Late last week, we received an extremely positive decision from the Court of Appeal in the UK in our FRAND licensing dispute with Lenovo which rejected Lenovo’s appeal in its entirety and increased the lump sum Lenovo must pay for a license to our cellular portfolio.

The decision is a resounding victory for InterDigital on all key points: The Court increased the payment for a license to our cellular SEP patents through the end of 2023 by more than $55 million; the Court confirmed that Lenovo should pay for a license for all past sales going back to when Lenovo first started selling 3G devices in 2007, with interest; the Court ruled that Lenovo should pay the costs of the appeal; and the Court denied Lenovo’s application for permission to appeal to the UK Supreme Court. The judgment increased the lump sum that Lenovo must pay to just over $240 million, roughly three times the $80 million Lenovo offered in the litigation.

Notably, the UK litigation has taken five years and this license expired at the end of 2023, hence, this decision deals purely with Lenovo´s past exposure, leaving them currently unlicensed to our cellular SEPs.

Understandably, we are pleased with our win and believe that the court’s decision will have significant and positive consequences for other SEP-owning innovators, particularly by addressing some of the imbalances that exist in the innovation ecosystem, namely aggressive holdout.

In the decision, Arnold LJ corrects what we feel was one of the fundamental flaws and inconsistencies with the original decision from the UK’s High Court; the lower court’s unpacking of a single comparable license, InterDigital’s license with LG from 2017. This single comparable license was affected by non- FRAND factors, driven primarily by a significant amount of 3G and 4G past sales that had accumulated by the time the agreement was struck. Unfortunately, the lower court failed to unwind these non-FRAND factors when unpacking the LG license, which ultimately reduced the amount the High Court found Lenovo was obligated to pay for a license. The Court of Appeal’s decision to increase the lump sum license fee to more than $240 million payable by Lenovo for its past sales, better reflects the value of our innovations in 3G and 4G standards.

The Court of Appeal used a rather unscientific methodology to arrive at a notional per unit number for the LG comparable – it simply estimated that LG would have paid 30 cents per unit, and as Arnold LJ states he does “not pretend this is a precise figure. It is not: it is an estimate.” However, what is very clear is that this rate is being used for this specific case and circumstances. While I personally believe there are a number of reasons why it should be higher, I respect the court´s decision and note that the decision is ultimately not about this unscientific notional per unit rate used in their process – the decision is about determining a fixed fee license payment for Lenovo based on a single closest comparable license from the 2G, 3G and 4G devices era.

While LG was deemed a comparable to Lenovo given their similar sales volumes and product sales mix over this extraordinarily long past period, this is not a decision which can be used to assess a future- looking reference with a completely different technology sales mix during the 5G era – for Lenovo, or any other party. I agree with the views expressed by the UK High Court and the Regional Court in Munich on this point. In its decision granting an injunction against Lenovo in Germany the Regional Court in Munich spelled out this very fact, concluding that “at least a 30% uplift based on inflation would be mandatory” for any forward-looking license. In dismissing Lenovo´s interim license request, the UK High Court’s Justice Reynolds, also voiced skepticism as to using the decision in a future license beginning January 1, 2024, stating he did not “have a high degree of assurance that this is a FRAND rate.”

The broader relevance of the Court of Appeal’s decision lies in the fact that the court has decided to take an important step to generally address pervasive holdout in the SEP licensing environment. In addition to increasing the license payment, the Court of Appeal makes a number of welcome observations about the realities of SEP licensing. In rejecting Lenovo’s arguments regarding the application of limitation periods and interest on past payments, Arnold LJ makes clear that holdout behavior like Lenovo’s should not be rewarded.

“There should be no discrimination in favour of implementers who are slow to take a licence and against implementers who are quick to take a licence,” he writes. “If anything, it should be the other way around.” In short, “an implementer should not be rewarded for delay.”

Guidance from ETSI, he points out, makes it clear that, “a willing licensee would not sit back and wait for demands from SEP owners, but would pro-actively contact SEP owners (whose identities can readily be ascertained from ETSI), and would put money aside for the payment of royalties.”

The Court also reiterates that the “non-discrimination” aspect of FRAND is not hard edged. SEP owners are not “required to grant license terms to an implementer equivalent to the most favourable licence it has granted to a similarly situated licensee.” In other words, FRAND does not mean “one size fits all” it means “similarly situated” licensees should be treated in a similar manner. One cannot compare apples and oranges when looking at FRAND – fixed fee licenses come with a completely different risk profile than running royalties – and this needs to be understood when dealing with FRAND and unpacking fixed fee licenses.

The Court of Appeal also highlights a very important element of FRAND as a range: that it is the SEP holder that has the choice to choose the appropriate terms within this range. As Arnold LJ writes, “…it will be recalled that a range of terms may all be FRAND, but InterDigital is only required to licence its portfolio on the FRAND terms which are most favorable to itself.”

Finally, while the Court of Appeal refrained from taking a position on willingness and concluded it had no relevance as the parties had sought to have the court resolution, the court highlighted that neither party had offered a middle ground in the case and as such, it was not appropriate or fair to chastise InterDigital for “going for a jackpot.” I will note that I believe that, based on this latest decision, it is clear that over the more than ten years of negotiation with Lenovo, InterDigital has made a number of offers which are well within the FRAND range. The Regional Court of Munich´s observations about Lenovo´s negotiation posture and offers, in turn, speak for themselves.

While I welcome this across-the-board win for InterDigital, Lenovo still remains unlicensed to large parts of our portfolio, including our cellular SEPs. And, while Lenovo seems to prefer litigation over negotiation – I am still hopeful the parties will ultimately find a way to a final amicable resolution providing Lenovo the freedom of operation it wishes to have while also providing InterDigital a fair return for its investments in foundational research and patented technologies which millions of connected Lenovo devices continue to infringe every day.

On May 2nd, InterDigital won an important court decision in Germany in our dispute with Lenovo over fair and reasonable compensation for our patented innovation.

The case is a clear validation of the quality of our innovation and of our behavior through many years of negotiations. It is also a strong rebuke of Lenovo’s years of delay tactics and abuse of the FRAND negotiation process.

The first instance decision from the Munich Regional Court found our 4G/5G patent-in-suit to be infringed and ruled that Lenovo should face a sales ban in Germany over all 4G and 5G-enabled devices. It also found that InterDigital always acted consistently with its FRAND commitment and that Lenovo failed to act in a FRAND compliant manner.

Using language that has become all-too familiar for SEP-owning innovators around the behavior of recalcitrant licensees, the court is particularly critical of Lenovo’s behavior.

As the court writes: Lenovo shows that “they are not interested in finding a solution that is fair to both sides. Rather, their behavior shows that even in situations in which, from an economic point of view, an agreement is obvious, they continue to negotiate in order to strengthen their own position by further delaying an agreement.”

The court is clear that Lenovo’s behavior constitutes a “hold-out tactic” which is “not in line with the legal system.”

The court also rejects Lenovo’s argument that they made a FRAND offer for a forward-looking 5G license by offering a royalty determined by the UK’s High Court last year, based on a 4G agreement from 2017. In contrast to Lenovo’s actions, the court casts InterDigital’s negotiation behavior in a far more positive light observing that we are, “interested in a final solution to the disputes that existed between the parties for many years.”

I welcome this reasoning from the court and agree that Lenovo’s actions clearly contravene their FRAND negotiation obligations and exhibit the behavior of an unwilling licensee. Courts have repeatedly explained that the FRAND obligation is a two-way street and applies to the behavior of both SEP owners and prospective licensees. It is not a one-way framework that only innovators have to abide by.

For regulators and other stakeholders, this is yet another court decision that deserves careful reading for its analysis of how implementers are able to abuse the FRAND licensing framework. Lenovo’s recent activity in the UK, in an attempt to obstruct the German action, makes clear that the UK is a jurisdiction Lenovo is using to seek anti-suit like protection so it can continue its global sales pending protracted and expensive litigation, causing their counterparties to incur massive expenditures of time, money and other resources. Lenovo prefers continued litigation to spending time at the negotiation table.

In speaking with industry participants that have experience dealing with Lenovo, the perception is clear. Lenovo - a large and powerful implementer who benefits from standards-based innovation made available by technology developers such as Ericsson and InterDigital - is not seeking to abide by its FRAND obligations or to find resolutions which would be fair and reasonable for both parties. Instead, Lenovo seeks to systematically drive down the value of innovation in an effort to conclude deals beneficial for Lenovo only. The tool Lenovo uses is its vast financial resources, outweighing those of most innovators, which enable exhausting and protracted litigation without any real intention of fair resolution.

Our preference at InterDigital is always to reach agreements through amicable bilateral negotiations with all of our customers. In our most recent quarterly earnings, we revealed that we had signed seven new agreements in the first quarter, headlined by our new agreement with Samsung for digital TVs and display monitors. None of these agreements required any litigation. In contrast to our experience with Lenovo, these counterparties engaged in negotiation with an intention to find a resolution, whereas Lenovo states publicly, that they “look forward to the next phase of the litigation.”

It is clear from the more than 15 years of negotiation and from the Munich court’s reasoning, that Lenovo falls into that band of implementers who choose delay and obfuscation instead of paying a reasonable royalty for patented technologies that millions of Lenovo devices infringe every day.

I welcome the Munich decision and applaud the judges for seeing through Lenovo´s narrative of “seeking transparency” in FRAND licensing for what it really is: hold-out. However, simple point scoring in national courts has never been my ultimate goal and I take no pleasure in it. As InterDigital’s Chief Licensing Officer, my focus is instead always on building the relationships which provide for long-term agreements that fairly value our extensive portfolio of wireless, video, and AI technologies. I would hope to see Lenovo change its posture and to move, finally, to an appropriate settlement. The “bleeding” must end so that both companies can reinvest the significant sums of money being spent on continued global litigation into foundational research that will benefit consumers and industry worldwide.

Shortly before Christmas, InterDigital won a significant court victory against OPPO in Germany as part of our pursuit of fair and reasonable compensation for our patented innovations.

The Munich Regional Court I ruled that InterDigital has acted in a FRAND manner, that OPPO infringed InterDigital’s 5G patent in suit, that OPPO is not a willing licensee and thus has not acted in a FRAND-compliant manner, and that InterDigital should receive injunctive relief in the German market. In short, it was a clear-cut verdict against OPPO and highlights a pattern of blatant holdout behavior which, unfortunately, has become all too familiar for innovators in standardized technologies like cellular wireless. OPPO does have the right to appeal this judgment.

The German case is just one part of our ongoing dispute with OPPO but, given the court’s stern criticism of OPPO’s behavior, I thought I would take this opportunity to provide an update on where we stand in our fight to be compensated fairly for our innovations.

No evidence of willingness from OPPO

Among several key takeaways, the Munich verdict showed once again that FRAND licensing is a two-way street. It is not just the SEP owner who should be expected to drive negotiations and to show a willingness to conclude a license on FRAND terms. The infringer must also demonstrate a clear commitment to negotiating in good faith and, in respect of this obligation, OPPO has been shown to be severely lacking.

In the part of the Munich verdict, which is perhaps most critical of OPPO, the three-judge panel reiterated that the infringer must clearly and unambiguously declare its willingness to conclude a license agreement with the patentee on reasonable and nondiscriminatory terms and must also subsequently participate in the license negotiations in a targeted manner. Our negotiations with OPPO have taken nearly a decade and OPPO has not made a single payment for its unauthorized use of our patented innovation. The judges also wrote that, “…taking into account the entire history of negotiations to date, a genuine willingness to negotiate and take a license on the part of [OPPO] cannot be established.”

OPPO’s track record demonstrates that its primary target is delay. As the Munich decision points out, "the lack of or delayed reactions by OPPO to the offers made by InterDigital, show that OPPO was not truly willing to contribute to bona-fide license negotiations.” According to the Munich court, OPPO has "impressively shown in the present proceedings how patent infringers practice hold-out by constant requests for comparable license agreements while at the same time, by doing so, trying to obfuscate their lack of willingness to take a license.”

In addition, the court ruled that OPPO’s counteroffers were unFRAND because they were based on rates that are significantly less than its licensed competitors are paying and assumed an average sales price for infringing devices that is well below the market.

The court also dismissed OPPO’s attempts to rely on the decision from the UK’s High Court in our dispute with Lenovo. This decision was ruled not to apply here because our LG agreement, on which the UK High Court based its determination, is limited to cellular SEPs, expired in 2020, and does not include 5G, and because the decision does not contain any discussion of German FRAND case law. Additionally, our negotiations with OPPO are for a license to a broader set of technologies than the Lenovo UK decision covered.

We initiated this dispute against OPPO to protect the virtuous cycle of innovation and to preserve the delicate balance on which it rests by ensuring that companies like OPPO pay a fair royalty for their use of patented technology. As the negotiation history shows, we did not rush to the courtroom to secure litigation-driven leverage.

On the contrary, we actively engaged OPPO in genuine negotiations and adhered to commonly accepted principles of FRAND licensing. I am particularly pleased that the Munich court has seen through the constructive refusal of OPPO to take a license and recognized that InterDigital´s behavior has been consistent with FRAND through the long course of negotiations.

A broader message

I also want to take this opportunity to reflect on what this verdict means for a broader audience, particularly those currently engaged in discussions over a new SEP regulation within the European Union.

Too often when SEP licensing is debated by policymakers, the spotlight overwhelmingly falls on the actions of SEP-owning innovators – likely because implementers are in the majority and drown out the voice of the innovation community. And yet, as several court decisions have demonstrated, it is so often the behavior of large and powerful implementers that is shown to contravene widely accepted FRAND principles.

As it is currently framed, the EU’s regulation does not address widespread holdout in any manner and would further tip the balance of power on the continent between innovators and implementers firmly in favor of the latter, benefiting the likes of OPPO and other device makers who are not based in Europe.

Innovation, such as 5G and advanced video compression, should be nurtured and protected in a way that both rewards innovators and allows technologies to be implemented in consumer devices. FRAND licensing is a vital part of this ecosystem and, as our resounding court victory in Munich shows, InterDigital is committed to negotiating on fair and reasonable terms.

Following this clear verdict I hope that OPPO now genuinely engages in negotiation and does not simply pay lip service to FRAND. Innovators and implementers have much more to gain by working together to deliver ever-more advanced technologies to consumers.

Yesterday we announced that we have agreed to renew our patent license agreement with Samsung Electronics, continuing a long business relationship that goes back more than 20 years. The final terms of the license will be determined in binding arbitration. We announced the arbitration in an SEC filing and a press release – which can be found here and here – but I wanted to take the opportunity to provide a little more color on why we believe this course of action is beneficial for us, and the industry at large.

Our most recent agreement with Samsung was signed in 2014 and expired at the end of 2022. We worked diligently towards closing a renewal prior to expiration, but we did not reach agreement on all terms before the expiry date. Both parties embraced arbitration, which provides a defined path towards resolution of the final terms of our license.

While I always prefer to sign license agreements through amicable, good-faith negotiations, without having to resort to any form of enforcement, arbitration, as a rule, offers a far more preferable option for resolving differences than multi-jurisdictional litigation. I look at binding arbitration as an extended negotiation between two willing parties who are committed to resolving their issues and finalizing a patent license agreement. This is the best practice for resolving issues in relation to fair, reasonable, and non-discriminatory (FRAND) terms in global standard essential patent (SEP) licensing.

Patents are not self-enforcing and litigation is sometimes needed and may even have advantages (in particular where issues relate to infringement and validity of individual patents). I tend to consider litigation as the last resort, and while it is a perfectly normal course of action in any patent licensing business, it is not the most efficient dispute resolution mechanism for a global portfolio licensing dispute that turns on commercial matters. The reason is simple, patents are territorial property rights and, hence, litigation will, as a rule, need to take place in multiple jurisdictions. Pursuing cases country by country is often complex, extremely expensive, inefficient, and time consuming – and takes the focus away from the need of the parties to engage in a constructive dialogue and move closer to resolving their licensing issues.

Unfortunately, this sort of litigation strategy is quite often used as a holdout tactic to avoid any commitment to take a license. Holdout is, in my view, the biggest driver of inefficiencies in our industry. It undermines the cycle of innovation and undermines the ability of innovators, such as InterDigital, to invest in the foundational research that underpins so much of our connected world. It also puts those who are willing licensees at a competitive disadvantage with those who deploy holdout tactics, exhausting their remedies in an effort to refuse to pay for a license.

To borrow a well-known saying; justice delayed is justice denied. So, I am convinced that we must encourage a better, more efficient way to settle disputes over standardized technologies.

While it is by no means a perfect system, arbitration offers a neutral and independent forum to determine the terms of a global license and the opportunity to settle a dispute relatively quickly and cost-efficiently compared with pursuing a broad litigation campaign in many countries, particularly where a professional party, like Samsung, does not ultimately dispute that taking a license is necessary. Arbitration offers a perfect setting for exchanging information, for instance on comparable license agreements, in a manner that preserves third party confidentiality. Arbitration also provides a supranational solution avoiding a race to court and tensions between various national jurisdictions. There is also another benefit which is often overlooked by critics of arbitration – the parties are able to dispose of their dispute and design the process to suit their needs to a degree which is often not possible in litigation.

Finally, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Convention", one of the key instruments in international arbitration, ensures that arbitration awards are enforceable globally – which makes arbitration the preferable option for global licensing disputes. Samsung’s willingness to arbitrate is something I believe should set a standard for other SEP implementers to follow - it is far better for the industry at large than delaying and dragging out negotiations and holding out on taking a license to patented innovations that are implemented in devices every day. Given the certainty it provides and its many benefits over litigation, it’s difficult to understand why implementers would not want to use arbitration as a mechanism for dispute resolution, unless, of course, they have no intention of entering into an agreement at all.

More should be done to not only promote the use of international arbitration in global SEP disputes but to also penalize implementers who opt not to commit and instead - in the hopes of getting an opportunistic reward - force FRAND negotiations into the kind of litigation that only those companies with the deepest pockets can afford.

I hope that our recent announcement is one that others will note and follow.