Optis Cellular Technology LLC & Ors v Apple Retail UK Ltd & Ors

In fixing FRAND terms for a standards-essential patent portfolio, the court should identify the closest comparable licence or licences and evaluate comparability by reference to the parties and subject matter. That exercise is distinct from assessing the reliability of information extracted by unpacking lump sums, cross-licences and past releases. A court should not dilute the best comparables by averaging in materially less suitable licences, or adopt an unsupported averaging method that ignores material sales-volume differences. Hold-up and hold-out are degrees of bargaining distortion, not categories of lawful or unlawful conduct for this purpose. A global licence may account for a foreign damages judgment, with comity potentially requiring that judgment to be treated as a royalty floor. Interest on past royalties should run until payment.

Optis, owners of a portfolio of standards-essential patents, appealed against the High Court’s determination of FRAND terms for a global licence to Apple. Mr Justice Marcus Smith declared the licence terms FRAND in the judgment cited as [2023] EWHC 1095 (Ch), adopting a lump-sum valuation of the patent stack and a simple average of licence data.

The appeal challenged the rejection of the parties’ accountancy evidence, the valuation methodology, the treatment of hold-out, the interest stop date, and licence and order provisions concerning parallel proceedings in the United States. The central questions were the proper comparable-licence methodology, whether a retrial was necessary, and how the US judgment should affect the global FRAND licence.

Disposition. The Court of Appeal allowed Optis’s appeal in material respects. It rejected the judge’s valuation methodology, determined the FRAND rate itself, allowed the appeal concerning interest, and set aside or required revision of provisions dealing with foreign proceedings.

1. Expert evidence and comparability. The judge’s wholesale rejection of the accountancy experts was unfair and unjustified. Serious criticisms about lack of independence and expertise had not been put to the experts. Comparability concerns the parties’ circumstances and the licensed subject matter. Reliability concerns the quality of information extracted from a licence. Unpacking may improve reliability but does not make licences more comparable.
2. Comparable licences. The proper approach was to identify the best comparable or comparables, assess their reliability, and exclude licences that were not truly comparable. This followed the approach in Smith Kline & French Laboratories Ltd’s (Cimetidine) Patents [1990] RPC 203 and the earlier Unwired Planet judgment. Neither a simple nor a weighted average of materially disparate licences had a principled or evidential basis. Sales volumes had to be considered where lump sums concealed material differences.
3. Hold-out. The distinction between legitimate and illegitimate hold-out was unhelpful. Hold-out and hold-up are bargaining distortions relevant to whether a real licence reflects FRAND. They are not, in this context, findings of unlawful conduct. The Apple comparable licences were affected by a degree of hold-out and could not be treated as a homogeneous set of FRAND comparables.
4. FRAND rate. Using DPU data and the Google licence together with the higher-value Apple comparables, the Court held that $0.15 per Apple unit was FRAND. Applying the agreed sales-volume methodology, the resulting lump sum for the relevant period was $502 million without interest.
5. Retrial. Under Civil Procedure Rules 1998 Part 52, a retrial is a last resort and should be ordered only where it is the only just course. Applying Simetra v Ikon Finance [2019] EWCA Civ 1413, no retrial was necessary because the appellate record and the parties’ concessions enabled the Court to reach a just conclusion.
6. Interest. Interest on royalties for past sales should run until payment so that the passage of time is cost-neutral. The interest rate and the interest stop date were independent questions. The appeal on the stop date was therefore allowed.
7. US proceedings. It would not be FRAND or consistent with comity to require Optis to vacate a regularly obtained US judgment, particularly when Apple’s conduct had caused the parallel proceedings to reach judgment before Apple changed its position. If the US judgment was maintained on appeal, the least-worst solution was to treat it as a floor for the royalties payable under the English global licence.
8. Supervision and final terms. Paragraph 6(2) of the High Court order and related terms in the short-form licence were procedurally unfair, unnecessary, unclear and an inappropriate regime of continuing supervision. The parties were invited to agree the outstanding terms by reference to their composite draft, failing which the Court would determine them on paper.

• Court of Appeal (Civil Division): The appeal was allowed in material respects. The Court substituted a DPU rate of $0.15 and indicated a lump sum of $502 million, allowed the interest appeal, and directed revision of the terms concerning the US proceedings.
• High Court, Patents Court: Mr Justice Marcus Smith determined a global FRAND licence and declared the annexed terms FRAND in [2023] EWHC 1095 (Ch). His approach used a lump-sum valuation of the patent stack and averaging of licence data.