7 O 13016/21

20 October 2022 - Case No.

http://caselaw.4ipcouncil.com/german-court-decisions/lg-munich-district-court/district-court-landgericht-munich-i

A.    Facts

The Claimant is a Japanese company which owns a portfolio of patents declared as (potentially) essential to wireless telecommunications standards developed by the European Telecommunications Standards Institute (ETSI), including 4G/LTE. ETSI requires owners of patents essential to a standard (standard-essential patents, or SEPs) to commit to make such patents accessible to users on fair, reasonable and non-discriminatory (FRAND) licensing terms and conditions.

The Defendants are the Chinese parent company and a German subsidiary of a global group manufacturing and selling LTE-compliant devices worldwide. The Defendants’ products belong to the lower-price segment of the market.

On 15 December 2014, the Claimant informed the Defendants about the unlicensed use of its SEP portfolio. On 8 April 2015, the Defendants replied that they were prepared to start discussions with the Claimant to find a mutually acceptable solution. Shortly after the first in-person meeting in July 2015, the Claimant shared a list of the patents included in its portfolio along with several ‘claim charts’ with the Defendants.

On 29 January 2016, the Claimant sent both a ‘Term Sheet’ containing the key provisions of a portfolio licence and a model agreement to the Defendants. The Defendants provided a counterproposal on 18 November 2016.

In 2017, the Claimant formed a new licensing programme and informed the Defendants respectively in December of the same year.

In April 2019, the Claimant invited the Defendants to engage again in the licensing discussions, which had been rather dormant in the meantime. In the following years, the parties had a series of meetings, which did not, however, result in the signing of a license agreement.

On 25 June 2021, the Claimant made a licensing offer to the Defendants which included an option for a running royalty and an option for a lumpsum payment as well.

On 28 June 2021, the Claimant filed an infringement lawsuit against the Defendants before the District Court (Landgericht) of Munich I (Court) in Germany (German infringement proceedings). At the same time, the Claimant filed a motion for a so-called ‘anti-anti-suit injunction’ (AASI) before the Court, requesting for provisional measures preventing the Defendants from obtaining an ‘anti-suit injunction’ (ASI) abroad – especially in China – that could impede the German infringement proceedings. The Court issued a respective AASI on 29 June 2021.

In August 2021, the Claimant extended the lawsuit in the German infringement proceedings by asserting a further patent against the Defendants. The Court decided to split the proceedings and deal with the present patent in suit in a separate trial.

On 29 November 2021, the Defendants presented a counteroffer to the Claimant. In early December 2021, the Defendants also made a security deposit calculated based on their counteroffer.

On 21 January 2022, the Claimant rejected Defendants’ counteroffer. In early February 2022, the Claimant informed the Defendants that in a parallel litigation against a third party, the Higher District Court (Oberlandesgericht) of Karlsruhe had recently upheld a first instance ruling that had confirmed the FRAND-conformity of Claimant’s licensing model calculating royalties based on the industry-wide Average Selling Price (ASP) of mobile handsets.

On 23 February 2022, the Defendants sent an amended counteroffer to the Claimant. In said counteroffer, the Defendants accepted the use of the industry-wide ASP for the royalty calculation but applied discounts, to address the fact that their own products target the low-price market segment. The Claimant rejected Defendants’ amended counteroffer on 25 March 2022.

With the present judgment, the Court found in favour of the Claimant and – among other remedies – granted an injunction against the Defendants.^[1]

B.     Court’s reasoning

The Court found that the patent in suit is infringed.^[2]

Furthermore, the Court dismissed the so-called ‘FRAND defence’ raised by the Defendants against the asserted claim for injunctive relief: In brief, the latter argued that an injunction should be denied, as by filing and proceeding with the present lawsuit the Claimant abused a market dominant position conferred by the SEP in suit in violation of Article 102 of the Treaty on the Functioning of the EU.^[3]

No abuse of market dominance

The Court assumed that the Claimant had a market dominant position in the relevant licensing market, since the patent in suit must necessarily be used for applying the ETSI standard in question and there is no indication that an equivalent technical alternative exists.^[4]

However, the Court concluded that the Claimant did not abuse its market dominant position.^[5] Considering the parties’ conduct during the negotiations, the Court found no flaws in Claimant’s behaviour, who had actively promoted negotiations by offering discussions and providing information to the Defendants.^[6]

On the contrary, the Court held that the Defendants failed to meet the requirements of a ‘FRAND-compliant’ behaviour set forth by the case-law of the Court of Justice of the EU and the German Federal Court of Justice (Bundesgerichtshof).^[7] In particular, the Court stressed that the Defendants were not willing to enter into a FRAND licence and had also failed to present the Claimant with a FRAND counteroffer.^[8]

Willingness

In the view of the Court, the Defendants failed to demonstrate willingness to take a FRAND licence both before and after the Claimant launched the German infringement proceedings.^[9]

The Court explained that ‘actual’ willingness is required and not just willingness ‘for appearance’s sake’.^[10]  Infringer’s willingness must also be ‘continuous’: Patent owner’s refusal to provide access to the patent can amount to an abuse on market dominance, only when the infringer ‘constantly’ seeks to sign a license agreement and ‘actively’ pursues that goal.^[11]

According to the Court, the infringer must ‘clearly and unambiguously’ declare its willingness to sign a license agreement with the SEP owner on FRAND terms and, subsequently, participate in the negotiations in a ‘target-oriented’ manner.^[12] The Court defined the applicable standard of review as follows: What would a ‘reasonable party’ aiming at a successful negotiation outcome serving the mutual interest of the parties undertake at a certain stage of the negotiations to promote this objective, considering the particularities of the individual case.^[13]

In this context, the Court clarified that a duty of the implementer to react to an offer received by the SEP owner is regularly given, unless the SEP owner’s offer is ‘evidently’ non-FRAND.^[14] For this, it is not sufficient that only a single individual clause included in the offer is ‘evidently’ un-FRAND; a holistic assessment of the offer is required instead.^[15] The Court highlighted that an allegedly too high or too low offer does not rule out the other party’s duty to react.^[16]

The Court further pointed out that lacking ‘willingness’ can, in principle, be compensated under certain circumstances at a later point in time, provided that the implementer undertakes ‘additional efforts’ to sign a FRAND-licence with the patent owner ‘as soon as possible’.^[17]

Having said that, the Court observed that prior to the start of the German infringement proceedings, the Defendants mostly acted passively and reacted only after a direct notice of the Claimant.^[18] For instance, it took the Defendants more than a quarter of a year to respond to Claimant’s infringement notification dated 15 December 2014.^[19] Similarly, the Defendants replied to the ‘Term Sheet’ provided by the Claimant in January 2016 only in November 2016, that is approx. ten months later.^[20] What is more, having been informed about Claimant’s new licensing program in December 2017, the Defendants did not undertake any noteworthy activity until 2019.^[21] The Court noted that potential complexities in the internal coordination owed to the hierarchy structure of the Defendants could not justify delays, particularly since the Defendants continued using the infringed patent in suit in the meantime.^[22]

The Court also criticized the fact that the Defendants shared information about their views regarding reasonable licensing terms ‘piece by piece and over the course of several years’ and usually only at the specific request of the Claimant.^[23] For example, the Defendants did not show that they had expressed concerns against the use of the industry-wide ASP as a basis for the royalty calculation prior to November 2021, although the Claimant had indicated its intention to use this royalty base already in September 2019.^[24]

Besides that, the Court found that the Defendants did not manage to undo their ‘unwillingness’ through the counteroffers made during the German infringement proceedings.^[25]

Looking at the Defendants’ first counteroffer dated 29 November 2021, the Court highlighted that it was made approx. five months after Claimant’s offer of 25 June 2021. Given that at that moment in time the negotiations dragged on for more than six years, in which the Defendants acted passively and with delay, the Court held that this (belated) counteroffer could not remedy the lacking willingness on the Defendants’ side.^[26] The Court dismissed the notion that the launch of the German infringement proceedings shortly after receipt of Claimant’s offer provided justification for the delay.^[27] In the eyes of the Court, dealing with a court action refers to the ‘legal layer’, whereas drafting a counteroffer concerns the ‘commercial layer’ of Defendants’ activities, which are not necessarily interrelated.^[28] In any case, the Court noted that the lawsuit was served to the Defendants only in the end of September 2021, that is almost three months after the Claimant made its offer.^[29]

Apart from this, the Court explained that Defendants’ counteroffer of 29 November 2021 was ‘manifestly’ not FRAND in terms of content.^[30] The royalty rates included in said offer were calculated based on the ASP of Defendants’ own products and not based on the (higher) industry-wide ASP of handsets, on which the Claimant had relied in its offer of 25 June 2021. The Court found that under the circumstances of the present case, the Defendants’ refusal to accept the industry-wide ASP as a royalty base was not FRAND.^[31]

The Court acknowledged, on the one hand, that manufacturers of lower-priced products can be disadvantaged by the use of the industry-wide ASP for the royalty calculation.^[32] On the other hand, the Court observed that the industry-wide ASP is a ‘recognized method’ of calculation, ‘especially in the case of license agreements for standard-essential patents’.^[33] In more general terms, the Court noted that there does not seem to be a customary commercial practice to always tailor the price for the same service to the value of the products of each customer.^[34]

According to the Court, ‘abstract considerations’ regarding the use of the industry-wide ASP would not count in the present case, since the Defendants had decided from the outset to serve the low-price segment of the market.^[35] What is more, by entering the market with products priced below the industry-wide ASP without taking licences, the Defendants exposed themselves to the risk of being treated worse than the competition, by having to align with the principally FRAND-compliant licensing practice that is based on the industry-wide ASP.^[36]

The Court added that the Defendants, having acted ‘hesitantly’ in the early stages of the negotiations with the Claimant, had missed on their own fault the chance to sign a licence on more beneficial terms.^[37] The Claimant applied the new licensing model based on the industry-wide ASP only in 2017, that is more than two years after the start of the licensing negotiations between the parties.^[38] The Court reasoned that an infringer, who initially does not use the chance to negotiate more favourable license conditions due to its own fault, cannot claim in good faith that it is being discriminated against its competitors by being confronted with a generally FRAND-compliant licensing practice established at a later point in time.^[39]

Turning to Defendants’ amended counteroffer dated 23 February 2023, the Court concluded that said offer was ‘manifestly’ non-FRAND as well, although the Defendants had applied the industry-wide ASP for the calculation of the royalties.^[40] Since the Defendants had, however, also included discounts, the Court held that they ‘indirectly’ refused to accept the industry-wide ASP as the royalty base.^[41] The ‘indirect’ refusal to use the industry-wide ASP was not seen as FRAND in the present case either, for the same reasons advanced by the Court with respect to the first counteroffer of 29 November 2021.^[42]

The Court further criticized the fact that Defendants’ amended counteroffer failed to take into account the judgement delivered by the Karlsruhe Court in early February 2023, confirming Claimant’s licensing model based on the industry-wide ASP.^[43] Considering that the discussions between the parties were already ongoing for years and that the Defendants had engaged only ‘hesitantly’ with the Claimant, the Court reasoned that the ‘mere gradual improvement’ of the Defendants’ (counter)offer was no longer sufficient at that stage of the negotiations.^[44] Moreover, the Defendants should have drafted a counteroffer on FRAND conditions ‘whatever it takes’.^[45] This had not been the case here.^[46] Given that the Defendants did not improve the amended counteroffer until the present judgment was delivered, the Court summarized that their actions could be described as ‘too little and too late’.^[47]

SEP owner’s offer

Having found that the Defendants did not demonstrate willingness to sign a FRAND licence, the Court explained that the question of whether Claimant’s offer dated 25 June 2021 was FRAND or not was not decisive in the case at hand.^[48]

Notwithstanding this, the Court pointed out that said offer was, in any case, not ‘evidently un-FRAND’.^[49] The Court reiterated that the use of the industry-wide ASP as basis for the royalty calculation was in line with FRAND principles.^[50] The fact that Claimant’s offer was based on sales data provided by third sources and not actual sales figures of the Defendants was not considered to be harmful, since the Defendants had not provided concrete data regarding actual sales to the Claimant prior to their subsequent counteroffer dated 29 November 2021.^[51]

C.     Other issues

The Court held that the AASI issued against the Defendants on 29 June 2021 had no role to play in the assessment of Defendants’ ‘willingness’.^[52]

According to the case-law of the Court, an implementer who files or threatens to file a motion for an ASI abroad will regularly be treated as an ‘unwilling’ licensee.^[53] The respective assumption of ‘unwillingness’ applies, however, only when the implementer threatened to file or obtained an ASI against the specific claimant.^[54] If, on the contrary, respective measures were initiated against a third patent owner (as the Defendants had previously done here), the implementer cannot be deemed to be ‘unwilling’ in relation to the claimant^[55]. 

The Court clarified, however, that this does not mean that such conduct will have no consequences: As a rule, taking respective measures even against third parties will justify provisional measures in form of an AASI against the implementer, like the AASI order issued by the Court in the German proceedings.^[56]

^[1] District Court of Munich I, judgment dated 20 October 2022, Case-No. 7 O 13016/21 (cited by https://www.gesetze-bayern.de/).

^[2] Ibid, paras. 60-86.

^[3] Ibid, paras. 87 et seqq.

^[4] Ibid, paras. 88 et seq.

^[5] Ibid, para. 90.

^[6] Ibid, paras. 90 and 99.

^[7] Ibid, para. 90.

^[8] Ibid, para. 90.

^[9] Ibid, para. 91.

^[10] Ibid, para. 94.

^[11] Ibid, para. 95.

^[12] Ibid, para. 97.

^[13] Ibid, para. 98.

^[14] Ibid, para. 107.

^[15] Ibid, para. 107.

^[16] Ibid, para. 107.

^[17] Ibid, para. 112.

^[18] Ibid, para. 99.

^[19] Ibid, para. 100.

^[20] Ibid, paras. 100 and 105.

^[21] Ibid, para. 100.

^[22] Ibid, para. 105.

^[23] Ibid, para. 106.

^[24] Ibid, para. 106.

^[25] Ibid, paras. 111 and 118 et seqq.

^[26] Ibid, para. 113.

^[27] Ibid, para. 113.

^[28] Ibid, para. 113.

^[29] Ibid, para. 113.

^[30] Ibid, paras. 123 et seqq. 

^[31] Ibid, para. 127.

^[32] Ibid, para. 129.

^[33] Ibid, para. 128.

^[34] Ibid, para. 133. As an example, the Court mentioned that German airports do no charge different fees for ‘budget’ and regular scheduled flights. Furthermore, parcel services do not have different prices depending on whether a parcel contains a mobile phone worth EUR 200 or EUR 1,000.

^[35] Ibid, para. 135.

^[36] Ibid, para. 135.

^[37] Ibid, para. 137.

^[38] Ibid, para. 137.

^[39] Ibid, para. 137.

^[40] Ibid, para. 123.

^[41] Ibid, para. 125.

^[42] Ibid, para. 127.

^[43] Ibid, paras. 115 et seq.

^[44] Ibid, para. 116.

^[45] Ibid, para. 116.

^[46] Ibid, para. 116.

^[47] Ibid, para. 117.

^[48] Ibid, para. 138.

^[49] Ibid, para. 120.

^[50] Ibid, para. 122.

^[51] Ibid, para. 121.

^[52] Ibid, para. 109.

^[53] Ibid, para. 109.

^[54] Ibid, para. 110.

^[55] Ibid, para. 110.

^[56] Ibid, para. 110.