Sisvel v Haier, Federal Court of Justice (Bundesgerichtshof)

24 November 2020 - Case No. KZR 35/17

http://caselaw.4ipcouncil.com/german-court-decisions/federal-court-of-justice-bgh/sisvel-v-haier

A. Facts

The claimant, Sisvel, holds patents declared as (potentially) essential to the practice of several wireless telecommunications standards (standard essential patents, or SEPs). Sisvel has made a commitment towards the European Telecommunications Standards Institute (ETSI) to make SEPs accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions.

The defendants are two European subsidiaries of the Haier group (Haier), which has its headquarters in China. The Haier group produces and markets -among other things- mobile phones and tablets complying with various standards, including the GPRS and UMTS standards developed by ETSI.

On 20 December 2012, Sisvel informed the parent company of the Haier group (Haier China) that it offers licences for its SEPs and shared a list of approx. 235 patents included in its portfolio. In August and November 2013, Sisvel sent further letters with information about its licensing program to Haier China.

Haier China replied to Sisvel only in December 2013. It expressed 'hope' to have 'a formal negotiation' with Sisvel and asked for information regarding potential discounts mentioned in previous communi­cations.

In August 2014, Sisvel made an offer for a global portfolio licence to Haier, which was rejected.

Shortly after that, Sisvel filed infringement actions against Haier before the District Court of Duesseldorf (District Court). One of the actions was based on a SEP reading on the UMTS standard (patent in suit). The other action involved a patent reading on the GPRS standard. Haier filed nullity actions against both patents asserted before the German Federal Patent Court.

During the infringement proceedings, Haier made certain counteroffers to Sisvel. These offers had a limited scope, since they covered only the patents (patent families) asserted against Haier in court.

On 3 November 2015, the District Court decided in favour of Sisvel in both cases [1] . It granted injunctions against Haier and ordered the recall and destruction of infringing products. The District Court further recognised Haier's liability for damages on the merits and ordered Haier to render full and detailed account of the sales of infringing products to Sisvel. Haier appealed both decisions.

In the subsequent proceedings before the Higher District Court of Duesseldorf (Appeal Court), Haier argued –among other things– that the District Court had not adequately taken into account the conduct requirements imposed on SEP holders by the Court of Justice of the EU (CJEU) in the Huawei v ZTE ruling [2] (Huawei judgment) rendered after Sisvel had filed the infringement actions.

On 16 January 2016, during the course of the proceedings before the Appeal Court, Haier declared that it was willing to take a FRAND licence from Sisvel, however, only in case that the German courts would finally confirm the validity and infringement of the patent in suit. Haier also requested claim charts with respect to all patents included in Sisvel's portfolio.

In December 2016, Sisvel made a further licensing offer to Haier, which was also rejected.

On 20 January 2017, that is a few weeks prior to the end of the oral arguments in the appeal proceedings, Haier made a further counteroffer to Sisvel. The licence offered would cover only the two subsidiaries of the Haier group sued in Germany. An agreement was not reached.

By two judgments dated 30 March 2017, the Appeal Court partially granted Haier's appeals in both parallel proceedings [3] . The claims for injunctive relief as well as the recall and destruction of infringing products were dismissed on the grounds that Sisvel had not complied with its obligations under the Huawei judgment, especially by failing to make a FRAND licensing offer to Haier.

Sisvel appealed the decisions of the Appeal Court.

In April 2020, the Federal Court of Justice (FCJ or Court) finally dismissed the invalidity action filed by Haier against the patent in suit [4] .

On 5 May 2020, FCJ rendered a judgment in the parallel proceedings pending between the parties concerning the patent reading on the GPRS standard [5] . The Court decided in favour of Sisvel and reversed the judgment of the Appeal Court. With the present judgment [6] , the Court reversed the decision of the Appeal Court also in the case involving the patent in suit.

B. Court's reasoning

The Court found that the patent in suit was essential to the UMTS standard and infringed [7] .

Contrary to the view previously taken by the Appeal Court, FCJ found that by initiating infringement proceedings against Haier, Sisvel had not abused a dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU) [8] .

Dominant market position

The Court held that Sisvel had a dominant market position within the meaning of Article 102 TFEU [9] .

FCJ explained that a dominant market position is given, when a patent is technically essential for comply­ing with a standard developed by a standardisation body (or a de facto standard) and technical alterna­tives to the standard are not available for products brought on a downstream market [10] . Even when alternative (technical) options exist, market domi­nance can arise as long as products not using the teaching of the patent cannot compete in a (downstream) market. [10] According to the FCJ, this applied with respect to the patent in suit.

Abuse of market dominance

The Court found, however, that Sisvel had not abused its dominant market position by filing infringement actions against Haier [11] . An abuse of market dominance can occur, when the SEP holder

• refuses to grant a FRAND licence to an implementer willing to take such licence and brings a court action against the latter, asserting claims for injunctive relief (and/or the recall and destruction of infringing products), or
• has not made 'sufficient efforts' in line with the 'particular responsibility' attached to its dominant position to facilitate the signing of a licence agreement with an implementer, who is, basically, willing to take a licence [12] .

In the eyes of the Court, in both above scenarios, the filing of an action against a 'willing' implementer amounts to an abuse, only because the latter has a claim to be contractually allowed by the SEP holder to use the teachings of the patent under FRAND conditions [13] . On the other hand, an abuse is regularly not per se established by an offer made by the patent holder at the beginning of negotiations, even when the terms offered would unreasonably impede or discriminate the implementer, if contractually agreed. [13] An abuse would be given, if the SEP holder insisted on such conditions also at the end of licensing negotiations with the imple­menter. [13]

Notification of infringement

The Court explained that the 'particular responsibility' of a market dominant patent holder materializes in an obligation to notify the implementer about the infringement of the patent in suit prior to filing an action, in case that the implementer is (potentially) not aware that by complying with the standard said patent is used [14] .

In the present case, the Court found that by the letter dated 20 December 2012 and the following correspondence Sisvel had given proper notification of infringement to Haier [15] .

Willingness

On the other hand, the Court found that Haier did not act as a licensee willing to obtain a FRAND licence from Sisvel [16] . In this respect, FCJ disagreed with the Appeal Court, which had taken the opposite view.

In the Court's eyes, the implementer must 'clearly' and 'unambiguously' declare willingness to conclude a licence agreement with the SEP holder on FRAND terms and, subsequently, engage in negotiations in a 'target-oriented' manner [17] . By contrast, it is not sufficient, in response to a 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 [17] .

The Court reasoned that the willingness of the implementer to legitimise the unauthorized use of the patent for the future by creating a respective contractual base is a prerequisite for placing the burden on the SEP holder to negotiate a FRAND licence with the implementer. [18] What is more, willingness (on both sides) is essential, because an adequate solution balancing the opposing interests of the parties results, as a rule, from an interest-based negotiation. [19] The fact that a party fails to contribute in negotiations towards a FRAND agreement will regularly be considered to its detriment. [20] An implementer, who has not shown interest in a FRAND-licence over a longer period after receipt of an infringement notification will have to undertake 'additional efforts' to make sure, that despite the delay caused a licence can be signed as soon as possible. [21]

The Court highlighted particularly that implementers should not engage in 'patent hold-out' by exploiting the 'structural disadvantage', which SEP holders face due to the limitation of their right to assert patents in court. [22] Otherwise, competition could be distorted, because the infringer would gain unfair advantages over implementers that have taken a licence in a timely manner. [22]

FCJ took the view that the above interpretation of the requirements related to the implementers' obligation to demonstrate willingness to obtain a FRAND-licence is in line with the Huawei judgment; a new referral of the respective questions to the CJEU, as requested by Haier, was not needed. [23] The Huawei judgment created a 'safe harbour' against antitrust liability in the sense that compliance with the obligations established will regularly suffice to exclude an abuse of market dominance. [24] Under special circumstances, however, stricter or less strict conduct duties of the parties could be justified. [24]

The Court observed that the Huawei judgment supports the notion that the implementer should remain willing to obtain a licence throughout the course of negotiations. [24] The 'continuous' willingness is an 'indispensable condition' for successful negotiations or, in case negotiations fail, for a finding of abuse of market dominance on the side of the SEP holder. [25] The refusal of SEP holder to grant a FRAND licence would, indeed, have no relevance in antitrust terms, when the implementer is not objectively willing and able to obtain such licence. [26]

Accordingly, FCJ explained that willingness shall (still) be in place, also when the SEP holder makes a licensing offer. [27] In this regard, the Court disagreed with the District Court of Duesseldorf, which had expressed the opposite view in the recent referral of certain FRAND-related questions to the CJEU in the matter Nokia v Daimler. [28] According to FCJ, the offer of the SEP holder is just the 'starting point' of negotiations; since FRAND is a range, it is the goal of negotiations to reach a fair and reasonable result considering the interests of both sides. [29] The implementer has, therefore, a duty to examine the FRAND-conformity of the terms of the SEP holder's offer. [30] If the offer is 'obviously' not FRAND, it will be sufficient that the implementer explains the reasons why this is the case. [30]

In this context, the Court made clear that the implementer's duty to examine SEP-holder's licensing offer exists, irrespective of whether the offer is, in terms of content, FRAND-compliant in every respect. [31] If one would require from the SEP holder to make a 'perfect' FRAND offer right away, licensing negotiations would be obsolete. [32] It is also not possible to assess the FRAND-conformity of the offer in the abstract, without reference to the aspects which each side considers relevant. [33] The Court reiterated that an non-FRAND licensing offer does not per se amount to an abuse of market dominance. [34]

Having said that, FCJ noted that for the assessment of the willingness of the implementer its entire conduct (including its reaction to the SEP holder's licensing offer) must be taken into account. [35] Consequently, willingness can change in the course of time: a court action filed by the SEP holder could become abusive at a later point in time, if the implementer adequately raises a request for a FRAND-licence. [36] However, the longer the implementer waits with asserting such request, the higher the threshold for considering it as a willing licensee will be. [37] The Court again noted that the above inter­pretation is in line with the Huawei judgment, so that no additional referral to the CJEU is needed, as Haier had requested. [35]

Against this background, the Court observed that the first response of Haier China to Sisvel's notification almost one year after receipt of the infringement notification was belated [38] . An implementer taking several months to respond to a notification of infringement, typically, sends a signal that there is no interest in taking a licence [38] . Besides that, FCJ found that Haier's response in December 2013, in which only the 'hope' to have a 'formal negotiation' was expressed, was not a sufficient declaration of willing­ness, in terms of content [39] . Since it had reacted belatedly to the notification of infringement, Haier should have undertaken 'additional efforts' to demonstrate willingness, which had been, however, not the case. [40]

Similarly, Haier's letter dated 16 January 2016 did not contain a sufficient declaration of willingness, since Haier had made the signing of a licence subject to the prior confirmation of the validity and infringement of the patent in suit by German courts [41] . Although the implementer is, in principle, allowed to preserve the right to contest the validity of a licensed patent after conclusion of an agreement, the Court held that a declaration of willingness cannot be placed under a respective condition [42] . Besides that, requesting the production of claim charts for all patents of Sisvel's portfolio almost three years after the receipt of the notification of infringement was, according to the Court, an indication that Haier was only interested in delaying the negotiations until the expiration of the patent in suit [43] .

Furthermore, FCJ found that Haier's willingness to enter into a FRAND licence could also not be extracted from the counteroffers made during the infringement proceedings. [44] The fact that these counteroffers were, in terms of scope, limited only to the patents asserted by Sisvel in court indicated that Haier had not seriously addressed Sisvel's request for a worldwide portfolio licence. [45] Given that it had more than sufficient time to examine Sisvel's portfolio, one could expect from Haier to provide substantive grounds for such 'selective licensing'. [45]

What is more, the Court held that the counteroffer dated 20 January 2017, which Haier had made shortly before the end of the appeal proceedings, was no sufficient demonstration of willingness either. [46] The Court focused particularly on the fact that the licence would cover only the two affiliates of the Haier group sued in Germany. [47] According to FCJ, Haier had no 'legitimate interest' on such 'selective licensing'; on the contrary, a limited licence would offer no sufficient protection against infringement by other companies of the Haier group and force Sisvel to a cost-intensive assertion of its SEPs 'patent to patent and country-by-country'. [48]

In addition, the Court also criticised the proposed royalty regime. [49] Haier based the royalty calculation only on a small portion (four patent families) of the SEPs that should be included in the licence, which, in its eyes, were 'probably' essential. [50] The Court reasoned that the scope of the licence must be clarified in negotiations, whereas in the ICT-sector, due to the large number of relevant patents, it is common to rely on estimations regarding both essentiality and validity, which, on the one hand, allow to take 'necessary remaining uncertainties' adequately into account and, on the other hand, help to avoid disproportionate high transaction costs. [51]

Apart from that, the fact that the counteroffer was made only in the 'last minute' of the appeal proceedings allowed the conclusion that Haier was not actually aiming at signing a FRAND licence, but was rather motivated by tactical considerations with respect to the pending proceedings. [52]

SEP holder's licensing offer

Having found that Haier had not sufficiently demonstrated willingness to obtain a FRAND licence, the Court did not examine the FRAND-conformity of Sisvel's licensing offers to Haier in the present case [53] . According to FCJ, this question is not relevant, when the implementer has not adequately expressed willingness to sign a FRAND licence. [54]

The Court highlighted that -apart from the obligation to notify the implementer about the infringement- duties of the SEP holder (including the duty to make a FRAND licensing offer) arise only if the implementer has demonstrated willingness to obtain a licence on FRAND terms. [55] The FRAND-undertaking of the patent holder towards the relevant standardisation body does not change the fact that the user of a patent is, in principle, obliged to seek a licence from the right holder. [55]

C. Other important issues

Patent ambush

The Court dismissed Haier's defence based on the 'patent ambush' argument. [56] Haier argued that the patent in suit was unenforceable, because the initial patent holder, from whom Sisvel had acquired said patent, had failed to disclose the patent towards ETSI in due course during the development of the UMTS standard.

The Court did not examine whether a 'patent ambush' in the above sense indeed occurred in the present case. [57] FCJ took the view that an implementer can assert 'patent ambush' only against the patent holder that actually participated in the standard development process; on the contrary, such defence cannot be raised against its successor (here: Sisvel). [57]

Notwithstanding the above, the Court noted that a 'patent ambush' requires that the decision-making process within the relevant standardisation body was distorted by the withheld information. [58] Insofar, the implementer must establish at least some indication that the standard would have taken a different form, if the information considering the relevant patent application had been disclosed in time. [59] Haier had, however, failed to do so. [59]

Damages

Finally, the Court found that Sisvel's damage claims were given on the merits. Negligence establishing Haier's liability for damages was given: The implementer is, in principle, obliged to make sure that no third party rights are infringed, before starting manufacturing or selling products, which Haier had not done. [60]

What is more, Sisvel's claim for damages was not limited to the amount of a FRAND licensing rate ('licensing analogy'). [61] The SEP holder is entitled to full damages, unless the implementer can assert an own counterclaim, requesting to be placed in the position, in which it would have been, in case that the SEP holder had fulfilled the obligations arising from its dominant market position. [60] An implementer is, however, entitled to such (counter)claim, only when it adequately expressed its willingness to enter into a licence, which had not been the case here. [60]

• [1] Sisvel v Haier, District Court of Duesseldorf, judgment dated 3 November 2015, Case No. 4a O 144/14 (UMTS-related patent) and Case No. 4a O 93/14 (GPRS-related patent).
• [2] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
• [3] Sisvel v Haier, Higher District Court of Duesseldorf, judgment dated 30 March 2017, Case No. I-15 U 65/15 (UMTS-related patent) and Case No. I-15 U 66/15 (GPRS-related patent).
• [4] Federal Court of Justice, judgment dated 28 April 2020, Case No. X ZR 35/18.
• [5] Sisvel v Haier, Federal Court of Justice, judgment dated 5 May 2020, Case No. KZR 36/17.
• [6] Sisvel v Haier, Federal Court of Justice, judgment dated 24 November 2020, Case No. KZR 35/17 (cited by juris.bundesgerichtshof.de).
• [7] Ibid, paras. 10-43.
• [8] Ibid, para. 44.
• [9] Ibid, paras. 48 et seqq.
• [10] Ibid, para. 49.
• [11] Ibid, para. 52.
• [12] Ibid, para. 53.
• [13] Ibid, para. 54.
• [14] Ibid, para. 55.
• [15] Ibid, para. 84.
• [16] Ibid, paras. 86 et seqq.
• [17] Ibid, para. 57.
• [18] Ibid, para. 58.
• [19] Ibid, para. 59.
• [20] Ibid, para. 60.
• [21] Ibid, para. 62.
• [22] Ibid, para. 61.
• [23] Ibid, para. 63.
• [24] Ibid, para. 65.
• [25] Ibid, para. 68.
• [26] Ibid, paras. 66 and 68.
• [27] Ibid, para. 69.
• [28] Ibid, para. 69. See Nokia v Daimler, District Court of Duesseldorf, order dated 26 November 2020, Case No. 4c O 17/19.
• [29] Ibid, paras. 70 and 71.
• [30] Ibid, para. 71.
• [31] Ibid, para. 72.
• [32] Ibid, para. 73.
• [33] Ibid, para. 74.
• [34] Ibid, para. 76.
• [35] Ibid, para. 77.
• [36] Ibid, paras. 79 et seqq.
• [37] Ibid, para. 83.
• [38] Ibid, para. 87.
• [39] Ibid, paras. 88 et seqq.
• [40] Ibid, para. 89.
• [41] Ibid, paras. 93 et seqq.
• [42] Ibid, para. 95.
• [43] Ibid, paras. 96-99.
• [44] Ibid, paras. 102 et seqq.
• [45] Ibid, para. 102.
• [46] Ibid, paras. 108 et seqq.
• [47] Ibid, para. 116.
• [48] Ibid, para. 118.
• [49] Ibid, paras. 124 et seqq.
• [50] Ibid, para. 124.
• [51] Ibid, para. 125.
• [52] Ibid, para. 126.
• [53] The Court had, however, undertaken such analysis in its earlier decision between the same parties dated May 2020. See Sisvel v Haier, Federal Court of Justice, judgment dated 5 May 2020, Case No. KZR 36/17, especially paras. 76-81 and 101 et seqq.
• [54] Sisvel v Haier, Federal Court of Justice, judgment dated 24 November 2020, Case No. KZR 35/17, para. 107.
• [55] Ibid, para. 56.
• [56] Ibid, paras. 127 et seqq.
• [57] Ibid, para. 130.
• [58] Ibid, para. 131.
• [59] Ibid, paras. 131 et seq.
• [60] Ibid, para. 135.
• [61] Ibid, paras. 134 et seqq.