Technical standards play a crucial role in the dissemination of innovations by enabling technologies that are safe and interoperable. When a patent is part of a standard, (so called Standard Essential Patent SEP) the right holder has an obligation to license it according to “Fair, Reasonable and Non-Discriminatory “ (FRAND) principles. In the absence of a standard definition for FRAND, various judges have instead ruled on what constitutes FRAND in several high-profile court cases [1]. A recent case [2] involving Optis and Apple highlights some of the forces at play when negotiating FRAND terms.
Background
In 2012 Apple launched a 4G (LTE) enabled iPhone. In 2019, after several years of unsuccessful negotiation, Optis Cellular Technology filed a claim for patent infringement of several UK patents and sought a declaration about the terms of a FRAND licence. The judge decided that the licence fee to be paid by Apple should be a lump sum derived from an annual lump sum of $5.13 million per year added up
for eleven years making a total of $56.43 million. Optis argued that this amount was too low and raises several grounds of appeal including that the judge took the wrong approach and incorrectly rejected the conventional comparable approach while also rejecting expert evidence.
Decision on Appeal
Lord Justice Birss dealt with “FRAND methodology”, while Lord Justice Arnold dealt with the “non-royalty terms” of the licence. This brief article focuses on the first aspect.
From a procedural standpoint the court held that the rejection of expert evidence was unfair in part because the alleged lack of independence of experts could have been tested via cross-examination.
Regarding the methodology, the court rejected the approach consisting of simply averaging the entries from highly divergent licences, hence hiding important differences in licence structure and leading to inaccurate FRAND value.
Instead, it was held that the proper approach should be based on “comparables” by identifying the best available comparable licences, that is prices agreed for similar licences in similar situations.
“ The right approach was to adopt a comparables based approach in the sense of being one based on identifying the best comparable or comparables, excluding others and working from there. “ (point 115)
Five comparable licences were identified. On the upper end at $0.27 dollar-per-unit (DUP) was the Optis-Google licence and on the lower end around $ 0.10 DPU were four Apple licences (between Apple and other parties).
Using a so called “broad-axe” analysis, the court then arrived at a FRAND rate of $0.15 DPU. The per-unit rate was then converted into a lump sum of $502 million covering a period from 2013 to 2027.
Conclusion
The Court of Appeal therefore overturned the decision of first instance and ruled that Apple should pay a lump sum $502 million, hence about 10 times greater than the sum ruled in the decision of first instance.
In a complex area of the law, this decision brings more certainty in the approach taken by the UK court in the determination of FRAND rates and confirms the importance of “comparables” in determining FRAND terms.
[1] https://www.gov.uk/guidance/uk-seps-case-law
[2] https://www.judiciary.uk/wp-content/uploads/2025/05/Optis-v-Apple-public-judgment-CA-2024-000695.pdf
- Gerard Giraud