With the news that InterDigital is suing Lenovo in the UK for infringing several standard essential patents, CEO William Merritt says the company had exhausted all possible negotiation avenues and would have much preferred to arbitrate the matter.
In a press release issued on August 28, InterDigital announced that it had launched litigation against the Chinese tech company in the England and Wales High Court to get a declaration that its worldwide licence terms met its FRAND commitments, or a determination of FRAND terms for a licence to its 3G and 4G SEPs.
The company, which noted that it also started this infringement action in Delaware and that it is the first it has launched in six years, also said it was seeking an injunction similar to that awarded by the UK courts in Unwired Planet v Huawei.
“If you take a step back and look at what you want litigation to achieve; in the absence of two parties reaching an agreement, you need a process to drive them to a fair agreement. The UK has developed a very reasonable process” Bill Merritt, InterDigital CEO
InterDigital will be represented in the case by Gowling WLG.
“We are extraordinarily decent as a company when it comes to launching cases because we want to build partnerships, and litigation is not generally the best way to do that,” says Merritt.
“We tend to deploy as many tools as we can short of litigation, but there is a limit to our patience. We obviously put forward our rates for the innovation we made, offered to do research of other deals and, when that all failed, offered to arbitrate the terms.
“We do not need to dictate the terms by any stretch of the imagination; we are happy to have an independent arbitrator determine the terms. But when you have exhausted all the possibilities and you are left with someone unwilling to license at any terms, you are left at the courthouse steps – and that is where we got to with Lenovo.”
InterDigital has been negotiating royalty rates for use of these patents for a decade. Merritt says part of the reason it has taken InterDigital such a long time to start litigation, when many SEP holders typically wait two to three years, was that the handset business changed hands a number of times.
The European patents in question were originally owned by Motorola, which was bought by Google in 2011 and then sold to Lenovo in 2014.
“We would start negotiations with one company and then it would go to the next company and each time we had to reset the clock. That impacted the duration of time and reflected on our patience because we understood the business realities involved,” says Merritt.
“You had new people on the other side each time and you had to get to know the new business owner; and if you have to restart the clock, you have to restart the clock.”
UK attraction
After such a long time negotiating a deal for these patents and without litigating, Merritt says that the UK was the best place, after an arbitration venue, to settle a FRAND dispute.
“If you take a step back and look at what you want litigation to achieve; in the absence of two parties reaching an agreement, you need a process to drive them to a fair agreement,” he says. “The UK has developed a very reasonable process.”
He adds that having a one-stop-shop jurisdiction where a company can potentially get a global deal for its SEPs is incredibly valuable from a cost-saving and innovation perspective.
“In the absence of such a shop, you fall into this very bad situation for innovation where you must face someone in every country. The cost of doing that is very high and the return very low, and the result is no one does the innovation.”
The fact that it is the UK offering this one-stop-shop makes it even more attractive to the company and other SEP holders. Merritt points out that the UK courts came to their conclusions in Unwired Planet v Huawei in a fair way and on the basis of fact, and were not influenced by any perceived national bias.
The prospect of setting global FRAND terms would be far less attractive from a court that did not operate independently or have the necessary expertise to rule properly on an SEP matter.
“That is the rub, because if courts operate independently and there is the necessary skill there, there is no issue. But if they operate as an extension of the country's industrial arm, that is no good for determining FRAND terms.
“A global licence should be attractive to everyone because it makes sure whatever price needs to be paid is fair and that in the absence of a company willing to pay that price, their sales get halted. Our preference is not to have the playing field favour one side or the other,” he adds.
The UK Supreme Court is hearing the appeal for the Unwired Planet v Huawei case in October, and its judgment will influence the outcome of the InterDigital v Lenovo matter. Merritt says the company is aware that there is some risk of the Unwired Planet decision being reversed, but adds that it should not be overturned.
Arbitration incentive
Merritt tells Patent Strategy that it is a shame this matter has come to court when he and the business would have preferred to settle the matter in arbitration.
He says InterDigital is a big proponent of arbitration because it is neutral by nature and traditionally has been the preferred means of resolving most business disputes.
“This matter, at the end of the day, is a business dispute, which is why we offered arbitration,” he says. “Arbitration provides a one-stop-shop with the neutrality and the expertise that you would hope for. It is hard to imagine a better way of coming to a FRAND deal.”
He adds that each actor in various SEP supply chains should consider arbitration as a means to end the FRAND wars that have clogged up the courts for the last decade or so.
“I give the courts credit because they are being asked to resolve these issues and many, like the UK courts, have done a good job. But they are really not able, at the end of the day, to create flexible constructs because they are bound by damages law, and that inability spells trouble for how you then implement newly developed rules.
“It also makes matters more complicated when different courts set different rules. How do you do a worldwide licence, someone might ask. If, for example, one court says volume discounting is not good but another says you must do volume discounting, how do you reconcile that?”
Hopefully arbitration will indeed become the accepted norm in the FRAND space so that, should another company be unable to negotiate terms for other patents in another six years, there will be an easy way to avoid litigation.
