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IP Bridge v HTC, Higher Regional Court (Oberlandesgericht) of Karlsruhe

25 November 2020 - Case No. 6 U 104/18

A. Facts

The Claimant, IP Bridge, owns patents declared as (potentially) essential to the cellular standard 4G/LTE developed by the European Telecommunications Standards Institute (ETSI). The patent in suit was acquired from a company, which had made an undertaking towards ETSI to make the patent accessible to users on fair, reasonable and non-Discriminatory (FRAND) terms and conditions.

The Defendant is a German subsidiary of HTC (HTC), a global electronics company with headquarters in Taiwan, which sells mobile phones complying with the 4G standard – among other countries – also in Germany.

In December 2014, IP Bridge notified the parent company of the HTC group (parent company) about its portfolio of standard essential patents (SEPs). Subsequently, the parties engaged in negotiations. License offers were exchanged; however, no agreement was signed.

In September 2016, IP Bridge brought an action against HTC before the District Court of Mannheim (District Court). IP Bridge sought a declaratory judgment confirming HTC’s liability for damages and requested information as well as the rendering of accounts.

In April 2018, after the parent company signed a Non-Disclosure Agreement, IP Bridge presented existing licences with third parties concerning its patent portfolio.

On 15 May 2018, IP Bridge extended the pending lawsuit by adding claims for injunctive relief as well as the recall and the destruction of infringing products.

In June 2018, HTC made a counteroffer, which IP Bridge rejected.

On 28 September 2018, the District Court ruled that HTC infringed the patent in suit and is liable for damages. [499] The District Court also ordered HTC to render accounts and to provide relevant information to IP Bridge. On the other hand, the claims for injunctive relief, the recall and the destruction of infringing products were dismissed. The parties appealed the decision.

In March 2019, the appeal proceedings were suspended to allow licensing negotiations on IP Bridge’s offers to proceed. During the subsequent discussions, IP Bridge submitted an amended license offer to HTC. Along with this offer IP Bridge shared agreements signed, in the meantime, with chipset manufacturer that either partly covered the portfolio at issue here or included a so-called ‘covenant to be sued last’ with respect to certain patents.

In February 2020, IP Bridge made another license offer to HTC. HTC was given the choice between a running royalty and a lumpsum payment. For both options, the royalties were determined according to the so-called ‘top-down’ method. The rates were calculated based on an annual, industry-wide (partly forecasted) average selling price (ASP) of handsets. The running royalty option included a clause, allowing both parties to request an adjustment of the annual ASP, in case that the forecasted value would deviate for at least 5% from the actual ASP.

The appeal proceedings were then suspended once again for a period of approx. two months. The parent company rejected IP Bridge’s offer of February 2020. Afterwards, the parent company made two further counteroffers to IP Bridge. However, no agreement was signed.

With the present judgment, the Higher District Court of Karlsruhe (Appeal Court) overturned the ruling of the District Court, as far as the claims for injunctive relief, the recall and the destruction of infringing products were concerned. [500] In contrast to the first instance decision, the Appeal Court granted these claims as well.

B. Court’s reasoning

The Appeal Court confirmed that the patent-in-suit is infringed. [501]

In the eyes of the Appeal Court, the ‘FRAND-defence’ raised by HTC, which had led to the dismissal of the claims for injunctive relief, the recall and destruction of infringing products in first instance, does no longer stand in the way of the enforcement of these claims. [502]

HTC had argued that by asserting exclusionary claims, IP Bridge abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the European Union (TFEU). The Appeal Court found that the District Court had rightly assumed that IP Bridge held a dominant position in the relevant market. [503] Nevertheless, IP Bridge did not abuse its market dominance: The last license offer that IP Bridge made during the appeal proceedings was, in any case, FRAND. [504] On the contrary, HTC’s subsequent counteroffers were, according to the Appeal Court, ‘clearly and evidently’ not FRAND’. [504]

Huawei duties during pending proceedings

The Appeal Court reiterated that, in principle, both parties can fulfil the negotiation duties under the Huawei v ZTE judgment (Huawei judgment) [505] of the Court of Justice of the EU (Huawei duties) also during the pendency of infringement proceedings. [506] Similarly, courts shall consider in appeal proceedings acts performed for the first time after the end of the first instance trial, particularly license offers made. [507]

In this context, the Appeal Court noted that the implementer is regularly obliged to react properly to acts, by which the SEP owner met its Huawei duties, irrespective of whether the latter took action with delay or only gradually. [508] A ‘hesitant behaviour’ on the side of the patent owner does not permanently preclude the right to injunctive relief; the enforcement of this right is only ‘suspended’, until the patent owner fulfils its duties and a reasonable period given to the implementer to react lapsed. [508] The Appeal Court pointed out that, conversely, delaying tactics on the side of the implementer will be sanctioned through exclusionary measures, even when the SEP owner fulfilled its duties ‘only hesitantly’. [509]

Notification of infringement

Looking at the individual Huawei duties, the Appeal Court confirmed that IP Bridge had made an adequate infringement notification to HTC. [503] Insofar, the Appeal Court found no flaws in the reasoning of the District Court.

SEP owner’s offer

The Appeal Court then ruled that – at least – the last license offer of IP Bridge to HTC of February 2020 was FRAND (or, in any case, ‘not clearly and evidently non-FRAND’). [510] The Appeal Court made a comprehensive assessment of FRAND conformity, affirming its earlier stance that courts cannot perform just a limited ‘summary examination’ of the patent owner’s offer. [511]

In the view of the Appeal Court, the SEP owner regularly meets the Huawei duty to submit a FRAND license offer to a ‘willing’ licensee, when the offer is ‘in general terms’ FRAND with respect to the 'average licensee’. [512] The implementer cannot expect that the (first) offer, which is rather the ‘starting point’ of negotiations, is already adapted to the specific individual circumstances. [513] The Appeal Court stressed that FRAND is a ‘range’, meaning that not only one single set of terms and fees corresponds to FRAND requirements. [514] Particularly the notions of ‘fairness’ and ‘reasonableness’ offer flexibility to the parties, who are best situated to form FRAND in good faith bilateral negotiations based on the circumstances of each case. [514]

Regarding the last license offer of IP Bridge, the Appeal Court first observed that the timing was not problematic. Indeed, the fact that IP Bridge gradually developed and made this offer only during the appeal proceedings was not harmful. [515] Furthermore, the Appeal Court stressed that said offer had not ‘lapsed’, so that HTC had been required to react. [516] HTC argued that the offer was no longer binding after the deadline set by IP Bridge for a response had expired. The Appeal Court disagreed: The respective deadline only indicated until when IP Bridge expected to receive an answer from HTC and did not prevent the latter from accepting the offer afterwards. [516] This understanding was reinforced by the fact that IP Bridge had again requested a response from HTC after the deadline had expired. [516] According to the Appeal Court, even if one would assume that the license offer had ‘lapsed’, HTC would have still been obliged to either make a counteroffer or ask IP Bridge whether it could accept the offer, despite the expiration of the deadline to respond. [516]

Royalty calculation / Content of the license offer

Moving on to the license fees, the Appeal Court took the view that the royalty rates contained in IP Bridge’s last offer were FRAND. [517] The ‘top-down’ methodology applied for the royalty calculation raised no legal concerns. [518] The same is true also with respect to the royalty base used for the calculation, that is the annual (partly forecasted) industry-wide ASP of handsets. [519]

The Appeal Court dismissed HTC’s view that the use of the industry-wide ASP of all 4G-enabled handsets was per se unreasonable. [520] On the one hand, the Appeal Court emphasized that the assessment of FRAND-conformity does not consist in an ‘isolated review of individual calculation parameters’ but should focus on whether the amount of the final license rate is FRAND, which was the case here. [520] On the other hand, the fact that the industry-wide ASP takes features into consideration that are not linked to the wireless technology (such as the manufacturer’s prestige, brand, design, or high production quality) was acceptable, since at the same time also particularly low-priced handsets are taken into account, such as devices sold on dumping prices, or prices not considering SEP license fees. [521] Apart from that, the Appeal Court remarked that the industry-wide ASP was not considerably higher than the ASP of HTC’s own handsets. [522] In addition, the Appeal Court found that the aggregate total royalty burden used by IP Bridge for the royalty calculation was not problematic either, because it moved within the range (6% - 10%) previously accepted as FRAND by other courts. [523] The fact that other SEP owners apply a lower percentage, was no indication that the aggregate rate, to which IP Bridge referred, was exploitative. [523]

Furthermore, the Appeal Court saw no flaws in the way, in which IP Bridge calculated its own share of 4G-related SEPs. [524] IP Bridge had formed an average based on figures derived from two different SEP landscape studies. The Appeal Court found that this was acceptable, not least because both studies delivered similar results; what is more, IP Bridge was under no obligation to rely on the study with the lowest result. [524]

The Appeal Court further expressed no concerns against the fact that IP Bridge did not offer different rates for specific countries/regions, depending on the extent of patent coverage. [525] The uniform global rates proposed by IP Bridge did not render the license offer per se exploitative, since there were good reasons for choosing this option, for instance, an easier contract management. [526] The Appeal Court explained that it was irrelevant, whether an offer on such conditions could disfavour implementers, which have high sales in regions with low patent coverage: As already mentioned, the SEP owner meets the duty to negotiate, if its offer is FRAND with respect to the 'average licensee’. [527] Only when the absence of different rates per country/region leads, in general, to ‘exploitative’ rates, an abuse could occur. [527] In the eyes of the Appeal Court, there were no indications that this was the case here, particularly since other licensees, who signed agreements with IP Bridge, had accepted the offer in the respective form. [527] Besides that, the Appeal Court held that the volume discounts suggested by IP Bridge were in line with FRAND. [528] SEP owners are, in principle, not obliged to offer a ‘uniform tariff’ to all licensees. [529] Discounts based on sales volumes result in higher per-unit fees for implementers with lower sales, but are, nevertheless, allowed when ‘factual justification’ exists. [529] The Appeal Court recognised that the SEP owner can have an interest to incentivise implementers to strive for higher sales with the objective to achieve a broader dissemination of the standard and, consequently, acquire more licensees. [529] It can also be justified to offer particularly favourable discounts to ‘large and reputable’ implementers, since agreements entered into with such companies could motivate other licensees to sign agreements as well. [529] The fact that the volumes discounts used in the present case would lead to higher rates for HTC compared to another existing licensee did not render IP Bridge’s offer discriminatory. [530] The Appeal Court repeated that the SEP owner’s duty to submit a FRAND offer is met, when its offer is non-discriminatory with regard to the ‘average licensee’; HTC did not plead that this occurred here, but only argued that the discount regime was discriminatory towards HTC or smaller manufacturers in general. [531]

Having said that, the Appeal Court reiterated that, ultimately, it is not relevant whether the individual calculation parameters are ‘FRAND-compliant’; decisive is whether the final royalty payments are FRAND. [532] The Appeal Court had no doubts that the royalties offered by IP Bridge are FRAND, particularly because the latter concluded agreements on the same rates (including the identical volume discount regime) with two other licensees. [532] The respective licences could be used as a benchmark, given that they were signed without litigation. [533] The fact that the existing licensees, which had different sales figures (one higher and one lower than HTC), both accepted the volume discount regime of IP Bridge indicated that it was neither exploitative nor discriminatory. [534] Furthermore, the Appeal Court did not consider the fact that one of the licences covered also infrastructure patents (which the offer made to HTC did not) as discriminatory, since such patents accounted for only 1% of the licensed portfolio and, thus, carried limited weight with respect to the assessment of FRAND-conformity. [535]

Apart from the royalty calculation, the Appeal Court further found that the other provisions of IP Bridge’s last license offer were FRAND as well. [536] The royalty adjustment clause included in the offer allowed the licensee to contest the validity, essentiality and use of licensed patents and provided for a royalty adjustment, when ‘substantial changes’ (in both directions) occurred with respect to the licensed portfolio. That the adjustment mechanism was triggered only in case of ‘substantial changes’ was justified by the interest of the parties to avoid modification of the agreement on negligible grounds, which the Appeal Court considered as worthy of protection. [537]

Information regarding the license offer

Considering the related duty to explain the license offer to the implementer, the Appeal Court required from the SEP owner to elaborate the offer in a way, which would allow the specific licensee to comprehend both the assumptions, on which the rates and the other contractual provisions are based, and the reasons why the patent owner considers the offer as non-exploitative and non-discriminatory. [512]

In the view of the Appeal Court, IP Bridge met the above requirements with regards to the last offer made to HTC. [538] As far as IP Bridge had previously provided input on elements which had remained unchanged, the Appeal Court explained that there was no duty to repeat information, as this would just be a ‘useless formalism’. [539]

The Appeal Court added that it had neither been necessary to expand on a comprehensive ‘proud-list’ to demonstrate the standard-essentiality of IP Bridge’s portfolio. [540] In any case, the 24 claims charts shared by IP Bridge with HTC were considered as sufficient (the portfolio comprised of 48 patents in total). [541]

Moreover, the Appeal Court pointed out that IP Bridge could rely on the two (external) landscape studies for determining its share of 4G-related SEPs; no obligation existed to carry out an own study in this respect. [542] IP Bridge had not been under a duty to share these two studies with HTC, since both were accessible. [542] According to the Appeal Court, it did not appear unreasonable for HTC to purchase the studies, even though access to one of them was associated with costs amounting to GBP 50,000 (or an annual subscription of GBP 75,000). [542]

The Appeal Court also held that IP Bridge had complied with the duty to inform HTC about the ‘essential content' of license agreements already concluded. [543] IP Bridge had shared agreements signed with three other licensees. The question of whether a SEP owner is obliged to present also agreements signed by previous patent owners was left open by the Appeal Court: In the present case, IP Bridge’s portfolio consisted of patents acquired from several patent owners, so that there were no previous agreements covering the portfolio in its current structure. [544] Previous individual license agreement could rather have limited informative value. [545] In any case, the respective duty did not expand to expired license agreements. [544]

‘Pressure-free’ negotiations

Besides from the above, the Appeal Court found that ‘pressure-free’ negotiations concerning the offers made by IP Bridge during the appeal trial were possible, given that the proceedings were suspended twice. [546] The period, in which the proceedings were suspended, had been sufficient to allow HTC to review the offers carefully, as it was obliged to. [547]

Furthermore, the Appeal Court explained that IP Bridge had not been under a duty to also suspend infringement proceedings launched against an affiliate of the HTC group in China. [548] Under EU competition law, asserting exclusionary rights arising from a SEP can be abusive, only if court measures (e.g., an injunction) would exclude products from the EU Single Market. [549] Actions filed in other markets do not have such effect and, thus, cannot stand in the way of the enforcement of exclusionary claims asserted in Germany. [550] Whether the SEP owner is obliged to suspend parallel pending German infringement proceedings was not decided by the Appeal Court, as the only other trial between the parties before German courts was ‘on-hold’ since November 2017. [551]

Implementer’s counteroffer

The Appeal Court further held that HTC’s counteroffers made prior and during the appeal proceedings were not FRAND. [550]

In the eyes of the Appeal Court, the implementer’s duty to make a counteroffer is already triggered, when the SEP owner has made an offer that is not ‘clearly and evidently un-FRAND’ and the offer was elaborated towards the implementer in a manner, which allows the latter to set up a counteroffer on FRAND terms. [552] Assuming that the Huawei duties are ‘not an end in themselves’ but aim at motivating the parties to reach agreement on license terms, the Appeal Court reasoned that requesting from the implementer to respond only to a FRAND offer of the SEP owner would lead to a stillstand in negotiations. [553] This interpretation would also conflict with the Huawei judgment, given that the CJEU made the duty to submit a FRAND counteroffer solely subject to the condition that the implementer rejects SEP owner’s offer, without additionally requiring that said offer is actually FRAND. [554]

Looking particularly at HTC’s counteroffers, the Appeal Court focused on a clause providing that IP Bridge should guarantee that all licensed patents are essential to at least one cellular standard. According to the Appeal Court, this clause was non-FRAND. [555] Implementers are, indeed, allowed to preserve the right to contest the validity, essentiality, and use of licensed patents in the agreement. [556] It can, however, not be required from the patent owner to provide the guarantee laid down in the above clause. [556] The Appeal Court noted that the violation of this clause (in case a licensed patent would prove to be non-essential) would – at least – create a liability for damages on the side of the SEP owner. [557] By that, the nature of the license agreement as a ‘transaction entailing risk’ for the implementer would be lifted and the SEP owner would assume an (increased) risk in form of a liability for damages. [557] The Appeal Court also considered in this context that HTC had failed to establish that contractual provisions of that kind are common in practice. [557]

Willingness to obtain a licence

Finally, the Appeal Court found that HTC’s overall behaviour showed that it was not willing to obtain a licence. [558]

Following the case-law of the German Federal Court of Justice (Bundesgerichtshof) in Sisvel v Haier [559] , the Appeal Court explained that an implementer must ‘clearly and unambiguously’ declare its willingness to obtain a licence on whatever terms are in fact FRAND and, subsequently, engage in negotiations in a ‘target-oriented’ manner. [560] Demonstrating ‘general willingness’ is not enough; the implementer’s declaration must be ‘serious’ and ‘unconditional’, whereas ‘mere lip service’ is not sufficient. [509]

In the eyes of the Appeal Court, ‘willingness’ is no ‘static’ position: the finding that the implementer was willing (or unwilling) at a certain moment in time does not remain unchanged henceforth. [561] What is more, a ‘continuous willingness’ to obtain a licence is required. [561] Particularly relevant is the question of how an ‘upright and willing’ licence seeker would behave, who is interested in signing an agreement and does not strive after procedural tools to fend off a lawsuit filed by the SEP owner. [561]

Against this background, the Appeal Court criticised the fact that HTC engaged with IP Bridge only ‘hesitantly’, especially in the last phase of the negotiations. [562] Indeed, HTC submitted a counteroffer just three weeks prior to the oral hearing in the appeal proceedings and shared an amended version with IP Bridge only two days before the hearing. [562] What is more, in the eyes of the Appeal Court, a ‘willing’ licensee would not have insisted on the SEP owner accepting the guarantee regarding the essentiality of the licensed portfolio patents included in HTC’s counteroffers. [562]

C. Other issues

The Appeal Court dismissed the defence raised by HTC based on the notion of ‘patent ambush’. [563] The Appeal Court explained that the required ‘wilful fraudulent conduct’ on the side of the rights owner cannot be established by only showing that the (previous) patent owner was aware of its disclosure duties under ETSI IPR Policy or that it refrained from disclosing, or belatedly disclosed relevant patents in other instances. [564] Moreover, the Appeal Court agreed with the District Court and requested from the party raising a ‘patent ambush’ defence to – at least – establish the ‘concrete possibility’ that an alternative technology to the solution integrated into the standard actually existed. [565] HTC had failed to do so here.

Regarding the legal consequences, the Appeal Court clarified that a ‘patent ambush’ does not bar the claims arising from a patent. [566] There is no legal basis supporting the suspension of the effects of a patent in this situation. [566] Such suspension would be disproportionate for sanctioning a ‘simple breach of a rule’ and also conflict with the ‘spirit and the objectives’ of the disclosure duties established by the ETSI IPR Policy, which aim at ensuring that the patent owner will make a FRAND undertaking and that the best technical solutions are adopted into the standard, irrespective of whether they are protected by patents or not. [566]

The Appeal Court further dismissed HTC’s argument that the so-called ‘covenants to be sued last’ agreed with certain chipset manufacturers prevented IP Bridge from asserting the patent-in-suit. [567] The Appeal Court stressed that under German law ‘covenants to be sued last’ do not lead to an exhaustion of patent rights, since the possibility to bring an action based on the patent is not ruled out, but just temporarily suspended (in terms of a standstill agreement). [568]

In addition, the Appeal Court highlighted that under German law the (broader) agreements in form of so-called ‘covenants not to sue’ do not cause exhaustion of patent rights either. [569] This type of agreement does not have the effect of either a licence or a consent to place patent compliant products on the market. [570] With respect to German patents, ‘covenants no to sue’ regularly do not have further going effects than (procedural) standstill agreements. [571]

  • [499] IP Bridge v HTC, District Court of Mannheim, judgment dated 28 September 2018, Case No. 7 O 165/16.
  • [500] IP Bridge v HTC, Higher District Court of Karlsruhe, judgment dated 25 November 2020, Case No. 6 U 104/18 (cited by GRUR-RS 2020, 56869).
  • [501] Ibid, paras. 58-98.
  • [502] Ibid, para. 117.
  • [503] Ibid, para. 134.
  • [504] Ibid, para. 133.
  • [505] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [506] IP Bridge v HTC, Higher District Court of Karlsruhe, judgment dated 25 November 2020, para. 118.
  • [507] Ibid, para. 119.
  • [508] Ibid, paras. 121 et seqq.
  • [509] Ibid, para. 124.
  • [510] Ibid, para. 136.
  • [511] Ibid, paras. 136 and 130.
  • [512] Ibid, para. 127.
  • [513] Ibid, para. 128.
  • [514] Ibid, para. 126.
  • [515] Ibid, para. 137.
  • [516] Ibid, para. 138.
  • [517] Ibid, paras. 139 et seqq.
  • [518] Ibid, para. 140.
  • [519] Ibid, paras. 141 et seqq.
  • [520] Ibid, para. 143.
  • [521] Ibid, para. 145.
  • [522] Ibid, para. 146.
  • [523] Ibid, para. 147.
  • [524] Ibid, para. 148.
  • [525] Ibid, paras. 152 et seqq.
  • [526] Ibid, para. 153.
  • [527] Ibid, para. 154.
  • [528] Ibid, paras. 155 et seqq.
  • [529] Ibid, para. 156.
  • [530] Ibid, paras. 157 et seq.
  • [531] Ibid, para. 158.
  • [532] Ibid, para. 160.
  • [533] Ibid, para. 164.
  • [534] Ibid, para. 161.
  • [535] Ibid, para. 163.
  • [536] Ibid, paras. 166 et seqq.
  • [537] Ibid, para. 168.
  • [538] Ibid, paras. 169 et seqq.
  • [539] Ibid, para. 169.
  • [540] Ibid, para. 170.
  • [541] Ibid, para. 171.
  • [542] Ibid, para. 173.
  • [543] Ibid, para. 174.
  • [544] Ibid, para. 178.
  • [545] Ibid, paras. 178 et seq.
  • [546] Ibid, paras. 180 et seqq.
  • [547] Ibid, paras. 182 et seq.
  • [548] Ibid, para. 185.
  • [549] Ibid, para. 186.
  • [550] Ibid, para. 187.
  • [551] Ibid, para. 184.
  • [552] Ibid, para. 129.
  • [553] Ibid, para. 131.
  • [554] Ibid, para. 132.
  • [555] Ibid, paras. 188 et seqq.
  • [556] Ibid, para. 189.
  • [557] Ibid, para. 190.
  • [558] Ibid, para. 193.
  • [559] Sisvel v Haier, Federal Court of Justice, judgment dated 5 May 2020, Case No. KZR 36/17.
  • [560] IP Bridge v HTC, Higher District Court of Karlsruhe, judgment dated 25 November 2020, paras. 124 et seq.
  • [561] Ibid, para. 125.
  • [562] Ibid, para. 194.
  • [563] Ibid, paras. 103 et seqq.
  • [564] Ibid, para. 104.
  • [565] Ibid, para. 105.
  • [566] Ibid, para. 106.
  • [567] Ibid, para. 108.
  • [568] Ibid, paras. 110 and 114 et seqq.
  • [569] Ibid, paras. 111 et seqq.
  • [570] Ibid, paras. 111 and 113.
  • [571] Ibid, para. 113.