The InterDigital vs. Lenovo case demonstrates the complexity of SEP licensing disputes and the critical role of judicial interpretation in reflecting fair and reasonable terms in a FRAND royalty rate calculation. As technology evolves and new standards emerge, the importance of adequate FRAND rate calculations will continue to shape the landscape of intellectual property rights and commercial licensing agreements.

In Interdigital vs Lenovo the Court of Appeal of England and Wales re-confirmed by and large prevailing British thinking on Frand Royalty Rate calculation and underlined the Comparable licensing and the Top Down Approach as key methods to determine a FRAND royalty rate. The baseline of the FRAND royalty rate calculation remains for the time being the end product, rather than the intermediary of smallest saleable practicing unit.  

Overview of Webinar Contents:

The dispute revolved around the terms for a license agreement covering 3G, 4G, and 5G technologies, lasting from January 1^st 2007 until December 31^st 2023. InterDigital claimed that Lenovo had infringed upon its Standard Essential Patents (SEPs) and sought compensation based on FRAND terms. Lenovo, in defense, aimed to rely on InterDigital’s FRAND commitment to avoid an injunction.

The FRAND trial, held over 17 days in January and February 2022, featured extensive factual and expert testimonies. The judgment, delivered in March 2023, concluded with several critical findings. Namely, a royalty rate of $0.175 per unit was established, applicable to all Lenovo sales since 2007, which resulted in a total lump sum of $138.7 million in royalties when taking Lenovo’s sales figures during this period into account, plus $46.2 million in interest taking the total amount to $184.9 million. The court further determined that InterDigital did not act as a willing licensor, while Lenovo was deemed a willing licensee “for the most part.” This judgment was appealed.

The decision of the Court of appeal was rendered about a year later, on July 12^th, 2024, with several key issues being raised. From Interdigital’s side, they challenged the $0.175 per unit rate, arguing for a higher rate corrected for non-FRAND effects observed in the LG 2017 license, which formed the baseline of the Frand royalty rate determination of the High Court. The Court of appeal agreed with Interdigital in this case and so the court adjusted the initial FRAND rate to $0.225 per unit, recognising that the original blended rate did not fully account for the non-FRAND effects.

Lenovo also put forward several of their own arguments during the appeal to counter. They in fact argued that the limitation periods should apply, suggesting that InterDigital’s delay in seeking enforcement of royalties should preclude recovery for certain periods, as well as contending that awarding the further interest payment of $46.2 million was not FRAND and, if it were, the interest rate should be lower, applied over a shorter period, and not be compounded. The court however disagreed with Lenovo on both accounts, stating both that limitation periods did not apply in this context, as the determination of FRAND terms involves a willing licensor and licensee regularising their positions, rather than a damages claim for patent infringement; the court also maintained their position on the fees payable for the interest rate of $46.2 million charged by emphasising that it was fair to award interest to compensate InterDigital for the delay in receiving due royalties.

During the webinar, we also went through several of the methodological considerations in determining FRAND rates during this case. A key focus was placed on comparable licenses, where in the case Lenovo put forward seven agreements that they believed to be good comparables (the “Lenovo 7”), alongside a total of twenty cases put forward by Interdigital (coined the “Interdigital 20”). Throughout the initial hearing, the judge found Lenovo’s selected comparable licenses (the “Lenovo 7”) more relevant than InterDigital’s (“InterDigital 20”), particularly the LG 2017 license, with LG closely matching Lenovo’s market conditions. The LG 2017 licensing contract was of particular importance in the initial case, where it acted as the sole point of reference in determining the licensing rate for Lenovo, simply by using the calculated aggregate LG 2017 rate of $0.24 per unit, using also an adjustment factor of 0.729 to account for the slight discrepancy in sales figures between the two, to obtain finally the rate of $0.175 per unit. The case also demonstrated the importance of considering the need for accounting for any non-FRAND influences on past licenses to ensure the determined rates were genuinely fair and reasonable, as well as the roles of willing licensors and licensees, with the court reiterating the importance of a balanced approach, ensuring that both parties acted reasonably without exploiting their positions. The Court also acknowledged the Top Down approach as a cross check. It used the total aggregate royalty burden to verify if Lenovo would be in a position to afford payment for the potential aggregate royalty burden it could face. This approach is very much in line with the approach taken in the landmark case Unwired Planet vs Huawei.

In conclusion, the decision of the Court of Appeal, while making slight adjustments to the initial rate, largely upheld the first-instance judgment. It reaffirmed the English courts’ commitment to a thorough and balanced analysis of FRAND royalty rates, providing clear guidance on avoiding excessive precision and ensuring fairness in licensing negotiations.