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Nokia v Oppo

5 August 2022 - Case No. 21 O 11522/21

http://caselaw.4ipcouncil.com/german-court-decisions/lg-munich-district-court/nokia-v-oppo

A. Facts

The Claimant, Nokia, owns patents essential to various wireless telecommunications standards (standard-essential patents, or SEPs).

The Defendant is part of the China-based Oppo group (Oppo), which manufactures and markets devices implementing wireless standards worldwide, including in Germany.

The parties signed a patent license agreement. Prior to the expiration of the agreement, Nokia and Oppo discussed about the conclusion of a further contract without success.

After the end of the term of the licence, Nokia filed a lawsuit against Oppo before the District Court of Munich (Court) based on a German patent. Nokia asserted claims for injunctive relief as well as the recall and destruction of infringing products. Nokia further requested a declaration that Oppo is liable for damages as well as information and the rendering of accounts.

With the present judgment, the Court ruled in favour of Nokia and granted – among other relief – an injunction against Oppo. [1686] (cited by https://www.gesetze-bayern.de).
 

B. Court’s reasoning

The Court found that the patent in suit is infringed. [1687] Consequently, the asserted claims for injunctive relief as well as for the recall and destruction of infringing products are well-founded. [1688]
 

FRAND-defence

The Court dismissed the so-called ‘FRAND-defence’ raised by Oppo against the above claims. [1689] In brief, Oppo argued that Nokia abused its market dominance, by denying Oppo a licence on fair, reasonable and non-discriminatory (FRAND) conditions and suing Oppo, instead.

In the view of the Court, this was not the case. [1690] The Court assumed in favour of Oppo that Nokia held a market dominant position, stressed, however, that Nokia had fulfilled the duties arising from this ‘special position’, i.e., by properly notifying Oppo about the infringement of its SEPs. [1691]
 

Willingness

On the other hand, the Court held that Oppo had not been (sufficiently) willing to enter into a FRAND license agreement with Nokia. [1692]

An implementer is required to clearly and unambiguously express willingness to sign a licence ‘on whatever terms are in fact FRAND’ and, subsequently, engage in licensing negotiations with the patent owner in a ‘target-oriented’ manner. [1693] The Court explained that willingness to obtain a FRAND licence on the side of the implementer shall be ‘continuous’; an abuse of a dominant market position cannot occur towards a patent user, who does not ‘demand’ to be granted a licence and is not prepared to contribute to that end. [1694] Whether the patent user meets these requirements shall be assessed on a case-by-case basis. [1693]

Since the mutual conduct obligations of the parties are inter-related, the Court reasoned that the standard for the assessment of the parties’ behaviour shall be the following: What actions would a ‘reasonable’ party interested in a successful, mutually beneficial outcome undertake in the specific stage of the negotiation process to advance this goal? [1694] The Court recognised a ‘duty to advance negotiations’ which will always be triggered, when – considering ‘customary business practice’ as well as the principle of good faith – it can be expected from a party to take the ‘next step’ in the negotiations. [1694]

The Court further noted that the implementer must not delay negotiations. [1695] Whether ‘delaying tactics’ were followed shall be determined based on ‘objective factors’, taking into account the reaction of the implementer to an infringement notification, or a licensing offer of the patent owner. [1695] In the Court’s view, implementers are under a duty to voice any concerns at once. [1696] Exceptionally, no duty to react (respectively to raise concerns) exists, if a licensing offer addressed to the implementer is – from an objective viewpoint – ‘un-FRAND’ to an extend that it appears ‘absolutely unacceptable’, so that it can be deemed to be an offer which is ‘not seriously meant’. [1696]

Against this backdrop, the Court found that Oppo had not sufficiently met the duty to demonstrate willingness to obtain a FRAND licence. [1697] According to the Court, such duty was triggered here, given that Nokia’s licensing offers were not ‘absolutely unacceptable’, but could successfully lead to the conclusion of the negotiations in a manner that would satisfy the interests of both parties. [1698]

The Court rejected Oppo’s argument that the lack of a detailed explanation of the way, in which the royalties were calculated, rendered Nokia’s offers ‘absolutely unacceptable’ in the above sense. [1699] The Court held that, generally, the ‘bottom line’ is decisive; ‘reasonable parties’ are not interested in the underlying calculation or in breaking down the final royalty amount to subtotals. [1700] In the present case, the way the royalties were calculated was of minor importance, also because Oppo, after gaining knowledge of third-party agreements signed by Nokia, did not claim that its direct competitors were offered better terms. [1701] The Court added that a SEP owner’s offer for a portfolio licence raises, in principle, no competition law concerns. [1702]

Looking at Oppo’s overall behaviour, the Court concluded that ‘hesitant negotiating’ from Oppo’s side as well as the failure to conduct negotiations in a ‘target-oriented’ way towards the signing of the (allegedly) desired licence indicated Oppo’s ‘unwillingness’. [1703]

The Court highlighted that Oppo had not expressed objections against Nokia’s licensing offers early enough and raised several issues concerning the FRAND-conformity of the offers only after the trial started. [1704] What is more, the Court took the view that Oppo applied a ‘delaying tactic’, which aimed at imposing the own (financial) licensing conditions on Nokia. [1705] The Court saw that Oppo was prepared to exercise ‘pressure’ on Nokia, by using the patent in suit (and other patents included in Nokia’s portfolio) for as long as possible without authorisation and payment of licensing fees. [1706]

Furthermore, the Court found that Oppo’s lack of willingness was also indicated by the fact that it did not take the ‘next step’ in the negotiations with Nokia, although – from an objective viewpoint – ‘the time had come’. [1707] Given that Nokia had approached Oppo well ahead of the expiration of the existing licence and the parties had exchanged various offers, the Court held that – considering common business practice and the principle of good faith – it was time to make every effort for successfully signing an agreement, instead of just ‘having discussions and exchanging e-mails’. [1708] Oppo should have abandoned the ‘obviously unhelpful back and forth’ and ‘promptly, specifically and comprehensively’ provide feedback regarding which of the terms offered by Nokia were acceptable and which not and for what reason. [1709] The Court suggested that, at the current stage, a ‘reasonable party’ would make concrete proposals for mutually beneficial solutions; gradually improving the own (counter)offer was not sufficient, particularly since the patent user needs to enter into a licensing agreement to legitimize the regularly wilful and unlawful infringement. [1709] At the present stage of the negotiations between the parties, Oppo should have demonstrated ‘actual willingness’ to accept conditions ‘whatever it takes’, which had, however, not been the case. [1710]
 

SEP owner’s offer

The Court further concluded that Nokia had neither refused nor made the signing of a FRAND-licence impossible for Oppo. [1711]

According to the Court, the fact that Nokia’s offer included different (higher) royalty rates than those agreed in the previous agreement between the parties does not by itself render the offer unreasonable. [1712] Deviations from the terms of a ‘reference contract’ could be unreasonable, when the party seeking modifications does not provide respective justification. [1713] The Court found, however, that the arguments advanced by Nokia for justifying the amended royalties offered to Oppo were, at first glance, ‘plausible’. [1714] Whether the reasons invoked by Nokia could actually justify the proposed changes regarding the royalties was not finally examined by the Court. [1714] The Court took the view that ‘price abuse’ does not constitute an ‘access barrier’ and can, thus, not serve as a defence against patent infringement, as long as the offer is not unreasonable. [1714]
 

C. Other issues

Apart from the ‘FRAND-defence’, Oppo also raised a defence based on proportionality considerations against Nokia’s claim for injunctive relief (proportionality defence). In short, Oppo argued that an injunction should be excluded, since it would have a disproportionate economic impact, given that the patent in suit affects only a minor functionality of the ‘complex’ products manufactured and sold by Oppo. [1715] Besides that, Nokia’s interest in stopping infringement was less worthy of protection compared to Oppo’s interests, because Nokia focused only on the monetisation of its patents and not on the commercialisation of its technical achievements in the market. [1715]

The Court dismissed the proportionality defence. [1716] The relevant provision, Sec. 139(1)(3) German Patent Act, establishes a defence applicable only to ‘particularly exceptional cases’. [1717] As a rule, to enforce its exclusivity right the patent owner must rely on an injunction, which is the ‘regular sanction’ against infringement. [1717]

In the eyes of the Court, Oppo failed to establish circumstances rendering an injunction disproportionate in the present case. [1718] In general, the sole fact that the claim for injunctive relief is asserted by a ‘patent exploitation entity’ does not per se suffice for qualifying such claim as disproportionate. [1719] Notwithstanding this, the Court noted that Nokia is active with own products in the market for cellular network equipment and also – indirectly – involved in the smartphone market through branded products manufactured under Nokia-licence. [1719] Accordingly, the fact that Nokia seeks to license Oppo was not harmful either. [1720] The Court explained that a patent owner obliged under both competition and contract (i.e., the FRAND-commitment) law to facilitate the licensing of the patent in suit, cannot be confronted with the allegation that it acts in accordance with this obligation. [1720]

Moreover, the Court added that the ‘complexity’ of Oppo’s products cannot limit the claim for injunctive relief, since Oppo had been ‘unwilling’ to take a licence from Nokia. [1721] The lack of willingness to obtain a licence is, generally, a factor that can be considered for the assessment of proportionality to the detriment of the patent user. [1722]

In this context, the Court stressed that with respect to the assertion of standard-essential patents, proportionality is, in principle, ruled out, since the implementer can claim to be granted a licence on FRAND terms. [1721] This view is in line with the predominant opinion in legal literature, according to which Sec. 139(1)(3) German Patent Act does not introduce an additional defence (i.e., next to the FRAND-defence), when the patent owner has met its FRAND-obligations, unless further circumstances establishing disproportionality are given. [1723]

Finally, considering that Oppo used the patent in suit for a year without payment of licensing fees and has the possibility to sign a licence preventing exclusionary measures, the Court found that the (potential) economic impact of an injunction on Oppo was not disproportionate. [1724] Oppo did not establish extraordinary hardships that could support the opposite finding. [1724]