After years of litigating against each other in several jurisdictions around the world, Ericsson and Lenovo announced last week that they had entered into a global cross-licensing agreement involving 4G and 5G wireless technology patents. The parties have referred to the agreement as a “partial settlement,” and with good reason: although Ericsson and Lenovo have agreed to dismiss all ongoing lawsuits and proceedings filed by both companies, the parties did not agree on the fair, reasonable, and non-discriminatory (FRAND) terms for licensing the patents to each other and instead agreed to submit those issues to binding arbitration. This begs the question: would the parties have benefitted from entering binding arbitration to determine a FRAND rate in the first place as opposed to engaging in multiple rounds of international litigation?
Before answering this question, it is helpful to look at the history of the parties’ dispute. Starting over a decade ago, Ericsson and Lenovo attempted to negotiate a global cross-license for various standard essential patent (“SEP”) patents. What started as a negotiation involving 2G and 3G patents evolved into a dispute over 4G and 5G patents. As its final offer before commencing litigation, Ericsson offered to license its portfolio of 5G standard essential patents at a rate of 1% per 5G device with a $4 cap, which is below Ericsson’s publicly announced FRAND rate of $5 per device. Ericsson argued that its offer was fair and reasonable because the Fifth Circuit had recently affirmed a jury verdict declaring that same rate to be FRAND for Ericsson’s 4G patents. But Lenovo rejected the offer and litigation commenced.
Ericsson first sued Lenovo in the Eastern District of North Carolina, the location of Lenovo’s US headquarters. In parallel, Ericsson filed complaints at the International Trade Commission (ITC), United Kingdom High Court, and courts in Brazil and Colombia. Ericsson obtained injunctions in Brazil and Colombia, and also demonstrated that its patents were valid and infringed by Lenovo at the ITC. But before the ITC issued a remedy in its investigation, the UK High Court held that Lenovo was entitled to an interim license for Ericsson’s 4G and 5G patent portfolio. Ericsson did not offer Lenovo an interim license and instead asked the UK Supreme Court to intervene and review the UK Court of Appeal’s judgment. At that point, the parties entered into the global cross-license and mutually agreed to submit the FRAND terms to arbitration.
With this as a backdrop, would it have been more prudent for the parties to agree on arbitration to determine a licensing rate in the first instance instead of engaging in several years of global litigation? In this situation, the answer is probably yes, but that’s not always the case. As we have previously explained, IP disputes in a single arbitration before agreed-upon subject matter experts may offer distinct advantages over global patent litigation, which can be costly, burdensome, and time-consuming and may result in inconsistent decisions. But both parties must agree to arbitration, which means that it isn’t always an option. And whether arbitration or litigation is the most effective mechanism for resolving a dispute ultimately needs to be determined on a case-by-case basis. Often times, the two are not mutually exclusive: litigation may serve as a precursor to arbitration and can be used to resolve hotly-contested issues that may not be amenable to arbitration. That said, agreeing to have arbitrators determine global SEP rates may be an advisable approach if the issues traditionally requiring litigation, such as patent validity and infringement, are resolved or otherwise off the table. With the issues narrowed, arbitration is an efficient, single-forum method to determine a global SEP rate that does not require international judicial comity.
Arbitration is by no means a one-size-fits-all approach for resolving all intellectual property disputes. But as the Ericsson-Lenovo settlement demonstrates, many sophisticated companies in the SEP space are seeing the value of binding arbitration to resolve SEP disputes as an alternative to litigation.
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