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Tagivan (MPEG-LA) v Huawei, Regional Court (Landgericht) of Düsseldorf

15 November 2018 - Case No. 4a O 17/17

A. Facts

The Claimant, Tagivan II LLC, holds a patent essential to the practice of the AVC/H.264 standard concerning the compression of video data (Standard Essential Patent, or SEP). The patent in question is subject to a FRAND commitment (FRAND stands for Fair, Reasonable and Non-Discriminatory terms and conditions) made towards the relevant standardisation body. It was included into a patent pool administered by MPEG LA LLC (MPEG LA), comprising more the 5,000 patents referring to the AVC/H.264 standard (MPEG LA pool) [824] .

The Defendant, a German subsidiary of a Chinese group of companies, sells – among other things – mobile phones in Germany that practise the AVC/H.264 standard [825] .

MPEG LA uses a standard licensing agreement, which is publicly available at its website [826] . Since 2004, MPEG-LA has signed approx. 2,000 agreements with implementers [827] , 1,400 of which are still in force [826] .

In 2009, MPEG LA and the Defendant’s parent company (parent company) started discussions about a potential licence covering other standards, especially the MPEG-2 standard. On 6 September 2011, MPEG LA informed the parent company about the possibility to obtain a licence also regarding the AVC/H.264 standard, by sending PDF-copies of its standard licensing agreement to the parent company via email [828] . On 15 September 2011, the parent company suggested to arrange a call on this issue [829] . In February 2012, MPEG LA sent the pool’s standard licensing agreement for the AVC/H.264 standard to the parent company also by mail [830] .

In November 2013, the discussions between MPEG LA and the parent company ended without success [831] . The parties resumed negotiations in July 2016; again, no agreement was reached [831] .

The Claimant then brought an action against the Defendant before the District Court of Düsseldorf in Germany (Court), requesting for injunctive relief, information and rendering of accounts, the destruction and the recall of infringing products as well as for a declaratory judgement confirming Defendant’s liability for damages on the merits [832] .

In November 2017, during the course of the present proceedings, the Defendant made a counteroffer to the Claimant for a licence, which – in contrast to MPEG LA’s standard licensing agreement – was limited to the Claimant’s patent portfolio and established different royalty rates for different regions, in which the Defendant sold products [833] .

In March and September 2018 (again during the proceedings), the Defendant provided bank guarantees to the Claimant covering past and future sales of (allegedly) infringing products. The security amounts were calculated based on the Defendant’s counteroffer dated November 2017 [834] . Furthermore, the Defendant made a second counteroffer to the Claimant shortly after the last oral hearing before the Court [835] .

With the present judgment, the Court granted Claimant’s requests.

B. Court’s reasoning

The Court found that the patent in suit was valid [836] , standard essential [837] and infringed by the products sold by the Defendant in Germany [838] . Furthermore, the Court held that by filing the present suit the Claimant did not abuse its dominant market position in violation of Article 102 of the Treaty for the Functioning of the EU (TFEU), since it had fully complied with the conduct obligations stipulated by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE [839] (Huawei obligations or framework) with respect to dominant undertakings [840] .

Dominant market position

The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU [841] .

The Court defined the relevant market for the assessment of dominance as the market, in which licences for any given patent are offered [842] . A dominant market position can further also exist, when the patent holder can hinder competition in downstream markets for standard-compliant products and services [842] .

The Court made clear that ownership of a SEP does not per se establish market dominance [843] . A dominant market position is given, when the use of the SEP is required for entering the market [844] . The same is true, if the patent user could not market competitive products or services, without access to the respective SEP [845] .

Based on these considerations, the Court saw no ‘reasonable’ doubt that the Claimant was a dominant undertaking: It was undisputed that almost all mobile phones available worldwide use the AVC/H.264 standard and that no ‘realistic’ alternative to the MPEG LA pool existed in the licensing market for patents essential to this standard [846] .

Huawei framework

The Court found, however, that the Claimant did not abuse its dominant position by suing the Defendant in the present case, since its conduct was in line with the Huawei framework [847] . The Huawei framework establishes mutual conduct obligations for both SEP holders and SEP users, which need to be fulfilled step by step and one after another (meaning that each party’s obligation to act arises only after the other party has fulfilled its own obligation) [848] . Subject to the Huawei framework is not only the patent holder’s claim for injunctive relief, but also the claim for the destruction of infringing products [849] .

In this context, the Court pointed out that the Huawei framework applies, irrespective of whether a ‘well-established’ licensing practice concerning the asserted patents already existed before the CJEU delivered the Huawei judgment, or not [850] . The Claimant had argued that, in the present case, the Court should apply the (German) legal standard that preceded the Huawei framework (which was based on the so-called ‘Orange-Book-Standard’ ruling of the Federal Supreme Court [851] ), since with respect to the SEP in suit a ‘routine’ practice already existed prior to the Huawei judgement. The Court explained that the Huawei judgment does not contain either an explicit or an implicit limitation of its scope of application [852] . Furthermore, even if a ‘well-established’ licensing practice existed, the need to apply the Huawei framework will still be given, in order to bridge the, nevertheless, existing information gap between patent holder and implementer concerning the (potential) infringement of SEPs [853] . Finally, it would be very challenging for courts to distinguish whether a ‘well-established’ licensing practice excluding the application of the Huawei framework is at hand, or not [853] . Notwithstanding the above, according to the Court, the actual licensing practice of the patent holder could be of ‘particular significance’ when assessing the compliance of the latter with the Huawei obligations: Such practice could, for instance, serve as an indicator of the appropriateness of SEP holder’s licensing offer to the implementer [854] .

Having said that, the Court found no flaws in Claimant’s conduct. In the Court’s view, the Claimant had met its Huawei obligation to notify the Defendant about the infringement of its patent as well as the obligation to present the Defendant with a written FRAND licensing offer covering also the patent in suit. The Defendant, on the other hand, adequately expressed its willingness to enter into a licence, failed, however, to make a FRAND counteroffer to the Claimant. Since an adequate counteroffer was missing, the Court did not take up the question whether the bank guarantees provided by the Defendant constitute an adequate security in terms of the Huawei framework.

Notification of infringement

The Court ruled that the Claimant had adequately notified the Defendant about the infringement of the SEP in suit through the email sent by MPEG LA to the parent company on 6 September 2011 [855] .

The fact that this email was not addressed to the Defendant, but to the parent company, did not raise any concerns as to the compatibility of the notification with the Huawei framework. The Court explained that a notification of infringement addressed only to the parent company of a group of companies is sufficient, as far as it can be assumed that the notification will be forwarded to the subsidiaries concerned [856] . The sole fact that a company belongs to a group justifies such an assumption, unless indications to the contrary exist [857] . This was, however, not the case here.

Besides that, the Court did not consider it inappropriate that the aforementioned e-mail was not sent to the parent company by the Claimant, but by MPEG LA (which is not the holder of the SEP in suit) [858] . The Court held that MPEG LA is entitled to perform legal actions in connection with the licensing of the MPEG LA pool on behalf of the Claimant. The Defendant could not contest that this was not the case, since MPEG LA’s standard licensing agreement, which it is aware of, contains an indication about MPEG LA’s respective capacity [859] . In addition, the Defendant’s parent company was most likely aware of MPEG LA’s capacity to act on behalf of the Claimant, since it had entered into direct negotiation with MPEG LA already in 2009, that is almost two years prior to the notification of infringement [860] .

The Court further ruled that, in terms of content, a notification of infringement must – at least – name the infringed patent (including the patent number) and indicate the contested embodiments as well as the (allegedly) infringing acts of use [861] . A detailed (technical and/or legal) explanation of the infringement is not required; the implementer needs just to be put in the position to assess the infringement allegations, if necessary, by seeking expert advice [861] . A notification of infringement is, therefore, not necessary, when it constitutes just a ‘pointless formality’ [861] . This is true, when according to the overall circumstances of the case, one can safely assume that the implementer is aware of the infringement, so that claiming that the SEP holder failed to provide adequate notification prior to the initiation of court proceedings would appear to be abusive [861] . The respective test is, however, subject to strict conditions [861] .

Based on the above considerations, the Court found that MPEG LA’s email to the parent company dated 6 September 2011 should be considered – as an exception – to constitute a sufficient notification of infringement, although it did not contain the minimum information required (particularly the patent number and a reference to the specific infringing embodiments) [862] . The overall circumstances of the case (especially the fact that the parent company had been in negotiations with MPEG LA already since 2009 and, therefore, should have been aware that MPEG LA has granted licences for the AVC/H.264 standard to the implementers mentioned at its website), give rise to the assumption that the parent company had been conscious of the fact that AVC/H.264-compliant products need to be licensed [863] .

Willingness to obtain a licence

The Court held that the parent company had adequately expressed its willingness to obtain a FRAND-licence through the email sent to MPEG LA on 15 September 2011 [864] .

In the eyes of the Court, this email indicates the parent company’s intention to deal with issues concerning the licensing of patents referring to the AVC/H.264 standard, especially if it is seen in the context of the negotiations between MPEG LA and the parent company that had commenced in 2009 [864] . This is sufficient under the Huawei framework: A general, informal statement suffices [865] . The implementer is not required to refer to a specific licensing agreement (on the contrary, this could be considered harmful under certain circumstances) [865] .

SEP holder’s offer

The Court further found that the standard licensing agreement sent by MPEG LA to the parent company in February 2012 presents an offer accountable to the Claimant which is in line with the Huawei framework in terms of both form and content [866] .

The fact that the standard licensing agreement was not tailored to the parent company but was designed for use towards a large number of (potential) licensees (the name of the licensee ought to be added in each case separately), was not criticized by the Court. MPEG-LA had made clear that the documents sent by mail in February 2012 would serve as the basis for negotiations and a future agreement with the parent company [867] .

In addition, the Court did not take an issue with the fact that the offer was addressed to the parent company and not to the Defendant, since the parties were discussing about a licensing agreement on group level and the parent company had been involved in the communications from the beginning [868] .

The Court further ruled that the Huawei requirement, according to which the SEP holder’s licensing offer must specify the royalty calculation, was met, although the draft standard licensing agreement sent to the parent company did not contain a detailed explanation of the way the royalties were calculated [869] . The Court found that, in the present case, it was sufficient that the parent company was aware that the (standard) agreement presented to her had been accepted in the market by a great number of licensees [870] . In the Court’s view, the explanation of the royalty calculation does not require a ‘strict mathematical derivation’ of the royalty; moreover, it will, as a rule, suffice to demonstrate that the (standard) royalty rates offered have been accepted in the market by presenting existing licensing agreements with third parties (comparable agreements) [871] . If a sufficient number of comparable licences is presented, then the SEP holder will usually not be required to provide further information regarding the appropriateness of its licensing offer [871] . It will need, however, to provide information on all essential comparable agreements, in order to rule out the risk that only agreements supporting the offered royalty level are presented [871] . In this context, the Court noted that it cannot be required from the SEP holder to present all comparable agreements along with the licensing offer to the implementer; a respective industry practice does not exist [872] .

Apart from the above, the Court held that the standard licensing agreement offered to the parent company was FRAND also in terms of content [873] .

According to the Court, a licensing offer cannot be considered as fair and reasonable, if the patent holder requests royalties that go significantly beyond the (hypothetical) price that would have been formed in an effectively competitive market, unless there is a commercial justification for the royalty level requested [874] . Particularly in connection with the licensing of SEPs, an offer can lie outside the FRAND-scope, if the cumulative royalty burden imposed on the implementer would not be tenable in commercial terms [874] . The Court made clear that, in this context, no exact mathematical derivation of a FRAND-conform royalty rate is required; moreover, an approximate value is to be determined based on assessments and estimations [874] . In this respect, comparable agreements can serve as an ‘important indicator’ of the fair and reasonable character of the offered royalty rates [874] .


Regarding to the non-discriminatory element of FRAND, the Court pointed out that it applied only to similar situated cases [875] . Even then, an unequal treatment is allowed, as long as it is objectively justified [875] . Limitations may, nevertheless, occur, especially when the implementation of the patent is necessary for entering a downstream market or when a product becomes competitive, only when it uses the patent’s teachings [875] . As a rule, the burden of proof with respect to the discriminatory character of a licensing offer rests on the implementer. Since the latter will usually not be aware of the existence or the content of comparable agreements of the patent holder, it may, however, seem appropriate to request the patent holder to provide the implementer with respective details, as far as this is reasonable [876] . The information to be shared should cover all existing licensees and include which (concretely designated) company with which importance in the relevant market has obtained a licence on which conditions [876] .

Against this background, the Court found that the offer made by MPEG LA to the parent company was not discriminatory. The Defendant had argued that seeking a licence also covering sales in China violated FRAND, since not every other competitor in the Chinese market was licensed by MPEG LA [877] . The Court observed that the selective assertion of patents against only a part of the competitors in a downstream market might, in principle, be discriminatory [878] . This was, however, not the case here, because the Claimant had already sued another company active in China and was attempting to persuade other companies to obtain a licence [879] . Due to the high cost risk associated with court proceedings, the patent holder is not obliged to sue all potential infringers at once; choosing to assert its patents against larger implementers first was considered by the Court as reasonable, since a win over a large market player could motivate smaller competitors to also obtain a licence (without litigation) [880] .

Furthermore, the Court did not consider the fact that the offered standard licensing agreement contained a cap for the annual licensing fees payable to the MPEG LA pool to be discriminatory [881] . The Defendant had argued that the respective cap disproportionally favoured licensees with high volume sales which offered not only mobile phones, but also other standard compliant products in the market. The Court made, however, clear that Art. 102 TFEU does not establish a ‘most-favoured-licensee’ principle (meaning that the patent holder must offer the same conditions to all licensees) [882] . It is not per se discriminatory to use sale volumes as a criterion for discounts, especially if a company has managed to open up a larger market than its competitors [883] . Discounts can further hardly be discriminatory, if they are offered to every (potential) licensee under the same conditions [883] .

Besides that, the Court dismissed the Defendant’s argument that MPEG LA’s standard licensing agreement is discriminatory, because it is offered to both MPEG LA pool members and third licensees. The Court found that the share of the licensing income paid to pool members, who have also signed a MPEG LA licence, reflects their contribution to the pool and, therefore, does not discriminate the latter against third licensees (who have not contributed any patents to the pool) [884] . In this context, the Court also pointed out that the clauses contained in MPEG LA’s standard licensing agreement, providing for deductions or instalment payments are not discriminatory, particularly because they are offered to all licensees [885] .

The Court was further not convinced that the parent company was discriminated by MPEG LA’s offer, because the MPEG LA pool had refrained from requesting a licence at group level from a competitor, but had only granted a licence to a subsidiary within the respective group, instead. In the Court’s eyes, the Claimant had managed to establish that this exception was objectively justified, since only the subsidiary granted a licence had activities concerning the patents included in the pool [886] .

Fair and reasonable terms

With respect to the assessment of whether MPEG LA’s offer to the parent company was also fair and reasonable, the Court placed particular emphasis on the existing licensing agreements between the MPEG-LA pool and third licensees. The Court took the view, that existing licences can establish the actual presumption that the terms offered (as well as the scope of the licence) are fair and reasonable [887] . Moreover, the fact that licences regarding the same patent portfolio have already been granted for similar products prima facie suggests that the selection of the patents included in the pool was adequate [887] .

Based on these premises, the Court found that the approx. 2,000 standard licensing agreements concluded by the MPEG LA pool provide a ‘strong indication’ (‘erhebliche Indizwirkung’) that the underlying licensing terms are fair and reasonable [888] . In the Court’s view, the Defendant had failed to show sufficient facts that could rebut this indication.

In particular, the Court did not accept Defendant’s claim that, as a rule, licences for products sold in the Chinese market are subject to special conditions. On the contrary, the Court found that the existing MPEG LA pool licences allow the assumption that setting worldwide uniform licence fees corresponds to industry practice [889] . Accordingly, the Court rejected Defendant’s argument, that the royalties offered by MPEG LA to the parent company would hinder the Defendant from making profits with its sales in China, since the overall licensing burden (including licences needed from third parties) would be too high. The Court noted that the price level for Defendant’s sales in China does not significantly differ from the price level in other regions [890] . What is more, the Defendant did not show that further licences are needed with respect to the AVC/H.264 standard [891] . The Court further did not recognise a need to apply special conditions for the Chinese market, because – compared to patents from other regions – a lower number of Chinese patents is contained in the MPEG LA pool. According to the Court, the number of patents in a specific market should not be ‘overestimated’ as a factor for assessing the FRAND conformity of an offer, since even a single patent can block an implementer from a market, generating, therefore, the need for obtaining a licence [892] .

Apart from the above, the Court did not criticise that MPEG LA’s standard licensing agreement did not contain an adjustment clause. Such clauses can secure that the agreed licensing fees remain reasonable, in case that the number of patents contained in the pool changes during the term of the licensing agreement. They are, however, in the Court’s view, not the only mean to reach this goal: Moreover, the clause contained in MPEG LA’s standard licensing agreement, according to which the agreed royalties will not be adjusted either when more patents are added to the pool or when patents are withdrawn from the pool, offers an adequate balance of risk and is, therefore, FRAND compliant [893] . This assumption is also confirmed by the fact that all existing licensees have accepted this clause [894] .

In addition, the Court made clear that pool licences, as the one offered to the parent company, are, in general, appropriate under the Huawei framework. An offer for a pool licence cannot per se be seen as abusive (Article 101 TFEU) [895] . On the contrary, such licences usually serve the interest of potential licensees to be granted access to the whole standard on uniform conditions under one roof, without having to seek a licence from every single patent holder separately [895] .

An offer for a pool licence can, nevertheless, violate FRAND in ‘special circumstances’ [896] , for instance, if not all patents included in the pool are used by the licensee [897] . According to the Court, the fact that the Defendant – as well as mobile phone manufacturers in general – usually use only one of four available profiles of the AVC-Standard does not, however, render the standard licensing agreement offered by MPEG LA unreasonable [898] . This is particularly the case, since Defendant’s products – and especially its latest smartphones – have the technical capability to implement more than one available profile [899] . Besides that, it is reasonable to offer one single licence covering all profiles, since modern products incorporate functionalities of several types of devices (e.g. smartphones offer also digital television functionalities) [899] .

In this context, the Court dismissed Defendant’s arguments that the licence offered by MPEG LA was not FRAND, because it allegedly covered both standard-essential and non-essential patents. The Court recognised that the ‘bundling’ of essential and non-essential patents in a patent pool could, in principle, be incompatible with FRAND, if it is done with the intention to extract higher royalties from licensees by increasing the number of patents contained in the pool [900] . The Defendant failed, however, to present any reliable evidence that this was the case with the MPEG-LA pool [901] .

In the Court’s eyes, the Defendant also failed to establish that the rates offered by MPEG LA would lead to an unreasonably high total burden of licensing costs (‘royalty stacking’) [902] . The theoretical possibility that the Defendant might need to obtain licences also for patents not included in a pool does not per se lead to royalty stacking; the Defendant would have been obliged to establish that the total amount of royalties actually paid does not allow to extract any margin from the sale of its products [903] .

The Court further pointed out that MPEG-LA’s offer did not violate FRAND principles, because it referred to a licence covering all companies within the group, to which the Defendant belonged [904] . In the electronics and mobile communications industries, licences on a group level are in line with the industry practice and, therefore, FRAND-compliant [905] .

Implementer’s counteroffer

Having said that, the Court found that the Defendant failed to make a FRAND counteroffer [906] .

In particular, the counteroffer made in November 2017 after the commencement of the present proceedings violated the FRAND principles in terms of content, because it was limited to a licence covering solely the Claimant’s patent portfolio and not all patents included in the MPEG LA pool [907] . Furthermore, the counteroffer established different licensing rates for different regions (especially for China) without factual justification [908] .

Furthermore, the second counteroffer made by the Defendant after the end of the last oral hearing was belated and, therefore, not FRAND. The Court held that the Claimant was not given sufficient time to respond to that counteroffer, so that there was no need for any further assessment of its content [835] . On the contrary, the Court expressed the view that the purpose of this counteroffer was most likely to delay the infringement proceedings [835] .

Provision of security

Since Defendant’s counter-offers were not FRAND in terms of content, the Court did not have to decide, whether the security provided in form of bank guarantees was FRAND or not. The Court noted, however, that the amounts provided were insufficient, since they were calculated on basis of Defendant’s counteroffer from November 2017, which itself failed to meet the FRAND requirements [909] .

  • [824] Tagivan (MPEG-LA) v Huawei, District Court of Düsseldorf, 9 November 2018, para. 36.
  • [825] Ibid, para. 35.
  • [826] Ibid, para. 37.
  • [827] Ibid, para. 453.
  • [828] Ibid, para. 39.
  • [829] Ibid, para. 43.
  • [830] Ibid, para. 44.
  • [831] Ibid, para. 53.
  • [832] Ibid, para. 2.
  • [833] Ibid, para. 54.
  • [834] Ibid, para. 65.
  • [835] Ibid, para. 716.
  • [836] Ibid, paras. 143-208.
  • [837] Ibid, paras. 209-293.
  • [838] Ibid, paras. 295-302.
  • [839] Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13.
  • [840] Tagivan (MPEG-LA) v Huawei, District Court of Düsseldorf, 9 November 2018, paras. 304 et seqq.
  • [841] Ibid, para. 307.
  • [842] Ibid, para. 310.
  • [843] Ibid, para. 310. In this respect, the Court pointed out that – vice versa – also a non-essential patent might confer a dominant position, if the patented invention is superior in terms of technological merit and/or economical value, para. 312.
  • [844] Ibid, paras. 310 et seq.
  • [845] Ibid, para. 311.
  • [846] Ibid, paras. 315 et seqq.
  • [847] Ibid, para. 321.
  • [848] Ibid, para. 326.
  • [849] Ibid, para. 327.
  • [850] Ibid, para. 330.
  • [851] Under the ‘Orange-Book-Standard’ regime, in order to avoid an injunction, the implementer was required to make a licensing offer to the patent holder, which the latter could not refuse without acting in an anticompetitive manner; see Federal Supreme Court (Bundesgerichtshof), judgment dated 6 May 2009, Case No. KZR 39/06.
  • [852] Ibid, paras. 331 et seqq.
  • [853] Ibid, para. 335.
  • [854] Ibid, para. 337.
  • [855] Ibid, para. 339.
  • [856] Ibid, para. 343.
  • [857] Ibid, para. 345.
  • [858] Ibid, para. 356.
  • [859] Ibid, paras. 357 et seqq.
  • [860] Ibid, paras. 366 et seqq.
  • [861] Ibid, para. 340.
  • [862] Ibid, para. 341.
  • [863] Ibid, paras. 395 et seqq.
  • [864] Ibid, paras. 400 et seqq.
  • [865] Ibid, para. 399.
  • [866] Ibid, para. 405.
  • [867] Ibid, paras. 411-417.
  • [868] Ibid, para. 419.
  • [869] Ibid, para. 421.
  • [870] Ibid, para. 425.
  • [871] Ibid, para. 422.
  • [872] Ibid, paras. 426 et seqq.
  • [873] Ibid, para. 429.
  • [874] Ibid, para. 431.
  • [875] Ibid, para. 432.
  • [876] Ibid, para. 433.
  • [877] Ibid, para. 438.
  • [878] Ibid, para. 443.
  • [879] Ibid, para. 444.
  • [880] Ibid, para. 445.
  • [881] Ibid, para. 579.
  • [882] Ibid, para. 582.
  • [883] Ibid, paras. 583 et seqq.
  • [884] Ibid, para. 564.
  • [885] Ibid, paras. 568 et seqq.
  • [886] Ibid, paras. 573 et seqq.
  • [887] Ibid, para. 451.
  • [888] Ibid, para. 449.
  • [889] Ibid, para. 454.
  • [890] Ibid, paras. 487 et seqq.
  • [891] Ibid, para. 491.
  • [892] Ibid, para. 495.
  • [893] Ibid, paras. 591 et seqq., particularly para. 596.
  • [894] Ibid. para. 597.
  • [895] Ibid. para. 504.
  • [896] Ibid. para. 508.
  • [897] Ibid. para. 514.
  • [898] Ibid. paras. 511 et seqq.
  • [899] Ibid. para. 524.
  • [900] Ibid, para. 528.
  • [901] Ibid, paras. 531-543.
  • [902] Ibid, paras. 545 et seqq.
  • [903] Ibid, para. 546.
  • [904] Ibid, para. 599.
  • [905] Ibid, para. 600.
  • [906] Ibid, para. 603.
  • [907] Ibid, paras. 605 et seqq.
  • [908] Ibid, paras. 617 et seqq.
  • [909] Ibid, para. 625.