GE (Access Advance) v TCL, Regional Court (Landgericht) of Munich I

17 February 2023 - Case No. 21 O 4140/21

http://caselaw.4ipcouncil.com/german-court-decisions/lg-munich-district-court/ge-access-advance-v-tcl

A.  Facts

The Claimant, GE, holds patents relevant to the High Efficiency Video Coding (HEVC) standard. Owners of patents essential to the practice of the HEVC standard (standard-essential patents or SEPs) may commit to negotiate licences with patent users on fair, reasonable and non-discriminatory (FRAND) terms and conditions. GE offers bilateral licences to its patent portfolio and has also joined a patent pool administered by Access Advance (Access Advance or pool).

The Defendants are companies of the TCL group (TCL). TCL imports and sells HEVC-compliant electronic devices in Germany, including – among others – TV sets, smartphones, and tablets.

In May 2016, Access Advance contacted TCL regarding a potential licence. After some initial talks, Access Advance sent nine letters and ten e-mails to TCL without receiving an answer.

In July 2018, TCL requested further information from Access Advance, including so-called ‘claim charts’ for all portfolio patents. Delivery of the requested claim charts failed seven times due to technical issues at TCL. In September/October 2018, TCL received claim charts through multiple channels.

In September 2019, Access Advance and TCL met in person. In this meeting, Access Advance was informed that the TCL subsidiary involved in the discussion represented only the TV branch of the group (TV branch). Which concrete TCL company was responsible for smartphones and tablets (smartphone branch) was not shared with Access Advance.

In February 2020, Access Advance contacted TCL’s smartphone branch, providing letters previously sent to the TCL group, which included information regarding Access Advance’s portfolio and license terms, as well as relevant links.

In March 2020, Access Advance shared a copy of its standard license agreement with TCL’s smartphone branch (attached were also 25 claim charts). After meetings in May-September 2020, Access Advance sent its standard license agreement to TCL again in October 2020.

In January 2021, both TCL’s smartphone and TV branches told Access Advance that the information received concerning the license terms and the patent portfolio was not analysed yet, so that negotiations could not move forward.

In the following, GE filed an infringement action against TCL before the District Court of Munich I (Court).

In July 2021, Access Advance made new (improved) offers to TCL’s smartphone and TV branches. TCL made counteroffers for both branches in October 2021, which Access Advance rejected.

In October 2021, the pool gave access to a data room to TCL, which contained 43 (later: 61) of the approx. 260 license agreements the pool had signed with third parties (comparable agreements or comparables). In the next months, Access Advance and TCL exchanged views on the comparable agreements.

Following a request of TCL’s legal representatives to be provided with an offer for a bilateral licence, GE established direct contact with TCL in October 2021.

In March 2022, Access Advance informed TCL about changes to its so-called ‘Duplicate Royalty Policy’. TCL requested access to internal pool agreements signed by Access Advance and pool members, which was, however, not granted.

Also in March 2022, Access Advance sent improved license offers to TCL’s smartphone and TV branches. In reaction to respective requests on the side of TCL, Access Advance made two further offers based on a lump-sum royalty model to both branches in April 2022. Around the same time, TCL also received a bilateral license offer from GE.

In August 2022, the TV branch and the smartphone branch made new counteroffers to Access Advance, which were rejected as well in September 2022. TCL did not make a counteroffer to GE in response to the bilateral offer of April 2022.

With the present judgment, the Court ruled in favour of GE and – among other relief – granted an injunction against TCL.^[1]

B.     Court’s reasoning

The Court found that the patent in suit is infringed and essential to the HEVC standard.^[2]

TCL’s so-called ‘FRAND-defence’ raised against the asserted claims for injunctive relief as well as the recall and destruction of infringing products was dismissed.^[3]

No abuse of a dominant market position

Contrary to TCL’s contention, the Court did not accept that by filing the present action GE had abused a dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU^[4].

Although the question of whether GE holds a dominant market position was disputed, the Court assumed that this was the case.^[5] However, the Court ruled out an abuse of market dominance on the patent owner’s side, as TCL had not demonstrated sufficient willingness to take a FRAND licence.^[6]

An abuse of market dominance occurs when the SEP 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.^[7] The Court noted that a license offer that is not FRAND does not by itself constitute abuse: This is only the case 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^[8].

The Court held that GE had managed to meet all obligations arising from its (assumed) dominant market position, including particularly the duty to notify TCL about the infringing use of the patent in suit.^[9] The Court made clear that the steps taken by Access Advance towards TCL (including the license offers made) were attributable to GE.^[10]

Willingness

Turning to TCL’s behaviour, the Court identified a lack of ‘willingness’ to sign a FRAND licence.^[11]

The Court explained that a patent 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’: A ‘willing’ licensee ‘must be one willing to take a FRAND licence on whatever terms are in fact FRAND’.^[12] Whether this is true shall be assessed on a case-by-case basis.^[13]

Furthermore, patent user’s request to sign 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]

The relevant standard for the assessment of willingness was described by the Court 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?^[16]

The Court elaborated that 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.^[17] A ‘duty to promote negotiations’ is always triggered, when according to business practice and the principle of good faith it can be expected from a party to take the ‘next step’.^[18] What is more, 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] 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.^[20]

Against this backdrop, considering the overall conduct of the parties the Court concluded that TCL had not been sufficiently ‘willing’ to obtain a FRAND licence.^[21] The Court derived TCL’s ‘unwillingness’ from its ‘reluctant’ participation in the licensing negotiations.^[22]

In the eyes of the Court, TCL did not conduct negotiations in a targeted manner.^[23] On the contrary, the Court opined that TCL’s overall behaviour shows that it was not interested in signing a licence with Access Advance or GE as soon as possible. ^[24] For instance, TCL had not raised objections against the license offers received in due course but presented numerous points of criticism only (late) in the pending proceedings.^[25] Moreover, the Court was convinced that TCL aimed at imposing its own (financial) conditions and used delaying tactics for this purpose; TCL was prepared to use the patent in suit (and other pool patents) without authorisation and royalty payments for as long as possible, as a means of exerting pressure.^[26]

Looking at the period prior to the launch of the infringement proceedings, the Court noted that TCL did not respond adequately to the contact initiatives of Access Advance.^[27] The Court mentioned – among others – the fact that TCL had not replied to nine letters and ten e-mails sent by Access Advance at the early stage of the negotiations^[28] as well as the (seven) occasions, in which receipt of claim charts shared by Access Advance failed due to technical problems at TCL.^[29] Furthermore, the Court referred to the fact that in the first in-person meeting TCL did not inform Access Advance which subsidiary is responsible for licensing in the smartphone field.^[30] TCL had also not completed the analysis of Access Advance’s patent portfolio months after receipt of relevant information.^[31]

After the start of the trial, TCL’s participation in the negotiations could – according to the Court – not compensate the shortcomings in the (five) years before.^[32] In general terms, the Court found that TCL engaged ‘too late’ and ‘too little’ in the licensing negotiations^[33]. TCL’s conduct revealed that the initial ‘unwillingness’ continued to exist after the action was filed, as TCL did not promote the negotiations, although it would have been able to do so, but behaved ‘hesitantly and not sufficiently constructively’ both towards Access Advance and GE.^[34]

In the view of the Court, TCL’s counteroffers demonstrated that it was not interested in reaching an agreement that would serve parties’ interests.^[35] In terms of timing, the Court observed that TCL made its (first) counteroffer approx. 1 ½ years after receipt of the first offer of Access Advance.^[36] In terms of content, the counteroffers contained terms that were unacceptable for Access Advance both ‘structurally and legally’.^[37] The Court pointed out the fact that – according to GE – Access Advance could not agree with the (particularly low) royalties for future sales proposed by TCL, as this would likely violate the by-laws on which the pool is based.^[38] In any case, the Court found that the conditions claimed by TCL conflict with the conditions agreed between Access Advance and third parties.^[39] The Court further said that TCL’s failure to significantly improve its counteroffer demonstrated a lack of ‘willingness’ as well: The amended counteroffers were still so low compared to the terms offered by Access Advance that the latter could not be held liable for rejecting it.^[40]

In this context, the Court highlighted that it can be expected from a ‘reasonable licensee’, who argues that it is being discriminated against another company, to ‘specifically declare’ that it would be prepared to sign an agreement on the same conditions as that other company.^[41] This had, however, not been the case with TCL.^[42]

Turning to the fact that TCL did not make a counteroffer in response to the bilateral license offer of GE, the Court criticized the stop of the respective negotiation process, despite the fact that TCL was under a duty to react to said offer.^[43]

Apart from the above, the Court saw it TCL’s constant requests for more information a further indication of ‘unwillingness’.^[44] When a user constantly demands additional information from the patent owner, without utilizing information provided to move negotiations forward, then this behaviour could illustrate lack of willingness to obtain a licence.^[45] The Court confirmed that, in principle, a patent user can demand as much information as it wishes; after several years of negotiations, repeating this behaviour several times is, however, in any case no longer ‘conducive and constructive’.^[46] Against this background, the Court noted that after having been granted access to comparables, TCL continued requesting further information (including disclosure of the internal pool agreements of Access Advance), but did not ‘translate’ the information received in concrete feedback or demands regarding the licensing conditions.^[47] TCL’s request to access non-redacted copies of the comparable agreements was considered by the Court to constitute another sign of ‘unwillingness’, since this request was made approx. 10 months after receipt of the respective documents.^[48]

Having said that, the Court held that TCL’s contentions regarding the so-called ‘Duplicate Royalty Policy’ of Access Advance could not alter the conclusion that TCL had been ‘unwilling’.^[49] Said policy referred to cases of potential duplicate royalty payments for patents included in the Access Advance pool and licensed over other pools as well. The Court observed that TCL raised this issue only at a late stage of the trial; notwithstanding this, this issue was not relevant in the present case, as TCL did not shown that it had licensed patents that are part of the Access Advance portfolio otherwise.^[50] Similarly, the Court refused to take evidence regarding TCL’s claim that the administration fees charged by Access Advance were (allegedly) excessive, as this argument was raised after 6 ½ years and at the final stage of the trial: dealing with this issue would just cause further delay to the licensing negotiations and the proceedings.^[51]

SEP owner’s offer

In addition, the Court dismissed TCL’s argument that the license offers of Access Advance and GE were ‘absolutely unacceptable’, so that no duty to react to those offers was triggered on the side of TCL.^[52]

TCL had particularly asserted that the license offers received were discriminatory. The Court explained that a patent owner suing for infringement is regularly required – after the patent user has reacted on the merits – to make an offer on such FRAND terms that the user is entitled to.^[53] This ‘willingness to license’ is, as a rule, not given if the patent owner insists on discriminatory or arbitrary conditions even at the end of the negotiations.^[54] The Court defined non-discrimination as the prohibition to treat ‘equals unequally or unequals equally’ without justification.^[55] The patent user must plead and demonstrate discrimination in trial: For this, ‘plausible indications’ of discrimination must – at least – be established.^[56] The Court found that TCL had failed to do so here.^[57]

The Court was not convinced that TCL was discriminated against its competitors with respect to royalty payments for past sales.^[58] The Court doubted that TCL was entitled to the licensing conditions it claimed.^[59] Irrespective of this, discrimination could be ruled out, if TCL would agree to take a licence on the same terms and conditions which were (allegedly) offered to its competitors.^[60] Indeed, Access Advance had indicated that it was prepared to discuss about the treatment of past sales with TCL and eventually withdraw the (allegedly) discriminatory conditions; TCL did not, however, sufficiently engage with Access Advance in this respect.^[61] The Court highlighted that a patent user arguing that it was offered worse conditions that those agreed with its competitor must, in order to be regarded as a ‘willing licensee’, in any case be prepared to sign a licence on the (allegedly clearly more favourable) terms and ‘objectively demonstrate’ this willingness through its behaviour.^[62] This had, however, not been the case with TCL.^[63]

Furthermore, the Court opined that TCL cannot establish discrimination based on comparable agreements signed with third parties prior to litigation.^[64] The Court elaborated that, in principle, it is possible to distinguish between licences concluded after the launch of an infringement trial, and those signed without recourse to court proceedings.^[65] If the patent owner must sue an user before the conclusion of a license agreement, it faces higher costs and higher risks compared to cases, in which a licence is signed before legal action is taken.^[66] According to the Court, this fact, basically, justifies a different treatment of the two situations ‘to an appropriate extent’.^[67]

The Court also dismissed TCL’s argument that the agreements between Access Advance and third licensees established a significantly different ‘effective license burden’, for which Access Advance did not provide adequate grounds.^[68] The Court noted that the ‘effective license burden’ is just a ‘mathematical factor’ that is no integral part of existing licences.^[69] Relevant for the assessment of discrimination is only the actual license agreement, which is the basis for valuation.^[70] Accordingly, the Court saw no obligation of Access Advance to provide further explanations to TCL in this regard.^[71]

Besides that, the Court refrained from a detailed analysis of the FRAND-conformity of the license offers made to TCL by both Access Advance and GE. The Court clarified that when the infringer is found to have been ‘unwilling’ to obtain a FRAND licence, the question of whether the patent owner’s offer meets FRAND conditions in terms of content can be left unanswered.^[72]

C.     Other issues

The Court dismissed TCL’s motion for an order obliging GE and Access Advance to fully disclose (a) all license agreements (including side letters and settlements) signed with third parties as well as (b) internal pool agreements between Access Advance and patent owners participating in the pool as licensors.^[73]

In the eyes of the Court, it is not required to disclose confidential information to an ‘unwilling’ patent user if such information is not relevant to the pending trial.^[74] Considering the circumstances of the present case, the Court did not identify a reason why the documents demanded by TCL would be relevant to the proceedings.^[75] There was also no indication that getting access to the requested documents would change the ‘unwilling’ behaviour of TCL: On the contrary, the fact that TCL filed the respective motion at a late stage of the trial showed that its intention was to cause delay.^[76]

The Court further explained that TCL had no claim to demand production of all license agreements between Access Advance and third parties.^[77] As a rule, for comparing the situation of a patent user with that of other licensees relevant are only contracts concerning the same product category and, thus, the same market.^[78] This applies, in principle, also with respect to the non-discrimination question.^[79] That said, the Court questioned that TCL could be discriminated against its competitors by the internal agreements between Access Advance and the licensors that joined the pool.^[80]

^[1] GE (Access Advance) v TCL, District Court of Munich I, judgment dated 17 February 2023, Case No. 21 O 4140/21 (cited by ).

^[2] Ibid, paras. 26-130.

^[3] Ibid, paras. 147 et seqq. 

^[4] Ibid, para. 148. The Court applied the standard established by the Court of Justice of the EU in the matter Huawei v ZTE, and the subsequent rulings of the German Federal Court of Justice (Bundesgerichtshof) in the matter Sisvel v Haier; cf. Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13; Sisvel v Haier, Federal Court of Justice, judgment dated 5 May 2020, Case No. KZR 36/17; Sisvel v Haier II, Federal Court of Justice, judgment dated 24 November 2020, Case No. KZR 35/17.

^[5] Ibid, para. 147.

^[6] Ibid, para. 148.

^[7] Ibid, para. 151.

^[8] Ibid, para. 151.

^[9] Ibid, para. 148.

^[10] Ibid, para. 160.

^[11] Ibid, paras. 157 et seqq.

^[12] Ibid, para. 152.

^[13] Ibid, para. 152.

^[14] Ibid, para. 153.

^[15] Ibid, para. 153.

^[16] Ibid, para. 153.

^[17] Ibid, para. 153.

^[18] Ibid, para. 153.

^[19] Ibid, para. 156.

^[20] Ibid, para. 154.

^[21] Ibid, para. 157.

^[22] Ibid, para. 173.

^[23] Ibid, para. 174.

^[24] Ibid, para. 174.

^[25] Ibid, para. 174.

^[26] Ibid, para. 174.

^[27] Ibid, para. 174.

^[28] Ibid, para. 176.

^[29] Ibid, para. 177.

^[30] Ibid, para. 179.

^[31] Ibid, paras. 182 et seq.

^[32] Ibid, paras. 184 and 174. 

^[33] Ibid, para. 213.

^[34] Ibid, para. 187.

^[35] Ibid, para. 214.

^[36] Ibid, para. 218.

^[37] Ibid, para. 215.

^[38] Ibid, para. 215.

^[39] Ibid, para. 215.

^[40] Ibid, para. 216.

^[41] Ibid, para. 216.

^[42] Ibid, para. 216.

^[43] Ibid, para. 219.

^[44] Ibid, paras. 225 and 174.

^[45] Ibid, para. 226.

^[46] Ibid, para. 226.

^[47] Ibid, para. 225.

^[48] Ibid, para. 224.

^[49] Ibid, para. 227.

^[50] Ibid, para. 228.

^[51] Ibid, paras. 229 et seqq.

^[52] Ibid, paras. 158 et seqq.

^[53] Ibid, para. 159.

^[54] Ibid, para. 159.

^[55] Ibid, para. 163.

^[56] Ibid, para. 162.

^[57] Ibid, paras. 161 and 163.

^[58] Ibid, paras. 167 et seq.

^[59] Ibid, para. 168.

^[60] Ibid, para. 169.

^[61] Ibid, para. 169.

^[62] Ibid, para. 169.

^[63] Ibid, para. 169.

^[64] Ibid, para. 170.

^[65] Ibid, para. 171.

^[66] Ibid, para. 171.

^[67] Ibid, para. 171.

^[68] Ibid, para. 165.

^[69] Ibid, para. 166.

^[70] Ibid, para. 166.

^[71] Ibid, para. 166.

^[72] Ibid, para. 156.

^[73] Ibid, paras. 232 et seqq. 

^[74] Ibid, para. 233.

^[75] Ibid, para. 234.

^[76] Ibid, para. 235.

^[77] Ibid, para. 237.

^[78] Ibid, para. 237.

^[79] Ibid, para. 237.

^[80] Ibid, para. 237.