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–  UKSC 37
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Unwired Planet v Huawei
22 March 2019 - Case No. I-2 U 31/16
The Claimant, Unwired Planet International Limited, acquired patents relevant to the 2G (GSM) and 3G (UMTS) wireless telecommunications standards developed by the European Telecommunications Standards Institute (ETSI).
The previous holder of the patents in question, Telefonaktiebolaget LM Ericsson (Ericsson), had made an undertaking towards ETSI to grant users access to its patents should they become essential to a standard (Standard Essential Patents or SEPs) on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.
The Defendants, China-based Huawei Technologies Co. Ltd (Huawei China) and its German affiliate Huawei Technologies Deutschland GmbH, offer for sale and sell devices in Germany complying with the 2G and 3G standards.
In March 2014, the Claimant brought an action against the Defendants before the District Court (Landgericht) of Düsseldorf (District Court) based on one of its SEPs, asking for a declaratory judgement recognising the Defendants’ liability for damages on the merits, as well as information and the rendering of accounts  . At the same time, the Claimant also initiated infringement proceedings against the Defendants in the UK (UK proceedings). During the course of the UK proceedings, the parties made certain licensing offers. However, an agreement was not reached.
By judgment dated 19th January 2016, the District Court found that the Defendants infringed the patent in suit, recognised the Defendant’s liability for damages on the merits and ordered the Defendants to render accounts to the Claimant  . The Defendants appealed the District Court’s ruling.
With the present judgment, the Higher District Court (Oberlandesgericht) of Düsseldorf (Court), basically, upheld the decision of the District Court. However, following a partial withdrawal of claims by the Claimant, the Court limited the Defendants’ obligation to render accounts by excluding information about production costs (broken down by single cost factors) and realised profits  .
The Court allowed for an appeal on points of law before the Federal Court of Justice (Bundesgerichtshof). The parties appealed the present decision.
B. Court’s reasoning
The Court confirmed the District Court’s finding that the Defendants had infringed the patent in suit by offering for sale and selling standard-compliant products in Germany  .
The Court also agreed with the District Court’s finding that the Claimant was entitled to assert claims against the Defendants: in its view, the patent in suit had been validly transferred to the Claimant  .
Transfer of SEPs
The Defendants had argued that the agreements underlying the transfer of said SEP to the Claimant had several flaws, which the District Court had not evaluated properly. In a lengthy reasoning, the Court dismissed this argument and confirmed the validity of the agreements in question  .
Besides that, the Defendants had claimed that the relevant agreements were void from an antitrust perspective, because they violated Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). The Court rejected these claims as well.
In the Court’s eyes, the – repeated – transfer of a SEP does not constitute an abuse of market power in violation of Article 102 TFEU  , since the FRAND undertaking, which – according to the Court – irrevocably limits the exclusion rights arising from a patent ‘in rem’ (‘dinglich’)  , is directly and indispensably binding for the new patent holder (irrespective of any contractual obligation assumed by the latter)  . Due to the ‘automatic’ transfer of the FRAND undertaking, there is no reason for prohibiting the transfer of SEPs or imposing limitations regarding to whom the SEP is assigned to; insofar, the patent holder has a free choice  .
Furthermore, the Court found that the transfer of the SEP in suit to the Claimant did not violate Article 101 TFEU  . Reciprocal agreements, as the agreements underlying the transfer of said patent, per se do not violate Article 101 TFEU, unless they contain side agreements which could impede competition  . According to the Court, this was not the case here. In this context, the Court explained that the fact that Ericsson had transferred only a part of its portfolio to the Claimant could not have any anti-competitive effect in terms of Article 101 TFEU  . Reason for this is that the FRAND-undertaking, to which both Ericsson and the Claimant are bound, sets the upper limit for the financial or other kind of burden from the licence that can be imposed on any licensee with respect to the entire patent portfolio  .
Having taken the view that the FRAND-undertaking is ‘automatically’ transferred to the new SEP holder, the Court suggested that it is binding for the latter not only ‘on the merits’ (‘dem Grunde nach’), but also in terms of ‘amount and content’ (‘der Höhe und dem Inhalt nach’)  . In other words: the new patent holder is not only – generally – obliged to offer access to the SEP on FRAND terms, it is, moreover, bound to the actual licensing practice of the previous patent holder  . The Court found that this is needed for ensuring that the SEP holder will not exempt itself of its FRAND commitment – especially the non-discrimination obligation – by transferring the SEP to a third party  .
Existing licensing agreements / Confidentiality
Accordingly, the Court held that existing licensing agreements of the previous patent holder (which have not expired yet) need to be considered for the assessment of the non-discriminatory character of licensing offers made by the new SEP holder  . Consequently, in the Court’s view, the SEP holder’s FRAND undertaking obliges the latter to provide its successor with information regarding to the content of licensing agreements which it had concluded with third parties  .
To be able to establish the non-discriminatory character of its licensing offer, the new SEP holder needs to make sure that it will be able to refer to and present licensing agreements of the prior SEP holder, particularly in court proceedings  . An exception could be made only when presenting such agreements would violate contractual confidentiality obligations. For this, the content of relevant confidentiality clauses must be presented in detail in trial, in order to allow an assessment of the extent of the patent holder’s obligations  . In addition, the party bound to respective clauses must demonstrate that it cannot release itself from its confidentiality obligations, by showing that all existing licensees have refused – upon request – to waive their rights arising from each clause in question  . Notwithstanding this, the Court expressed the view that agreeing to comprehensive confidentiality clauses will, as a rule, bar the SEP holder (and/or its successor) from invoking confidentiality with respect to existing licences in pending court proceedings: in this case, the refusal to present licences cannot be justified, since the patent holder acted culpably by agreeing to confidentiality with other licensees, regardless of its FRAND-obligation to provide information to its successor with respect to the licensing agreements it has signed  . Its unjustified refusal to present existing licences will, moreover, also affect the position of the new patent holder in trial (leading potentially to a dismissal of its claims for lack of evidence of the FRAND-conformity of its licensing offer)  .
In this context, the Court noted that presenting existing licensing agreements with third parties in trial does not raise antitrust concerns (especially under Article 101 TFEU)  . According to the Court, the fact that business secrets will be disclosed to potential competitors of the existing licensees is not harmful from an antitrust perspective, since measures to protect confidentiality in trial are available  . In particular, the addressee of confidential information is obliged to sign a Non-Disclosure Agreement (NDA), if the holder of such information (a) concretely explains why this information constitutes a business secret, (b) presents in detail which measures were taken so far for securing confidentiality with respect to the information in question, (c) demonstrates in a substantiated and verifiable manner (for each information separately), which concrete disadvantages would be suffered, if the information would be disclosed and (d) also explains, with which degree of certainty the said disadvantages are expected to occur  . If these requirements are met, the opposing party’s refusal to sign an NDA would allow the party holding confidential information to limit its pleadings in trial to ‘general, indicative statements’  . According to the Court, this was, however, not the case here.
Application of the Huawei framework
On the merits of the case, the Court made clear that the conditions established by the Court of Justice of the European Union (CJEU) in the matter Huawei v ZTE  (Huawei framework or obligations) apply only to claims for injunctive relief and the recall of infringing products, not to the patent holders’ claims for information, rendering of accounts and damages  . In particular, when deciding about the implementer’s liability for damages on the merits, courts do not have to consider whether the patent holder has met its Huawei obligations or not  .
This question is, however, relevant for deciding on the amount of damages owed to the patent holder. The non-compliance of the SEP holder with the Huawei framework can limit the amount of damages that it can claim to the amount of a FRAND royalty (for certain periods of time)  . Since the right to request the rendering of accounts serves the calculation of the amount of damages, the Court took the view that the SEP holder is barred from claiming information about production costs and/or realised profits for periods of time, in which it is not entitled to damages going beyond the FRAND royalty, because this information is not required for calculating the latter  .
SEP holder’s offer to the implementer
Looking at the present case, the Court held that the Claimant had not fulfilled its Huawei obligation to make a written and specific FRAND licensing offer to the Defendants  . In particular, in the offers made the Claimant failed to adequately specify both the calculation and the non-discriminatory nature of the royalties proposed  .
For allowing the implementer to assess the non-discriminatory character of the SEP holder’s licensing offer, the Court repeated that the latter is obliged to disclose whether other licensees exist and, if so, to which conditions they have been licensed  . This obligation extends also to licensing agreements concluded by the previous patent holder(s)  . Only agreements that have expired or have been terminated do not need to be considered in this respect  . As a result, the Claimant should have referred to both the licences covering the SEP in suit that it had concluded with third parties after the transfer of the patent, and to all licences, which Ericsson had concluded with licensees prior to the transfer of said patent and were still in force, when the Claimant made the respective licensing offer to the Defendants  .
The Court took the view that, prior to granting the very first FRAND licence, the SEP holder ought to select a specific ‘licensing concept’. This ‘concept’ is ‘legally binding’ for the future licensing conduct of the SEP holder and potential successors. In other words: the licensing conditions established by the first FRAND licence granted outline the leeway available to the SEP holder for future licensing negotiations  . This is also the case, when the royalties agreed for the first licence lie at the lower end of the FRAND scale available to the patent holder  . Accordingly, any deviation from the ‘licensing concept’ is allowed only and to the extent that (existing and new) licensees are not discriminated through less favourable conditions  .
The Court allowed SEP holders to select a new ‘licensing concept’ (within the available FRAND range), provided that all licensing agreements subject to the existing ‘concept’ will expire at the same point in time  . In the Court’s view, this could be achieved, for instance, by agreeing with all later licensees that their licence will expire at the same time as the first FRAND licence ever granted  . The Court recognised that this would require substantial efforts, particularly when considerable patent portfolios are involved; this fact did not, however, speak against binding the successor to the licensing practice of the previous SEP holder  .
C. Other important issues
According to the Court, the fact that the UK proceedings were directed towards setting the terms of a worldwide licence between the parties, covering all SEPs held by the Claimant did not require the Court to stay its own proceedings  . According to Article 27 of the Brussels I Regulation, the court later seized of the matter has to stay its proceedings until the jurisdiction of the court first seized of the case has been settled. The Court saw, however, no indication that the UK proceedings (had ever) concerned the claims asserted in the proceedings brought before it (claims limited to Germany)  .
Besides that, the Court confirmed that German courts have international jurisdiction for the claims brought against Huawei China  . If infringing products are offered over the internet, the international jurisdiction of German courts is established, when German patent rights are being affected and the website can be accessed in Germany  .
-  Unwired Planet v Huawei, Higher District Court of Düsseldorf, 22 March 2019, para. 32 (cited by www.nrwe.de).
-  Ibid, para. 41. See District Court of Duesseldorf, judgement dated 19 January 2016, Case No. 4b O 49/14.
-  Ibid, paras. 139 et seqq.
-  Ibid, paras. 252-387.
-  Ibid, paras. 161 et seqq.
-  Ibid, paras. 169-199.
-  Ibid, para. 203 et seqq.
-  Ibid, para. 205.
-  Ibid, paras 205 et seqq.
-  Ibid, para 209.
-  Ibid, paras. 235 et seqq.
-  Ibid, para. 236.
-  Ibid, para. 242.
-  Ibid, paras. 212 et seqq.
-  Ibid, para. 214.
-  Ibid, paras. 216 et seq.
-  Ibid, para. 216.
-  Ibid, para. 218.
-  Ibid, para. 220.
-  Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13.
-  Unwired Planet v Huawei, Higher District Court of Düsseldorf, 22 March 2019, para. 159 (cited by www.nrwe.de).
-  Ibid, para. 396.
-  Ibid, para. 402.
-  Ibid, para. 402 et seq. Insofar the Court expressly disagreed with the District Court of Mannheim, which in a previous decision had denied any limitations of the patent holder’s right to demand the rendering of accounts, in case of non-compliance with the Huawei framework; cf. District Court of Mannheim, judgment dated 10 November 2017, Case No. 7 O 28/16, GRUR-RR 2018, 273.
-  Ibid, paras. 406 et seqq.
-  Ibid, para. 411.
-  Ibid, para. 419.
-  Ibid, para. 420.
-  Ibid, para. 423.
-  Ibid, paras. 413 et seq.
-  Ibid, para. 413.
-  Ibid, paras. 414 and 420.
-  Ibid, para. 421.
-  Ibid, para. 144.
-  Ibid, paras. 153 et seqq.