LG Mannheim bases FRAND defence on Article 101 TFEU for the first time

The proprietor of a standard-essential patent (SEP) may be obliged to refrain from enforcing his patent or bringing patent-infringement proceedings if he has undertaken to grant licences to third parties on FRAND terms (Fair, Reasonable and Non-Discriminatory) and does not comply with this obligation. The patent infringer who is willing to conclude a licensing agreement on FRAND terms may raise the defence of injunctive relief pursuant to § 33 GWB and Article 101 TFEU against the allegation of patent infringement (LG Mannheim, decision of 21 November 2014 – 7 O 23/14 and other parallel proceedings).

The facts of the case

The plaintiff (Philipps) brought patent-infringement proceedings against a Taiwanese company regarding the infringement of the patent EP 0 745 307, a SEP within the DVD standard. The infringement of the patent has not been contested.

Philipps has given an undertaking to the competent standardisation body DVD-Forum to grant licences to third parties on FRAND terms. Since the defendant was prepared to enter into licensing negotiations, the decision of the court depended on the question whether it is the SEP proprietor’s duty to present a specific offer for a licence on FRAND terms to the defendant and how far the obligation to negotiate reaches.
The LG Mannheim stayed the proceedings pursuant to § 148 ZPO and Art. 267 TFEU until the decision of the ECJ in the parallel preliminary ruling procedure in re Huawei vs. ZTE (C-170/13).

The most essential aspect of the LG Mannheim proceedings was the qualification of the DVD standard as an agreement between competitors which may restrict competition within the internal market. Consequently, an exemption pursuant to Article 101 (3) TFEU is required which according to the LG Mannheim may only be considered if the undertaking to grant licences on FRAND terms is met.

The Decision

The court’s decision to stay the proceedings is based on Article 101 TFEU and the pending preliminary ruling procedure Huawei vs. ZTE (C-170/13) regarding Article 102 TFEU:

The LG Mannheim leaves open whether the plaintiff has a dominant position on the relevant product and technology market due to the SEP and whether Article 102 TFEU applies. According to his own statements, the plaintiff had given an undertaking to the standardisation body DVD Forum to grant licences to third parties on FRAND terms in accordance with the DVD Forum statutes. He maintained having confirmed the undertaking during the proceedings and declared to acknowledge his obligation to at least enter into licensing negotiations with all applicants.

Since – as the LG Mannheim pointed out – the undertaking to grant licences does not directly constitute a right to use the patent itself, the court’s decision depended on whether the plaintiff properly complied with its obligations to negotiate resulting from the undertaking to grant licences. According to the courts provisional opinion bringing patent infringement proceedings while disregarding these obligations constitutes a violation of European antitrust law pursuant to Article 101 TFEU. Since a behaviour that is prohibited under antitrust law may not be enforced by the course of law (BGH, decision of 6 May 2009 – KZR 39/06, BGHZ 180, 312 Rn. 27 – Orange-Book-Standard), this objection may be held against the patent infringement claims. The court finds that in this case a violation of antitrust law shall be treated in the same way as an abuse of a dominant position. This is also supported by the fact that § 33 GWB gives grounds for injunctive relief in case of a violation of Article 101 TFEU. The patentee shall refrain from enforcing its patent right as long as he has not met his obligations (to negotiate) resulting from the undertaking to grant licences.

At the latest state of the proceedings the court indicated that the undertaking to grant licences on FRAND terms shall be measured by European antitrust law. The DVD standard comprises an agreement between competitors which leads to a restriction of competition within the internal market (Article 101 TFEU) due to the accompanied renunciation of alternative technological developments. An agreement falling under the scope of Article 101 TFEU will only be effective if the conditions of an exemption in Article 101 (3) TFEU are met.

The LG Mannheim refers to the Commission’s guidelines on horizontal co-operation agreements (Rn. 278 ff.) and states that the conditions for an exemption may be fulfilled by establishing a standard if that standard includes guaranteed access to the standardised and patented technology on fair, reasonable and non-discriminatory terms (i.e. FRAND terms) for third parties. In the courts opinion the DVD Forum’s standard already complies with these requirements. The plaintiff, however, did apparently not feel bound by the undertaking (anymore). He neither provided any substantiate arguments regarding the question whether the conditions for an exemption would be fulfilled even without the undertaking to grant licences on FRAND terms, all the more as the undertaking was deemed necessary by all DVD Forum members when it was established. Nor does LG Mannheim see any reasons that would support this hypothesis, especially in respect of the continuing importance of the DVD standard still today. Furthermore, it is irrelevant that alternative video codecs were developed since the DVD standard was enacted. Although the freedom to develop alternative methods or products may generally be an additional condition for an exemption it may not replace the undertaking to grant licences on FRAND terms itself (see Commission’s guidelines on horizontal co-operation agreements, Rn. 292 f.).

The court found that even the decreasing importance of the DVD video standards regarding computers and laptops does not release the plaintiff from its undertaking to grant licences on FRAND terms. The objective of providing standardised technology on FRAND terms is inter alia to allow product innovations. A distinction based on whether or not a license seeker depends on the licence on the product market on which he wants to become active would not be compatible with this objective (although not applicable in this case).

Practical recommendations

In its decision to stay the proceedings the LG Mannheim approaches the problem regarding SEPs from a new prospective. In the past patent infringers relied on Article 102 TFEU and the argument of the mandatory nature of the grant of the licences. Now, the LG Mannheim sees the undertaking to grant licences to third parties on FRAND terms as conditio sine qua non for an exemption of contractual industry standards pursuant to Article 101 (3) TFEU. In other words: all parties involved may be accused of violating antitrust law if they do not ensure that third parties will have access to the standard technology on FRAND terms. Therefore, it is not a question of having a dominant position on the relevant product market anymore. In case of contractual industry standard the standard undertaking to grant licences may lead to a prohibition of enforcing patent rights. This was confirmed by the ECJ in re Huawei vs. ZTE (C-170/13), at least for the case that the patentee did not present a specific, written offer for a licence on FRAND terms to the alleged infringer.

Although the now available decision of ECJ (Huawei vs. ZTE C-170/13) brought some light into this matter details will still have to be clarified by the courts or rather submitted to the ECJ again (so as well in the Mannheim case). In particular the question at issue in the present pro-ceedings – whether the alleged infringer may be forced to take a worldwide portfolio licence if this corresponds to the patentee’s common licensing practice – has not yet been subject of a ruling by the ECJ and will therefore continue to be discussed in the future. The defendant in the present case was willing to take a licence for the patent at issue within the Federal Republic of Germany. He refused, however, to accept a worldwide license for all patents regarding the DVD standard held by the plaintiff. It may also be debatable whether of the assumptions of LG Mannheim under Art. 101 AEUV require a separate word from the ECJ, namely in respect of substitutable standards or generations thereof (e.g. the question whether 3G Standard and LTE are substitutes for one another or technology replacements).

The decision of the LG Mannheim seems reasonable and logical. The extension of the discussion that focussed almost exclusively on Article 102 TFEU was long overdue. Beyond the present case this decision may have impact on situations where only two competitors agree on a joint exploitation of an intellectual-property right if the agreement is suited to restrict competition within the internal market. Therefore, an exemption pursuant to Article 101 (3) TFEU to preclude a violation of antitrust law might impose licencing to third parties irrespective of an explicit FRAND undertaking.