions of these plots and submitted they enabled the Court to see the total spread of the data and how it relates to the parties’ offers. Reliance was then placed on Mr Bezant’s conclusions in his first report, expressed as follows:

a. ‘The per unit Common RR-Basis Rates implied by InterDigital's 5G Extended Offer sit in the bottom half of the range of Common RR-Basis Rates implied by InterDigital's comparable licences for 3GMM, 4GMM, and 5GMM. They also sit below the bottom of the range of rates implied by the RR and Hybrid (RR) Licences, that Mr Bezant considers to be more reliable, for 3GMM and 4GMM; and

b. The per unit Pre-Discounts Rates implied by IDG's 5G Extended Offer sit in the bottom half of the range of Pre-Discounts Rates implied by InterDigital's comparable licences for 3GMM, 4GMM, and 5GMM. They also sit just above the bottom of the range of rates implied by the RR and Hybrid (RR) Licences that he considers to be more reliable for 4GMM, and they sit below the bottom of the range of rates implied by the RR and Hybrid (RR) Licences that he considers to be more reliable for 3GMM.’

315. Although I am inclined to agree these conclusions are applicable to the plots (if one notionally draws in the upper and lower bounds), in fact these conclusions were stated by Mr Bezant underneath his tables 2-1 and 2-3 respectively. In other words, the ranges to which Mr Bezant was referring in those paragraphs were the very wide ranges set out in those tables.

316. Although this was not made explicit, I think the point being made was that, because InterDigital’s 5G Extended Offer sat in the CBRs or the PDRs range, it was therefore FRAND. The point that the Offer sat in the bottom half or below the bottom of the specified ranges carried an implicit suggestion that the Offer was therefore ‘conservative’.

317. Whilst I agree, as it was made clear in UPCA that a range of rates may be FRAND, I regard the ranges set out in Mr Bezant’s tables as far too wide to represent the FRAND range in this case. Taking 4G as the prime example, Mr Bezant’s preferred range was $0.65-$3.00. Any endorsement of ranges of that type of width would, in my view, provide a licence for discrimination and would positively hinder the endeavour to converge on FRAND rates which the industry can use. Accordingly, in my view, the task of the Court is to arrive at a much more precise range or even a single rate. A separate point is whether the Court should arrive at a single rate blended across generations or a single rate per generation.

318. To my mind, however, a much more relevant point appears from these plots. First, it must be noted that the PLAs are shown along the X-axis in date order. These plots show significant variation in rates. However, if I concentrate first on the RR or Hybrid (RR) points (dark blue squares) LERs, subject to certain outliers, a best-fit line would be angled downwards from $[RED] on the y-axis down to about $[RED] at the right-hand side. By contrast, the data points for the LS licences (green spots) have a much lower rate of decline, but a decline over time nonetheless – more easily seen if the y-axis scale were to be expanded. Mr Bezant’s PDR plot is more difficult to interpret, but one can still discern a decline in his PDR rates over time. Although I am not, at this stage, accepting that Mr Bezant’s analysis is valid, nonetheless, these trends are noticeable. The consequence of this trend is that the rate indicated in an InterDigital PLA is sensitive to the date when each was concluded. Since I consider it would be contrary to principle to reward Lenovo for delay (whether the delay is Lenovo’s fault or not), but also because my task is to arrive at a FRAND rate or rates, this is a point I keep in mind.

319. These trends are also apparent when one examines the per-unit rates set out in CXX-PM-3&4. For those PLAs where a 4G rate can be derived, Mr Bezant’s PDRs are as follows for each group of licences:

i) For the InterDigital 20 there are 14 values which in date order are: [REDACTED], the average of which is $1.76.

ii) For the Lenovo 7 there are 7 values, of which 2 are ranges [REDACTED] and [REDACTED]. For convenience, I take the mid-point of each of the ranges viz: [RED] and [RED]. Then the values over time are: [REDACTED], the average of which is $1.57.

320. When making any analysis of Mr Bezant’s PDRs, I remain acutely conscious of the process used to derive each PDR and Lenovo’s criticisms of it. Lenovo’s favourite example is taken from Samsung 2014. The rates derived by each expert for that PLA were as follows:

i) Mr Meyer’s future only rate (blending 3G and 4G) was $0.16 (Mr Meyer proceeded on the basis that the PLA covered no past sales).

ii) Mr Bezant’s rates were:

a) 3G, LER: $[RED]. PDR: $[RED].

b) 4G, LER: $[RED]. PDR: $[RED].

321. Although there is an enormous difference between, for example, rates of $[RED] and $[RED] per unit, Lenovo emphasised the difference by drawing attention to the consequences of InterDigital’s case regarding Samsung 2014. Mr Bezant worked on the basis that Samsung paid a total of $[RED]m pursuant to Samsung 2014, a price approximately 85% of the total applying Mr Bezant’s PDRs. Mr Meyer characterised Mr Bezant’s PDRs as representing what Mr Bezant considered to be the true value of the licence rights. This was largely, but not completely, fair. Mr Bezant was at pains to point out that no-one actually paid his PDRs – this was true so far as any of the Lenovo 7 were concerned, but not correct generally. Some of the smaller licensees did pay the rates which InterDigital demanded, without negotiation or any discount.

322. However, the general picture presented by Mr Meyer was correct. Samsung paid some $[RED]m but the discounts accounted for $[RED]bn (on the basis of the unrealistic assumption made by Mr Bezant that Samsung would terminate early) or $[RED]bn (on the more realistic assumption of no early termination).

323. Having touched on one criticism of Mr Bezant’s approach, I can now turn to explain the principal criticisms levelled against it.

Mr Meyer’s criticisms of Mr Bezant’s approach

324. In summary, the principal criticisms concerned:

i) Mr Bezant’s reliance on InterDigital’s own unit projections rather than third party market data.

ii) The fact that Mr Bezant ignored releases of past sales.

iii) Mr Bezant assigned no value to non-cellular technologies licensed under the LS PLAs, specifically HEVC and Wi-Fi.

iv) Mr Bezant excluded non-handset sales (i.e. tablets, computers and other cellular devices) on the assumption they were not ‘material’.

v) The use of prepayment and time value of money discounts which were never paid to increase the calculated CBRs.

vi) The use of volume and other discounts never paid to increase the calculated PDRs.

325. Points i), iii) and iv) are all concerned with what data to use, and I address these below. Each of points ii), v) and vi) raise important points of principle concerned with the appropriate methodology used in unpacking comparable PLAs. Of these points of principle, the application of discounts by Mr Bezant was by far the most controversial issue.

326. Mr Meyer explained his principal objection to Mr Bezant’s approach in the following passages:

‘… Mr. Bezant's analysis relies on the assumption that a valuation unpacking of comparable licenses should in effect "restore" revenue and value for the licensor that was not actually realized in the transaction, and which the licensor considers was forgone as a "discount", in order to arrive at an assumed market value. The goal of a market comparables valuation approach is to determine the value at which a particular transaction was actually realized in the market. Such an analysis indicates the actual realized value of the rights being licensed. A market comparables valuation analysis cannot be achieved by simply accepting one party's view that various comparable transactions were "discounted" and then grossing them up to an inflated rate that the licensor party would have preferred to achieve. Indeed, doing so simply measures what one party believes it should have received, rather than the actual market rates charged, and that it realized.

…The assumed discounts for which he adjusts include those related to: (1) past sales; (2) geographic scope; (3) license term; (4) sales volumes; and (5) previous licensing behavior. In situations where no further discounts other than payment structure-related discounts are said to have applied, the Pre-Discounts Rate is the same as the Common RR- Basis Rate. This is broadly the case for the InterDigital Comparable Agreements [i.e. the InterDigital 20].

However, when calculating the Pre-Discounts Rate for the InterDigital Lump Sum Agreements [i.e. the Lenovo 7], Mr. Bezant performs the following series of additional steps where he: (1) determines the consideration related to the future royalties by deducting the consideration relating to past sales (prior to the effective date) from the PV-adjusted total consideration; (2) uplifts the PV-adjusted future consideration to estimate the consideration before all discounts are taken into account; and (3) divides the PV-adjusted uplifted future consideration by the PV-adjusted future sales volume to obtain a per unit Pre-Discounts Rate. This complicated methodology strays from the core valuation exercise that seeks to understand how much is actually paid per device by other companies in the market that are comparable to Lenovo.’

327. I formed the view that in his reports, Mr Meyer was content to address the InterDigital discounts collectively, although he did single out volume discounts for particular criticism as I shall explain. This approach meant there was little attempt in his evidence to discriminate between the different discounts.

The effects of Mr Bezant’s treatment of past sales

328. As will appear, the reason why Mr Bezant dealt with the past sales in the way that he did was because of two aspects of the 5G Extended Offer namely (i) the rate(s) applied to past sales were the same as those for future sales and (ii) many (but not all) of the discounts for which Lenovo qualified did not apply to past sales, although as the 5G Extended Offer indicates, the 5% term discount and the 5% regional sales mix discount apply equally to past and future rates (and are already embedded in the quoted royalty rates). These reasons explain, in part, why, in the expert evidence, the issue as to the appropriate treatment of past sales and the issues relating to discounts were rarely completely separated.

329. Much of Mr Meyer’s response to Mr Bezant’s approach was concerned with demonstrating the effects of it. All this material forms the backdrop to the findings I make later.

330. Out of the Lenovo 7, Mr Meyer proceeded on the basis that only 3 PLAs covered past sales: LG 2017, ZTE 2019 and Huawei 2020. Mr Meyer drew attention to the effect in Mr Bezant’s analysis of removing the past sales to derive PDRs, in two tables in his second report. First, his Table 5 drew attention to the change in sales volumes if future only sales were considered: