Court of Appeal grants interim licence in battle between Ericsson and Lenovo

Headlines

The decision of the Court of Appeal handed down this morning is hugely important for owners of standard essential patents (SEPs) and implementers of the technologies they cover.  The headline points are: 

(1) Ericsson were in breach of their obligation of good faith under the ETSI IPR Policy by pursuing claims for injunctions in other jurisdictions despite Lenovo having undertaken to enter into a licence on the terms determined by the English court to be FRAND; 

(2) a willing licensor in the position of Ericsson would enter into an interim licence with Lenovo pending that determination; 

(3) making the declaration sought by Lenovo would serve a useful purpose; and 

(4) the declaration should not be refused on the grounds of comity. 

Background

Implementers are increasingly viewing the UK as a jurisdiction that is favourable to them following the rates determined by the courts in InterDigital v Lenovo and Optis v Apple.[1]  Since 2023, Lenovo and others have been seizing the initiative and have issued proceedings in the UK.  Lenovo have started actions against InterDigital, Ericsson and, most recently, ZTE. This decision was handed down in the Ericsson case.

Lenovo and Ericsson have been in negotiations on the terms of a global cross-licence for 16 years.  One of the key issues between them has been how to construe a 2011 licence made between Ericsson and Motorola, the business of which was subsequently purchased by Google and then Lenovo.  Lenovo argue that this agreement continues to cover their handset business post acquisition.  Ericsson disagree.  The disagreement is the subject of a separate case which was heard by Meade J in January 2025.[2] 

In 2023, Ericsson filed a complaint in the federal court for the Eastern District of North Carolina (“EDNC”) alleging infringement of four of their patents and on the same day commenced proceedings before the US International Trade Commission (“ITC”).  In the EDNC proceedings, Lenovo have sought a declaration that Ericsson offer a FRAND global cross-licence and Ericsson have undertaken to take a licence consistent with the EDNC’s determination.  For various reasons, the trial in the EDNC proceedings is unlikely to take place before the end of 2026.

Although Ericsson’s case before the Court of Appeal was that the EDNC would resolve the FRAND dispute, because of the way in which Ericsson framed their claim for relief, there is a possibility that the EDNC will not ultimately determine a FRAND rate for a global cross-licence.  Ericsson, when asked in earlier proceedings before the English court, had declined to amend their claim to seek a determination of what rate would be FRAND and that remained their position before the Court of Appeal. 

In the ITC proceedings, Ericsson seek an exclusion order.  The proceedings are well advanced.  At the time of the hearing before the Court of Appeal, there had been an initial determination of infringement of one of Ericsson’s patents and a Recommended Determination on Remedy was imminent.  If the exclusion order were granted, Lenovo told the Court of Appeal that it would be “catastrophic to its business”, the USA being Lenovo’s largest market. 

Later in 2023, Ericsson started numerous patent infringement cases in Brazil and Columbia, both being significant markets for Lenovo.  Ericsson have been granted at least one preliminary injunction in each jurisdiction.  In Brazil the preliminary injunctions has been stayed pending appeal. 

The set-up

Against this background, Lenovo issued proceedings in the UK in 2023, asking the court to make a declaration that a willing licensor and willing licensee in the situation of the parties would agree to and enter into a short-term (or interim)[3] licence in the form they provided.  In contrast to Ericsson, Lenovo undertook to the English court to enter into the cross-licence determined by the English court. Lenovo further stated that they would also enter into the EDNC-determined licence but only on the proviso that Ericsson would not seek any injunctions or exclusion orders until the licence was signed. 

At first instance, the judge, Richards J, refused to grant the declaration. 

Same answer at the third time of asking

This is the third time in quick succession that the Court of Appeal has considered the issue of a short-term licence. 

In Panasonic v Xiaomi (July 2024), the Court of Appeal allowed the appeal and granted Xiaomi the declaration.  According to Arnold LJ during submission in Lenovo v Ericsson, this was “an easy case”.  The proceedings had been commenced by Panasonic and both parties had given unconditional undertakings to the English court to enter into the court-determined licence.  Panasonic had also commenced proceedings in China, Germany and the UPC for injunctive relief but, in doing so, the Court of Appeal held that Panasonic were behaving inconsistently with their ETSI undertaking and the undertaking they had given to the English court.  Further, they were trying to coerce Xiaomi into paying more than the English court would order in any FRAND action.  Arnold LJ labelled this behaviour “indefensible”.  Following the judgment, the parties subsequently entered into an interim licence and, as Arnold LJ noted in Lenovo v Ericsson, the declaration did therefore serve a useful purpose.

In the second action, Alcatel Lucent & Nokia v Amazon (January 2025), the Court of Appeal gave permission to Amazon to amend their pleadings to advance a claim to an interim licence.  Arnold LJ (who is the common thread to all three decisions) held that Amazon had a real prospect of successfully arguing that this case could not be distinguished from Panasonic v Xiaomi.  In other words, Nokia’s points that, unlike Panasonic, they had not commenced the proceedings and had not given any undertaking to the English court, did not distinguish their behaviour from that of Panasonic.

Decision in Lenovo v Ericsson

Arnold LJ gave judgment for the Court of Appeal, taking the points in the same order as in Lenovo’s grounds of appeal as follows:

1. Good faith

Lenovo contended that the central question posed by the Court of Appeal in Panasonic v Xiaomi also arose here: What was Ericsson’s purpose in pursuing the ITC proceedings when they were guaranteed to get whatever the English court determined was FRAND (plus interest) if it were not to coerce Lenovo into accepting terms more favourable to Ericsson than the English court would determine to be FRAND? 

Arnold LJ pointed out that the answer to the question had already been given in Panasonic v Xiaomi - any rational SEP owner would want to be paid sooner rather than later.  Here, a nine-figure dollar payment from Lenovo was on the table. The Lords and Lady Justices had, during submissions, expressed some incredulity that Ericsson would not take what was offered. 

The answer that Ericsson gave (which was not a point raised in Panasonic v Xiaomi) was that the interim licence payment could not be recognised as revenue in its accounts.  The Court of Appeal did not accept ’this evidence, finding that the accounting treatment of the interim payment would not have any real-world consequences for Ericsson. 

Although on any view Ericsson’s conduct was not as egregious as that of Panasonic - they had neither invoked the jurisdiction of the English court nor given an undertaking to the court -  nevertheless, Arnold LJ accepted that the core reason for the conclusion reached in Panasonic v Xiaomi was equally applicable here, i.e. FRAND is a process and by not complying with the obligation to negotiate in good faith, Ericsson were aiming to coerce Lenovo into accepting terms more favourable to Ericsson than the English court would determine to be FRAND. Therefore, Ericsson’s conduct was inconsistent with the requirement imposed by French law to perform their obligation to ETSI in good faith. 

Arnold LJ accepted that Ericsson were simply exercising their legal rights in other jurisdictions, but he did not accept the conclusion that this was not contrary to the obligation of good faith, noting that “[t]o put it bluntly, Ericsson’s position amounts to saying that they are entitled to use their raw legal power to compel Lenovo to submit”.  He added that, although it might have been a legitimate response to a long period of hold out, it was no longer as Lenovo had accepted that they had to pay whatever the court determined to be FRAND, plus interest. 

2. Lenovo’s proposed interim licence

Arnold LJ referred to his judgment in Alcatel v Amazon and noted that there was a difference between the way in which the court should determine the terms of a short-term FRAND licence and a final FRAND licence.  A short-term licence only required a broad-brush approach because it was intended to “hold the ring” pending the terms of the final licence. Therefore, the judge did not need to undertake the sort of analysis appropriate to determine a final FRAND licence in order to be satisfied that the short-term licence put forward by Lenovo was FRAND. 

3. Useful purpose 

Ericsson submitted that, if the Court of Appeal made the declaration, they would not offer the short-term licence and therefore the declaration could not serve a useful purpose. Arnold LJ held, contrary to this position, that it would serve a useful purpose because it would force Ericsson to reconsider their position and, in his judgment, there was a realistic prospect that they would do so. 

4. Comity 

Arnold LJ entirely accepted that “jurisdictional imperialism” was to be eschewed and that, as he had stated in Panasonic v Xiaomi, the courts of this jurisdiction should respect the ability of courts in other countries to decide issues falling within their respective competencies, and should be cautious about granting any relief which might interfere with such courts’ exercise of their own jurisdictions or which might be perceived as an attempt to do so. 

However, it was common ground between the parties that a FRAND cross-licence would be global and that the Supreme Court’s decision in Unwired Planet established that, in such a case, the English court had jurisdiction to determine what terms would be FRAND on a global basis. He noted that “[a] critic might argue that, to that extent, a degree of jurisdictional imperialism is already hard-wired into the English court’s approach to these issues, [but] the declaration sought by Lenovo is less intrusive into the jurisdictions of foreign courts and tribunals than a global FRAND determination.”

Ericsson's position was that, if any court was to determine what terms are FRAND, it should be the EDNC (which had been first seized of the dispute) rather than the English court (which had been seized third). However, the English court had previously decided it was properly seized of the matter following an earlier jurisdiction challenge, and the Court of Appeal had to proceed on that basis.  Together with the fact that the English court has exclusive jurisdiction to determine the issues concerning the 2011 licence between Lenovo and Motorola which will have a significant impact on what terms in the cross-licence are FRAND, this meant that the legal (although not the commercial) centre of gravity of the dispute was England.

Arnold LJ noted that, in the absence of a global dispute mechanism for determining FRAND disputes, or an ad hoc agreement to arbitrate, the possibility of jurisdictional conflict was inescapable.  It might be a principled answer that the EDNC, as the court first seized, should determine the FRAND issues.  However, it was plain to Arnold LJ that Ericsson did not want the EDNC to do so, any more than they wanted the English court to determine FRAND.  If they had wanted an EDNC-determined licence, they would have amended their claim when invited to do so.

Ericsson pointed out that, if the Court of Appeal made the declaration for the interim licence, it would promote forum shopping by implementers.  During the hearing, Arnold LJ had wanted to know why forum shopping by the SEP owner was good and by the implementer was bad, but Ericsson had been unable to answer. Seemingly in rather resigned tones, Arnold LJ noted that forum shopping by both SEP owners and implementers was equally to be deprecated. He regretted that the potential for forum shopping was an inevitable feature of the present ETSI IPR Policy. 

Terms of the interim licence

As to the terms of the interim licence, Arnold LJ stated that the approach taken to determining what terms for an interim licence would be FRAND in Panasonic v Xiaomi was equally applicable here.  Accordingly, the sum payable by Lenovo by way of royalty should be the mid-point figure (a nine-figure dollar sum) between Lenovo’s January 2025 offer and Ericsson’s October 2023 offer. The sum paid under the interim licence should be adjustable in accordance with the court’s determination of FRAND terms for the final cross-licence.

What now?

This may not be an anti-suit injunction[4] but a declaration from the English court stating that a willing SEP owner in the position of the defendant would offer an interim licence can have similar effect.  As noted, Ericsson have stated that, if the Court of Appeal made the declaration, they would not offer the short-term licence - the reason being that it would bring to a halt the proceedings in other jurisdictions, and in particular, it would deprive them of the relief sought at the ITC.  They were aware that, in doing so, they risked being branded “unwilling”. 

However, according to the Court of Appeal, they will have to “think again” and such thinking might include appealing this decision to the Supreme Court. 

Pending the outcome of any such appeal, today’s decision will ensure that implementers continue to see the UK as a good place to bring proceedings. That does not just relate to rates, but because the English court is willing to grant declarations for an interim licence, it signals that it is willing to protect them from injunctions granted by courts in other countries in situations where the SEP owner is found not to have acted in good faith in accordance with its undertaking to ETSI (or other standard setting organisation).

As for SEP owners, persuading an English court that they are not in breach of their obligation of good faith will be very challenging where they are seeking to bring an implementer to the table by asserting their SEPs in countries, such as Germany, where injunctions are routinely ordered by the courts. 

[1] The hearing of the appeal started on Tuesday, 25 February 2025.

[2] Commencing on 13 January 2025, Meade J heard the trial of a preliminary issue to determine the proper scope of the 2011 licence. Judgment has not yet been handed down.

[3] The term “interim licence” is a misnomer. Lenovo is requesting a short-term final licence.  It is final because the determination of the interim position is not revisited at trial, but it includes an adjustment clause so that the rate can be altered following the FRAND determination at trial. 

[4] See the judgment of Phillips LJ in Panasonic v Xiaomi who thought that an anti-suit injunction should be sought as the appropriate remedy, not a declaration for an interim licence.