Interdigital Technology Corporation & Ors v Lenovo Group Limited & Ors

A FRAND licence for standard-essential patents should reflect the objective value of the licensed technology and the actual economics of comparable transactions. Internal, ex post facto allocations of lump sums, assumed discounts and headline programme rates cannot be used to inflate the apparent value of the portfolio. Volume discounts which substantially alter the economics of licences and disadvantage smaller licensees are discriminatory and inconsistent with FRAND.

Limitation periods do not reduce the royalties payable by a genuinely willing licensee for past use. The licensee should pay for all past units at the FRAND rate, since otherwise delay would create a perverse incentive to hold out. A global lump-sum licence may be determined by the court where the evidence supports it.

The claim concerned the terms on which Lenovo should license InterDigital’s declared 3G, 4G and 5G standard-essential patent portfolio. The principal issues were the appropriate FRAND lump sum, the reliability of comparable licence agreements and a proposed top-down cross-check, together with whether either party had acted as a willing licensor or willing licensee.

The parties had negotiated since 2008 without agreement. InterDigital relied principally on its 5G Extended Offer; Lenovo relied on its Lump Sum Offer. The Court considered comparable licences, expert evidence on unpacking and valuation, patent-counting studies, hedonic regression, the ETSI IPR Policy and the parties’ negotiating conduct.

1. FRAND valuation. The Court rejected both parties’ principal offers as outside the FRAND range. The appropriate method was an objective comparables analysis, focusing on the consideration actually paid and the best estimate of the units covered, rather than internal accounting allocations or asserted programme rates.
2. Comparable licences. The Lenovo 7 were not disqualified merely because they were lump-sum licences. The InterDigital 20 were materially less comparable because they generally covered much smaller businesses, often involved running royalties, and were more likely to reflect litigation costs or limited bargaining power. LG 2017 was the best comparable. After adjustment for the differences between LG and Lenovo, the appropriate blended rate was $0.175 per cellular unit.
3. Past sales and limitation. A willing licensee must pay FRAND royalties for all past units. National limitation periods applicable to damages claims do not govern a determination of FRAND terms. Applying lower rates to past sales would reward delay and encourage hold-out. The relevant consideration is the payment passing between licensor and licensee, not the licensor’s internal accounting treatment.
4. Discounts. Discounts reflecting the time value of money were legitimate. The substantial volume discounts attributed to the largest licensees lacked economic justification and primarily supported InterDigital’s headline programme rates. They discriminated against smaller licensees and could not properly be used to gross up comparable rates.
5. Top-down analysis. The patent-counting and hedonic-regression evidence did not provide a reliable cross-check. The proposed 50:50 division of the consumer premium between SEP owners and implementers had not been properly pleaded or established by evidence. The top-down case was therefore rejected.
6. Conduct and injunction. InterDigital had consistently sought supra-FRAND rates and was not a willing licensor. Lenovo had delayed on occasions and had not acted as a willing licensee at the Trial A form-of-order hearing, but its negotiating conduct did not permanently disqualify it from the benefit of the ETSI undertaking. Lenovo retained the ability to become a willing licensee by accepting the FRAND licence unconditionally.
7. Order. The FRAND lump sum for a licence covering the relevant period to 31 December 2023 was $138.7 million. Lenovo was to be put to its election concerning the licence and any FRAND injunction.

This was a first-instance FRAND determination. The judgment refers to related technical trials and appellate decisions, but this judgment itself was not an appeal.