Establishing a FRAND Floor for Parallel Foreign Judgments: Optis v Apple

Introduction

Optis Cellular Technology LLC, Optis Wireless Technology LLC and Unwired Planet International Ltd (“Optis”) appealed an England & Wales Court of Appeal decision fixing the terms of a global FRAND (Fair, Reasonable and Non‐Discriminatory) licence for patent‐protected mobile telecommunications standards. Apple Retail UK Ltd, Apple Distribution International Ltd and Apple Inc (“Apple”) implement these standards in their devices. Optis owns a portfolio of standard essential patents (“SEPs”) declared to the European Telecommunications Standards Institute (“ETSI”) under its IPR policy. After a series of UK technical trials and a parallel US suit in the Eastern District of Texas (“EDTX”), the High Court imposed licence terms—especially a lump‐sum royalty—drawn by the judge after rejecting both parties’ experts. The appeals addressed (1) the correct method of valuing a FRAND licence and (2) how to accommodate a USD 300 million US judgment without unfairly requiring Optis to vacate or diminish it.

Summary of the Judgment

• The Court of Appeal upheld the principle that UK courts can fix global FRAND licence terms by virtue of the ETSI FRAND undertaking (Unwired Planet v Huawei [2020] UKSC 37; InterDigital v Lenovo [2024] EWCA Civ 743).
• The High Court’s wholesale rejection of accountancy expert evidence and its judge-crafted lump-sum averaging method were overturned. Instead, the Court of Appeal adopted a conventional “comparables” analysis in per-unit (DPU) terms using SEPs’ share of the global royalty stack (Innography data) and focusing on the Google Optis licence and Apple’s largest licensors (Ericsson, InterDigital, Nokia, Sisvel).
• A FRAND DPU of USD 0.15 was found to be the willing-licensor/willing-licensee outcome, grossed up to an annual lump sum (approx. USD 33 million at 220 million phones p.a.) and capitalized for past (back to 2013) and future uses—yielding a total of USD 502 million (no retrial required).
• Procedural unfairness was found in the High Court imposing unargued anti-suit provisions in its licence and order; those clauses and an interest cutoff (1 January 2023) were set aside.
• The Court held that Apple, which had pursued parallel US and UK suits and only belatedly undertook to take a global licence, must not require Optis to vacate or reduce the US damage award. The US judgment must operate as a “floor” on what Apple pays under the FRAND licence.

Analysis

1. Key Precedents

• Unwired Planet v Huawei [2020] UKSC 37: UK courts’ jurisdiction to set global FRAND terms based on the ETSI FRAND undertaking.
• InterDigital v Lenovo [2024] EWCA Civ 743: interest on past FRAND royalties and scope of past release period.
• Smith Kline & French (Cimetidine) Patents [1990] RPC 203: use of “closest possible parallel” licences as comparables.
• Conversant Wireless v Huawei [2018] EWHC 808 (Pat), [2018] RPC 16: English FRAND licence may provide for challenges in foreign jurisdictions.
• Hollington v Hewthorn [1943] KB 587: limits on admissibility of prior court findings—relevant but courts may take judicial notice for comity.

2. Legal Reasoning

FRAND Undertaking and Jurisdiction
ETSI‐declared SEPs carry a contractual commitment that any licence must be FRAND. UK courts can impose those terms and grant a FRAND injunction if implementers refuse acceptable offers (Unwired Planet, InterDigital).

Valuation Methodology
The High Court rejected expert “unpacking” into ad valorem or DPU rates and fashioned a judge-devised lump‐sum averaging method. The Court of Appeal found rejecting experts unjustified—experts may unpack reliably even if choices are inherently subjective—and lloyd LJ’s “closest parallel” test requires selecting best comparables, not averaging all available licences.

Bottom-Up vs Top-Down
A bottom-up comparables approach (unpack licences, normalize by licencee’s share of SEP stack, select best parallels) is preferred to a top-down royalty-stack cross-check, which may serve only as a sanity check.

Treatment of Foreign Judgments
Apple’s pursuit of parallel EDTX damages and its late commitment to take a FRAND licence created potential double recovery. A willing licensee in Apple’s position—responsible for running both suits—would recognize that a FRAND licence should not force the SEP holder to vacate a duly-obtained foreign judgment. Comity reinforces not ordering Optis to undo its US judgment. Instead the US award operates as a “floor” on the licence payment.

3. Impact on Future FRAND Cases

• Reaffirms use of the comparables approach in per-unit terms, relying on expert unpacking.
• Cautions against court-devised averaging and wholesale expert rejection without proper basis.
• Clarifies that FRAND licences may include mechanisms to address parallel foreign proceedings, but an SEP holder need not surrender a valid foreign award.
• Limits use of unrequested anti-suit or supervisory licence provisions, emphasizing procedural fairness.

Complex Concepts Simplified

• SEP (Standard Essential Patent): A patent declared essential to implement an industry standard. Holders must license on FRAND terms.
• FRAND: Licence terms that are Fair, Reasonable and Non-Discriminatory—akin to what a willing licensor and licensee would agree in a hypothetical negotiation.
• Ad Valorem vs DPU: Ad valorem royalties are a percentage of the product’s selling price; DPU is a fixed dollar amount per unit sold.
• Unpacking: Converting a lump‐sum payment in a licence into an equivalent per-unit or percentage rate by estimating sales volumes, discount factors and past releases.
• Bottom-Up (Comparables) vs Top-Down (Royalty Stack): Bottom-up uses individual agreements as parallels; top-down divides an aggregate royalty stack by each licensor’s share of essential patents.
• Hold-Up vs Hold-Out: Hold-Up is SEP holders using their patents to demand excessive royalties; Hold-Out is implementers refusing to take licence to delay payment. FRAND framework balances these risks.
• FRAND Injunction: An injunction subject to a proviso that it ceases if the defendant takes a FRAND licence.

Conclusion

The Court of Appeal’s decision in Optis v Apple refines FRAND valuation methodology by reaffirming expert-led comparables analysis in per-unit terms and rejecting judge-devised averaging. It underscores procedural fairness in licence drafting and limits unrequested supervisory clauses. Critically, it establishes that a duly-obtained foreign SEP damage award must serve as a floor, not be vacated or reduced, when a global FRAND licence is fixed. These principles will guide future global SEP licensing disputes and interactions with parallel proceedings.