Recent Supreme Court decisions have added clarity to the interpretation of the law of Standard Essential Patents (SEPs) and Fair, Reasonable And Non-Discriminary (FRAND) licensing rules in Europe. On 5 May 2020, the German Federal Court of Justice issued its decision in Sisvel v. Haier.(1) The reasons for the judgment were published on 7 July 2020. Equally eagerly awaited were the judgments in Unwired Planet vs. Huawei (2) as well as in Conversant vs. ZTE and Huawei (3), which the UK Supreme Court handed down on 26 August 2020.
In its 2015 landmark decision Huawei v. ZTE, (4) the European Court of Justice (ECJ) had set out a framework of steps that have to be observed by a SEP owner seeking an injunction against an implementer of such SEP. A large number of the internationally recognized proceedings on the topic of FRAND have been brought before German courts (in particular to the District Courts of Düsseldorf, Mannheim, and Munich), and the English courts have contributed significantly to the international FRAND discussion in the complex around Unwired Planet and Huawei. In this post, we will focus on the German Federal Court’s decision in Sisvel v. Haier.
The Huawei v. ZTE Criteria
Before commenting on the German Sisvel v. Haier judgment, we would like to provide a quick recap of the framework of steps that have to be observed in SEP license negotiations according to the ECJ’s judgment in Huawei v. ZTE.
The SEP holder has, first, to alert the implementer of the infringement complained about by designating the SEP and specify the way in which it has been infringed. Secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, the SEP owner has to present a specific, written offer for a license on such terms. Such an offer must specify, in particular, the royalty and the way in which it is to be calculated. The implementer must diligently respond to that offer, which means, in particular, that there are no delaying tactics. If the implementer does not accept the offer made to it, a counteroffer that corresponds to FRAND terms must be made promptly and in writing to the SEP holder. If the implementer uses the SEP before a license agreement is concluded, it must provide appropriate security in respect of its past and future use of the SEP, for example, by a bank guarantee for the payment of royalties or by placing the relevant amount of money on deposit.
If a SEP holder seeks an injunction against a potential licensee without following these steps, the alleged infringer may raise the so-called FRAND defense, claiming that the SEP owner’s refusal of granting a license on FRAND terms qualifies as an abuse of a dominant market position and thus a violation of EU antitrust law.
Sisvel v. Haier
The Sisvel v. Haier case was the first post-Huawei v. ZTE case pending before the German Federal Court, which is the highest instance for German patent infringement proceedings.
Sisvel sued Haier for an injunction before the District Court Düsseldorf based on infringement of a mobile phone SEP. Haier raised the FRAND defense, arguing that Sisvel had refused to grant Haier a license under FRAND terms.
In its judgment, the German Federal Court provided clarity about certain issues to be taken into account during FRAND negotiations:
- The Court confirmed that formal claim charts are a sufficient, but not the only way to alert the SEP user about the alleged infringement.
- The Court emphasized that potential SEP infringers must clearly and unambiguously declare their willingness to enter into a license agreement on FRAND terms. In this respect, the Court adopted a statement from the UK High Court (J. Birss) in its judgment Unwired Planet v. Huawei (5) according to which “a willing licensee must be one willing to take a FRAND license on whatever terms are in fact FRAND.” In the judges’ opinion, Haier did not act as a willing licensee.
- In this context, the judges confirmed that the implementer has to make its own assessment of the alleged patent infringement instead of making repeated requests for technical explanations delaying the negotiation progress. Time works against the SEP owner. The alleged infringer may attack the validity of the SEP or simply count on the expiry of its term of protection. The SEP owner, on the other hand, has to make pre-investments to enforce its rights.
- Corresponding to earlier case law and guidelines by the European Commission, the Court recognized that portfolio license offers have positive effects for both parties and do not raise antitrust concerns.
- Given that unlike the English courts, the German instance courts have focused on the FRAND negotiation process and the parties’ duties therein, their findings on what actually defines a comparable license have remained rather general. In principle, the SEP owner is not supposed to do “cherry picking”, but has to disclose the whole picture that its licensing practice is in fact not discriminating against the alleged infringer. The German Federal Court now put clear, however, that an earlier license, which is the most favorable a SEP owner could get under the given circumstances (in the pertinent case a license under the influence of the Chinese state), does not necessarily bind the SEP owner in FRAND negotiations, as long as competition between licensees in general is not impaired. The Court thus confirmed that non-discrimination is not – as Birss J. had put it in Unwired Planet v. Huawei – “hard edged” and that acting FRAND does not necessarily require offering exactly the same rate to everybody.
- The Court further confirmed that the SEP owner’s damage claims are not limited to the amount of FRAND license fees it could have received. Rather, it is up to the implementer to file a counterclaim for damages resulting from the SEP owner’s failure of meeting its obligations to enter into a license agreement on FRAND terms with a willing licensee. In the case at hand, Haier would not have been in the position to raise such a counterclaim.
End of the Story?
As recently reported by German legal information service JUVE Patent, Haier filed a complaint with the German Constitutional Court arguing that the German Federal Court disregarded its obligation to submit essential questions to the ECJ for additional clarification.
The Constitutional Court has to accept this complaint. The vast majority of constitutional complaints in Germany are rejected.
Should the Constitutional Court follow Haier’s arguments, the case would most likely be referred back to the German Federal Court, which would then have to submit the open questions to the ECJ. Assuming the ECJ were to provide clarification, the German Federal Court would have to rule again on the case taking the ECJ’s guidance into account. This procedure would have an enormous impact on ongoing SEP cases and discourage SEP holders from filing new lawsuits until the ECJ has provided for further clarification.
In summary, the German Federal Court has strengthened the position of SEP owners (and thus also the position of Germany as a venue for SEP litigation). In view of the very unpleasant disclosure requirements the German instance courts imposed on SEP owners in the past, SEP owners will certainly appreciate the decision. We will update the readers of this blog on the further development of the case.
(1) Case K ZR 36/17.
(2) UKSC 2018/0214.
(3) UKSC 2019/0041 and UKSC 2019/0042.
(4) Judgment of 16 July 2015, case no. C-170/13.
(5) EWHC, judgment of 5 April 2017, (2017) EWHC 711 (pat) para 708.