Saint Lawrence v Deutsche Telekom, Higher Regional Court (Oberlandesgericht) of Karlsruhe

23 April 2015 - Case No. 6 U 44/15

http://caselaw.4ipcouncil.com/german-court-decisions/olg-karlsruhe/olg-karlsruhe-1

A. Background

1. Facts

The proceedings related to the defendant’s application to the Higher Regional Court of Karlsruhe for a stay of execution of the decision of the District Court of Mannheim (Case No. 2 O 103/14, 10 March 2015). The background was the alleged infringement of patent EP 1.125.276.B1, which covered technology for coding broadband signals which is essential for the ETSI AMR-WB standard.

The defendant was a major German telecommunications company (Deutsche Telekom). Intervenor 1 and intervenor 2 were smartphone manufacturers (HTC and others) whose products used the AMR-WB standard. These phones were supplied to the defendant and then sold to consumers as part of the defendant’s contract plans. [1] The claimant, a German non-practicing entity, Saint Lawrence, became owner of the respective SEP in August 2014. [2] The previous owner of the SEP had declared its willingness to grant licenses on FRAND conditions several times. [3] The defendant had shown no interest in such a license. [4] After commencing infringement proceedings in the District Court of Mannheim, the claimant contacted intervenor 2 for the first time. Intervenor 2 signed a confidentiality agreement on 23 February 2015, rejected an initial offer made by the claimant, and made a counter offer. On 25 March 2015 (after the decision of the District Court of Mannheim), the claimant made another offer, which intervenor 2 also rejected.

2. Ensuing Decisions

On 10 March 2015, the District Court of Mannheim granted an injunction. Inter alia, it held that the defendant had not attempted to enter into negotiations for a license. [5] In particular, the court considered it irrelevant that intervenor 2 might have demonstrated its willingness to enter into a license on FRAND conditions. In the eyes of the court, the relevant issue was whether the claimant had a right to demand an injunction to stop the defendant using the patent. Even if an intervenor could successfully raise a competition law based defence relying on the Federal Court of Justice decision Orange Book Standard, [6] this was of no relevance for the relationship between the claimant and the defendant. [7]

The defendant and intervenor 1 applied to the Higher Regional Court of Karlsruhe to stay the execution of the District Court decision. Under the German rules of civil procedure, the Higher Regional Court can grant a stay of execution only if an appeal is pending and it is probable that the challenged decision will be overturned on the basis that it appears manifestly erroneous. [8] Alternatively, the Higher Regional Court can grant a stay of execution if the defendant can prove that the execution would cause particularly severe harm beyond the usual effects of an execution. [8]

The Higher Regional Court of Karlsruhe granted the defendant’s application to stay the execution regarding the smartphones manufactured by intervenor 2, but dismissed the application made by intervenor 1. [9] It held that it would be sufficient for a successful competition law based defence that an intervenor is willing to enter into a license agreement. [10] Since the District Court of Mannheim had dismissed the intervenors’ willingness as irrelevant for the case, the resulting decision was manifestly erroneous. [10] Significantly, the Higher Regional Court required the defendant to make a deposit of EUR 5 million into the court to safeguard the claimant’s financial interests.

B. Court’s Reasoning

Importantly, the decision was handed down in April 2015 and thus several months prior to the CJEU Huawei/ZTE ruling. The Higher Regional Court stated that the final opinion of Advocate General Wathelet [11] was the legal basis of its decision. [12]

The Higher Regional Court reasoned that a patent holder could seek injunction orders against any business in the supply chain of the product that infringes the respective SEP – which includes manufacturers (such as the intervenors) and distributors (such as the defendant). In principle, according to the Federal Court of Justice decision Tripp-Trapp-Stuhl,Federal Court of Justice, 14 May 2009, Case No. I ZR 98/06. the decision against whom to bring proceedings lies with the patent holder. [14] However, according to the Higher Regional Court, this was not the issue in this case. The issue was whether the patent holder was abusing its dominant market position by commencing proceedings against the defendant. The only relevant question is whether this is conduct that deviates from ‘normal’ competition behaviour, being detrimental to consumer interests. If the SEP holder has made a FRAND declaration in the past and is typically entering into license agreements with manufacturers, then the court could see no objective reason why the SEP holder would only bring proceedings against the distributor. [14] In contrast, there is a reasonable expectation that the SEP holder makes an offer to the manufacturer of the relevant product first. Bringing proceedings against distributors would put significant pressure on the manufacturer. This can distort the license negotiation because distributors will have little interest in legal arguments with patent holders. If a patent holder is a dominant undertaking, exerting such pressure constitutes an abuse of market power. [14] In addition, bringing proceedings against distributors whilst granting licenses to manufacturers in other cases is inconsistent behaviour. [14]

C. Other Important Issues

The Higher Regional Court pointed out that the claimant was a non-practising entity. Accordingly, by exercising its patent rights it is not protecting its own market share in the market for smartphones. [15] In contrast, it is in the claimant’s objective interest that as many mobile phones using its SEP from numerous manufacturers are present in this market. Moreover, it is unlikely that a stay of execution would jeopardise the claimant’s financial interests. A deposit made by the defendant into the court should be a sufficient safeguard. [15] On the other hand, an execution of the decision at first instance would cause considerable harm to the defendant. As a telecommunications company, the defendant relies on a comprehensive portfolio of mobile phones that it can offer to consumers. [16] Removing the devices manufactured by intervenor 2 from the portfolio would be a significant blow to the defendant’s core business. Moreover, a removal would also be detrimental for intervenor 2 because a major distribution channel for its smartphones would become inaccessible. [17] As a result, the defendant’s interest in staying the execution outweigh the interests of the claimant.

• [1] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 2.
• [2] Landgericht Mannheim, 10 March 2015, 2 O 103/14, para 27.
• [3] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 3.
• [4] Ibid, para 3.
• [5] Ibid, 6 U 44/15, para 3.
• [6] Bundesgerichtshof, 6 May 2015, KZR 39/06.
• [7] Ibid, 6 U 44/15, para 6.
• [8] Ibid, para 17.
• [9] Ibid, para 38. After lodging the application, the claimant and intervenor 1 had reached a settlement agreement. As a result, intervenor 1 had withdrawn its appeal to the Higher Regional Court of Karlsruhe. Thus, in the eyes of the court, no stay of execution was required.
• [10] Ibid, para 19.
• [11] GA Wathelet, 20 November 2014, C-170/13.
• [12] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 20.
• [13] Federal Court of Justice, 14 May 2009, Case No. I ZR 98/06.
• [14] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 21.
• [15] Ibid, para 25.
• [16] Ibid, para 26.
• [17] Ibid, para 27.