Case Law post CJEU ruling Huawei v ZTE

Philips v Archos

17 November 2016 - Case No. 7 O 19/16

http://caselaw.4ipcouncil.com/german-court-decisions/lg-mannheim-1/philips-v-archos-lg-mannheim-1

Prof. Dr. Philipp Maume, S.J.D. (La Trobe)

  1. Facts
    The claimant is an international electronics company, which owns a range of patents relating to mobile phone technology. In particular, the claimant owns the patent EP 1.440.525, which is allegedly essential for the UMTS and LTE standards. The defendant is a German subsidiary of a French multinational electronics company that offers Android tablets and smartphones which are compliant UMTS and LTE standards. On 5 July 2014, the claimant informed the defendant in writing that by marketing and selling mobile phones, the defendant is infringing standard essential patents owned by the claimant. On 15/16 September 2014, the claimant handed over written documents about its licensing program to the defendant. In a discussion on 25 November 2014, the defendant offered to transfer patents that it deemed essential to the standards in question. In a letter dated 28 July 2015, the claimant offered to grant a license for the relevant patent. This letter included a list of all allegedly infringing products and patents in question, and relevant technical details. The claimant sent additional technical information via email on 25 September 2015. On 12 January 2016, the defendant sent a written offer to enter into a license agreement for the claimant’s worldwide patent portfolio. The parties did not reach an agreement. The claimant commenced infringement proceedings in the District Court of Mannheim on 16 October 2015 (received by the court on 19 October 2015). The defendant subsequently made a deposit at the Bavarian Justice Exchequer at Bamberg in April 2016. The deposit was supposed to cover all royalties owed for the worldwide sale of LTE/UMTS devices by the defendant between 2012 and 30 June 2016. The court dismissed the actions for injunction, recall and destruction of products because the claimant had not complied with its obligations under EU competition law. However, the court ordered the defendant to render accounts and declared that the defendant was liable for compensation.
  2. Court’s reasoning
    1. Market Power and Notice of Infringement
      TThe court did not comment on the existence of a dominant market position. It focused on the notice of infringement and the license offer. The court held that the notice of infringement should enable the alleged infringer to examine and assess the patent situation. [348] It is insufficient to indicate that the alleged infringer is marketing products covered by a standard and is therefore infringing a patent. Rather, the SEP proprietor needs to specify the patent number and the standard for which it has been declared essential. The SEP proprietor also needs to describe the technical functionality of the standard which is at issue. The level of detail of these descriptions depends on the particular situation. [348] The SEP proprietor needs to take into consideration the level of the alleged infringer’s technological knowledge, or its ability to gain the required knowledge through professional advice. In the eyes of the court, the customary claim charts (which show the relevant patent claims and the corresponding passages of the standard) will typically be sufficient. However, the description does not need to be as thorough as a statement of claim in patent litigation.
    2. The SEP owner’s licensing offer
      The court stated that the SEP proprietor’s written license offer needs to contain all relevant aspects of the contract, to enable the alleged infringer to accept the offer. [349] If the alleged infringer argues that the conditions of this offer are not FRAND – and, according to the court, alleged infringers typically do so – it is not the role of the infringement court to examine the conditions of the offer and decide whether they are FRAND or not. The Court acknowledged that the Higher Regional Court of Karlsruhe had rejected this view in the decision 6 U 55/16 of 31 May 2016. [350] The Mannheim District Court, however, reiterated its view that a reduced standard of review of the offered conditions is sufficient, referring to the final opinion given by the Advocate General in the ZTE/Huawei ruling. [349] It was, the court argued, the CJEU’s intention to keep the infringement proceedings free of the determination as to what precise conditions would exactly be FRAND in each particular situation. [349] Only an offer that is clearly abusive, i.e. evidently non-FRAND, would not meet the CJEU criteria at this point. [349]
      Of course, the SEP proprietor’s mere assertion that the offer is FRAND would be insufficient. [349] Instead, the Court requires the SEP proprietor to be transparent about the calculation. That means that it needs to specify how the terms of the license offer are calculated. [351] It needs to make clear the basis of the SEP proprietor’s conclusion that the offer is FRAND. Merely stating the royalties owed per unit (in this case: USD 1,- per unit without further explanation) [352] is also insufficient. Rather, the SEP proprietor needs to find a proper way of substantiating its view as to what royalties are owed. This could be a standard license agreement entered into with third parties, or other references such as fees for a pool license that contains SEPs of the respective standard.
      The SEP proprietor needs to make these explanations before it commences infringement proceedings. [353] Only then, the alleged infringer is able to assess the situation unburdened by the treat of an ongoing court case. The Court was aware that the Higher Regional Court of Düsseldorf had recently (Case No. I – 15 U 36/16, 9 May 2016) expressed its view that this understanding might be overly formal. However, the Mannheim District Court upheld its opinion that only a thorough explanation by the SEP proprietor enabled the alleged infringer an informed decision as to whether the license offer is FRAND. [353]
      The Court held that, in theory, the claimant could be exempt from this transparency obligation if the defendant had been unwilling to enter into a license agreement. [354] However, in the case at issue the defendant had demonstrated its willingness to enter into a license agreement. The Court took into account four factors:
      1. the defendant’s had repeatedly requested the claimant to explain the basis of the license offer calculation, [354]
      2. the defendant had offered to transfer some of its own patents in exchange, [354]
      3. the defendant had made an offer and had commissioned an expert opinion that elaborated why the respective conditions were FRAND, [354]
      4. the defendant had deposited a substantial amount. [355]
    3. Standard Implementer’s Reaction
      The Court repeated its view expressed in the decision 2 O 106/14 of 27 November 2015. [356] Accordingly, the alleged infringer needs to respond to the SEP proprietor’s offer, even if the infringer considers that the offer does not meet the FRAND criteria. The only possible exception is an offer that, by means of summary examination, is clearly not FRAND and therefore constitutes an abuse of market power. A potential counter offer needs to be made in due course, which means as soon as possible, taking into account the recognized commercial practices in the field and good faith.
  • [348] Case No. 7 O 19/16, para 77
  • [349] Case No. 7 O 19/16, para 78
  • [350] Case No. 7 O 19/16, para 76
  • [351] Case No. 7 O 19/16, para 79
  • [352] Case No. 7 O 19/16, para 84
  • [353] Case No. 7 O 19/16, para 86
  • [354] Case No. 7 O 19/16, para 87
  • [355] Case No. 7 O 19/16, para 88
  • [356] Case No. 7 O 19/16, para 80