Interdigital Technology Corporation & Ors v Lenovo Group Limited & Ors [2024] EWCA Civ 743

“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 …, 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.”

‘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.’

“It is to be expected that commercial practice in the relevant market is likely to be highly relevant to an assessment of what terms are fair and reasonable for these purposes. Moreover, the IPR Policy envisages that the parties will first seek to agree FRAND terms for themselves, without any need to go to court; and established commercial practice in the market is an obvious practical yardstick which they can use in their negotiation. In our view the courts below were correct to infer that in framing its IPR Policy ETSI intended that parties and courts should look to and draw on commercial practice in the real world.”

“We agree with the parties that the FRAND obligation in the IPR Policy extends to the fairness of the process by which the parties negotiate a licence.”

“The second argument is that it is anomalous that an implementer should be liable in damages only for the loss which a SEP owner incurs through the infringement of one or more of its UK patents if the implementer chooses to withdraw from the UK market rather than enter into a worldwide licence but that, if the implementer wishes to market its products in the UK, it must pay global royalties. It is premised on the misplaced equation of the fixing of a licence which requires the payment of royalties for past and future use of patented technology and the separate or alternative award by the court of damages for past infringement of a UK patent. In our view this argument fails for two reasons. First, the award of damages is not to be equated with the royalties that are paid under a contractual licence. If an implementer agrees to enter into a FRAND licence which a SEP owner offers, it is entering into a voluntary obligation. If the court awards damages it does so on proof of the loss which the SEP owner has suffered through the infringement of its patent or patents. It may be that the measure of damages which a court would award for past infringement of patents would equate to the royalties that would have been due under a FRAND licence. That does not alter the different nature of the exercises which the court performs in (i) awarding damages and (ii) determining the terms of a licence, which will usually contain many important provisions in addition to the fixing of royalties. Secondly and in any event, as mentioned above, what the implementer purchases in entering into a worldwide licence is the ability legally to manufacture and sell standard-compliant products on a worldwide basis.”

“164. There are, in the first place, 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. Secondly, 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, as Huawei's witness Mr Cheng accepted in evidence, 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, as was accepted in the present case by Huawei's witness, and by the courts below. 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.”

“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.”

“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.”

“It is the responsibility of each STANDARD user to contact directly the patent owner.” ii) 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.”

“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.”

“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.”

“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.”

“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.”

“… 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.”

“… 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.”

“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.”

“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 …. 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.”

“The suggestion from InterDigital in opening was that all these deals with the larger players resulted from hold-out ... This is a critical issue which I examine later. By contrast, Lenovo submit that the licence rates agreed with InterDigital’s 6 largest licensees [i.e. the Lenovo 7] are, on InterDigital’s own evidence, the result of a compromise between willing licensor and willing licensee and the best evidence of a FRAND rate.”

“This point is not only counterintuitive, it is exactly the effect which is so heavily criticised by Mr Meyer in his analysis and which I find is not consistent with a FRAND approach (see further below). Lenovo cannot have it both ways.”

“398. … As CFO, Mr Brezski explained in his evidence how InterDigital determines what proportion of a [lump sum] licence to recognise as attributable to the past. InterDigital prepares and reports consolidated financial statements in accordance with accounting principles generally accepted in the US (US GAAP). Patent licence agreements are analysed in accordance with US GAAP which requires InterDigital to (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations and (5) recognise revenue as the entity satisfies the performance obligation(s). The general rule is that ‘Accounting guidance requires us to perform a relative fair value allocation of the transaction price to the deliverables’. 399. In relation to a fixed fee licence which contains a release of liability for past infringement, Mr Brezski explained that their accounting allocation of the transaction price to this obligation is often discounted relative to the allocation for the future. He said this is done to best reflect the relative accounting value of the past sales ‘after considering factors including but not limited to, how far back the past infringement occurred and the geography of the infringing sales.’ He explained that InterDigital evaluate the accounting value of a past release using two approaches. One (developed about 5 years ago) applies an ‘accounting realisation rate’ which is an estimate of the portion of the total recoverable value that would be realised/recovered to each year of past sales released under a licence. It is based on the average discounts applied to the value of released sales in historical InterDigital PLAs. The realisation rate differs for each year in the past and reflects an increasing discount up to a maximum of 6 years ‘at or about which point the value is typically assessed to be zero for accounting purposes’. Prior to that, Mr Brezski said they evaluated each PLA individually on the basis of the same factors as above. The second approach arose from a settlement with Microsoft …. 400. I should add that, for PLAs which contribute 10% or more of InterDigital’s total revenue in a relevant reporting period (i.e. 3 months for a 10-K), InterDigital identify the licensee’s contribution. In this way, InterDigital makes public the contributions from its larger licensees. Indeed, as will appear below, Mr Meyer used the disclosures in various InterDigital form 10-Ks to identify what sums had been recognised as attributable to past sales.”

“403. … When unpacking the lump sum licences that involved released past sales, Mr Meyer proceeded on the basis of the statements made by InterDigital in its financial reporting documents as to the sums it ‘recognised’ as attributable to the released past sales. He worked on the basis that those amounts provided in InterDigital’s audited financial statements provided a reliable source for determining InterDigital’s assessment of the consideration associated with past versus future sales. On that basis he assigned the amount stated in the financial statements to the period prior to the effective date of the PLA. 404. In short, for the [lump sum] licences that he considered covered past sales, he took the following figures: LG 2017: $34.5m, ZTE 2019: $19.5m …, Huawei 2020: $19.2m. It is right to note however that Mr Meyer’s preference was for a royalty rate blended across past and future - in other words, applying the same rate to past sales as in the future, so that a split in consideration between past and future is not necessary.”

“Mr Meyer maintained his overall criticism of Mr Bezant’s analysis on the basis that overall, it resulted in artificially inflated future rates. I will deal later with the other respects in which Mr Meyer accused Mr Bezant of artificial inflation of future rates: these concern attributing fewer sales to the future which increases the future rate when unpacking a lump sum structure. What is striking is that Mr Meyer (in order to calculate separate rates for past and future) was prepared to adopt the allocations made by InterDigital in its financial statements as to what proportion of a LS consideration to attribute to the past, when these allocations were the primary reason of the inflation of future rates.”

“417. It is necessary to consider whether it is appropriate to treat past and future sales differently. In closing, Mr Speck KC made the obvious point that if a lower rate is attributed to past sales compared to the future, it encourages delay by the licensee. The longer the licensee holds out, the less they have to pay. 418. In this regard, InterDigital and Lenovo presented differing analyses and reasons, but fortunately, it is not necessary for me to resolve the differences between the two experts’ treatment of past sales. 419. On either expert’s figures, the royalty rates for past sales were very considerably lower than the future rates derived by either expert, the disparity being much greater in Mr Bezant’s figures. 420. It is clear that each expert was content to adopt (in one form or another), InterDigital’s allocation of [lump sum] consideration between past and future. This gave me considerable pause for thought, as to whether I should depart from their effectively agreed approach (at least at this high level). After considerable reflection, I came to the view that each expert had adopted InterDigital’s allocations for different reasons and/or because they produced different effects. So far as Mr Bezant’s analysis was concerned, his adoption of InterDigital’s past/future allocations favoured InterDigital’s case because the effect was to increase future rates. 421. I continue to keep in mind that Mr Meyer favoured an overall blended rate but, to the extent that he derived different rates for past and future, his adoption of InterDigital’s allocations favoured Lenovo’s argument that whatever it should pay for the past, it should be heavily discounted to avoid discrimination. 422. In my view it is incorrect to proceed on the basis of the subjective assessments made by InterDigital of the proportion of a lump sum which should be attributed to past sales releases for their accounting purposes. It is evident, in my view, that these assessments were made by InterDigital (at least in part) in order to be able to quote higher future rates. Whether there were other justifications does not matter. What matters for present purposes is that InterDigital’s assessments result in implied rates which are low (sometimes very low) for the past and higher for the future. It seems to me that the precise date when a lump sum deal is done should not affect the royalty paid per device. 423. I propose to adopt the same approach as in UPHC and in TCL v Ericsson, that the same rate should apply to past as future i.e. Mr Meyer’s blended rate approach. This is for two cumulative or alternative reasons. 424. First, notwithstanding US GAAP, the principles applied and Mr Brezski’s lengthy explanations, I formed the impression that InterDigital retained significant room for manoeuvre in the way they apportioned an overall LS consideration to a past release and therefore as to the sum they ‘recognised’ in their financial reporting as attributable to a past release/past sales. This is reflected in the past and future rates derived by Mr Meyer for the Lenovo 6. One of the consequences of the (relatively smaller) sums which InterDigital ‘recognise’ as attributable to the past is that the (relatively higher) sums attributable to the future result in higher royalty rates for the future. Not only can InterDigital cite these higher future royalty rates as representative to other potential licensees, InterDigital can also use them in any renewal negotiations. Another consequence is the apparently very heavy discounting by InterDigital as to past sales. 425. Thus, my impression is that InterDigital’s allocations of overall LS consideration to past and future was somewhat artificial. These allocations do not feature in the particular PLA and were not agreed with the licensee. Furthermore, they do not match what I regard as the normal way for others in the market to assess the rate derivable from a LS licence which is to take the total consideration and divide it by the best estimate of the number of units covered to derive a per-unit dollar rate for the purposes of comparison. 426. In case I have formed the wrong impression about these allocations, and they are mandated by accounting principles, there is a second reason (which is an alternative or additional reason) why I consider InterDigital’s allocations should not bind an analysis of what is FRAND and it is this. FRAND is concerned with the relationship between licensor and licensee. Therefore, FRAND rates should focus on the money (and other benefits) which pass between licensee and licensor, with the other benefits being translated into monetary terms as part of the unpacking. FRAND is not concerned with and should not be affected by either one party’s internal justification for the sum paid or received, nor with the way in which one party seeks to deal with those sums in its accounts, whether they are internal or made public, particularly when these internal justifications and financial reporting do not form part of the licence agreement. InterDigital’s consistent approach was to work on the basis of the ‘value’ in their hands of a particular payment. This I find is wrong in principle because it automatically injects InterDigital’s subjective view of that ‘value’ into the analysis.”

“434. This is a particular manifestation of an argument which often featured in Lenovo’s submissions: if the result of this trial was that Lenovo were treated adversely (in their perception) compared with how other InterDigital licensees had been treated in the past, that would be discrimination. This is a rather simplistic argument, in that Lenovo were content to accept any differences in their favour, but any perceived to be adverse were branded as discrimination. 435. It is also a non-sequitur. It assumes that all the comparable licences on which Lenovo chose to rely were FRAND in every particular, but I do not consider this to be a valid assumption. Obviously, in this comparables analysis, I have to base my decision on one or more PLAs which I consider to be comparable, but that does not mean I must slavishly follow the licensing practices of InterDigital which are reflected in those licences.”

“437. That requirement is, after all, nothing more than a particular manifestation of the position of a willing licensee and is designed to prevent or diminish hold out. However, in my judgment, this is only a very partial solution to hold out. In my view, the real solution lies elsewhere. It would be possible to eliminate or significantly reduce hold-out if there was no incentive for the licensee to delay reaching agreement. This consideration focusses attention on (a) the influence of limitation periods and (b) the resulting heavy discounting for the past. Recognising that I must operate within the jurisdiction which I have to exercise, it seems to me that the solution to delay, whether all of it is attributable to hold out or not, is for the willing licensee to pay for a licence to cover all past units. 438. As more FRAND determinations are decided, such differences as there are or as there are perceived to be between the approaches taken in different jurisdictions should converge and eventually disappear. Furthermore, the application of the FRAND obligation will have become clearer. Once that desirable state of affairs is near or is achieved, the determination of FRAND terms between two particular parties should become much easier. There may still be obstacles (such as confidentiality of licences which are thought to be comparable) which may require parties to resort to litigation so that a confidentiality regime can be established by a court, but many more licence arrangements ought to be capable of being agreed through negotiation.”

“440. Lenovo’s big point was their objection to the size of the volume discounts which InterDigital say they applied. 441. For their part, InterDigital were, naturally, exercised about the length of time over which Lenovo had been taking advantage of their SEP patented technology without a licence. This was at least part of the reason why InterDigital’s 5G Extended Offer stipulated that the same rate should be paid for the past as for the future. 442. In principle (and leaving aside time value of money considerations), this last stipulation does not seem unreasonable. It also chimes with my analysis at paragraph 417 above et seq. For example, why should the basic FRAND rate change at the date when the licence is entered into? 443. The problem, however, with InterDigital’s approach is the differing rates calculated for past and future, and the subsequent demand that the (inflated) calculated future rate should also apply to the past. There was considerable force in Mr Meyer’s contention that Mr Bezant’s approach, which involves heavy discounting for the past, with a disproportionate share of consideration being shifted to the future, results in an inflated future rate. Although the 5G Extended Offer embodies InterDigital’s ‘program rates’, it is notable that Mr Bezant’s inflated future rates are being used in an attempt to justify these ‘program rates’. 444. It will be recalled that Lenovo’s initial position was that nothing should be paid in respect of the past, although this very hard-line position had to be abandoned. In its place, Lenovo were content to adopt InterDigital’s practice of heavy discounting for the past, because it favoured Lenovo’s overall aim to pay as little as possible. As I have previously mentioned, the evidence suggested that the adoption or development of this practice was prompted by two factors: one the influence of limitation periods (which vary around the world) and the other being the difficulty in recovering damages for infringement in many countries around the world. 445. A further feature of InterDigital’s offer must be noted. The effective date of the licence on offer is 1st January 2018. I commented above that this date appears random, but it appears InterDigital chose it so that they could include past sales going back to the start of an assumed limitation period of 6 years i.e. 1st January 2012. Hence, Mr Bezant’s calculation of the lump sum implied by the 5G Extended Offer in his Appendix 31 includes past sales going back to that date. 446. This brief overview shows, in my view, that it cannot be assumed that the approach advocated by either side is consistent with FRAND. It also emphasises the importance of the following (often interrelated) points of principle, some of which I have touched upon already: i) Generally, in the unpacking of any allegedly comparable PLA, whether account should be taken of the subjective views of either SEP licensor or SEP licensee. I have already touched upon a key example of this, in relation to the treatment of past sales, above, but the issue has wider ramifications. ii) Whether InterDigital’s system of discounts, with particular emphasis on its volume discounts, as assumed in Mr Bezant’s analysis, is consistent with FRAND. iii) Whether limitation periods have a role to play in the relationship between willing licensor and willing licensee. iv) How to eliminate or discourage hold-out. v) Whether discounts (often substantial) in relation to past sales should be part of a FRAND analysis, plus a related issue of whether interest should be awarded on ‘past’ royalties. vi) Whether it would be discriminatory against Lenovo not to apply the sort of discounts (e.g. for volume, for past sales) applied in the allegedly comparable InterDigital PLAs.”

“value to the SEP licensor vs royalty payments”

“453. Whilst this explanation appeared to apply set rules, it was clear that they provide InterDigital with significant leeway to apportion sums received in ways which benefit InterDigital’s business model and business interests. Specifically, I was satisfied that the use of these accounting rules injected a significant subjective element into the analysis. 454. The whole approach is also bound up with the notion that significant discounts are often given in respect of past sales. As far as I could discern, a principal reason why the practice has grown up of giving significant discounts for past sales has been the difficulties in recovery. The evidence from the licensing experts identified the two main difficulties in recovery. The first was the fact that until relatively recently, a SEP licensor faced the prospect of having to sue in many different jurisdictions since it was unclear, at least until UPHC and UPSC, that a single court had the power to determine the terms of a global FRAND licence. Although it is now clear that the UK has that power, and other jurisdictions are beginning to follow suit (China in particular), it is clear that the previous perception has had a long-lasting effect in SEP licensing practices. 455. The second main perceived difficulty is the impact of limitation periods around the world. As I have already indicated, many countries have a 6-year limitation period but some significant jurisdictions have shorter periods e.g. 3 years. Thus, if a SEP licensor sued for damages for patent infringement in a particular jurisdiction, it was realistic to assume that the licensor would not be able to recover damages going back further than a maximum of 6 years. This gave implementers an incentive to spin out negotiations for as long as possible and put the burden on SEP licensors to sue within the limitation period to avoid losing royalties which were falling out of the limitation period. 456. When, however, the claim is for the Court to determine FRAND terms, the question is whether this second perceived difficulty is real or not. For the reasons I explain below, I do not consider that limitation periods have any part to play in a determination of FRAND terms between (necessarily) a willing licensor and a willing licensee. 457. What is clear, however, is that these perceived difficulties have had a profound effect on shaping InterDigital’s SEP licensing practices. Those effects persist and are reflected in Mr Bezant’s approach.”

“… the volume discounts said to have been applied to the largest InterDigital licensees (i.e. in the range of 60%-80%) do not have any economic or other justification. Instead, their primary purpose is to attempt to shore up InterDigital’s chosen ‘program rates’. Their primary effect is discrimination against smaller licensees. …”

“517. Overall, I formed the view that all the possible discounts referred to represented a series of levers which InterDigital could and did utilise, as they saw fit, in an effort to secure a deal within the constraints which they perceived to apply to their licensing efforts (in particular, the lack of a global dispute resolution procedure and the effect of limitation periods). In saying this, I should not be taken to be criticising InterDigital for doing this. InterDigital were operating a licensing business and it was important for the continuing operation of the business (and its R&D) to ensure it received licensing income and these levers had to be applied in order to achieve this. This is one of the facts of life for SEP licensors operating in a market where the appropriate licence rates have yet to approach any sort of equilibrium. 518. These ‘other discounts’ received far less attention than the volume discounts. For example, there was no examination of whether the size of several of these other discounts was economically justified. For that reason, I can and should deal with the discounts (other than volume) … more briefly. It will be noted that some of the discussion above also embraced these other discounts. 519. I have concluded that discounts which reflect the time value of money (e.g. accelerated receipt of royalties, the advantage to the SEP licensor of receiving a lump sum and so forth) are entirely fair and consistent with FRAND. Any other discounts (i.e. which do not reflect the time value of money) which were ‘assumed’ by Mr Bezant to have been applied I put in the same category as the volume discounts because, it seems to me, they were used, along with the volume discounts, to shore up the InterDigital ‘program rates’ and therefore contribute to the discrimination against smaller licensees. Again, I emphasise I have formed no view as to whether the size(s) of InterDigital’s other discounts were justifiable.”

“521. In an ideal world, a willing licensee would agree FRAND terms before starting to use the relevant SEP technology and so would pay FRAND royalties from the outset of its use of the SEP technology. The ETSI materials recognise that FRAND terms may well not be agreed until later, reflected in the suggestion that the willing licensee nonetheless makes provision for the likely sums which will have to be paid in due course, setting aside those sums either actually or notionally. 522. Before FRAND terms are actually agreed and FRAND royalties are paid, the willing licensee would recognise that it has the benefit of the use of those monies in the meantime. That benefit may be significant, depending on the amount of time which passes, commercial rates of interest and the licensee’s costs of capital. 523. I am aware that limitation periods vary. Many countries have a 6-year period (and prevent the recovery of damages in respect of acts done prior to the period in question) others (e.g. China) have a 3-year period (and I note Chinese limitation appears to be more extensive, preventing even the establishment of a legal right outside the period) and no doubt there is additional variety around the world. The issue is whether limitation periods have a role to play when it comes to assessing what a willing licensee and a willing licensor would agree. … 528. Having given this issue considerable thought, I have reached the conclusion that limitation periods do not have a role in the relationship between willing licensor and willing licensee and, indeed, that they are inconsistent with that relationship. As I have explained above, a willing licensee will, notionally or otherwise, set aside funds to pay for its licence. If, for some reason, those willing parties are not able to reach a deal for some time (assuming the negotiations last for longer than 6 years), I do not believe that a willing licensee would refuse to pay whatever licence fees were eventually determined to be applicable in respect of units produced and sold more than 6 years prior to the determination. A licensee who did that would no longer qualify as ‘willing’. 529. In my view, a willing licensee would not seek to benefit from delay in agreeing FRAND terms or payment of FRAND royalties. Thus, I have concluded that a willing licensee will pay in respect of all past units. Specifically, I do not consider that a willing licensee would seek to avoid making payments of FRAND royalties by taking advantage of one or more national limitation periods. The willing licensee would say: ‘I have set these monies aside to pay to the SEP licensor(s) and I will pay them over just as soon as the appropriate rates have been agreed or set’. If the position was otherwise, that would automatically insert into the process (and FRAND is a process) an on-going perverse incentive to delay the agreement or setting of FRAND terms for as long as possible i.e. the longer the delay, the less the licensee has to pay. This cannot be FRAND. 530. I recognise that there are well-founded policy reasons which lie behind the imposition of national limitation periods but, in my view, those reasons are not sufficient to override or alter the fundamental relationship of willing licensor and willing licensee established by ETSI clause 6.1. Furthermore, my attention was not drawn to any decision to the effect that French law requires that account should be taken of limitation periods. As I have indicated, the ETSI materials indicate (at least to me) that they should not. 531. Limitation periods in the UK Limitation Act 1980 are expressed by reference to the type of cause of action. For example, section 2 provides that ‘An action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued’. Section 5 contains almost identical wording in the context of actions founded on simple contract. I have already mentioned what appears to be the single provision in Chinese law which applies across the board. This type of action is something of a hybrid, in the sense that in form this action is an action in tort for patent infringement, but the primary aim is to enter into a contractual arrangement on FRAND terms, with both sides invoking and relying upon the Claimants’ undertaking to ETSI to licence each of its SEPs on FRAND terms. 532. If a Defendant to this type of action does not want to invoke the Claimant’s undertaking to ETSI, then, assuming one or more SEPs have been found to be valid and essential, the Defendant is highly likely to be subject to an injunction to restrain further infringement in the future and to have to pay damages in respect of past infringements. Assuming also that the Defendant has pleaded limitation as a defence, damages will only be recoverable for infringements committed within 6 years of the date of the claim form. Limitation is applicable in those circumstances because the Defendant has turned its back on entering into the relationship of willing licensor and willing licensee. 533. By contrast, if the Defendant does wish to invoke the Claimant’s undertaking to ETSI, then, howsoever the action is characterised, the relationship invoked (that of willing licensor and willing licensee) is central. It is that relationship, in my view, which takes this type of action outside the normal realms of actions in tort or contract where limitation applies. It is that relationship which is inconsistent with one party in these circumstances being able to rely on limitation defences.”

“540. So far as the past is concerned, the implementer (whether a willing licensee throughout or newly reformed) ought not to be rewarded for the delay which has occurred between the start of its infringements and the taking of the FRAND licence. I note also that it should not actually matter who caused that delay: whether it was the SEP owner, the implementer or the combination. Elimination of any reward for delay can be achieved via the terms of the FRAND licence, which will require the implementer to pay at FRAND rates for a retrospective licence to cover past infringements. This may be characterised as the price which the implementer must pay for the late change of heart and to be able to take the FRAND licence. However, a more satisfactory explanation, in my view, is provided, once again, by the concept of the unconditional willing licensee. To achieve that status, the implementer cannot impose any condition regarding the past. The implementer must present itself as a willing licensee and prepared to accept that status and its consequences at all material times (irrespective of any past conduct which was not consistent with the status of willing licensee). 541. I can illustrate this point with two or three examples which, in my view, also reinforce the point I made above that the willing licensee would not invoke national limitation periods. 542. First, let me assume an implementer who, at the point when he has been found to infringe a valid SEP, says ‘I am a willing licensee from this point onwards, therefore I am entitled to a FRAND licence, but I refuse to pay for any past infringements.’ It is easy to see he is not in truth, a willing licensee. 543. Second, let me assume an implementer who, at the same point, says ‘I am a willing licensee, entitled to a FRAND licence, in respect of which I will pay future royalties and for X years in the past, even though I accept I have been using the SEP technology for X+ years. In reality, whether X is specified to be 3 years, 5 ½ years, 6 years, against X+ being, say 5 years, 13 years or 8 years, is purely arbitrary. Other SEP licensees who have paid FRAND royalties (or in the range) over these periods would say, why should he get away with not paying royalties? 544. In reaching this conclusion I have not lost sight of Mr Djavaherian’s criticism of the equivalent aspect of InterDigital’s 5G Extended Offer, where, as I understand it, all past sales are to be paid for at the same rate as is applied to future sales (albeit that this includes a 5% term discount and a 5% regional sales mix discount). Mr Djavaherian’s complaint was that this term discriminates against Lenovo relative to other licensees because those other licensees have received either a complete past release or a heavily discounted past release. InterDigital’s response to that complaint, as I understood matters, was that Lenovo forfeited any right to a discounted past release because it failed to agree a licence deal. 545. Mr Djavaherian’s argument, taken to its logical conclusion, is that Lenovo is entitled to be treated as the most favoured licensee. There is nothing to commend or require that result. In any event, that type of argument should not and does not deter me from concluding what is FRAND, even if (and particularly if) I conclude that the licensing structures applied to date are not appropriate to be adopted in what I determine to be FRAND. I recognise that what I decide in this case may well cause InterDigital and its licensees to change the way they calculate applicable rates, but that is not a reason to deter me from what I otherwise decide to be FRAND in this case.”

“I have already noted several respects in which Mr Bezant’s analysis and InterDigital’s case depends on InterDigital’s subjective view of the PLAs it has entered into. Although some of these subjective views were formed at or near the time of a PLA (e.g. InterDigital’s ‘recognition’ of sums which they attributed to past sales, and, it is likely, at least some of the discounts which InterDigital had decided upon internally) I remain unconvinced that other subjective views were held within InterDigital at the time PLAs in question were entered into, and in particular any notion that the various discounts applied by Mr Bezant were applied across the board in a uniform fashion. It is far more likely, in my view, that most of the evidence about the PLAs, both from InterDigital’s fact witnesses and from Mr Bezant constitutes an ex post facto attempt to rationalise the differing terms of the PLAs in an attempt also to persuade the Court that all the PLAs are the result of a structured, uniformly applied licensing programme.”

“556. My finding that limitation periods have no role in the relationship of willing licensor and willing licensee has a profound effect on the analysis. Not only must Lenovo pay in respect of its past sales, one of the other consequences is that the two principal reasons which I have been able to discern as prompting the practice of heavy discounting of past sales have now been removed. This Court is able to determine FRAND rates on a global basis. 557. The second key finding relates to certain discounts. Again, for the reasons explained above, I have found that the scale of the volume discounts assumed to have been applied by InterDigital resulted in discrimination. Those assumed discounts in Mr Bezant’s analysis were used to artificially inflate the future rates which he derived from the [lump sum] PLAs. 558. As for the other discounts …, the discounts which I find were consistent with FRAND are those which relate directly to time value of money considerations. From this point on, I will use the shorthand ‘the assumed discounts’ as a catch-all of all the discounts which I have found do not have a role in a FRAND analysis. Discounts concerned with the time value of money are explicitly not in the category of ‘the assumed discounts’ 559. All these assumed discounts were also used by Mr Bezant and InterDigital in their attempts to shore up and/or support their ‘program rates’ as existed from time to time. The corollary is that the InterDigital ‘program rates’, even those published in 2020, are not realistic indicators of FRAND rates for their SEP portfolio. 560. The third key finding is that it is necessary to set on one side any subjective views from either SEP licensor or SEP licensee. In the unpacking analysis, virtually all these subjective views came from InterDigital. In their place, the Court must employ only objective measures. 561. The combination of these three findings gives rise to a number of beneficial effects. 562. First, the limitation finding should also have the beneficial effect of removing the perverse incentive on implementers to string out licence negotiations for as long as possible, whether they succumb to that incentive or not. 563. Second, the elimination of InterDigital’s subjective views, along with the limitation finding, allows me to set on one side the subjective decisions made by InterDigital as to what proportion of a lump sum which they received to attribute to the past and future. 564. Third, in turn, that allows one to avoid any artificial inflation of future rates. 565. Fourth, all three findings allow me to revert to/employ the objective measure of any PLA, favoured by the licensee in question and also favoured by other implementers wishing to understand at least something of the rates implied by recent PLAs with this SEP licensor, namely what was the total sum paid, which can be divided by the observer’s best estimate of the number of units covered by the deal to calculate, on a rough basis, the kind of rate implied by the PLA. 566. Fifth, the more that those in this market can find reliable indicators of the rate implied by PLAs, the greater the transparency in the market, a much-needed commodity.”

“567. … One of Lenovo’s fairly constant refrains was to the effect that if this Court takes an approach which is different from the current practices in the SEP licensing market, it will represent discrimination against Lenovo. This submission was made with particular force in Lenovo’s opposition to the idea that it would be FRAND for Lenovo to pay royalties on sales made in the periods before the UK limitation period. I do not accept that refrain or the specific submission for a number of reasons. 568. First, to accept it would solidify the existing practices. In certain respects, as I have explained, the existing practices seem to me to be based on flawed premises. To adopt them would greatly inhibit the ongoing development of FRAND in SEP licensing. It is far better, in my view, to expose the flawed premises, to correct them and to reach a determination of FRAND terms which is nonetheless consistent with what other similarly situated licensees are paying in respect of the InterDigital portfolio. That is what I intend to do. 569. Second, and relatedly, the allegation that any departure from existing practices will result in discrimination is far too crude and is, in fact, a non-sequitur. The allegation fails to take any account of what I decide is a FRAND approach. Furthermore, the findings and the approach I take in this judgment may well cause particular licensees to wish to change the terms on which they are licensed or to argue, upon renewal, for a different approach. That, however, is all a necessary part of the development of SEP FRAND licensing. Furthermore, as indicated already, it remains entirely feasible to correct the flawed premises to reach a determination of FRAND terms.”

“619. The principal reason is because these are ‘future only’ rates …. They are therefore inflated by the distortion created by InterDigital’s subjective ‘recognition’ of a disproportionately low share of the lump sum consideration to past sales (itself a product of the perception that royalties for past sales would be difficult to recover, in part because of the perception that limitation periods would apply) and a disproportionately large share of the consideration being attributed to future sales. They may also be inflated by the lower figures which Mr Bezant employed for future sales, compared with Mr Meyer’s estimated figures for future sales. 620. I recognise of course that for part of his analysis, Mr Meyer used InterDigital’s apportionment of the consideration to past sales, as reported in their public filings. This resulted in his past ($0.09) and future rates ($0.61) derived from LG 2017. These are to be contrasted with his rate which blended past and future together - $0.24. As I have endeavoured to explain, I find the blended rates to be much the best figures to use, not least because they reflect the type of analysis which third parties to the PLA are able to carry out in real life (provided the PLA is large enough to be the subject of public reporting).”

“All these factors indicate that the rate derived from ZTE 2019 was probably on the low side, and that InterDigital were anxious to get money in from ZTE, albeit a relatively modest total compared with the bigger PLAs. For these reasons, I do not regard ZTE 2019 as a reliable comparable.”

“I accept Mr Djavaherian’s analysis of the [unusual provision] with the result that I consider Mr Meyer was correct to take the past sales into account. However, his $[REDACTED] past rate is probably too low because it reflects the InterDigital approach of recognising a low estimate of the overall consideration for the past. This inflates the future rate. Hence, his blended rate is, in my view, the more reliable figure to take from this PLA.”

“759. InterDigital’s third point has force, and I must attempt to eliminate so-called double-counting. As Mr Bezant put it: lower average ASPs in Mr Meyer’s Emerging markets are partly driven by a higher proportion of lower generation devices being sold in those markets, where that difference in the sales mix is already taken into account in Mr Meyer’s first adjustment. 760. I must also ensure that, to the extent that I adopt any part of Mr Meyer’s analysis, the place of manufacture and place of sale are taken into account. In this regard, I must keep in mind that Lenovo manufacture their handsets primarily in China, Brazil and India, whereas their PC business also use facilities in Japan and Mexico.”

“Although initially I distrusted Mr Meyer’s weighting exercise, I came round to the view that it was a better method than taking any sort of simple average from the six licences. However, it is unnecessary to consider his weighting system any further because I am satisfied it is too crude an approach. In my view, his weightings have the effect of placing far too little weight on the best comparable, LG 2017. Furthermore, his weightings do not allow account to be taken of the individual circumstances of each PLA, nor what was happening in the handset market generally over the periods in question, in particular, the reality that rates change over time.”

“811. Although I have found the three periods useful for the purposes of comparison and analysis, and potentially they could have given rise to different rates, I have decided to apply the same rate across all three periods. I am conscious that I have, in the end, relied on a single comparable, but, for the reasons I have explained, I do not regard any of the other Lenovo 7 as assisting. Each one was more different to Lenovo’s situation than LG 2017, in some cases, significantly so. 812. Finally, I remind myself of the task in hand. It is to determine what a willing licensor and a willing licensee would agree by way of FRAND terms, in this context a lump sum, to cover the period from 2007 to the end of 2023. In this context, InterDigital’s start date of 1st January 2018 is irrelevant. 813. With my decisions on the points of principle in mind, I consider the willing licensor and willing licensee would agree a single per unit rate which would reflect all the considerations I have discussed above. I conclude that rate is $0.175 per cellular unit. 814. The calculation model provided to me by the experts included sales figures for Lenovo going back to 2007. The $0.175 rate yields a lump sum payment of $138.7m.”

“821. How this operates as a cross-check is that one takes a posited InterDigital royalty rate and multiplies it up in proportion to InterDigital’s share of the universe of patents assessed as essential for that generation of technology. This generates an implied royalty for the total stack (referred to as the ‘aggregate royalty burden’ or ARBTOTAL). As InterDigital submitted, the calculation is simple: ARBTOTAL = ARBInterDigital / ShareInterDigital 822. The appropriateness of the ARBTOTAL can then be assessed, so the argument goes, by reference to other statements of the approximate size of the ARBTOTAL, either from third parties or from the hedonic regression analysis which formed the major part of this top-down case.”

“838. For reasons which appear below, it is not necessary for me to resolve all the myriad points raised and responded to in the closing submissions on the patent counting studies. Without deciding any of those points or the reliability generally of these patent counting studies, I am prepared to assume that, subject to the critical assumption I have already identified, they provide estimates of InterDigital’s share of the assessed handset SEPs attributable to each generation of technology. 839. Thus I will proceed on the basis of the InterDigital shares provided by the five studies as summarised below: Report PA 3G PA LTE PA LTE-A CC LTE PA 5G IDG Share 9.5% 9-13% 10% 7% 4% ” ”

“880. If I leave the hedonic price regression out of account, as I have done, that leaves a much simpler top-down case. As pleaded, it is a comparison between the implied royalty rates for each generation against certain public statements. In UPHC, Birss J. placed reliance on the decision of the IP High Court in Japan in Samsung v Apple in which the Court used an aggregate royalty burden of 5% for 3G. The rates which Birss J. found resulted in implied total royalty burdens of 5.6% for 3GMM and 8.8% for 4GMM, which he considered fell within an appropriate range. InterDigital also referred to the range of 6-10% which Judge Selna adopted in TCL v Ericsson and I have referred to the total royalty burdens used by the Chinese Court in Huawei v Conversant. 881. However, I remain unpersuaded by any part of InterDigital’s top-down analysis. The principal reason is because of InterDigital’s overall contention that the top-down analysis supported the rates in their 5G Extended Offer. Since the comparables analysis does not provide any support for those rates, and I have found those rates to be inflated and discriminatory, the results of the comparables analysis represent a solid reason for dismissing InterDigital’s top-down cross-check as pleaded.”

“884. Overall, in view of my clear rejection of the way in which InterDigital’s rates were derived, it is not necessary for me to locate all the possible problems. It suffices to note that over 97% of the cellular units licensed by InterDigital are licensed at rates which are multiples less than even the rates which InterDigital sought to derive from LG 2017. 885. I realise that my conclusion may imply that the patent counting studies on which InterDigital relied are not a reliable guide to the value to be attributed to their portfolio, but there are many reasons why that might be the case. It may also be the case that other inputs (e.g. the ASPs) were inappropriate. It is not necessary to explore those reasons any further.”

“922. From InterDigital’s side, it is clear they put forward numerous offers. In doing so, InterDigital were using the full suite of mechanisms and levers they had developed to persuade implementers to reach a deal. With the possible exception of InterDigital’s November 2018 offer (which, as noted above, InterDigital expressly deny was representative of the FRAND range, and characterise as a ‘last resort’ offer made after 10 years of attritional negotiation), it is clear, in my judgment, that all the offers made and the positions adopted by InterDigital were too high and, in my judgment, outside the FRAND range. 923. From Lenovo’s side, with the benefit of the information revealed in this trial, it is clear that Lenovo were justified in seeking further information and/or assurances about the rates which other, similarly situated, implementers were paying. In this regard, it is clear to me that InterDigital’s reliance on the confidentiality of the PLAs with companies like Samsung, Apple, Huawei and LG was less than helpful, let alone transparent. Furthermore, InterDigital’s reliance on the publicly available information from their SEC filings shows how what I regard as the somewhat creative accounting behind those filings and the presentation of ‘representative figures’ can be used to mislead. 924. For example, take the four implied rates presented by InterDigital in their September 2018 presentation. A simple average of those rates is $0.415[.] If negotiations had focussed on those rates, I have no doubt that InterDigital would have argued that the Samsung rate was depressed, and that the other three rates were more representative, almost certainly yielding a rate for Lenovo in the high 40s in terms of cents per unit. This would have been a rate which is more than double what I have found to be FRAND. … 926. As I have pointed out above, one of the benefits of the points of principle which I found necessary to decide is that the need for this type of creative accounting ought to disappear, there being far less or no justification for heavy discounting of past sales, leading to disproportionate allocation of lump sums received to future sales, thereby creating inflated future rates which are then used to justify higher than FRAND demands. I have not lost sight of the accounting practice under which InterDigital operated, but one would hope that in future, public disclosures of lump sum deals could be much more straightforward, giving the industry the information they work on: total consideration paid with the number of units involved (often forecast).”

“Overall, however, I am driven to the conclusion that by consistently seeking supra-FRAND rates, InterDigital did not act as a willing licensor.”

“944. The result of my comparables analysis above is that the lump sum which Lenovo must pay to InterDigital for a FRAND licence down to 31.12.2023 is $138.7m. 945. I find no value in InterDigital’s Top-Down cross-check in any of its guises. 946. Based on the outcome from my comparables analysis, I find that neither InterDigital’s 5G Extended Offer nor Lenovo’s Lump Sum Offer were FRAND or within the FRAND range. 947. In large part, I reject InterDigital’s case on conduct. Ultimately, however, Lenovo will be put to their election, at which point they will demonstrate whether they are a willing licensee or not.”

“9. Annexed to InterDigital’s Statement of Case was a schedule showing the rate and type of interest in all the comparable licences. There was significant variation - the rates vary between 3 and 18%, on bases varying between simple interest and interest compounded monthly, quarterly and annually. Perhaps the most common combination was 10% compounded annually, but there was no discernible pattern, aside from renewals carrying the same interest as before. A table showing the rates in the Lenovo 7 was also presented, but those data presented no consistent picture at all. 10. As for the rates specifically referred to: i) It is true that in the draft licence, the parties had already agreed interest on late payments should be 4%, compounded quarterly; ii) Attention was drawn to the fact that Mr Meyer applied a discount rate of 10%, a figure supported by evidence from Mr Brezski who said in his witness statement that InterDigital has generally applied time value of money discounts reflecting InterDigital’s weighted cost of capital at a rate of 10.5%. iii) InterDigital also relied on their cost of debt of 5%, also applied by Mr Meyer. iv) In their Reply Statement of Case, InterDigital asserted that their cash and short-term investments were raised in part by debt, principally through the issue of convertible bonds issued in 2011 of $230m with an effective rate of interest of 7%, 2015 of $316m at 5.89% and 2019 of $400m at 6.25%. This was in response to the data set out in Lenovo’s Statement of Case which detailed the figures for ‘Cash on Balance Sheet’ and ‘Cash/Short term investments’ drawn from InterDigital’s financial statements from December 2007 to December 2021. Those combined figures went above $1bn in December 2013 and continued to rise to $1.64bn in 2021. These data were relied upon by Lenovo in support of their allegation that, had any sums been paid over at an earlier date, they would have just been added to the short-term balances and further, that InterDigital had not pleaded or proved that it made any losses as a result of payment being delayed. InterDigital’s reply to those allegations was to the effect that it was necessary for their business to carry such large short-term balances in case there was delay in a major licensee renewing their licence.” i) It is true that in the draft licence, the parties had already agreed interest on late payments should be 4%, compounded quarterly; ii) Attention was drawn to the fact that Mr Meyer applied a discount rate of 10%, a figure supported by evidence from Mr Brezski who said in his witness statement that InterDigital has generally applied time value of money discounts reflecting InterDigital’s weighted cost of capital at a rate of 10.5%. iii) InterDigital also relied on their cost of debt of 5%, also applied by Mr Meyer. iv) In their Reply Statement of Case, InterDigital asserted that their cash and short-term investments were raised in part by debt, principally through the issue of convertible bonds issued in 2011 of $230m with an effective rate of interest of 7%, 2015 of $316m at 5.89% and 2019 of $400m at 6.25%. This was in response to the data set out in Lenovo’s Statement of Case which detailed the figures for ‘Cash on Balance Sheet’ and ‘Cash/Short term investments’ drawn from InterDigital’s financial statements from December 2007 to December 2021. Those combined figures went above $1bn in December 2013 and continued to rise to $1.64bn in 2021. These data were relied upon by Lenovo in support of their allegation that, had any sums been paid over at an earlier date, they would have just been added to the short-term balances and further, that InterDigital had not pleaded or proved that it made any losses as a result of payment being delayed. InterDigital’s reply to those allegations was to the effect that it was necessary for their business to carry such large short-term balances in case there was delay in a major licensee renewing their licence.”

“15. In terms of the jurisdictional basis to award interest, the basis is the FRAND obligation in the ETSI IPR Policy. Therefore, the question is whether it is FRAND to award interest or, to put it another way, would the willing licensor and willing licensee agree that interest should be payable on ‘past royalties’? 16. The argument in favour of an award of interest starts with this consideration: if a sum of money should have been paid over in the past, whether in 2011 or 2015, one’s natural instinct is to say, of course interest should be paid to compensate the person who has not had the use of the money in the intervening period. However, it is important not to isolate the question of interest from the whole FRAND analysis which I undertook in the Main Judgment.”

“18. All of that analysis was based on the single best comparable (see [811]) - LG 2017 and on my conclusion that there was no evidence the resulting lump sum was procured or influenced by hold-out (see [675] and [722]-[734]). On that basis, the LG 2017 lump sum can be taken to have been considered FRAND or at least in the FRAND range (i.e. appropriate compensation) by InterDigital for royalties on LG’s sales from 2011 through to 31 December 2020, including the more than 6 years past sales (1st January 2011-30th November 2017). 19. That conclusion (that the lump sum was appropriate compensation) holds notwithstanding the way in which InterDigital subsequently decided to apportion that lump sum as between past and future. It will be recalled that, when deriving separate rates for past and future, Mr Meyer adopted InterDigital’s apportionment between past and future. That resulted in Mr Meyer’s per-unit rates derived from LG 2017 of $0.09 for the past and $0.61 for the future. His overall rate which blended past and future was $0.24. The per-unit rate for Lenovo of $0.175 was derived from that $0.24 by making suitable adjustments for the differences in position between LG and Lenovo. 20. Mr Meyer’s blended rate was derived over the period from 2011 through to end 2023. ‘Future’ royalties (i.e. paid in respect of unit sales after 30 November 2017) were discounted for accelerated payment, using the mid-year convention, at a rate of 10% per annum. Mr Meyer applied no discounting factor (or equivalent) for the past. 21. As was to be expected, Mr Meyer adopted exactly the same approach when it came to Lenovo’s sales. Future sales were discounted at 10% per annum and no adjusting factor was applied to any past sales. The consequence is clear: on Mr Meyer’s analysis, the unit sales in each year (take, by way of example, 2011) is multiplied by my derived rate of $0.175. If Lenovo had been under a running royalty licence, Lenovo would have been obliged to pay four payments (amounting (I assume) to the resulting annual figure), each one payable shortly after the end of each quarter. This analysis points firmly in favour of interest being required to be charged at an appropriate rate.”

“23. First, this argument starts from the point made in paragraph 18 above. It could be said that, to the extent that interest was significant to InterDigital, it was included in the lump sum agreed for LG. If that is right, the argument would be that it follows that, by relying on the LG 2017 lump sum and calculating from it, the lump sum of $138.7m also includes such sum as is appropriate for interest. 24. However, the fallacy in that argument is obvious when one recalls the way in which InterDigital approached past sales - see in my FRAND Judgment, [391]-[426] and [546]-[551]. In short, because InterDigital discounted past sales so heavily, interest did not feature in their approach. 25. Second, it is necessary to consider whether an award of interest should be incorporated into the analysis. I am conscious that the treatment of past sales in my FRAND Judgment is different to the way in which InterDigital accounted for past sales in recent years. If my analysis is upheld, it is likely that InterDigital will have to modify its licensing approach. If it does so, I consider it is inevitable that InterDigital will charge interest on those sums which should have been paid in respect of past sales. It might be said that InterDigital will do that in any event in order to maximise their revenue, so it is a point of little weight. 26. Third … 28. … in amongst my decisions on the points of principle, at [552] I expressly reserved the issue of interest for further argument. So my determination of the lump sum of $138.7m took no account of interest and does not preclude an award.”

“29. Overall, it seems to me that there are several pointers towards an award of interest being appropriate, not least that the application of the rate of $0.175 to the sales made by Lenovo in, say, 2011, indicates that Lenovo should have paid and InterDigital should have received the relevant royalties in that year (or shortly after), and should be compensated now for the delay in receipt of those sums. I also conclude that there are no pointers against. Accordingly, I conclude InterDigital are entitled to an award of interest on the sums making up past royalties in the lump sum of $138.7m. 30. That leaves the issue of interest at what rate. Having considered all the various rates which InterDigital put forward, I award interest at the rate agreed between these parties in the draft Licence i.e. 4%, compounded quarterly. I see no justification for any higher rate or for simple interest. 31. Lenovo submitted that InterDigital should be deprived of interest, or any rate should be reduced, due to their conduct, as found in my FRAND Judgment. The argument seemed to be founded on the Court’s discretion to award interest. It seems to me that this argument confuses two separate things namely: first, the question of what is FRAND and second, the process of determining what is FRAND. The inclusion of interest is part of the first question and it is difficult to see how it should be affected by issues over the process which can be reflected in costs. I do not rule out the possibility that in an extreme case, a Court might consider it right to deprive a licensor of interest but that is not this case. Accordingly, I see no reason to award interest at a lower rate. 32. The calculation model, amended to include interest at 4%, compounded quarterly, yields an interest payment of $46.2m. When added to the lump sum, the total payment which Lenovo must pay to InterDigital for a FRAND licence from 2007 to the end of 2023 is $184.9m. 33. Having reached that conclusion, there are some additional points I should mention. First, the possible countervailing points I mentioned at [551] did not dissuade me from my conclusion to award interest. Second, Lenovo argued that an award of interest would encourage SEP licensors to make excessive demands in the knowledge that, even if the Court does not agree with the SEP licensor’s demands, he still walks away with interest. I do not regard this risk as significant. Any implementer who considers they are being held up by excessive licensor demands is able to protect their position by (a) (at least in part) making payments on account and/or (b) initiating proceedings for a FRAND determination, in which a licensor which maintains excessive demands can be expected to be paying costs. 34. Finally, in the slightly unusual circumstances of this case, it could be said that Lenovo got away with a low rate in the early years (2007-2011), largely due to a dearth of evidence which enabled me to move away from the $0.175 rate I derived for the period from 2012-2018. I applied the same rate across all years, for the reasons summarised in paragraph 17 above. I also noted that I favoured applying different rates to different periods of time, but that was a consequence of noting some overall trends in licensing rates over the years - see in my FRAND Judgment [318] & [319]. In view of those generally downward trends, my expectation is that if a FRAND rate had been agreed between these parties back in 2012, covering 2007-2012, it is likely that it would have been somewhat higher than $0.175, although by how much is a matter of speculation. I observe that my award of interest may compensate InterDigital to some degree.”

“The complexities and uncertainties involved in cases such as the present appeals are formidable. In such cases the exercise is bound to be one in the carrying out of which different minds may readily reach differing conclusions, according to the weight which different minds consider ought fairly to be given to the various features of the case. An example of this is the extent to which rival comparables advanced by SK&F and the applicants assist in the present case. Inevitably there are points of resemblance and points of distinction in almost all comparables. The weight to be attached to these various points, and the conclusion on the degree of assistance a particular comparable affords, are matters which lie in the judgment of the tribunal to whom the calculation has been entrusted.”

“All of that analysis was based on the single best comparable (see [811]) – LG 2017 and on my conclusion that there was no evidence the resulting lump sum was procured or influenced by hold-out (see [675] and [722]-[734]). On that basis the LG 2017 lump sum can be taken to have been considered FRAND or at least in the FRAND range…”