LG v TCL, District Court (Landgericht) of Mannheim

2021年03月2日 - 事件番号: 2 O 131/19

http://caselaw.4ipcouncil.com/jp/german-court-decisions/lg-mannheim/lg-v-tcl

A. Facts

LG is a global electronics company headquartered in South Korea, holding a portfolio of patents declared as (potentially) essential to the practice of wireless telecommunications standards (standard essential patents, or SEPs), including 4G/LTE developed by the European Telecommunications Standards Institute (ETSI). ETSI requires from patent holders to commit to make SEPs accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions.

TCL is a Chinese manufacturer of electronic devices which imports and sells – among other things – mobile phones complying with 4G/LTE in Germany.

In March 2016, LG sent a letter to the parent company of the TCL group with information about its SEP portfolio. Until August 2018, LG sent in total seven similar letters to different companies within the TCL group. TCL did not react to these letters. In March 2018, LG also shared a licensing offer with TCL, which provided for running royalty payments. Again, TCL did not respond.

In November 2019, LG filed an infringement action against TCL before the District Court of Mannheim (Court). In January 2020, after the suit was filed, TCL contacted LG for the first time. In the following, the parties negotiated a Non-Disclosure Agreement (NDA), which was signed only in May 2020. Apart from that, several meetings and communications took place, in which LG provided information about its SEP portfolio as well as about existing licensing agreements to TCL. On the other hand, TCL shared information about past sales volumes. In June 2020, TCL brought up a licensing agreement between LG and Qualcomm that had expired in December 2018 (Qualcomm licence) in the negotiations. Qualcomm supplied TCL with chipsets. TCL argued that with respect to chipsets supplied by Qualcomm and covered by the Qualcomm licence LG's patent rights were exhausted.

In July 2020, LG made a modified licensing offer to TCL that provided for a lump sum payment (instead of the running royalty payments initially offered). TCL did not accept this offer.

In November 2020, TCL made a counteroffer to LG. The counteroffer was based on a running royalty regime. With a view to the Qualcomm licence, TCL requested to include a clause in the agreement, which would allow TCL to exclude phones with chipsets acquired by suppliers already licenced by LG from the royalty calculation.

Shortly afterwards, LG made another offer to TCL that corresponded to a large extent to TCL's counteroffer. LG proposed certain amendments with respect to the royalty calculation (e.g. the addition of caps and floors) and also removed the aforementioned clause, which would have allowed TCL to exclude a number of devices sold from royalty payments.

In December 2020, TCL indicated that it would prefer a lump sum payment. Subsequently, LG made minor modifications to its previous offer. However, the parties did not reach agreement.

In January 2021, TCL placed a security payment covering sales in Germany since 2016 (including devices with Qualcomm chipsets) and rendered accounts for past sales as well.

With the present judgment [1] , the Court found in favour of LG and -among other claims- granted an injunction against TCL.
 

B. Court's reasoning

The Court found that the patent in suit is valid and infringed. [2]

The Court further held that the claim for injunctive relief asserted by LG was enforceable. [3] LG had met the obligation to adequately notify TCL about the infringement of its SEPs prior to filing the present action and had also provided TCL with a FRAND-compliant offer. [4] On the contrary, TCL had failed to adequately express willingness to obtain a FRAND licence from LG. [5]
 

Notification of infringement

The Court took the view that by the first letter dated March 2016 (or, ultimately, by the licensing offer presented in March 2018), LG had sufficiently notified TCL about the infringement of the SEP in suit prior to initiating court proceedings. [6]

The fact that the letter of March 2016 was addressed to the parent company of the TCL group (and not the individual affiliates sued in the present proceedings) was not harmful [7] . According to the Court, addressing such type of letter to the parent company corresponds to the common practice in FRAND negotiations. [7]

Furthermore, the Court did not express concerns against the fact that the letter dated March 2016 did not indicate the number of the patent in suit, but instead contained only the underlying patent application number. [8] The Court noted that by making a search in the respective database of the European Patent Office, TCL could have been able to identify that the patent in suit had been granted and published. [8] Considering this, the Court highlighted that SEP holders are under no obligation to regularly update lists displaying the individual patents included in their portfolio. [8]
 

Willingness

According to the Court, TCL failed to sufficiently express willingness to obtain a FRAND licence. [9] An implementer is required to declare 'clearly and unambiguously' as well as 'seriously and unconditionally' that it is willing to conclude a licence agreement with the SEP holder on FRAND terms and, subsequently, engage in negotiations in a 'target-oriented' manner. [10] By contrast, it is not sufficient in response to the notification of infringement to just demonstrate willingness to consider signing a licensing agreement or to enter into negotiations about whether and under which conditions taking a licence comes into question. [10]

For the assessment of willingness, all circumstances should be taken into account, especially the behaviour of the implementer. [11] In particular, courts must examine whether the implementer's conduct 'reasonably promotes negotiations.' [12]

In the Court's eyes, timing in negotiations is an important factor: The implementer is regularly required to react in due course; did it refrain from expressing interest in a FRAND licence over a longer period of time, then the implementer must make 'additional efforts'. [13] In exceptional cases, a 'reluctant involvement' of the implementer in negotiations could be justified, for instance when the SEP holder itself does not engage in a target-oriented manner in the discussion (e.g. by not sharing information about its licensing practice). [14] In case that the SEP holder has made a licensing offer, the implementer should raise any concerns swiftly and not hold back potential objections for use in subsequent court proceedings. [12]

Furthermore, the implementer's counteroffer shall also be considered in the assessment of willingness. According to the Court, an implementer who – after having received a licensing offer as well as sufficient information from the SEP holder – makes a non-FRAND counteroffer indicates, as a rule, that it has no intention to reach a FRAND solution. [12] The same can apply, when the implementer insists on its counteroffer and refuses any improvements. [12]

Against this backdrop, the Court found that, in overall terms, TCL did not adequately promote the negotiations with LG. [15] The Court noted that TCL made no efforts to clarify whether, respectively to what extent the Qualcomm licence led to a (partial) exhaustion of LG's patent rights [16] . The Qualcomm licence was mentioned by TCL for the first time in June 2020 (approx. 4 years after the first contact in March 2016) and was brought up again only during the pending trial in November 2020. TCL then rejected several offers of LG to elaborate further on this issue. In the view of the Court, TCL should have tried to address this issue much earlier and in a more transparent way, particularly since the wording of the Qualcomm agreement hardly supports TCL's exhaustion argument.Ibid, para. 147. The Court found that the Qualcomm licence did not lead to the exhaustion of LG's patent rights in the present case, see paras. 95-104.

The Court also saw an indication of delaying tactics in the fact that TCL had changed opinions (especially with respect to the preferred royalty regime) in several occasions, without having processed information shared by LG on the merits. [18] A further indication of delaying tactics was the fact that TCL, as a rule, aligned its behaviour in the negotiations with developments in the pending infringement trial (e.g. TCL contacted LG for the first time only after the action was served and made its counteroffer shortly before an oral hearing in the proceedings). [19] The Court noted as well that it took TCL almost four months to sign the NDA with LG, although it should have undertaken additional efforts to promote negotiations, given that at that point in time TCL had already delayed the beginning of the negotiations with LG for several years. [20]

In addition, the Court considered the fact that TCL had made a non-FRAND counteroffer to LG as a further indication that TCL had not sufficiently engaged in the licensing negotiations. [21] According to the Court, TCL's counteroffer was not FRAND, because the 'commercially significant' question whether the Qualcomm licence caused a (partial) exhaustion of LG's patent rights was left aside to be addressed in subsequent negotiations or court proceedings between the parties. [22]

The Court highlighted that FRAND is, in principle, a range; FRAND can differ from sector to sector and over time and shall be determined based on the individual circumstances of each case in good faith bilateral negotiations between the parties. [23]

In the view of the Court, a counteroffer that leaves a controversial question with 'significant impact' on the amount of the royalties payable unanswered is, regularly, not appropriate. [24] By signing a licensing agreement on that basis, the implementer would legitimize the use of the patents (and, consequently, no longer face the risk of an injunction), while, at the same time, preserve the right to withhold part of the royalty payments until the disputed question has been answered in future negotiations or court proceedings. [24] Such a counteroffer would resemble an offer pursuant to Section 315 of the German Civil Code, which – according to the Court – is also not sufficient for establishing implementer's willingness to enter into a FRAND licence. [25] Insofar, the Court pointed out that in Huawei v ZTE [26] the Court of Justice of the EU required from the implementer to make a 'specific counteroffer', which implies that the royalties must either be defined in the counteroffer itself or can be determined in due course. [27]

In the present case, TCL had preserved the right to exclude mobile phones with Qualcomm chipsets sold until the expiration of the Qualcomm licence from the calculation of the release payment covering past sales. From LG's perspective, this left the key question open whether TCL was prepared to pay royalties calculated under consideration of the respective mobile phones or not. This question was significant, since – according to the Court – the exclusion of mobile phones with Qualcomm chipsets could lead to a significant reduction of the amount of the release payment, given that such handsets accounted for a substantial share of the overall TCL sales. [28]
 

SEP holder's offer

The Court further found that LG could not be held responsible for TCL's missing willingness to obtain a FRAND licence; on the contrary, LG had met all its conduct obligations. [29] In particular, the Court pointed out that LG had made several FRAND-compliant licensing offers to TCL and had also been prepared to adapt its offers for the benefit of TCL. [29]

The Court held that the royalties suggested by LG (especially in its final offer) led to a total royalty burden within the frame generally accepted within the wireless telecommunications sector. [30] Furthermore, the fact that LG had concluded two licensing agreements with other implementers on the terms offered to TCL was considered by the Court as an indication that said terms are not 'evidently non-FRAND', even though LG had not formed a standard licensing programme established in the market yet. [31]
 

Provision of security

Having found that TCL had acted as an unwilling licensee, the Court did neither examine whether the amount of the security payment provided by TCL (that covered past sales only in Germany) was sufficient nor whether this payment was belated or not. [32]

• [1] LG v TCL, District Court of Mannheim, 2 March 2021, Case-No. 2 O 131/19 (cited by GRUR-RS 2021, 6244).
• [2] Ibid, paras. 49-104
• [3] Ibid, paras. 111 et seqq.
• [4] Ibid, paras. 117 and 158 et seqq.
• [5] Ibid, para. 117.
• [6] Ibid, para. 118.
• [7] Ibid, para. 121.
• [8] Ibid, para. 122.
• [9] Ibid, para. 123. et seqq
• [10] Ibid, para. 124.
• [11] Ibid, para. 125.
• [12] Ibid, para. 126.
• [13] Ibid, para. 127.
• [14] Ibid, para. 128.
• [15] Ibid, paras. 129-130 and 142 et seqq.
• [16] Ibid, paras. 144 et seqq.
• [17] Ibid, para. 147. The Court found that the Qualcomm licence did not lead to the exhaustion of LG's patent rights in the present case, see paras. 95-104.
• [18] Ibid, paras. 152 et seq.
• [19] Ibid, para. 154.
• [20] Ibid, para. 155.
• [21] Ibid, paras. 129 et seq.
• [22] Ibid, para. 130.
• [23] Ibid, para. 132.
• [24] Ibid, para. 133.
• [25] Ibid, para. 134. Under Section 315 of the German Civil Code the patent holder can be granted the right to unilaterally determine the royalties payable under the licence. The implementer preserves, however, the right to challenge such determination before court. The final amount of the royalty payable will, ultimately, be decided by the court in trials following the conclusion of the licensing agreement.
• [26] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
• [27] LG v TCL, District Court of Mannheim, 2 March 2021, Case-No. 2 O 131/19, para. 133.
• [28] Ibid, paras. 136 et seq.
• [29] Ibid, para. 157.
• [30] Ibid, para. 160.
• [31] Ibid, para. 161.
• [32] Ibid, para. 156.