Case Law post CJEU ruling Huawei v ZTE

Philips v Wiko, Court of Appeal of The Hague

2 July 2019 - Case No. C/09/511922/HA ZA 16-623

http://caselaw.4ipcouncil.com/dutch-court-decisions/philips-v-wiko-court-appeal-hague

A. Facts

By letter dated 13 October 2013, the Claimant, Koninklijke Philips N.V. (“Philips”), informed the Defendant, Wiko SAS (“Wiko”), that it holds patents declared essential to the UMTS and LTE mobile telecommunication standards (Standard Essential Patents or “SEPs”) towards the European Telecommunications Standards Institute (“ETSI”). The letter included a list of some of Wiko’s products and invited Wiko to discuss a FRAND licensing agreement [366] . Wiko did not react to the letter [367] .

On 28 July 2015, Philips sent Wiko claim charts and a licensing agreement [368] . The communication remained unanswered by Wiko [367] .

On 19 October 2015, Philips started the present proceedings against Wiko [369] . On 25 August 2016, Wiko made a counteroffer [370] . Since 2016, it has also provided information about worldwide units sold and blocked an amount of EUR 895.000 into an escrow account [367] .

After the present proceedings were filed, Philips brought a further action against Wiko before the District Court of Mannheim (Mannheim Court), Germany (German proceedings). On 2 March 2018, the Mannheim Court honoured Wiko’s FRAND defence and dismissed Philips’ action.

In an interlocutory decision dated 16 April 2019, the Court of Appeal of The Hague (Court) held that the patent in suit EP1 623 511 (EP 511) is valid and that Wiko is infringing this patent [371] . Wiko claimed that, as this patent is a SEP and Philips has not complied with its contractual duties, Philips is abusing its dominant position by initiating infringement proceedings against Wiko [367] .

With the present judgment, the Court granted Philips’ request for injunctive relief [372] , destruction [373] and the recall of products [374] , but partly invalidated EP 511, insofar it goes beyond the claims of the second auxiliary request [375] .

B. Court’s reasoning

German Proceedings and Lis Pendens

Since the Court of Manheim in Germany had honoured its FRAND defence, Wiko argued that Articles 29 and 30 of Brussels Regulation 1215/2012 on jurisdiction and enforcement of judgements (Brussels Regulation) are applicable and that the Court is not competent for the present case [376] .

The Court rejected this argument, underlying that each national proceedings are based on a national counterpart of a European patent. For each national counterpart, the concerned national jurisdiction is exclusively competent [377] .

The fact the same FRAND defence has been raised in the German proceedings does not prevent the Court from moving on with its proceedings. The application of Articles 29 and 30 of the Brussels Regulation on cases with same object requires that the filed claims, not the raised defences, are identical [376] .

The Court concluded that recognition of the Mannheim decision would not affect the pending proceedings, as the patents at stake were not the same [378] .

Patent essentiality and infringement

Philips had declared EP 511 as essential to HSUPA (part of UMTS standard) towards ETSI on 26 November 2009 [379] . The fact that EP 511 is essential to HSUPA was not challenged by Wiko [380] .

Moreover, the interlocutory decision of the Court dated 16 April 2019 confirmed that claims 1, 9 and 12 of EP 511 are implemented in the UMTS standard [367] .

FRAND negotiations and application of the Huawei steps

The Court considers that the Huawei decision [381] does not set up strict rules, but rather guidelines for FRAND negotiations in good faith between the parties [382] .

Regarding the first step of the Huawei decision, that is the SEP-holder’s obligation to notify the implementer of the patents at stake and the infringement [383] , the Court underlines that this approach is different than what had been previously decided in a Dutch case prior to the Huawei decision, Philips v. SK Kassetten [384] .

Moving on to the next step, the Court found that Wiko had not fulfilled its duty as it did not react to Philips’ notification [385] . The Court, therefore, held that Philips was not obliged to make a licensing offer to Wiko, before starting proceedings against Wiko [367] .

FRAND offer

Nevertheless, Philips had made an offer to Wiko on 28 July 2015 [386] . This offer was for a worldwide licence under Philips’ UMTS and LTE SEPs [387] .

Philips’ expert explained that the offered rate amounting to USD 1,0 per product (non-compliant rate) and USD 0,75 per product (compliant rate) was justified in view of all UMTS and LTE SEPs [367] .

However, Wiko argued that Philips’ offer is not FRAND for the following reasons: Philips did not specify that its offer was FRAND compliant and did not explain how the offer was FRAND [388] .

Contrary to German courts, the Court held that the Huawei steps do not imply a substantiation duty [389] , but solely the duty to specify the amount of the rate and the way it is calculated [390] . It bases this reasoning on the fact that the Huawei decision has to be read in light of a previous German decision, the Orange Book Standard decision, where the German Supreme Court decided it was up to the implementer to make a first FRAND offer [367] . The Court interprets the Huawei decision as requiring the SEP-holder, as it is in a better position to do so, to make a first FRAND offer after the implementer has demonstrated itself to be a “willing licensee” [367] . But it does not require the SEP-holder to substantiate its FRAND offer and give insights on why he believes the offer is FRAND. The Court also considers there is no duty for the SEP-holder to justify its rate in view of what other licensees are paying [391] .

Wiko also challenged specific terms of the license, i.e. the suggested duration (until expiry of the last patent), the coupling of UMTS and LTE SEPs, as well as the requested fixed licence fees [392] . The Court held, however, that Wiko did not provide any evidence to support its position that Philips’ offer is not FRAND [367] . Additionally, the Court attached importance to the fact that Philips had expressed its willingness to discuss the offer and specific circumstances with Wiko [393] . Philips had even asked Wiko to make a counteroffer, which the latter did not [394] .

The Court further pointed out that the fact that there are different terms and conditions with other parties does not necessarily imply that the offer made to Wiko is discriminatory [395] . It stressed that “non-discriminatory” does not mean that every licensee must be offered the same structure and rate; the “non-discriminatory” nature of an offer depends on the facts and circumstances of the specific case [367] .

Wiko’s counteroffer

Wiko GmbH, an entity legally independent from other Wiko entities, had made a counteroffer to Philips [396] . However, the Court did not consider this counteroffer as a counteroffer made by the Defendant of the present proceedings to Philips [367] .

Besides that, the Defendant had also made a counteroffer to Philips after the start of the present proceedings [397] . This offer was based on the following estimates: the total number of UMTS and LTE SEPs was 12.000, out of which Wiko estimated that Philips holds 97 families, and the aggregated royalty rate for all SEPs amounted to 12% [398] . Wiko derived a rate of 0.001% per SEP family and made the following counteroffer to Philips [367] :

- 0.042% for the compliant rate (EUR 0.027)

- 0.066% for the non-compliant rate (EUR 0.043)

- 0.0315% for past sales (EUR 0.020).

Subsequently, Wiko made a further offer to Philips of 0.084 (which, in Philips‘ eyes, referred to a percentage) [367] .

The Court held that Wiko’s counteroffers were not FRAND. It found that the counteroffer included too many patents into the total SEPs pool, because it included base station and infrastructure patents, while Philips portfolio was focused on cellphone patents [399] . Consequently, the Court concluded that Philips held a higher percent of SEPs than estimated by Wiko [367] . It also highlighted that Wiko did not provide any explanation with respect to a proposed discount of the initially estimated rate of 0.097% and the aggregated royalty rate [399] . The Court also noticed that, while Wiko stated Philips’ rate should account for the technical and economic value of Philips’ SEPs, this analysis was missing from Wiko’s counteroffer [400] . It added that Wiko’s counteroffer did not account for the value of Philips’ SEPs in view of other SEPs for the same standard [401] .

Abuse of a dominant position

The Court held that the Huawei case requires that the facts and circumstances of a case have to be assessed to determine if there is an abuse of a dominant position [382] . Furthermore, the Court also referred to the decision of the UK High Court of Justice in Unwired Planet v. Huawei to note that the fact that the circumstances of a case diverge from the Huawei scheme does not automatically lead to the conclusion of an abuse of a dominant position, if the SEP-holder, nonetheless, files an action against an implementer [367] .

The Court expressly pointed out that if starting proceedings is considered as an abuse of a dominant position, then implementers have no incentives to comply with the Huawei steps and can just delay the negotiations [402] .

With respect to the asserted claims for injunction and recall of products, the Court found that the facts and circumstances of this case were different from the German proceedings, where the Mannheim Court viewed Wiko as a “willing licensee” [403] .

Wiko did not demonstrate itself to be a “willing licensee”, as it did not react to Philips’ notification, and did not comply with the required Huawei steps. Therefore, the Court rejected Wiko’s FRAND defence and granted Philips’ request for an injunction and recall of products.

  • [366] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.1
  • [367] Ibidem
  • [368] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.2
  • [369] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.3
  • [370] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.4
  • [371] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 3.1
  • [372] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.1
  • [373] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.4
  • [374] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.3
  • [375] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.8
  • [376] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.1
  • [377] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.2
  • [378] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.3
  • [379] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraphs 4.5 and 4.6
  • [380] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.5
  • [381] Huawei v ZTE, Court of Justice of the EU, judgement dated 16 July 2015, Case No. C-170/13.
  • [382] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.14
  • [383] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.10
  • [384] Case reference: Court of The Hague, Philips v. SK Kassetten, 17 March 2019, referred to in Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.10.
  • [385] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.15
  • [386] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.16
  • [387] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.27
  • [388] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.17
  • [389] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.18 and 4.19
  • [390] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.18
  • [391] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.19
  • [392] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.31
  • [393] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraphs 4.26, 4.31, 4.32, 4.36
  • [394] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.36
  • [395] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.34
  • [396] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.20
  • [397] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.4
  • [398] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.38
  • [399] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.40
  • [400] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.39
  • [401] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.41
  • [402] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.21
  • [403] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.22