The UK Court of Appeal has increased the amount of royalties Chinese tech giant Lenovo must pay US rival InterDigital by $35m, excluding interest, in a closely watched dispute concerning licensing standard essential patents (SEPs) along terms considered fair, reasonable and non-discriminatory (FRAND).

Both parties had appealed a High Court order given by Justice James Mellor last year over how much money Lenovo should pay for a licence to InterDigital’s SEP portfolio covering 3G, 4G and 5G standards for Lenovo sales between 1 January 2007 and 31 December 2023.

Lenovo was advised by Kirkland & Ellis while Gowling WLG acted as InterDigital’s advisers in a case both sides claimed as a victory.

The UK High Court is one of only a handful of courts in the world that has reached a final determination in a FRAND dispute. It is the second time the English Court has been called upon to determine what terms are FRAND, the first being Lord Justice Colin Birss’s ruling in Unwired Plant v Huawei. Furthermore, it is the first case in which the correct treatment of past sales by implementers has been raised for determination.

The Court of Appeal ruling, given by presiding judge Lord Justice Richard Arnold on 12 July, has raised the lump sum to be paid by Lenovo from $138.7m to 178.3m; taking into account the interest the amount now totals approximately $240m, compared to the original High Court amount of $184.9m.

Commenting on the decision, Katie Coltart, an IP partner at Linklaters in London, said the uplift in the lump sum reflects what the court described as an “internally inconsistent” approach by the High Court to the discounting of payments for past sales in comparable licences. 

She noted that the High Court was found to have “erred in finding that heavy discounts for past sales forced upon InterDigital and other SEP holders (including those leading to the comparable licence relied on heavily in calculations LG 2017) were not FRAND, but then failing to make any correction to the blended per unit rate, which was derived from LG 2017, in order to eliminate such non-FRAND factors”. 

The new amount was reached from Arnold setting a new unit FRAND rate for Lenovo, bumping it up from $0.24 to $0.30 per unit.

The appeals court also adjusted ratios when calculating the sum Lenovo should pay from 0.728 to 0.75. The judgment noted that multiplying $0.30 by 0.75 gives a per unit figure for Lenovo of $0.225. That new royalty rate was then multiplied by 792,571,429 Lenovo product units (the final figure used by the judge), which gave the final uplifted total of $178.3m.

“I will ask the parties to calculate the interest due on that figure at the judge’s rate of 4% compounded quarterly,” Arnold wrote.

Coltart said the court also found that a comparable licence analysis – as undertaken by the High Court – is the more reliable basis for estimating FRAND, and not InterDigital’s “top-down cross-check” approach. 

The comparable analysis approach is “appealing because it is market-driven”, she said, “though Friday’s decision demonstrates the court’s willingness to look behind market figures to eliminate non-FRAND elements”.

InterDigital had also contended that the judge should have made a declaration that InterDigital was a willing licensor. But Arnold ruled that it was “not necessary to reach any conclusion on this question, because, even if InterDigital was a willing licensor, InterDigital has not identified any purpose that would be served in this court making a declaration to that effect”.

Lenovo said on its website that the new FRAND rate of $0.225 per unit, was “only 6.5 cents higher than what Lenovo argued at trial was FRAND” representing a “limited and very modest uplift of the original royalty rate”. 

It continued that beyond the royalty rate, Justice Mellor’s original ruling otherwise “remained undisturbed, including his determination of InterDigital’s un-FRAND conduct”.

As “further evidence of its willingness and commitment to FRAND licensing”, Lenovo said it was publicly offering InterDigital the $0.225 per cellular unit for a forward-looking licence and hopes “this fully resolves the parties’ disputes”.

John Mulgrew, Lenovo’s vice president, deputy general counsel and chief intellectual property officer, said he was “encouraged by what this decision means for ongoing negotiations with InterDigital, wider industry IP litigation cases, and most importantly, how this facilitates the proliferation of affordable innovation to customers around the world”.

He added: “Given the decision is far closer to Lenovo’s original position than InterDigital’s, we believe this is a further win for Lenovo and reinforces our continued commitment to FRAND licensing and being a willing licensee in the face of supra-FRAND offers and behaviour.”

Josh Schmidt, chief legal office at InterDigital, was also upbeat, saying that the decision “gives InterDigital another court win in our licensing dispute with Lenovo”.

He commented: “This decision takes a very important step towards achieving a balance between innovator and implementer by making it harder for implementers like Lenovo to delay taking a licence to patented technologies that are the bedrock of connected devices. Lenovo remains unlicensed to our cellular portfolio since the beginning of this year, and we remain committed to signing an agreement that includes fair compensation for our patented technologies.”

Coltart said the court’s decision not to rule on whether InterDigital was a “willing licensor” furthered the understanding that “detailed arguments around past conduct in negotiations and in particular allegations of ‘hold up’ and ‘hold out’, are now of significantly diminished value in FRAND proceedings in the UK”.

She added that although the decision was an improvement to InterDigital’s position she believed “the English courts remain a relatively balanced forum when it comes to implementer vs SEP-holder interests, particularly when compared to jurisdictions such as Germany”.

InterDigital was represented by 8 New Square’s Adrian Speck KC, Mark Chacksfield KC, Thomas Jones and Edmund Eustace (instructed by Gowling WLG).

Lenovo was represented by 8 New Square’s Daniel Alexander KC, Blackstone Chambers’ James Segan KC, Ravi Mehta and 8 New Square’s William Duncan (instructed by Kirkland & Ellis).