The UK Court of Appeal has for the second time ruled that a standard essential patent (SEP) implementer is entitled to an interim license prior to the court’s determination of a final fair, reasonable, and nondiscriminatory (FRAND) license. On February 28, the appellate court granted such a request for an interim license from Lenovo against Ericsson, ruling that a willing SEP licensor in Ericsson’s position would grant such a license and finding that the company had breached its obligation to negotiate in good faith by pursuing injunctive relief in other jurisdictions. The decision extends a similar ruling by the same court late last year in Panasonic v. Xiaomi, this time applying such a requirement to a patent owner that had not sought out the court’s jurisdiction or agreed to be bound by its final FRAND determination.

A considerable portion of the court’s opinion orients the present dispute in the broader context of recent trends in SEP caselaw, both in the UK and beyond. Since this history bears directly on the issues here on appeal, it is recounted in brief below.

The court began its analysis with an overview of relevant FRAND principles, including how standards promote a balance between rewarding patent owners and giving implementers access to those inventions “at a fair price”, as well as the need to avoid the “evils” of “hold up” (where SEP owners threaten injunctions in order to seek rates that “exceed the reasonable market value of a licence”) and “hold out” (where implementers create products practicing the SEP owner’s patents without paying that “reasonable market value”). The court also surveys the current SEP litigation landscape—in particular how certain national courts, including the UK, have asserted the power to set the terms of global FRAND licenses that parties must accept or face injunctions barring them from the applicable national market.

Moreover, the court observed that implementers have been increasingly open to litigating in the UK, even filing declaratory judgment actions seeking FRAND determinations, and have been agreeing to case schedules that resolve FRAND issues first, due to rulings that have landed “significantly closer to those offered by the implementers than to those sought by the SEP owners”. This refers to decisions by the High Court of Justice in InterDigital v. Lenovo and Optis Wireless v. Apple, though the Court of Appeal notes that it had since issued a larger rate in the former case (albeit, as detailed by RPX, imposing an amount still closer to that sought by the defendant) and that an appeal of the latter decision is in progress.

Beyond that, the court also recounts several principles set out by prior decisions, in particular InterDigital: That FRAND is a “process” wherein parties must negotiate in good faith to meet their FRAND obligations; that the court must decide what license would be FRAND before assessing the willingness of parties to take such a license; that a range of license terms may be FRAND; that FRAND rates should cover the entire period of an implementer’s use, irrespective of national limitation periods; and that implementers must pay interest on past sales.

The Court of Appeal next gave an overview of the other litigation in the multijurisdictional dispute between Ericsson and Lenovo, which first hit the courts in October 2023 in the US: there, Ericsson filed a trio of US lawsuits in the Eastern District of North Carolina, including one seeking a FRAND determination; and a pair of investigations before the US International Trade Commission (ITC). The ITC proceedings were significant because while the Commission has not yet issued a final exclusion order in any investigations involving SEPs since 2013 (when, under an Obama administration policy then in effect, SEP injunctions were disfavored), a September 2024 brief by the Office of Unfair Import Investigations (OUII) (which participates in ITC investigations as a party representing the public’s interest) issued a nonbinding recommendation that the ITC issue such an exclusion order, having found that Ericsson appeared to have complied with its FRAND obligation by negotiating in good faith, had not been shown to have “engaged in hold-up”, and that no showing had been made that an injunction would adversely affect the public interest. Notably, the UK High Court relied in part on the OUII brief in its now-overturned November 2024 decision denying Lenovo’s motion for an interim license, Justice Jonathan Richards cited as persuasive the OUII’s conclusions on the “FRANDness” of the parties’ offers, finding that he otherwise had “no basis” to reach a different determination based on the evidence before him. (As noted below, however, the appellate court reached a different conclusion—determining in part that such an evaluation of FRANDness before a FRAND trial had taken place was premature.)

Additionally, the court observed that Ericsson has pursued claims in two additional venues. It has sued Lenovo in Brazil, the latter’s second-largest market, before the State Court of Rio de Janeiro, which imposed a preliminary injunction against Lenovo that was upheld on appeal in 2024, as well as a penalty for continued sales that has been stayed pending appeal. Ericsson has further pursued litigation against Lenovo in Colombia, also a “significant” market for the defendant; the posture of those proceedings is more “complicated”, with Ericsson winning a series of preliminary injunctions; and in December, seeking a ruling expanding those decisions to all Lenovo 5G products. Per the court, Lenovo alleges that Ericsson rejected its offer to pay the full royalties sought in those actions in exchange for lifting the injunctions in both countries. In the US litigation, Lenovo also filed a motion asking the Eastern District of North Carolina for an anti-suit injunction, leading to a notable ruling by the Federal Circuit that lowered a key threshold requirement for such motions.

The Decision on Appeal

The court then proceeded to address the key issues on appeal. After rejecting a timeliness challenge to the defendant’s notice that it intended to rely on prior UK court decisions interpreting the relevant French law (applicable here because the relevant standard-setting organization, the European Telecommunications Standards Institute (ETSI), is based in France), the Court of Appeal turned to the issues stemming from the High Court’s ruling on the interim license issue.

Of particular relevance to that analysis was the UK litigation in Panasonic v. Xiaomi. In that proceeding, as recounted here by the Court of Appeal, both parties undertook to accept the terms of a license to be determined by the UK court. However, patent owner Panasonic then filed litigation in Germany and before the Unified Patent Court (UPC) seeking injunctions for SEP infringement, the court noting that it “vigorously pursued” the German action in particular. Xiaomi subsequently asked Panasonic for an interim license pending the court’s final FRAND determination, but after Panasonic refused, Xiaomi asked the court for a declaration that a willing licensor in Panasonic’s position would have entered into an interim license.

While the High Court declined to issue such a declaration, the Court of Appeal reached the opposite conclusion in October 2024, determining in part that Panasonic had breached its FRAND obligation because it had invoked the UK courts’ jurisdiction in seeking a FRAND determination and had undertaken to accept that license on terms set by the court, and that it filed its litigation in Germany in an attempt to “force Xiaomi to agree to better terms for Panasonic than the English courts would determine to be FRAND”—the court observing (in its recap here) that “any rational SEP holder would want to be paid sooner rather than later, and yet Panasonic was refusing to agree to this because of its desire to coerce Xiaomi”. The court set the terms of the license as halfway between the amounts sought by Panasonic and Xiaomi for the relevant period.

In the present case, Lenovo had sought a declaration “modelled” after the one issued in Panasonic, similarly asking the court to determine that a willing licensor in Ericsson’s shoes would have entered into an interim license, and asking the court to “split the difference” between the parties’ suggested rates for that interim license.

However, as noted above, the High Court denied that application in November 2024, with Justice Jonathan Richards declining to conclude that the pressure Ericsson had placed on Lenovo was “directed at securing supra-FRAND rates, or even rates that are significantly in excess of what the English courts or EDNC will ultimately determine to be FRAND”. Relatedly, while Justice Richards acknowledged that given Lenovo’s commitment to accept the court’s license, it is “arguable” that Ericsson is “exerting unfair and unreasonable pressure in pursuing injunctive relief when it should be negotiating towards a FRAND rate”, he still could not conclude with sufficient certainty that Ericsson was not acting in good faith. Justice Richards also held that he could not determine that Lenovo’s interim license proposal was FRAND, nor that issuing the requested declaration would satisfy the “considerations of comity and utility”.

–  Good Faith Finding—and Factual Differences from Panasonic Case

A key issue here, in particular with respect to the lower court’s good faith finding, was the impact of the factual differences between this case and Panasonic. As noted by the Court of Appeal, Lenovo conceded that unlike in Panasonic, “Ericsson did not invoke the jurisdiction of the English courts to determine FRAND terms on a global basis and have not undertaken to enter into a cross-licence on the terms determined by the Patents Court to be FRAND”. However, Lenovo argued that these differences are “not material”, countering that what matters is that Lenovo had undertaken to accept a global cross license on FRAND terms to be set by the court. Because this undertaking is enforceable against Lenovo with severe sanctions for lack of compliance, Lenovo asserted, Ericsson is thus guaranteed to receive the full FRAND rate ultimately determined by the court, plus interest, with no need for an injunction to ensure enforcement. Per Lenovo, the lack of an undertaking from Ericsson did not change this conclusion, as this merely gives Ericsson the option to reject the court’s license and thus accept an injunction covering the UK market.

In this context, the “central question” as framed by Lenovo was why Ericsson would choose to pursue injunctive relief in Brazil, Colombia, and the US, with “massive attendant effort and expense” for both parties. The answer, per Lenovo, was that Ericsson sought “to coerce Lenovo into accepting terms more favourable to Ericsson than the English courts will determine to be FRAND”. Ericsson’s answer to this question focused in particular on the ITC actions, given their relatively advanced state: Its counsel stated that it was pursuing them to provide “legitimate commercial leverage”; to achieve a final resolution, as Lenovo would have to accept the Ericsson offer at issue (the “October 2023 Offer”) if Ericsson prevailed; and because Ericsson believed such a victory was likely. Per the court, these reasons boiled down to one: That “Ericsson want to force Lenovo to accept Ericsson’s October 2023 Offer by getting relief from the ITC which leaves Lenovo with no commercially viable alternative course”. Ericsson characterized this as a legitimate use of “legal remedies properly open to them”, while Lenovo countered that “this is contrary to Ericsson’s obligation of good faith”.

The Court of Appeal interpreted Ericsson’s position in the context of two key issues that Ericsson had raised with Lenovo’s conduct: that the latter had allegedly engaged in hold-out by declining to take a license, and that it had not previously offered an interim license. However, the court rejected both premises: Even assuming that there had been hold-out, Lenovo’s undertaking to accept a court-determined FRAND license with “realistic interest on past sales” mean that there is no longer any hold-out, and that the company will not be rewarded for any such behavior in the past. Moreover, the court observed that given Ericsson’s objection to the prior lack of an interim license, “one might think that” it would now “greet Lenovo’s current proposal to pay a nine-figure dollar sum for an interim cross-licence with open arms. Instead, Ericsson’s response has been to fight Lenovo’s application tooth and nail”.

Against this backdrop, the court explained, there are only two answers to the question of what advantage Ericsson hoped to achieve through the ITC proceedings. The first possible answer is that it sought the “same result as a determination by the English courts, but more quickly”. However, the court found that this answer was undercut by Ericsson’s own conduct:

As I observed in Panasonic v Xiaomi at [84], any rational SEP owner would want to be paid sooner rather than later. Moreover, for that reason, any rational SEP owner would positively want the implementer to enter into an interim licence so that the SEP owner could receive at least partial payment for the final licence more quickly, and then get the remainder later. Indeed, as we have seen, one of Ericsson’s own complaints to this Court about Lenovo’s conduct is that Lenovo failed to offer to enter into an interim licence prior to November 2023. Yet now that a nine-figure dollar payment from Lenovo is on the table, Ericsson refuse to accept it.

The Court of Appeal rejected Ericsson’s argument in response that an interim payment could not be recognized as revenue under “generally accepted accounting principles”, such that “Ericsson could not use that money until a final licence is signed”. The problem, per the court, was that Ericsson had not presented evidence on those accounting practices; had not shown any evidence on which Ericsson accounts would be affected; and had not shown there would be any real-world consequences for Ericsson, since “accounting principles cannot place a legal impediment on any use of the money”.

The court then explained that the second possible answer to the above question (what advantage Ericsson hoped to achieve from the ITC actions) was “that Ericsson want to achieve a better outcome than a determination by the English courts would provide (or indeed . . . than a determination by any court would provide)”. It found that Ericsson “must perceive . . . at least a material risk” that the court would find its offer to be non-FRAND and set FRAND terms “closer to those offered by Lenovo”—and that “Ericsson must be determined to avoid that risk”. This, the court held, was the correct answer: “In my judgment this is indeed the true explanation for Ericsson’s conduct”.

The Court of Appeal determined that Ericsson’s conduct had been less “egregious” than Panasonic’s in Panasonic v. Xiaomi, since Ericsson had “neither invoked the jurisdiction of the English courts nor given . . . [an] undertaking” to accept a court-determined license, as Panasonic had done before pursuing injunctions elsewhere. However, the court accepted Lenovo’s argument that the core holding of that case still applies: That Ericsson, like Panasonic, had not complied with its FRAND obligation to negotiate in good faith because it was “aiming to coerce” Lenovo into “accepting terms more favourable to Ericsson than the English courts would determine to be FRAND”. Here, the court rejected Ericsson’s position that it was merely exercising legal rights available to it by seeking injunctions over its patents, and that this cannot amount to a breach of its good-faith obligation—holding instead that its FRAND commitment to ETSI limits its ability to enforce its SEPs by seeking injunctions, and that such a limitation amounts to “the purpose and effect of an obligation of good faith”. Given the court’s finding that Lenovo was no longer engaged in hold-out due to its undertaking to accept a court-determined FRAND license, it concluded that “coercion by Ericsson is no longer justified. Accordingly, Ericsson are in breach of their obligation of good faith”.

The court also faulted the High Court’s rationale for finding in Ericsson’s favor on this issue, that it lacked a “high degree of assurance” that its conduct was intended to seek supra-FRAND rates, or even those “significantly higher” than those to be set by one of the courts here in play—countering that to the extent this was premised on the relative FRANDness of the parties’ offers, this analysis was not only unnecessary at this stage but also inappropriate, as the judge had not had the benefit of expert evidence from the upcoming FRAND trial.

– Denial of License Had Been Improper

The Court of Appeal also took issue with certain aspects of the High Court’s resulting denial of an interim license, finding in part that it had erred by requiring Lenovo to show that the interim license would meet the “nondiscriminatory” requirement of FRAND. Rather, as the appellate court clarified earlier this year in Alcatel v. Amazon, it held that a court need not address most of the issues that would arise during the FRAND trial in the context of an interim license, and only needs to determine whether the defendant is entitled to such a license and “if so, what terms are appropriate”.

–  Interim License Would Serve a Useful Purpose

Moreover, the Court of Appeal found in Lenovo’s favor on the question of whether its declaration would serve a “useful purpose”, agreeing with the defendant’s argument that such utility existed because a declaration could force Ericsson to reconsider its position. The court reached this conclusion despite Ericsson’s “stark” position that it would simply “ignore” the declaration, observing that if it really intended to do so it might have simply opted to default on the issue rather than investing “further time, effort and money in resisting the appeal”.

–  No Comity Issues

Finally, the Court of Appeal ruled that granting Lenovo’s requested relief would not run counter to the principle of comity, which concerns the recognition of judgments by foreign courts. The court agreed with Lenovo that granting it an interim license would promote comity by relieving foreign courts of wasteful litigation, while if Ericsson were to ignore the UK court’s declaration the foreign courts could make their own judgments.

By so ruling, the court rejected Ericsson’s argument that the declaration was contrary to comity because it was the Eastern District of North Carolina and the ITC that were first seized of the FRAND dispute (i.e., the disputes were properly brought before those bodies first). Instead, the Court of Appeal held that because Ericsson had failed to appeal an adverse jurisdictional ruling in the UK case, the UK court had also been properly seized of the dispute—and that because the UK courts have exclusive jurisdiction over the interpretation of a key license agreement, the case’s legal center of gravity (though not its commercial one) is in the UK.

More broadly, the court made the point that there still remains no “global dispute mechanism for determining FRAND dispute”, and in the absence of such a mechanism or an ad hoc agreement to arbitrate, “the possibility of jurisdictional conflict is inescapable”. While a “principled answer” to this issue might be the “first seized” position advanced by Ericsson, the court here found that Ericsson did not really want the Eastern District of North Carolina to make a FRAND determination—as it had failed to amend its claims in that case to ask that court to determine FRAND terms in preference over the UK courts, nor had they undertaken to accept that court’s determination to do (while Lenovo had). As a result, the court concluded “that Ericsson’s stance is not driven by jurisdictional preference with respect to FRAND determination. It is driven by a preference for the exclusionary power of a national injunction (or equivalent relief) over FRAND determination by any court. This is hold up”.

The court also rejected Ericsson’s concern that its ruling would promote forum shopping—noting that SEP owners forum shop every time they sue an implementer, and observing that forum shopping is a regrettable but “inevitable” feature of the ETSI intellectual property rights (IPR) policy.

–  Interim License Rate Should Be Mid-Point Between Parties’ Offers

Finally, the Court of Appeal having determined that Lenovo was entitled to an interim license, it held that the rate “should be the mid-point” sought by Lenovo.

For more on other notable FRAND developments in Q4 and 2024, see RPX’s latest quarterly report.