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21 O 5693/22

2 August 2023 - Case No.

http://caselaw.4ipcouncil.com/german-court-decisions/lg-munich-district-court/21-o-569322

A.  Facts

The Claimant owns a portfolio of patents relevant to wireless telecommunications standards, including 4G/LTE developed by the European Telecommunications Standards Institute (ETSI). ETSI requires patent owners to commit to make patents essential to the practice of a standard (standard-essential patents or SEPs) available to users on fair, reasonable, and non-discriminatory (FRAND) terms and conditions (FRAND undertaking).

The Defendants belong to a group of companies, which imports and sells LTE-compatible electronic devices – particularly smartphones – in Germany.

At the end of 2021, the Claimant sent a letter to the Defendants’ parent company regarding its patent portfolio, after having given advance notice of the letter by telephone. The letter provided information about the relevant standard (LTE/EVS); Claimant’s patent portfolio composed of 14 patent families counting 400 filed and granted patents in 35 countries; and essentiality reports of IPEC (International Patent Evaluation Consortium) for all patent families. The letter also included a reference to Claimant’s webpage, on which lists specifying all patents with patent numbers as well as the countries, in which patents are validated, were available. Furthermore, the webpage contained a table listing the numbers of 14 US and 14 European patents from each patent family, including links to the relevant patent documents and IPEC declarations confirming the essentiality of the patents in question (and identifying which claims are essential to which standard specification and product). Apart from this, a sample licence agreement accompanied by explanations regarding the rate calculation and applicable volume discounts was accessible on Claimant’s webpage as well.

The Defendants did not react to Claimant’s letter.

On 16 May 2022, the Claimant filed an infringement action against the Defendants before the District Court of Munich I (Court). The Claimant requested – among other relief – an injunction as well as the recall of Defendants’ infringing products from the German market.

In August 2022, the Defendants filed a motion, asking the Court to cancel all scheduled deadlines and hearings and ‘cool-off’ the proceedings for at least twelve months. The Claimant opposed Defendants’ motion, which was dismissed by the Court. After the parties signed a non-disclosure agreement, the Claimant shared information regarding all license agreements signed with third parties (comparable licences or comparables) with the Defendants.

On 30 May 2023, the patent in suit expired. Subsequently, the claims for injunctive relief were settled with consent of the parties.

With the present judgment, the Court ruled predominantly in favour of the Claimant, also ordering the recall of infringing products in Germany.[1]

B.     Court’s reasoning

The Court found that the patent in suit is infringed.[2] The so-called ‘FRAND-defence’ raised by the Defendants against the claim for recall of infringing products was dismissed.[3] The Court noted that the ‘FRAND defence’ would have not succeeded with respect to the (meanwhile settled) claim for injunctive relief either.[4]

No abuse of a dominant market position

According to the Court, the Claimant did not abuse a dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU by filing the present lawsuit.[5]

In the SEP context, an abuse of market dominance occurs when the patent owner rejects a request of the user to access the (patented) invention, or offers access on unreasonable conditions, from which it is not prepared to depart even at the end of the negotiation process.[6] The Court underlined that a license offer that is not FRAND does not by itself amount to an abuse: An abuse can only be given, when the patent owner refuses to negotiate and conclude a FRAND license agreement or makes the signing of such agreement impossible and, instead, enforces its patent in court.[7] Abusive in the above sense can be only claims that may result in an exclusion of standard-compliant products from the market (i.e., claims for injunctive relief and/or the recall and/or destruction of infringing products).[8]

The Court assumed in favour of the Defendants that the Claimant holds a dominant market position (and that it is bound to the ETSI FRAND undertaking of the previous patent owner).[9] The Court found, however, that the Claimant adequately met all obligations arising from such (assumed) dominant position, which are laid down in the Huawei v ZTE judgment of the Court of Justice of the EU and subsequent rulings of the German Federal Court of Justice (Bundesgerichtshof).[10]

Lack of ‘willingness’

On the other hand, the Court found that the Defendants had not been ‘willing’ to obtain a licence from the Claimant.[11]

The Court explained that a standard user must ‘clearly and unambiguously’ declare willingness to conclude a FRAND licence with the patent owner and, subsequently, engage in negotiations in a ‘target-oriented manner’, since ‘a willing licensee must be one willing to take a FRAND licence on whatever terms are in fact FRAND’.[12] Whether the user acted in said manner shall be assessed based on the circumstances of each individual case.[13]

User’s request to obtain a FRAND licence must be ‘continuous.[14] The Court reasoned that an abuse of a dominant market position presupposes that the user is permanently prepared to contribute to the signing of a FRAND agreement; otherwise, the patent owner’s refusal to offer such an agreement would ‘grasp at nothing’.[15] An ‘objective willingness’ to take a FRAND licence is, regularly, indicated by an ‘active promotion of the negotiations’ oriented towards the ‘common goal’ of successfully concluding an agreement.[16] A ‘duty to promote negotiations’ is established, when according to business practice and the principle of good faith it can be expected from a party to take the ‘next step’.[17] The Court added that the (initial) lack of willingness will, as a rule, be considered to the detriment of a party; depending on the circumstances, such party may be required to compensate the missing willingness as far as possible.[18]

Furthermore, following the case law of the German Federal Court of Justice, the Court emphasised that a license offer of the SEP owner regularly triggers a duty of the patent user to react (which includes a duty to express all objections at once), unless the offer is non-FRAND to such an extent that – from an objective viewpoint – it can be seen as ‘absolutely unacceptable’, i.e., as not ‘seriously meant’.[19]

When the user engages in negotiations only reluctantly, this shall regularly constitute an indication of ‘unwillingness’ (‘delaying tactics’).[20] As an example, the Court mentioned the case where the user constantly requests further information from the patent owner, without, however, utilising information received to progress negotiations.[21] The Court recognised that the user can, basically, request as much information as it wishes: When after many years of negotiations information requests are repeated several times, such behaviour is, nevertheless, ‘no longer beneficial and constructive’.[22]

Against this backdrop, the Court found that the Defendants had not been sufficiently willing to obtain a FRAND licence.[23] Defendants’ lack of willingness arose from their ‘not sufficiently constructive’ engagement in the negotiation of the licensing terms.[24] The Court pointed out that Defendants’ overall behaviour showed that they were not interested in signing a licence with the Claimant as soon as possible; on the contrary, the Defendants seemed prepared to use the patent in suit without authorisation and royalty payments for as long as possible, as a means of exerting pressure.[25]

In particular, the Court observed that prior to the launch of the present proceedings, the Defendants had neither reacted to Claimant’s notification letter nor actively requested to be granted a licence.[26] Defendants’ engagement in the negotiation process after the start of the trial was not seen as sufficient to establish their ‘willingness’ either.[27] In the view of the Court, the Defendants had undertaken a ‘decisive step’ towards the Claimant ‘too late’, that is shortly before the main oral hearing of the case.[28] What is more, ‘in overall terms’, the Defendants had acted ‘too little conductive’ to the conclusion of a license agreement.[29]

Apart from the above, the Court outlined that under the given circumstances Defendants’ motion to ‘cool-off’ the trial for at least a year, already ‘documents’ their missing willingness.[30] The Court held that Defendants’ ‘objective behaviour’ after filing said motion did not indicate that they were interested in preparing licensing negotiations with the Claimant, but rather that their aim was to ‘buy time’ and delay a potential injunction for as long as possible.[31]

SEP owner’s conduct

The Court dismissed Defendants’ argument that no duty to engage with the Claimant existed on their side, because Claimant’s behaviour had been ‘absolutely unacceptable’ in terms of the case law of the German Federal Court of Justice.[32] In short, the Defendants argued that (i) they were ‘ambushed’ by the present action, since the Claimant had made no sufficient notification of infringement in advance; (ii) the Claimant should have not opposed Defendants’ motion for ‘cooling-off’ the trial for more than a year; and (iii) the licensing terms offered by the Claimant were ‘arbitrary’.[33]

Notification of infringement

In the opinion of the Court, the Claimant made a sufficient notification of infringement to the Defendants before filing the present action.[34]

The Court held that Claimant’s respective letter was properly received by Defendants’ parent company around six months before the lawsuit was filed.[35] There was no dispute between the parties about the fact that the Claimant had given advance notice of the letter and an employee of the parent company had received the letter. Whether said employee – as the Defendants claimed – had thrown away Claimant’s letter thinking that it was advertising (which the Court questioned) did not change anything, insofar as the letter had entered the Defendants’ ‘area of control’, allowing them to take notice of its content.[36] The Court elaborated that the Defendants alone bear the risk that their employees make wrong assumptions and throw away incoming letters addressed to the parent company’s CEO.[37] The Court saw no need to phrase a letter like the one sent by the Claimant ‘so drastically and clear’ that the receiving employee will most likely forward the letter to the legal department.[38] Furthermore, the fact that the recipient had no background in IP or speech coding was irrelevant, because identifying that Claimant’s letter should have been forwarded internally to the competent department had been possible based on ‘general life experience’.[39] In any case, Defendants’ parent company should have organized operations in a way securing that correspondence is forwarded properly.[40] Moreover, the Court highlighted that the parent company could have published the contact details of the person responsible for licensing affairs on its webpage, allowing third parties to contact this person per telephone.[41]

In addition, the Court found that Claimant’s letter was sufficient also in terms of content.[42] The information included in the letter itself and the additional detailed information made available on Claimant’s webpage (to which the letter referred) called Defendants’ attention to both the possibility and necessity of obtaining a licence to Claimant’s patent portfolio.[43] The Defendants were also informed about the (allegedly) infringed patents, and the fact that infringement occurred through the use of the LTE/EVS standard.[44] The fact that the letter was drafted in a ‘polite and friendly tone’ did not – according to the Court – impair its character as an infringement notification, since its content made adequately clear that the Claimant thinks that the Defendants infringe its patents.[45]

Reaction to motion for ‘cooling-off’ trial

Furthermore, the fact that the Claimant opposed Defendants’ motion for ‘cooling-off’ the trial was not considered to constitute an ‘absolutely unacceptable’ behaviour.[46]

The Defendants argued that filing a lawsuit earlier than a year after an infringement notification was sent (and received) was per se ruled out, to allow for one year of ‘pressure-free’ negotiations between the parties.[47] To support this argument, the Defendants relied on a press release of the European Commission from 2014 regarding the closing of an antitrust case against Samsung; a 2022 draft of SEP negotiation guidelines prepared by the Japanese Patent Office; and a 2023 ruling of the High Court in England in a case between InterDigital and Lenovo.[48]

The Court stressed that neither the case law of the Munich District Court nor the case law of the German Federal Court of Justice and the Court of Justice of the EU establish a principle prohibiting the launch of infringement proceedings within one year after an infringement notification was made.[49] Moreover, such a prohibition would be groundless.[50] If the infringer does not react to a notification of infringement, it is usually sufficient to wait six months until filing a lawsuit: As a rule, the patent owner cannot be reasonably expected to wait longer with the assertion of its rights before court.[51]

Considering that the Defendants had not reacted to Claimant’s notification letter, the Court opined that there was no need to wait one year before bringing the present action.[52] Given further that the Defendants had been ‘unwilling’ and no indication existed that they would become ‘willing’, the Court added that ‘cooling-off’ the proceedings would have just been a ‘mere formality’ here, which would – at most – extend the time, in which the Defendants would use the patent in suit without a licence.[53]

Licensing terms

Finally, the Court dismissed Defendants’ contention that the licensing terms offered by the Claimant were ‘absolutely unacceptable’, and had, thus, not triggered a duty to react on the side of the Defendants.[54]

The Defendants had, basically, complained that the Claimant determined the licensing terms ‘arbitrarily’ by applying parameters without verifiable reasoning and that the rates offered were excessive.[55]

The Court clarified that a high rate does not by itself mean that a licensing offer is ‘arbitrary’ or violates competition law: In principle, further ‘penal aspects’ must come into play to conclude that the patent owner acted in an ‘absolutely unacceptable’ manner.[56]  In any event, it is the task of negotiations to lead the price to an objectively reasonable level.[57]

Accordingly, the Court explained that a defence based on ‘excessive pricing’ will be considered in infringement trials only in ‘extreme cases.[58] If a FRAND-defence is raised, the distinction between denied access (especially due to an unreasonably high offer) and a price abuse under competition law is essential: Indeed, determining the ‘correct price in competition law terms’ is regularly no subject-matter of the infringement trial.[59] Considering the time needed for determining this price, in which the infringer would de facto use the invention for free, the Court held that a defence rooted in price abuse can regularly not be allowed in infringement trials.[60] This would – according to the Court – not unreasonably impair defendant’s position, since the latter can, in principle, seek determination of the ‘correct price in competition law terms’ by the competent antitrust court or make a counteroffer pursuant Sec. 315 of the German Civil Code.[61]

Apart from the above, should a user argue that an offer received is not FRAND, because it is worse than the licensing conditions agreed between the SEP owner and the user’s competitors, then it must anyway be prepared to sign a licence on the same (allegedly better) conditions, and objectively demonstrate such willingness through its behaviour.[62]

In case that the difference in price is not so significant that it cannot be resolved through negotiations between two ‘willing partners’, the Court expects that a ‘reasonable’ party would still try to reach agreement.[63] This holds particularly true with regard to certain ‘refinements in the figures’ resulting from the calculation of a lump sum rate.[64]

A user claiming that the patent owner acts discriminatory by charging different prices to different licensees must, in principle, present examples from the SEP owner’s licensing practice, providing concrete indications of how and compared to whom the user is being discriminated against.[65] In this context, the Court noted that a willing implementer shall, in principle, receive explanations about the key factors of the price.[66] A ‘lower benchmark’ shall, however, apply, when the agreement provides for a lump sum payment covering both past and future uses.[67] The Court said that a ‘willing’ user will regularly obtain sufficient insights in patent owner’s licensing practice, when it has been granted access to comparable agreements along with further explanations.[68]

Against this background, the Court held that the Defendants failed to establish that the licensing terms offered by the Claimant were ‘arbitrary’.[69] The Court further noted that the Defendants had not ‘objectively’ demonstrated that they were prepared to sign a licence on terms applicable to an existing third party comparable agreement, despite arguing that said terms were more favourable than those offered to them by the Claimant in the present case.[70]

 

 

[1] District Court of Munich I, judgment dated 2 August 2023, Case No. 21 O 5693/22 (cited by https://www.gesetze-bayern.de/Content/Document/Y-300-Z-GRURRS-B-2023-N-39110?hl=true).

[2] Ibid, paras. 22-137.

[3] Ibid, para. 157.

[4] Ibid, para. 157.

[5] Ibid, para. 158.

[6] Ibid, para. 161.

[7] Ibid, para. 161.

[8] Ibid, para. 159.

[9] Ibid, para. 158.

[10] Ibid, paras. 158 and 160; cf. Huawei v ZTE, CJEU, 16 July 2015, Case No. C-170/13; Sisvel v Haier, Federal Court of Justice, 5 May 2020, Case No. KZR 36/17; Sisvel v Haier II, Federal Court of Justice, 24 November 2020, Case No. KZR 35/17.

[11] Ibid, para. 157.

[12] Ibid, para. 162.

[13] Ibid, para. 162.

[14] Ibid, para. 163.

[15] Ibid, para. 163.

[16] Ibid, para. 163.

[17] Ibid, para. 163.

[18] Ibid, para. 164.

[19] Ibid, para. 166; cf. footnote Nr. 10.

[20] Ibid, para. 171.

[21] Ibid, para. 171.

[22] Ibid, para. 171.

[23] Ibid, paras. 176 and 211 et seqq.

[24] Ibid, para. 209.

[25] Ibid, para. 218.

[26] Ibid, para. 219.

[27] Ibid, para. 221.

[28] Ibid, para. 221.

[29] Ibid, para. 221.

[30] Ibid, para. 222.

[31] Ibid, para. 223.

[32] Ibid, paras. 177 et seqq.; cf. footnote Nr. 10.

[33] Ibid, para. 178.

[34] Ibid, paras. 178 et seqq.

[35] Ibid, para. 184.

[36] Ibid, paras. 187 and 188. 

[37] Ibid, para. 188.

[38] Ibid, para. 188.

[39] Ibid, para. 189.

[40] Ibid, para. 189.

[41] Ibid, para. 191.

[42] Ibid, para. 193.

[43] Ibid, para. 194.

[44] Ibid, para. 194.

[45] Ibid, paras. 196 and 197.

[46] Ibid, para. 198.

[47] Ibid, para. 199.

[48] Ibid, para. 199.

[49] Ibid, para. 199.

[50] Ibid, para. 200.

[51] Ibid, para. 200.

[52] Ibid, para. 201.

[53] Ibid, para. 202.

[54] Ibid, paras. 203 and 205 et seqq.

[55] Ibid, para. 204.

[56] Ibid, para. 174.

[57] Ibid, para. 174.

[58] Ibid, para. 175.

[59] Ibid, para. 175.

[60] Ibid, para. 175.

[61] Ibid, para. 175.

[62] Ibid, para. 172.

[63] Ibid, para. 173. 

[64] Ibid, para. 173.

[65] Ibid, para. 169.

[66] Ibid, para. 168.

[67] Ibid, para. 168.

[68] Ibid, para. 168.

[69] Ibid, para. 205.

[70] Ibid, para. 208.