Why is the Optis v. Apple Saga Significant?

Background

Back in August 2020, Apple Inc. lost against the patent infringement suit (for two patents) brought by Optis Wireless Technology, filed in Texas. This claim was related to the use of 4G telecommunications technology used in Apple’s iPhone. As per a report by This is Money, Apple doesn’t own the technology used in iPhones. Rather, it pays license fees to companies holding the patents such as Optis. Later in an appeal, the judgment was overturned where the arguments put forth by Apple were accepted. Here, Apple argued that the patent owners’ licensing obligations remained unstated before the jury.

The case was took place in multiple jurisdictions, the latest verdict of which was decreed in June 2021 in the United Kingdom, where the Court found in favor of Optis. In this decision, it was held that the amount to be paid by Apple (for the patent’s license infringement) will be determined after some more trials in the coming times. Another factor that was criticized was the UK court’s contention that a court in the UK jurisdiction can, in this case, compel Apple to pay for all the iPhone patents across the world, even when the court only considers the infringement of UK patents.

The Current Position

During the hearing, it was stated by the judge that Apple might not be pleased with the amount to be paid about the patent infringement, as it is being considered as an ‘unwilling licensee’ which won’t attract FRAND. To this, Apple has hinted that quitting the UK market would be the last resort for them. This will be opted, as stated by the officials of Apple if the terms of the verdict will be “commercially unacceptable.” The upcoming trial will focus on one very important contention: whether Apple is an ‘unwilling licensee’. If the contention is decided in the favor of Optis, the rates would be determined, which Apple would be paying to Optis. On refusal, the infringing products (iPhone) could be banned from the UK market. Meanwhile, Apple would be facing another infringement suit as well, in 2022.

Unwilling Licensee

The court, in this case, has been asked to determine a licensing rate that is fair, reasonable, and non-discriminatory, or FRAND. However, Apple doesn’t want to agree on taking a license until the rates have been determined, as per the Bloomberg Law Report. As stated by the officials of Apple, they will consider leaving the UK market altogether if the rates are unreasonable. The exit of Apple from the UK market will have huge implications, ranging from loss of employment to no service/upgrades to the existing userbase. The UK is one of the biggest markets for Apple, therefore this step might be selected only in some exceptional situations.

This position held by Apple is been severely criticized by Optis. As per Optis, Apple is now becoming an unwilling licensee if it doesn’t commit to the price determined by the court in this case. Optis has further argued that Apple shouldn’t get the leverage under FRAND, in case it is established that Apple is an unwilling licensee. This would mean that Apple can be subjected to unreasonably high costs for the license.

FRAND Licensing

FRAND licensing is an abbreviation for Fair, Reasonable, and Non-Discriminatory licensing. This is considered as a step to protect the rights of the owners of a Standard Essential Patent, while making sure they don’t gain unfair bargaining advantages. Here, the standard-essential patent refers to the claim of an invention that is used to comply with a standard. Later, the definition was laid down in the case of Microsoft Corp. v. Motorola Mobility, Inc., where it was held that A given patent is ‘essential’ to a standard if the use of the standard requires infringement of the patent, even if acceptable alternatives of that patent could have been written into the standard.

Now that the position of SEPs have been laid down, the link between SEP and FRAND is to be discussed. The compensation/royalty is treated as a mandatory component under license obtained from the original owner of a patent, which is arrived at after considering the points of FRAND. The license is a compulsory requirement since the device would be a standard-compliant one that involves the use of a patent.

As far as the legislation is concerned, there is no set of regulations that impose the FRAND obligations. Therefore, FRAND obligations are contractual. They come into existence when any company agrees to provide the license for usage of SEPs, it shall commit to the obligations under FRAND in case of refusal in granting the license.

Patent Trolls

Optis Cellular Technology and its sister companies, PanOptis, Optis Wireless Technology, Unwired Planet, and Unwired Planet International, are non-practicing entities, which are infamous for adopting the technique of generating revenue through patent litigations against larger, more market-active companies. This strategy is known as patent trolling, where companies use patents and court systems (instead of manufacture and sales) for getting revenue.

While Patent trolls have traditionally been a strictly derogatory term, anti-competitive allegations faced by big tech companies have now transformed the approach adopted by courts in dealing with such disputes. This is the case particularly in non-US markets, as major Tech companies are overwhelmingly based in the USA. Developments in this case, therefore, are going to be observed closely by all the tech companies hoping to get fair idea about the royalties on SEPs.

Author: Unnat Akhouri, Legal Intern at PA Legal.

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