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Via Licensing v TCL

11 May 2021 - Case No. 4b O 23/20

http://caselaw.4ipcouncil.com/german-court-decisions/lg-dusseldorf/licensing-v-tcl

A. Facts

The Claimant holds patents declared essential to practice the Advanced Audio Coding (AAC) standard (standard essential patents or SEPs). The Claimant made a commitment towards two standardisation bodies — the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) — to make its SEPs accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions. The AAC standard is part of the compatibility requirements for the operating system (OS) Android that is available for smartphones and tablets. Implementation of ACC is needed for the certification for ‘Google Mobile Services’ (GMS) which, in turn, is required for the use of Google applications, such as Google Play App Store, Google Maps etc.

The Claimant offers bilateral licences to its SEP portfolio and has also joined a patent pool administered by Via Licensing (Via Licensing pool), which mainly operates based on a standard pool licensing agreement.

The defendant, TCL, is a manufacturer of electronic devices with headquarters in China. TCL produces and sells Android-compatible products implementing the ACC standard globally, including in Germany. In 2005, TCL signed a licence with the Via Licensing pool, which was however terminated in March 2007. Subsequently, an affiliated company of the TCL group manufacturing televisions took a bilateral SEP licence from the Claimant, which, however, did not cover smartphones and tablets.

Between 2007 and 2016, TCL was in contact with the Via Licensing pool about a potential new licence. In early 2016, Via Licensing pool shared a copy of the standard licensing agreement with TCL. However, no agreement was signed.

On 13 February 2017, the Claimant offered a bilateral SEP licence covering ACC-compliant smartphones and tablets to TCL. Attached to the offer were six claim charts concerning SEPs contributed to the Via Licensing pool, including the patent in suit. TCL did not directly respond to the Claimant.

On 13 April 2017, TCL also received a copy of the standard licensing agreement offered by Via Licensing pool. TCL did not directly provide feedback to this offer either.

In October 2019, the Claimant filed infringement proceedings against TCL before the District Court (Landgericht) of Düsseldorf (Court), asserting -among other claims- also claims for injunctive relief.

On 17 June 2020, TCL responded to the Claimant’s offer from February 2017, stating that it is willing to take a licence, but requesting further information on the suggested licensing fees as well as disclosure of agreements signed by the Claimant with third licensees.

On 16 July 2020, the Claimant provided TCL with an updated list of AAC-relevant patents and supported a proposal to grant access to third-party licensing agreements to TCL upon signing of a non-disclosure agreement (NDA).

On 17 August 2020, TCL responded also to the offer from Via Licensing pool dated 13 April 2017. Again, TCL said that it was prepared to sign a licence, but requested further information on the fees as well as access to existing pool licensing agreements. On the same day, TCL sent an e-mail to the Claimant, arguing that the information concerning the bilateral licence offer received was not sufficient.

In October and November 2020, the parties had discussions about an NDA, which was finally signed in mid-November, after the Court had dismissed a request for the production of third-party agreements filed by TCL in the meantime. On 23 November 2020, the Claimant offered TCL access to a special data room containing existing third-party agreements. Subsequently, TCL downloaded and reviewed various existing third-party licences.

On 13 March 2021, that is ten days prior to the oral hearing of the case, TCL made a counteroffer to the Claimant. The Claimant rejected the counteroffer during the oral hearing. Afterwards, TCL provided a bank guarantee that was intended to cover past uses of Claimant’s SEPs.

With the present judgment, the Court ruled in favour of the Claimant,Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, Case No. 4b O 23/20 (cited by www.nrwe.de). and, among other remedies, issued an injunction against TCL.
 

B. Court’s reasoning

The Court found that the patent in suit is infringed. [895] TCL had not contested that its products use the ACC standard (and, accordingly, also the patent in suit) as part of the Android compliance requirements. [896]

Having established infringement, the Court explained that the claims asserted were well founded. The Court dismissed the so-called ‘FRAND-defence’ raised by TCL [897] . TCL had argued that by filing an infringement action, the Claimant abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU) and should, therefore, be denied an injunction. The Court disagreed.
 

No abuse of market dominance

The Court found that the Claimant had a dominant market position within the meaning of Article 102 TFEU with respect to the (downstream) markets for smartphones and tablets. [898]

The exclusionary rights arising from a patent – even a standard-essential patent – do not per se establish market dominance. [899] For this, the patent must be – from a technical viewpoint – necessary for complying with a standard developed by a standardisation body (or a de facto standard), so that it would not be possible to work around the patent without losing important functionalities for products competing in a downstream market [899] .

According to the Court, this applied with respect to the patent in suit. Even though alternatives to the ACC standard, the OS Android and GMS-certified applications exist, non-compliant products could not compete in the market. [900] The Court found that alternative App-stores available for Android could not equally meet the expectations of end-users as the Google Play App Store. [901] The Court also highlighted that OS Android has a market share of approx. 78% in the smartphone and tablet market, so that outside the Android ecosystem only a niche market exists. [902] Consequently, the court added that one cannot except that smartphone and tablet manufacturers would develop their own operating systems to circumvent the ACC standard. [903]

However, the Court explained that the Claimant had not abused its market dominant position. [904] In particular, the Claimant had met the conduct requirements established by the European Court of Justice (CJEU) in the matter Huawei v ZTE [905] (Huawei decision, or framework), whereas TCL had failed to sufficiently express willingness to conclude a FRAND licence.Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, para. 200.
 

Huawei framework

The Court confirmed that the Huawei framework is applicable. [907] The question whether different conduct duties exist, depending on whether the relevant standard is a ‘de jure’, or a ‘de facto’ standard was left open. [908] The Court said that the existence of a dominant position, which is contingent upon the actual circumstances in the market, is decisive for the establishment of conduct duties; how these circumstances emerged was of no relevance. [909] According to the Court, the same constellation that gave rise to the Huawei duties was given here: The fact that ACC became market dominant through its inclusion in the certification requirements for the OS Android did not change this conclusion. [910]
 

Notification of infringement

Turning to the parties’ conduct, the Court found that the Claimant had met its duty to provide TCL with an adequate notification of infringement. [911]

In terms of content, an infringement notification must name the relevant patent including the patent number and identify the infringing products as well as the infringing use. [912] Detailed technical or legal analysis is not required. [912] Exceptionally, the notification can even be omitted, if it constitutes only a ‘pointless formality’, that is when there is certainty that the implementer is already aware of the infringement; in this respect, a strict threshold must, however, apply. [912]

Although the Court questioned whether an infringement notification was needed at all here, especially since TCL had signed a licence with the Via Licensing pool in 2005, it did not examine this issue in detail, given that Claimant’s letter dated 13 February 2017 was considered as a proper notification: TCL’s AAC-compliant products were mentioned and a list of relevant patents as well as six claim charts, covering also the patent in suit were attached. [913] The fact that the letter was addressed to the parent company of the TCL group raised no concerns in the Court’s view, particularly because the latter was the entity responsible for licensing negotiations in the telecom field. [914]
 

Willingness

The Court found that TCL had not demonstrated willingness to sign a FRAND licence: rather, the overall conduct of TCL indicated that it had not been willing to enter into a licensing agreement both prior and during the pendency of the infringement proceedings. [915]

The Court applied the standard established by the German Federal Court of Justice (Bundesgerichtshof) in Sisvel v Haier I [916] and Sisvel v Haier II [917] , according to which the implementer is expected to ‘clearly’ and ‘unambiguously’ declare that it is willing to sign a licence on FRAND terms with the SEP holder and, subsequently, demonstrate ‘continuous’ willingness in negotiations.Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, para. 224. The Court made clear that willingness must be given also when the SEP holder provides the implementer with a licensing offer, even if this offer is not fully FRAND-compliant in every possible aspect. [919] What is more, willingness shall be demonstrated in a timely manner: taking several months to react to an infringement notification is usually an indication of the opposite. [920] The longer it took the implementer to declare willingness, the stricter the applicable threshold should be: particular caution is required, if willingness was declared after an infringement action was filed. [920]

Against this backdrop, the Court found that taking more than three years (and waiting until after the start of the infringement trial) to respond to the Claimant’s notification letter and offer dated 13 February 2017 and Via Licensing’s offer dated 13 April 2017 was an indication that TCL had not been actually willing to take a FRAND licence. [921] Moreover, the fact that in these (late) responses TCL did not provide constructive feedback that would promote licensing negotiations but mainly complained about the lack of information, which, however, was to a large extent already known or accessible to TCL, was a sign that TCL aimed at delaying the licensing negotiations. [922]

For instance, the Court criticized the fact that in the response dated 17 June 2020, TCL complained about the lack of information needed for the assessment of Claimant’s offer, although another group company had previously taken a licence from the Claimant with respect to television products; thus, it would have been possible for TCL to access information about Claimant’s SEP portfolio within the TCL group. [923] The Court also equally criticized TCL’s similar response to Via Licensing by letter dated 17 August 2020. Since TCL had already evaluated and signed a pool licence in the past, it should have provided detailed feedback to Via Licensing’s offer rather than just requesting more information. [924] As far as TCL had asked in the same letter for a list of patents relevant for the AAC standard, the Court identified delaying tactics from TCL’s side, especially considering that Via Licensing had shared such list along with the letter dated 13 April 2017. [925] The same was true with respect to TCL’s request to be provided with an updated draft pool licensing agreement, given that the current version of Via Licensing’s standard agreement was available online. [926]

Furthermore, the Court saw another indication of missing willingness in TCL’s request to receive claim charts concerning any new patent added to the portfolio after 2017. [927] Given that the Claimant had shared claim charts allowing for a first assessment of the standard-essentiality of portfolio patents already with the notification of infringement, the Court could not identify a reason why the obtainment of further claim charts was relevant. [928] Moreover, it noted that there was no industry practice creating an obligation to present claim charts for new portfolio patents; claim charts usually cover only a ‘proud-list’ of patents. [928] In any case, repeated requests to ‘update’ an offer made by ‘particularly reluctant’ implementers, like TCL, could be used as an excuse to keep the SEP holder ‘busy’. [929]

In addition, the Court found that TCL’s behaviour with respect to the disclosure of third-party agreements indicated its intention to delay negotiations. [930] TCL requested by letter dated 17 June 2020 (that is more than three years after receipt of the infringement notification) to be granted access to third-party licensing agreements. Subsequently, TCL refused to sign a draft NDA prepared by the Claimant and filed a motion requesting the Court to order production of relevant agreements instead. [931] Three weeks after the Court dismissed this motion encouraging the parties to conclude an NDA, TCL approached the Claimant and it was agreed to set-up a respective agreement, which was finally signed after almost a month. [932] Considering the fact that TCL had engaged ‘extremely hesitantly’ in licensing negotiations for more than three years, the Court found that TCL’s motion for document production – although admissible for a procedural viewpoint – demonstrated its (still present) ‘unwillingness’. [933]

Similarly, the Court criticized the fact that TCL did not review and assess the third-party agreements made accessible by the Claimant in due course. [934] Approximately ten days after the signing of the NDA, the Claimant provided access to a data room to TCL, in which relevant pool licensing agreements were placed. Initially, TCL’s representatives accessed the data room only very briefly and started downloading documents only two and a half weeks after access to the data room was granted. In the eyes of the Court, it could be expected from a ‘willing’ implementer to start reviewing relevant third-party contracts immediately, especially after years of inactivity. [935]

Apart from the belated access to the data room, the Court also pointed out the fact that, after having reviewed the documents, TCL refrained from a constructive substantive discussion on the content of the agreements and, basically, just argued again that the Claimant did not fulfil its information duties. [936] Constructive negotiations cannot take place, if the party solely contests information shared by its counter-part, without making use of available information sources to the extent possible. [937] For instance, TCL could have engaged respective service providers in order to access sales numbers of third-party licensees, with which agreements were in place, or use public websites for confirming information about the fee structure of pools comparable to Via Licensing, to which the Claimant had referred. [938] On the other hand, the Court noted that TCL denied providing figures concerning past sales to the Claimant, while – at the same time – it complained about allegedly discriminatory discounts previously granted to third-party licensees for so called ‘release payments’ for past infringement. [939] Given that the Claimant could not access such information by itself, TCL’s refusal illustrated, according to the Court, the need to seriously engage in negotiations, as otherwise the SEP holder will lack information needed to adequately take implementer’s interests into consideration. [940]

The Court further underlined that TCL’s behaviour outside of the proceedings offered no indication of serious efforts towards the execution of a licence. [941] Indeed, TCL had not engaged in negotiations with the Claimant in parallel to the proceedings, even though it had claimed to be prepared to do so, in order to justify a request for the extension of a deadline filed with the Court. [942] What is more, TCL had not entered into bilateral licences with another holder of AAC-relevant SEPs, despite the fact that it implemented the ACC standard as a whole. [943]
 

Implementer’s counteroffer

Besides that, the Court found that TCL’s counteroffer dated 13 March 2021 did not suffice for assuming that TCL was adequately willing to take a licence. [944] Its offer was made only ten days before the oral hearing and , therefore, could not be the basis for serious negotiations. [945] This was also true, since in the counteroffer TCL insisted on the same conditions agreed with a third licensee, although the Claimant had provided justification for the different treatment of said licensee, which TCL had just ignored. [946] At the same time, TCL refused to disclose information about own past sales, which could prove that it is similarly situated to the third licensee in question. [946]
 

SEP holder’s conduct

Finally, the Court expressed no doubt that the high threshold applied above for the assessment of TCL’s willingness to obtain a licence was justified, particularly considering that the Claimant had been prepared to grant a FRAND licence to TCL. [947]

In particular, the Claimant had swiftly provided an updated patent list to TCL in June 2020 and had taken initiative to draft an NDA, which would allow the latter to access third-party licensing agreements. [948] Upon signing of the NDA, the Claimant also provided access to such agreements in due course and to the extent necessary. [949]

In the eyes of the Court, it was not harmful that bilateral agreements signed by the Claimant were made available approx. three weeks after TCL was granted access to the data room set up for this purpose (initially, only pool licensing agreements were uploaded). [950] The Claimant had reasonably explained that this time was needed to inform third licensees, respectively to ask for their consent. [950] Furthermore, TCL had shown no interest in reviewing the agreements as soon as possible, since it used the data room with delay. [951]

The Court further disagreed with TCL’s view that the Claimant had not fully disclosed all relevant third-party agreements. [952] The Claimant was not under an obligation to present licensing agreements covering other products than smartphones and tablets, for which a licence was offered to TCL, since such agreements can have no impact on the competitive position of TCL in the market. [953] The same was true with respect to expired agreements, which the Claimant had not disclosed as well. [954] Expired agreements have no relevance from an non-discrimination standpoint, even if the licence offered to the implementer shall also cover past sales. [954]
 

C. Other issues

The Court refused to stay the present proceedings pending a referral of certain questions concerning the interpretation of the Huawei decision to the CJEU, which another chamber of the Duesseldorf District Court had launched in November 2021 in the matter Nokia v Daimler [955] . The Court took the view that the standard developed by the Federal Court of Justice in the Sisvel v Haier cases, which the Court applied here particularly for the assessment of TCL’s willingness to obtain a licence, does not lead to a different outcome compared to the standard used by German District and Higher District Courts prior to the Sisvel v Haier decisions.Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, paras. 341-355.
 

  • [894] Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, Case No. 4b O 23/20 (cited by www.nrwe.de).
  • [895] Ibid, paras. 123-138.
  • [896] Ibid, para. 136.
  • [897] Ibid, paras. 174 et seqq.
  • [898] Ibid, paras. 177 and 184.
  • [899] Ibid, para. 181.
  • [900] Ibid, para. 186 et seqq.
  • [901] Ibid, para. 190.
  • [902] Ibid, para. 193.
  • [903] Ibid, paras. 187 and 192 et seqq.
  • [904] Ibid, para. 199 et seqq.
  • [905] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case-No. C-170/13.
  • [906] Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, para. 200.
  • [907] Ibid, para. 207.
  • [908] Ibid, paras. 208 et seqq.
  • [909] Ibid, para. 208.
  • [910] Ibid, paras. 209 et seq.
  • [911] Ibid, paras. 215 et seqq.
  • [912] Ibid, para. 216.
  • [913] Ibid, para. 218.
  • [914] Ibid, para. 219.
  • [915] Ibid, paras. 221 et seq. The Court explained that the entire conduct of the implementer needs to be considered for the assessment of willingness, para. 226.
  • [916] Sisvel v Haier, Federal Court of Justice, judgment dated 5 May 2020, Case No. KZR 36/17.
  • [917] Sisvel v Haier, Federal Court of Justice, judgment dated 24 November 2020, Case No. KZR 35/17.
  • [918] Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, para. 224.
  • [919] Ibid, para. 224.
  • [920] Ibid, para. 225.
  • [921] Ibid, paras. 230 et seqq.
  • [922] Ibid, para. 232.
  • [923] Ibid, paras. 236 et seqq.
  • [924] Ibid, para. 244.
  • [925] Ibid, para. 245.
  • [926] Ibid, para. 247.
  • [927] Ibid, paras. 239 et seqq.
  • [928] Ibid, para. 240.
  • [929] Ibid, para. 241.
  • [930] Ibid, para. 249.
  • [931] Ibid, para. 251.
  • [932] Ibid, para. 252.
  • [933] Ibid, para. 254.
  • [934] Ibid, paras. 256 et seqq.
  • [935] Ibid, para. 263.
  • [936] Ibid, paras. 265 et seqq.
  • [937] Ibid, para. 274.
  • [938] Ibid, paras. 270 and 278.
  • [939] Ibid, paras. 280 et seqq.
  • [940] Ibid, para. 281.
  • [941] Ibid, para. 285.
  • [942] Ibid, para. 286.
  • [943] Ibid, para. 287.
  • [944] Ibid, paras. 290 et seqq.
  • [945] Ibid, para. 291.
  • [946] Ibid, para. 296.
  • [947] Ibid, paras. 299 and 301.
  • [948] Ibid, para. 303.
  • [949] Ibid, para. 306.
  • [950] Ibid, para. 310.
  • [951] Ibid, para. 311.
  • [952] Ibid, paras. 313 et seqq.
  • [953] Ibid, para. 316.
  • [954] Ibid, para. 322.
  • [955] Order dated 26.11.2020, Case No. 4c O 17/19. The case was settled before the CJEU rendered a decision.
  • [956] Via Licensing v TCL, District Court Düsseldorf, judgment dated 11 May 2021, paras. 341-355.