German instance court applies ECJ FRAND decision for the first time

The ECJ held in its ruling Huawei vs. ZTE C-170/13 that the proprietor of a standard essential patent (SEP) is primarily obliged to make a licence offer in order to avoid an anti-competitive enforcement of his IP right. Nevertheless, as already under the former case law “Orange-Book Standard” of the German Federal Court of Justice, the alleged infringer must undertake all reasonable measures to obtain a licensing agreement with the proprietor. In particular the alleged infringer may not use the SEP without prior contact with the patentee. Should the alleged infringer not consider the patentee’s licensing offer to meet on fair, reasonable and non-discriminatory terms (i.e. FRAND terms) he may only use the SEP if he provides appropriate security calculated on FRAND basis.

Regional Court Düsseldorf in re Sisvel vs. Haier, decision of 3 November 2015 − 4 a O 144/14 –Kommunikationsvorrichtung

The facts of the case

The court ruled that defendant (the Chinese household manufacturer Haier) may not rely on the FRAND defence if it has not made a counter offer for a licence seconded by on time placement of a security bond confirming the seriousness of the counter offer. The plaintiff (patentee Sisvel) was successful with his motions for injunction, recall and destruction of the products.

This is the first instance court decision based on the ECJ’s ruling of 16 July 2015 (C‑170/13 – Huawei Technologies) provided by a German court.

In Huawei Technologies the ECJ ruled that the owner of a standard essential patent (“SEP”) must comply with the steps below to avoid infringement of antitrust rules under Article 102 TFEU (as already reported here).

• It is for the proprietor of the SEP in question, first, to alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed.
• If the alleged infringer has expressed his willingness to conclude a licensing agreement, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms (including the amount of the royalty and the way in which that royalty is to be calculated).
• The alleged infringer shall diligently respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.
• Should the alleged infringer not accept the offer made to it, it may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.
• If the proprietor rejected the counter-offer, it is from that point on for the alleged infringer to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit.

In its decision of 3 November 2015 the Regional Court Düsseldorf applied the steps above for the first time.

The Decision

Following the court’s reasoning, no abuse of a dominant position pursuant to Article 102 TFEU was found since the defendant did not meet the requirements specified by the ECJ regarding the obligation to provide appropriate security after the rejection of a counter-offer for a license.

1. The plaintiff informed the defendant of the infringement in due time.

The court considered the question of whether the communication on the matter between the plaintiff and the defendant’s affiliates constituted a sufficient reference to the relevant SEP not to be decisive. Since the complaint had been filed before the ECJ’s decision of 16 July 2015 the plaintiff was (applying the former Orange Book case law) for once not required to inform the defendant of the SEP prior to filing the complaint. The court found that the defendant had been sufficiently informed of the SEP with the filing of the complaint. This applies also to all parallel proceedings that had been stayed with regard to the pending ECJ referral and resumed now.

2. The plaintiff presented a sufficient licensing offer to the defendant before filing the complaint.

Even though the licensing offer was in fact addressed to the holding company and not (initially) to the allegedly infringing German subsidiary (the actual defendant), the condition of a licensing offer by the proprietor of the SEP were met. Following the court’s reasoning, the proposal is not unusual as the holding company will often be interested in obtaining a licence for the whole corporation, not only for a single subsidiary.

3. The defendant made a licence proposal but did not provide the security bond

The defendant responded to that licensing offer by presenting a counter-offer to the plaintiff. Nevertheless, it used using the SEP before a licensing agreement had been concluded and his counter-offer was rejected by the plaintiff. Therefore, from that point on the defendant was obligated to provide appropriate security and render accounts regarding the prior and future use of the SEP, the obligation specified by the ECJ in Huawei Technologies in paragraph 67 applied.

The defendant failed to meet this obligation. It presented several counter-offers. It did, however, not provide security and render accounts until the oral hearing on 29 September 2015 although the obligation to provide security already applies when the first counter-offer has been rejected by the proprietor of the SEP. Otherwise the alleged infringer may postpone his obligation to provide security by presenting further counter-offers. This does not comply with the ECJ’s idea of the cooperative infringer who acts in good faith and refrains from using delaying tactics.

Practical recommendations

Since the plaintiff had no chance to review and comment on the sales data provided in the oral hearing it was regarded as too late. Defendants in future SEP cases will have to take this as a reminder that providing security and rendering accounts should not be neglected but prepared simultaneously with the counter-offer.

Unfortunately, the court did not have to address the most controversial question whether an offer by the proprietor including a worldwide portfolio license regarding the standard in question – rather than a license limited to the SEP in dispute – may comply with FRAND terms in general. From an economical point of view this question is highly important for both sides and the ECJ might soon have to deal with this topic again.

Currently, the status quo has not significantly changed on this field:

The proprietor of SEPs will still request portfolio licenses. The question will be whether he will have to claim the infringement of all portfolio patents in order to “force” the alleged infringer to take the portfolio license or whether the alleged infringement of one or several (major) portfolio patents is enough if a portfolio license is the standard license on the market. In practical terms the latter seems to be indeed the most reasonable solution as complex licence agreements are seldom based on detailed infringement analyses but rather seek to provide the license with comprehensive freedom to operate on the defined technical field.