Case Law post CJEU ruling Huawei v ZTE

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Updated 23 January 2018

LG Mannheim

LG Mannheim
4 March 2016 - Case No. 7 O 24/14

A. Facts

Case No. 7 O 24/14 [1] related to the infringement of patent EP 0.734.181.B1, which covered technology for decoding video signals in the DVD standard (‘subtitle data encoding/decoding and recording medium for the same’). [2] The defendant was a German subsidiary of a Taiwanese electronics company. It sold computers that used such DVD-software. The claimant, a Japanese electronics company, commercialised the patent in question through a patent pool. In early 2013, the patent pool approached the defendant’s parent company about the use of their patents in general.

On 30 May 2014, the defendant offered to enter into a license agreement for the respective German patent. The defendant indicated that it was willing to enter into negotiations for a portfolio license (but for Germany only). It was also willing to have the claimant determine the royalties owed under section 315 of the German Civil Code. On 25 July 2014, the claimant suggested to change the license offer to a worldwide portfolio license. The defendant rejected and informed the claimant on 22 August 2014 as to the number of respective computers they put into circulation between July 2013 and June 2014 in Germany.

On 13 March 2015, the claimant made an offer for a worldwide portfolio license. On 5 May 2015, the defendant requested the relevant claim charts and further details as to how the license fees had been calculated. On 25 June 2015, the claimant sent the claim charts but refused to elaborate on the calculation method. The claimant suggested a meeting in which it would answer further questions. The defendant responded on 13 July 2015 that most of the claim charts lacked necessary details. In a meeting between the claimant and the defendant’s parent company on 3 September 2015, the parties were unable to reach an agreement. On 30 September 2015, the claimant sent a PowerPoint presentation containing explanations regarding the patent and the calculation of the license fees.

The District Court of Mannheim granted an injunction order on 4 March 2016. [3] It also held that the defendant was liable for compensation and ordered it to render full and detailed accounts of its sales to determine the amount of compensation owed. Further, the District Court ordered a recall and removal of all infringing products from the relevant distribution channels.

B. Court’s Reasoning

1. Notice of Infringement

According to the Huawei/ZTE ruling, the claimant is required to notify the defendant of the alleged patent infringement. According to the District Court, this notice is supposed to provide the defendant an opportunity to assess the patent situation. [4] Thus, it is insufficient to notify the defendant that its products contain the respective standard and it is therefore infringing the SEP. Instead, the claimant is required to specify the infringed patent, the standard in question, and that the patent has been declared essential. The level of detail required depends on the respective situation. [5] However, the description does not need to be as thorough as a statement of claim in patent litigation. In the eyes of the court, the customary claim charts (which show the relevant patent claims and the corresponding passages of the standard) will typically be sufficient. By sending the charts to the defendant, the claimant had met its obligations under the Huawei/ZTE ruling. [6]

The Huawei/ZTE principles require the SEP holder to give notice of infringement before commencing patent infringement proceedings. Otherwise, the SEP holder would abuse its market power, which would mean that the patent infringement court would not be able to grant an injunction order. However, according to the District Court, in such a situation the SEP holder would not lose its patent rights, but would be prevented from exercising those rights in court. [7] Proceedings that had been commenced prior to the Huawei/ZTE ruling present a special case. In that situation, the SEP holder could not have been aware of the obligations that the CJEU subsequently imposed on claimants. Thus, it must be possible for an SEP holder to go through the Huawei/ZTE process subsequently without losing the pending lawsuit. [8] On this basis, the District Could held that the claimant had taken all necessary steps after commencing proceedings, which met the Huawei/ZTE requirements. [9]

2. The SEP Owner’s Licensing Offer

The District Court expressed its view that the CJEU had wanted to establish a procedure that keeps the infringement proceedings free of complicated deliberations about the conditions of the offer, similarly to the German Federal Court of Justice decision Orange Book Standard. [10] If the alleged infringer argues that the conditions of the offer are not FRAND – and, according to the court, alleged infringers typically do so – it is not the role of the infringement court to examine the conditions of the offer and decide whether they are FRAND or not. [5] Thus, the District Court took the view that an infringement court only assesses in a summary review whether the conditions were not evidently non-FRAND. An offer is only non-FRAND if it is under the relevant circumstances abusive. For example, this would be the case if the conditions offered to the alleged infringer were significantly worse than those offered to third parties. [11] The District Court held that in the case in issue the royalties were not evidently non-FRAND because the royalty rates were generally accepted in the market. [12]

The offer needs to include the calculation method in respect of the royalties. [11] However, the CJEU did not elaborate on the level of detail required. [13] The District Court took the view that the SEP holder needs to enable the alleged infringer to understand why the offer is FRAND. In the case in issue, the claimant had included the calculation method. It had also provided further explanations regarding the calculation, which met the Huawei/ZTE requirements. [14]

3. The standard implementer’s reaction

The alleged infringer is required to respond to the SEP proprietor’s license offer, even if the infringer is of the opinion that the offer does not meet the FRAND criteria. [13] The only possible exception is an offer that, by means of summary examination, is clearly not FRAND, which would constitute an abuse of market power. A counter-offer would need to be made as soon as possible, taking into account recognized commercial practices in the field and good faith. The District Court held that the defendant had not made an adequate counter-offer. It is common business practice to enter into license agreements in respect of worldwide portfolio licenses. [15] The defendant’s counter-offer only included the respective German license, which was deemed by the District Court as insufficient. [15] Further, the defendant had not made an adequate deposit into the court as required under the Huawei/ZTE principles. [16]

C. Other Important Issues

The court held that the procedures prescribed by the Huawei/ZTE ruling apply to applications for injunctions and recall orders, but not to rendering accounts and compensation. Regarding rendering accounts and compensation, SEP holders could pursue their rights in court without additional requirements. [13]

Further, the District Court was of the opinion that an alleged breach of Art. 101 TFEU could not be raised as a defence in patent infringement proceedings. Even if the claimant’s conduct was anti-competitive pursuant to Art. 101 TFEU, the standardisation agreement would be void. [17] This has no implications for patent infringement proceedings.

The court also held that there was no general rule that the SEP holder could only bring proceedings against the manufacturer of the infringing product. [18] In the eyes of the District Court, the Higher Regional Court of Karlsruhe decision 6 U 44/15 (23 April 2015) did not establish such a principle. In that case, the defendant was a company that acted merely as a distributor of infringing products (which means it was reselling the products without making any alterations). In contrast, the defendant in the present case had installed the infringing software onto laptops and then sold them under its own brand name. Thus, the two cases were not comparable. [18]

  • [1] See also OLG Karlsruhe, 8 September 2016, 6 U 58/16 (application to stay execution of LG Mannheim, 7 O 24/14).
  • [2]  LG Mannheim, 4 March 2016, 7 O 24/14, pp. 4-6.
  • [3] LG Mannheim, 4 March 2016, 7 O 24/14, pp. 2-3.
  • [4] LG Mannheim, 4 March 2016, 7 O 24/14, p. 22.
  • [5] LG Mannheim, 4 March 2016, 7 O 24/14, p. 23.
  • [6] LG Mannheim, 4 March 2016, 7 O 24/14, p. 34/35.
  • [7] LG Mannheim, 4 March 2016, 7 O 24/14, p. 26.
  • [8] LG Mannheim, 4 March 2016, 7 O 24/14, pp. 27-30.
  • [9] LG Mannheim, 4 March 2016, 7 O 24/14, p. 33.
  • [10] LG Mannheim, 4 March 2016, 7 O 24/14, p. 21.
  • [11] LG Mannheim, 4 March 2016, 7 O 24/14, p. 24.
  • [12] LG Mannheim, 4 March 2016, 7 O 24/14, p. 37.
  • [13] LG Mannheim, 4 March 2016, 7 O 24/14, p. 25.
  • [14] LG Mannheim, 4 March 2016, 7 O 24/14, p. 35/36.
  • [15] LG Mannheim, 4 March 2016, 7 O 24/14, p. 38.
  • [16] LG Mannheim, 4 March 2016, 7 O 24/14, pp. 38-40.
  • [17] LG Mannheim, 4 March 2016, 7 O 24/14, p. 43.
  • [18] LG Mannheim, 4 March 2016, 7 O 24/14, p. 44.

Updated 23 January 2018

Saint Lawrence v Deutsche Telekom

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

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. [3] 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. [3] 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, [4] this was of no relevance for the relationship between the claimant and the defendant. [5]

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. [6] 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. [6]

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. [7] 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. [8] Since the District Court of Mannheim had dismissed the intervenors’ willingness as irrelevant for the case, the resulting decision was manifestly erroneous. [8] 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 [9] was the legal basis of its decision. [10]

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. [12] 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. [12] 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. [12] In addition, bringing proceedings against distributors whilst granting licenses to manufacturers in other cases is inconsistent behaviour. [12]

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. [13] 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. [13] 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. [14] 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. [15] 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] Bundesgerichtshof, 6 May 2015, KZR 39/06.
  • [5] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 6.
  • [6] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 17.
  • [7] OLG Karlsruhe, 8 September 2016, 6 U 58/16, 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.
  • [8] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 19.
  • [9] GA Wathelet, 20 November 2014, C-170/13.
  • [10] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 20.
  • [11] Federal Court of Justice, 14 May 2009, Case No. I ZR 98/06.
  • [12] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 21.
  • [13] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 25.
  • [14] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 26.
  • [15] OLG Karlsruhe, 23 April 2015, 6 U 44/15, para 27.

Updated 10 April 2019

Huawei v ZTE

CJEU Huawei v ZTE
16 July 2015 - Case No. C-170/13

A. Facts

The Claimant, Huawei Technologies Co. Ltd., holds a patent declared as essential to the practice of the LTE wireless telecommunication standard (Standard Essential Patent, or SEP) developed by the European Telecommunications Standards Institute (ETSI) [1] . In March 2009, the Claimant committed towards ETSI to make the patent in question accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions [2] .

The Defendants, ZTE Corp. and ZTE Deutschland GmbH, hold themselves several SEPs relating to the LTE standard [3] and also market, inter alia in Germany, LTE-compliant products [4] .

Between November 2010 and March 2011, the parties engaged into discussions concerning the licensing of the Claimant’s portfolio of SEPs [4] . The Claimant indicated the amount it considered as a reasonable royalty; the Defendants, on the other hand, sought to conclude a cross-licence [5] . An offer for a licensing agreement was, however, not finalized [5] .

In April 2011, the Claimant brought an action against the Defendants before the District Court (Landgericht) of Düsseldorf (District Court), seeking for injunctive relief, the rendering of accounts for past uses, the recall of products and an award for damages for patent infringement [6] .

The District Court stayed its proceedings and submitted a reference for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union (TFEU) to the Court of Justice of the European Union (CJEU). In brief, the District Court noted that the German Federal Court of Justice (Bundesgerichtshof) and the European Commission appeared to have adopted conflicting positions on the question under which conditions an action for a prohibitory injunction brought by a SEP holder against a SEP user constitutes an abuse of dominant position in violation of Article 102 TFEU [7] : In its Orange Book ruling, the German Federal Court of Justice held that, in infringement proceedings concerning SEPs, the defendant is entitled to raise a defence under Article 102 TFEU (and thus avoid an injunction), only and insofar as it submits an unconditional, fair offer to conclude a licence to the patent holder, accounts for past acts of use and also makes a deposit on the royalty payments resulting thereof [8] . The European Commission, on the other hand, in proceedings relating to enforcement actions taken by Samsung against Apple in a number of EU member states, took the view that an action for injunctive relief concerning a SEP may, in principle, infringe Article 102 TFEU to the extent to which the defendant has demonstrated his willingness to negotiate a licence on FRAND terms in accordance with the patent holder’s FRAND commitments [9] .

With the present judgment, the CJEU established the conditions under which a SEP holder can file an action for a prohibitory injunction against a patent user, without violating Article 102 TFEU. In particular, the CJEU ruled that a SEP holder which has given an irrevocable undertaking to make its patents accessible on FRAND terms, does not abuse its dominant position by seeking an injunction and/or the recall of infringing products, as long as – prior to bringing a respective court action – it has

  • firstly, notified the user about the infringement of its patent ‘by designating that patent and specifying the way in which it has been infringed’, and
  • secondly, if the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated[10] .

By contrast, the SEP user may invoke the abusive nature of a patent holder’s action for a prohibitory injunction and/or for the recall of products, only if it responds to SEP holder’s offer without delay [11] . In case that the patent user rejects that offer, it has to

  • submit ‘promptly and in writing, a specific counter-offer that corresponds to FRAND terms’ to the patent holder [12] and
  • if its counter-offer is rejected, provide appropriate security for the use of the patent(s), ‘for example by providing a bank guarantee or by placing the amounts necessary on deposit[13] .

The CJEU made clear that the above framework does not apply to SEP holders’ claims for damages and/or the rendering of accounts in relation to past acts of use; actions concerning these claims cannot infringe Article 102 TFEU, since they have no impact on whether standard compliant products can appear or remain on the market [14] .

B. Court’s Reasoning

The CJEU stressed the need to balance, on the one hand, the effective judicial protection of SEP holders’ fundamental intellectual property rights (IPRs) and, on the other hand, the public interest in free undistorted competition [15] .

Since the parties had not contested that the Claimant held a dominant market position, the Court’s analysis focused on the existence of an ‘abuse’ in terms of Article 102 TFEU [16] . According to the CJEU, the exercise of an IPR cannot ‘in itself’ be abusive, even if it is the act of an undertaking holding a dominant position [17] . Moreover, an action for the enforcement of an IPR can constitute an abuse of dominant position only in “exceptional circumstances[18] .

Cases, in which SEPs are involved, distinguish themselves from other IPR-related cases: First, the fact that the patent has obtained SEP status means that the patent holder can ‘prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question[19] . Besides that, by making a FRAND commitment, the patent holder has created ‘legitimate expectations’ to third parties implementing the standard that the SEP will be accessible on FRAND terms [19] . Having regard to the ‘legitimate expectations’ created, the patent user sued in infringement proceedings can, in principle, defend himself by invoking Article 102 TFEU, in case that the SEP holder refused to grant him a FRAND licence [20] .

Although the SEP holder cannot be deprived of its rights to have recourse to legal proceedings for the protection of its IPRs, the CJEU found that the FRAND undertaking justifies the imposition of an obligation on the SEP holder to comply with specific requirements, when seeking for injunctive relief [21] . In particular, in order to avoid a violation of Article 102 TFEU, the SEP holder should meet the following conditions: (a) prior to the filing of an action for a prohibitory injunction, it must notify the user about the infringement ‘by designating that SEP and specifying the way in which it has been infringed[22] , and (b) submit a specific written offer for a licence on FRAND terms to the user, particularly specifying ‘the royalty and the way in which it is to be calculated’, if the latter has expressed its willingness to enter into such a licence [23] . In this context, the CJEU observed that the SEP holder can be expected to make such an offer, since it is ‘better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer’, because, as a rule, no public standard licensing agreement exists and the terms of existing agreements entered by the SEP holder with third parties are not made public [24] .

On the other hand, the (alleged) infringer must diligently respond to the SEP holder’s offer, ‘in accordance with recognised commercial practices in the field and in good faith’ [11] . Whether this is the case must be established on the basis of ‘objective factors’, which implies, in particular, that there are no ‘delaying tactics[11] .

In case that the infringer finds the proposed terms as falling short of the patent holder’s FRAND commitment and chooses to reject the SEP holder’s licensing offer, it must submit a specific written counter-offer on FRAND terms to the SEP holder [12] . If the counter-offer is rejected and the (alleged) infringer already used the SEP in question without a licence, it is obliged to provide ‘appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit[13] . The calculation of that security must include, inter alia, ‘the number of the past acts of use of the SEP’, and the alleged infringer must be able to render accounts in respect of those acts of use [13] .

When no agreement is reached following the counter-offer by the (alleged) infringer, the CJEU pointed out that the parties have the option, to request ‘by common agreement’ that the amount of the royalty be determined ‘by an independent third party, by decision without delay[25] .

Finally, the CJEU made clear that the (alleged) infringer is allowed to challenge the validity and/or the essentiality and/or the actual use of SEP holder’s patents in parallel to the licensing negotiations, or to reserve the right to do so in the future [26] .


  • [1] Huawei v ZTE, Court of Justice of the European Union, judgment dated 6 July 2015, para. 22.
  • [2] Ibid, para. 22.
  • [3] Ibid, para. 40.
  • [4] Ibid, para. 24.
  • [5] Ibid, para. 25.
  • [6] Ibid, para. 27.
  • [7] Ibid, paras. 29 et seqq.
  • [8] Ibid, paras. 30 et seqq
  • [9] Ibid, paras. 34 et seqq
  • [10] Ibid, para. 77.
  • [11] Ibid, para. 65.
  • [12] Ibid, para. 66.
  • [13] Ibid, para. 67.
  • [14] Ibid, paras. 72 et seqq
  • [15] Ibid, para. 42.
  • [16] Ibid, para. 43.
  • [17] Ibid, para. 46.
  • [18] Ibid, para. 47.
  • [19] Ibid, para. 53.
  • [20] Ibid, paras. 53 et seqq
  • [21] Ibid, paras. 58 et seqq
  • [22] Ibid, para. 61.
  • [23] Ibid, para. 63.
  • [24] Ibid, para. 64.
  • [25] Ibid, para. 68.
  • [26] Ibid, para. 69.

Updated 26 January 2017

NTT DoCoMo v HTC

LG Mannheim
29 January 2016 - Case No. 7 O 66/15

  1. Facts
    Claimant owns the patent EP 1 914 945, declared to be essential with regard to ETSI’s UMTS standard. Defendant markets devices implementing the UMTS standard (in particular the HSUPA/EUL technology). On 19 March 2014 Claimant sent to Defendant’s group parent a detailed licensing offer and explained its conditions at several instances before filing suit in April 2015. As of 7 April 2014 and 15 July 2014, Claimant communicated to Defendant’s group parent company claim charts in order to demonstrate standard-essentiality of its patent and further explained the issue in a presentation on 8 July 2014. Defendant submitted its first counter-offer on 30 October 2015. The counter-offer envisaged a 3 year-license limited to some of the countries in which Defendant markets its products. Claimant rejected the counter-offer on 12 November 2015. Defendant did not provide security but merely promised to do so, based on a calculation including sales of relevant devices in Germany only. Claimant rejected this and demanded security based on worldwide sales.
  2. Court’s reasoning
    1. General meaning of the Huawei framework
      Prior to discussing specific conduct requirements established by the Huawei ruling, the court sketches its approach in a general manner. [22] According to the court the Huawei decision establishes a set of rules of due conduct in SEP licensing negotiations. Based on whether the parties comply with these rules the respective court can determine whether an SEP owner’s seeking of an injunction and a recall of products constitutes an abuse of a position of market dominance or a justified reaction to a standard implementer’s delaying tactics. In consequence, the respective court does not—unless it has to decide a claim for the payment of licensing fees and not claims for injunction and recall of products—have to rule on the substance of the offered licensing conditions or their being FRAND. [23] This is in line with recognized commercial practice according to which reasonable parties will not usually want courts to determine their licensing conditions. Furthermore, the ECJ has—from the perspective of the Mannheim District court—stressed that the exercise of the exclusive rights conveyed by a patent will be barred only in very exceptional circumstances. As a result, it is up to the standard implementer to show that such exceptional circumstances are present. [24]
    2. Market power and notice of infringement
      The court does not elaborate on the market power issue. As part of the notice of infringement [25] the court deems it necessary for the proprietor to identify the (allegedly) violated patent, including the patent number, and to inform that the patent has been declared standard-essential. Furthermore, the proprietor has not only to name the standard but to specify the pertinent part of the standard and the infringing element of the implementer’s products in a way that enables the standard implementer to assess whether its use of the standard infringes on the patent-in-suit. The level of detail required must be determined on a case-by-case basis, depending mainly on the expertise of – or available to – the implementer. Presenting claim charts corresponding to recognized commercial practice for licensing negotiations is, in principle, an acceptable way to give notice of the alleged infringement. In casu the court considered the proprietor’s notice as sufficient. [26] In particular, notice was given before the bringing of an action for infringement and the proprietor had submitted claim charts not only with regard to the patent-in-suit but also with regard to six other patents from the portfolio offered for license, a sample which the court deemed in accordance with recognized commercial practice. Sufficient notice having taken place, the court left open the question whether, (1) the Huawei rules applied at all in spite of the action being brought before the ECJ’s decision, and whether (2) the proprietor was obliged to submit claim charts for other patents than the patent-in-suit.
    3. The SEP proprietor’s licensing offer
      The court’s general understanding of the Huawei rules of conduct (cf. above) has a considerable impact on the way it intends to react to a SEP proprietor’s licensing offer: [27] The offer must specify the relevant conditions in a way that, in order to conclude a licensing agreement, the standard implementer has merely to state his acceptance of the offer. The calculation of the license fee, in particular, must be explained in a manner that enables the standard implementer to objectively assess its FRAND conformity. Even if the standard implementer disputes the FRAND character of the offer it is not the court’s business to determine whether the licensing conditions are actually FRAND. Neither is the SEP proprietor prohibited from offering conditions slightly above the FRAND threshold. A differing view of the parties on what constitutes FRAND is to be expected and provides no reason for cartel law-based intervention. An exploitative abuse of market power can, however, be present where the proprietor, after having made a FRAND declaration, offers conditions that are, under the circumstances of the case and without objective justification, manifestly less favorable (in an economic sense) than the conditions offered to other licensees. Correspondingly, the respective court is only required to determine, based on a summary assessment, whether the proprietor’s licensing offer evidently violates the FRAND concept. In casu the court accepted the Huawei compliance of the licensing offer, [28] in particular because the proprietor had explained its calculation of the licensing fee based on the percentage of patents in the WCMA/SIPRO and the VIA patent pools held by the proprietor. The proprietor was not required to prove its share in the patent pools. The parties disagreed over whether the smallest saleable unit forms an appropriate basis for royalty calculation and whether it is acceptable to look only at the size, not the quality of a proprietor’s share in a relevant patent pool. The court, however, considered these issues as not decisive for the Huawei-conformity of the licensing offer.
    4. The standard implementer’s reaction
      As a further consequence of the court’s general approach, the standard implementer’s duty to diligently react to the proprietor’s licensing offer is not removed only because the offer does not fully comply with FRAND. [29] . An exception applies only where it can be established by a mere summary assessment that the offer evidently violates FRAND. If a reaction of the alleged infringer is due, the “diligence”, i.e. timeliness, of this offer has to be determined cases-by-case, based on the principles of good faith and recognized commercial practice. In casu the standard implementer’s reaction was insufficient (1) because a counter-offer was made only 1.5 years after receiving the licensing offer and 0.5 years after the bringing of the proprietor’s action, (2) because security was merely promised, not provided, and (3) because the amount of security offered fell short of the court’s suggestions.
  3. Other important issues
    The court underlines that a SEP proprietor has to respect the Huawei rules of conduct only with regard to an action for prohibitory injunction or the recall of products. It is, however, free from their grip when bringing an action seeking the rendering of accounts in relation to past acts of use or an award of damages in respect of those acts of use.
  • [22] Case No. 7 O 66/15, para. 53 et seq.
  • [23] Case No. 7 O 66/15, para. 56
  • [24] Case No. 7 O 66/15, para. 53
  • [25] Case No. 7 O 66/15, para. 57
  • [26] Case No. 7 O 66/15, para. 65-69
  • [27] Case No. 7 O 66/15, para. 58
  • [28] Case No. 7 O 66/15, para. 70-72
  • [29] Case No. 7 O 66/15, para. 59 et seq

Updated 23 January 2018

Unwired Planet v Huawei, [2017] EWHC 711 (Pat)

English court decisions
5 April 2017 - Case No. HP-2014-000005

A. Facts

The claimant is a company that grants licenses for patented technologies in the telecommunications industry. The patents at issue (EP (UK) 2 229 744, EP (UK) 2 119 287, EP (UK) 2 485 514, EP (UK) 1 230 818, EP (UK) 1 105 991, EP (UK) 0 989 712) relate to telecommunication network coding and procedures. [16] Most were part of a large patent portfolio that the claimant had acquired from a major telecommunications company in 2013. [17] In 2014, the claimant made a declaration under the ETSI IPR Policy that it was willing to grant licenses on FRAND terms. There were five technical trials relating to the validity, infringement and essentiality of these patents. This summary focuses on the non-technical trial addressed competition law issues, FRAND issues, injunctive relief and damages for past infringements. [18]

In April 2014 the claimant made an open offer to the defendant, a major international smartphone manufacturer, to grant a license in respect of the claimant’s entire global patent portfolio (containing SEPs and non-SEPs). The defendant refused the offer, contending that there was no patent infringement, that the patents were not essential, and that they were invalid. The defendant also argued that the offer was not FRAND and thus did not constitute an abuse of a dominant market position under Art. 102 TFEU. In July 2014 the claimant made a further offer, limited to the claimant’s SEPs. Again, the defendant refused, arguing that the license conditions were not FRAND. [19] In June 2015 both parties made further offers. These offers were the result of directions from the court. The claimant offered a worldwide portfolio license while the defendant wanted to limit the territorial scope to the United Kingdom. [20] Between August and October 2016 the parties exchanged further offers without reaching an agreement. [21]

The Patents Court (Birrs J) held that the claimant was in a dominant position, but did not abuse this position. [22] The defendant was not prepared to take a license on FRAND conditions and the claimant was not in breach of competition law. Thus, the court held that a final injunction to restrain patent infringements should be granted. An injunction for infringements of patents EP (UK) 2 229 744 and EP (UK) 1 230 818 was granted on 7 June 2017. [23]

B. Court’s Reasoning

1. Market Power

The court defined the relevant market for assessing dominance as a distinct market for licensing each SEP individually. [24] European case law indicated that owning an SEP could be a rebuttable presumption for the existence of a dominant position. [25] The claimant’s pleaded position was a non-admission of dominance rather than a denial coupled with a positive case to the contrary. It was the view of the court that this was insufficient to rebut the presumption. In particular, the claimant’s argument of countervailing buyer power was unconvincing because it had not been supported by a proper economic analysis. [26]

2. SEP Proprietor’s Licensing Offer

a. FRAND Declaration as Conceptual Basis

The court pointed out that that the FRAND undertaking also applied in the case that the SEP proprietor was not in a dominant position. It held that the FRAND undertaking operated as a practical constraint on a SEP owner’s market power. [27] The ETSI declaration made by the SEP proprietor is also the starting point for determining the FRAND rate. The underlying issue, which is discussed at length by the court, [28] is if such a declaration forms a contract and whether that contract can benefit third parties. The court acknowledged that the legal effect of this declaration, in particular its enforceability, is a controversial issue under French law. [29] However, the court reasoned that the FRAND declaration is an important aspect of technology standardisation. Holders of SEPs are not compelled to give a FRAND declaration. If they do, the undertaking would be enforceable and irrevocable due to public interest. [29]

The court applied a procedural approach to FRAND. It emphasised that FRAND describes not only a set of license terms, but also the process by which a set of terms are agreed. [30] It applies to both the SEP-holder and the implementer/defendant. In particular, this approach allows for starting offers that leave room for negotiation. On the other hand, making extreme offers and taking an uncompromising approach which prejudices fair, reasonable, and non-discriminatory negotiation is not a FRAND approach. [31] This approach also means that the SEP proprietor is under an obligation to make a FRAND offer and to enter into FRAND license agreements. [32]

b. ‘True FRAND Rate’

The court considered that there is only a single set of terms for a given set of circumstances that would meet FRAND conditions (‘true FRAND rate’). [33] This eliminates the so-called Vringo-problem, [34] i.e. if FRAND were a range there would be two different but equally FRAND offers. Thus, if the court would grant or not an injunction, it would be unfair for the alleged infringer or SEP holder respectively. [35]

The court was of the opinion that the true FRAND rate approach does not cause problems under competition law. Theoretically, if only one set of terms is truly FRAND, and if FRAND also represents the line between abusive and non-abusive conduct under Art. 102 TFEU, then every agreed SEP-licence could be at serious risk of being abusive. [36] However, the court took the view that FRAND-compliance and compliance with Art. 102 TFEU are not the same thing (the court pointed out that the CJEU in the Huawei ruling appears to equate an obligation to make a FRAND offer with compliance with Art 102 TFEU).Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 154./span> Since Art. 102 TFEU condemns excessive pricing, [38] a royalty rate can be somewhat higher than the true FRAND rate and still not be contrary to competition law. Conversely, for a breach of competition law, it will be necessary but not sufficient that the rate is not the true FRAND rate. [38]

c. Discrimination

The court held that the correct approach is to start from a global rate as a benchmark and to then adjust this rate as appropriate. [39] It distinguished between two concepts of discrimination. First, the ‘general’ concept of non-discrimination describes an overall assessment of FRAND which can be used to derive the benchmark mentioned above. [40] It is based on the intrinsic value of the patent portfolio, but it does not depend on the licensee. The court held that this benchmark should be applied to all licensees seeking the same kind of license. [41]

Second, the ‘hard-edged’ non-discrimination obligation, which takes into account the nature of the potential licensee, [40] is a distinct concept that could be used to adjust license terms. However, the court held that the FRAND declaration does not introduce such a hard-edged non-discrimination concept. [42] If, contrary to the view taken by the court, the FRAND undertaking did include hard-edged non-discrimination, a licensee could only have the right to a lower rate granted to another licensee (i.e. a specific non-discrimination obligation resulting from the FRAND declaration) if the difference would otherwise distort competition between the two licensees. [41]

d. Territorial Scope of License

The court held that the defendant’s offer that was limited to UK licenses was not FRAND. In the court’s opinion country by country licensing is inefficient for goods such as mobile telecommunications devices that are distributed across borders. [43] It would also be inefficient to negotiate many different licenses and then to keep track of so many different royalty calculations and payments. No rational business would do this, if it could be avoided. [43] This was illustrated by the fact that the vast majority of licenses introduced in the trial were worldwide licenses. [44] Further, it is common ground that the industry assesses patent families rather than individual patents within the family. Assessing portfolios on a family basis inevitably involved tying a patent in one jurisdiction with a patent in another. [45] Thus, according to the court, a worldwide license would not be contrary to competition law. As willing and reasonable parties would agree on a worldwide licence, the insistence by the defendant on a license which was limited to the UK was not FRAND. [46]

C. Other Important Issues

1. Comparable agreements and reasonable aggregate royalty rate

The court held that for determining the royalty rate, the evidence of the parties would be relevant, including evidence of how negotiations actually work in the industry. [47] Other freely-negotiated license agreements might be used as comparables. [48] This may be compared with a top down approach [49] can also be used in which the rate is set by determining the patentee’s share of relevant SEPs and applying that to the total aggregate royalty for a standard, but this may be more useful as a cross-check. [50] Royalty rates determined by other courts might be useful as persuasive precedents. However, in the eyes of the court, a license rate determined at a binding arbitration does not carry much weight as to what parties are usually paying. [47] License agreements must meet certain criteria to be comparable. [51] First, the licensor is the claimant. Second, the license agreement is recent. However, it is not necessary that the licensee is the defendant or a comparable company because different market participants have different bargaining powers, which is reflected in the negotiations and the resulting royalty rates. [51] Finally the court confirmed that a royalty based on the handset price was appropriate and implied a reasonable aggregate royalty rate of 8.8%of the handset price. The court found that the 8.8% was reasonable, in part, because the aggregate implied by either party’s case was higher (10.4% and 13.3%). [52]

2. Principles derived from Huawei v. ZTE

The court also provided a compiled overview of its interpretation of the Huawei v. ZTE ruling. [53] In the eyes of the court, the ‘willingness to conclude a licence on FRAND terms’ refers to a willingness in general. The fact that concrete proposals are also required does not mean it is relevant to ask whether the proposals are actually FRAND or not. If the patentee complies with the procedure as set out by the CJEU, then bringing a claim for injunction is not abusive under Art 102. But even if sufficient notice is given, bringing a claim can constitute an abuse because complying with the procedure does not mean that a patentee can behave with impunity. In other words, there might be other aspects that make the claim abusive. Conversely, bringing such a claim without prior notice will necessarily be abusive.

Significantly, the court held, the legal circumstances of this case differ from the circumstances assumed by the CJEU in a crucial respect. A FRAND undertaking can be effectively enforced irrespective of Art 102. The defendant does not need Art 102 TFEU to have a defence to the injunction claim.
  • [16] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 2.
  • [17] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 54 et seqq.
  • [18] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 3.
  • [19] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 5.
  • [20] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 7-8.
  • [21] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 11-14.
  • [22] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 807.
  • [23] Unwired Planet v Huawei, EWHC 1304 (Pat).
  • [24] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 631.
  • [25] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 634.
  • [26] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 636-646.
  • [27] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 656.
  • [28] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 108-145.
  • [29] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 146.
  • [30] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 162.
  • [31] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 163.
  • [32] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 159.
  • [33] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 164.
  • [34] See Vringo v ZTE [2013] EWHC 1591 (Pat) and [2015] EWHC 214 (Pat).
  • [35] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 158.
  • [36] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 152.
  • [37] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 154./span> Since Art. 102 TFEU condemns excessive pricing,Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 153. a royalty rate can be somewhat higher than the true FRAND rate and still not be contrary to competition law. Conversely, for a breach of competition law, it will be necessary but not sufficient that the rate is not the true FRAND rate.Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 153.
  • [38] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 153.
  • [39] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 176.
  • [40] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 177.
  • [41] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 503.
  • [42] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 501.
  • [43] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 544.
  • [44] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 534.
  • [45] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 546.
  • [46] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 572.
  • [47] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 171.
  • [48] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 170
  • [49] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 178
  • [50] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 806 (10)
  • [51] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 175.
  • [52] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 476.
  • [53] Unwired Planet v. Huawei [2017] EWHC 711(Pat), 744.

Updated 26 January 2017

Pioneer v Acer

LG Mannheim
8 January 2016 - Case No. 7 O 96/14

  1. Facts
    Claimant owns the patent EP 1 267348, allegedly essential to the DVD standard and administered with regard to its licensing by the patent pool “A”. Early in 2013 “A” and the Defendant’s group parent were in contact regarding “A” ’s DVD licensing activity, but no concrete notice of infringement was made and no licensing negotiations ensued. After having been sued for patent infringement Defendant submitted, on 6 October 2014, an offer to license the patent-in-suit for Germany at FRAND conditions, with the exact royalty rate to be determined by Claimant pursuant to § 315 German Civil Code. Furthermore, Defendant declared to be willing to negotiate a portfolio license for all German patents of Claimant and, in case the negotiations were to fail, to have the licensing conditions determined by a state court or arbitration tribunal. In order to indicate what Defendant considered to be a FRAND royalty rate Defendant submitted an expert opinion. As of 28 November 2014, Claimant proposed to modify the conditions to the effect that Defendant’s group parent was supposed to take a worldwide portfolio license comprising all Claimant’s portfolio patents administered by “A”. Claimant made a (perhaps: additional) FRAND declaration with regard to the patent and informed Defendant thereof in December 2014. After Defendant had rejected this offer, Claimant offered, on 13 March and 13 April 2015, a worldwide portfolio license to Defendant’s group parent company. To the offer were added claim charts for two pool patents, as well as information on how Claimant deduced the royalty from the overall royalty rates of the “A”-patent pool. On 5 May 2015, Defendant’s group parent requested claim charts regarding all patents to be licensed as well as further information on royalty calculation. Claimant sent, on 7 August 2015, claim charts for five additional patents declaring its willingness to provide further information as soon as constructive technical discussions would be taken up. In a filing to the court as of 20 November 2015, Claimant explained its royalty calculation in greater detail and submitted an expert opinion on the issue.
  2. Court’s reasoning
    1. General meaning of the Huawei framework and applicability to transitory cases
      As to the court’s general take on the Huawei rules cf. LG Mannheim, 29 January 2016 - 7 O 66/15 (above). Where an action for prohibitory injunction and recall of products has been brought before the ECJ handed down its ruling it has, in the opinion of the court, no negative effect on the action if Claimant fulfills its Huawei conduct obligations only after filing the lawsuit. [30] According to the extensive analysis undertaken by the court this is because, inter alia, the SEP proprietor could not be expected to comply with the – then future and unknown – conduct requirements established by Huawei but rather with the legal framework set by the German Federal Court (BGH) in Orange Book. Hence, a proprietor’s conduct that respected Orange Book but deviated from Huawei cannot be taken to signal inappropriate economic goals or lack of willingness to grant FRAND licenses. Furthermore, it seems more in line with the ECJ’s core intention of furthering successful licensing negotiations if the parties get the chance to perform their Huawei conduct obligations even though litigation is already underway.
      Where, however, the action is brought after the Huawei ruling a violation of the conduct requirements established therein bars—as a matter of substantive law, not of procedural law—Claimant from enforcing its patent-based rights to prohibitory injunction or recall of products. [31] Although Claimant’s action will then be dismissed, Claimant is free to catch up on its Huawei obligations and re-file the action if the standard user fails to comply with Huawei.
    2. Market power and notice of infringement
      Leaving open whether Claimant was market dominant, the court formulates general considerations identical to those in the decision LG Mannheim, 29 January 2016 - 7 O 66/15 (cf. above). The court doubts whether the initial contact between the patent pool “A” and Defendant’s group parent qualifies as an appropriate notice of infringement. In any case, such notice has been given by and after bringing the infringement lawsuit. Claimant’s statement of claims, in particular, contained all information necessary. Producing the original document in which Claimant made its FRAND declaration or proving that a FRAND declaration has been properly made during the standard-setting procedure is not required as long as the SEP proprietor considers itself bound by a FRAND licensing obligation. Not least because the lawsuit had been suspended for several months and some more months elapsed between the ECJ’s Huawei ruling and the oral hearings in the case at issue, there was ample time for the standard user to fulfill its Huawei duties and negotiate a license unburdened by the pressure created by an impending prohibitory injunction. [32] Even if it were justified to request—the court seems to doubt this—claim charts for a sample of patents where a worldwide portfolio license is offered, Claimant would have met this obligation, in particular because Defendant did not communicate that or why it considered the sample insufficient. It was not necessary for Claimant to impart to Defendant a documentation of the standard at issue. [33]
    3. The SEP proprietor’s licensing offer
      The court’s general considerations are identical to those in the decision LG Mannheim, 29 January 2016 - 7 O 66/15 (cf. above): The court’s general understanding of the Huawei rules of conduct (cf. above) has a considerable impact on the way it intends to react to a SEP proprietor’s licensing offer: [34] The offer must specify the relevant conditions in a way that, in order to conclude a licensing agreement, the standard implementer has merely to state his acceptance of the offer. The calculation of the license fee, in particular, must be explained in a manner that enables the standard implementer to objectively assess its FRAND conformity. Even if the standard implementer disputes the FRAND character of the offer it is not the court’s business to determine whether the licensing conditions are actually FRAND. Neither is the SEP proprietor prohibited from offering conditions slightly above the FRAND threshold. A differing view of the parties on what constitutes FRAND is to be expected and provides no reason for cartel law-based intervention. An exploitative abuse of market power can, however, be present where the proprietor, after having made a FRAND declaration, offers conditions that are, under the circumstances of the case and without objective justification, manifestly less favorable (in an economic sense) than the conditions offered to other licensees. Correspondingly, the respective court is only required to determine, based on a summary assessment, whether the proprietor’s licensing offer evidently violates the FRAND concept.
      In casu the court considered Claimant’s offer as sufficient, [35] in particular because a worldwide license, granted to the parent of a group, corresponded to recognized commercial practice in the field. It was no evident FRAND violation to calculate the royalties based on the licensing conditions of the patent pool “A” and Claimant’s share in the patents of this pool. It was further appropriate to demand a lump sum for past use of the patents to be licensed without specifying (in the licensing offer) the exact amount for lack of accessible information on the extent of the use. The information provided by Claimant on how the royalties were calculated was deemed sufficient. It was not necessary to impart to Defendant licensing contracts concluded with other market participants since “A” ’s model contracts were accessible on the Internet and no circumstances indicated unequal treatment of licensees absent objective justification such as differing turnovers.
    4. The standard implementer’s reaction
      The court’s general considerations are identical to those in the decision LG Mannheim, 29 January 2016 - 7 O 66/15 (cf. above). In casu the court considered Defendant’s counter-offer to be evidently non-FRAND, mainly because the license would have—inappropriately, given the facts of the case and recognized commercial practice—been limited to Germany. [36] Furthermore, Defendant neither rendered account nor provided security for its use of the patent in the past. The fact that Defendant has—allegedly—terminated its use of the patent does not remove these obligations for past periods of use. [37] As the court explains in some detail, [38] an overall assessment of the conduct of the parties indicates that Defendant engaged in delaying tactics while Claimant was not trying to use the infringement action for extorting excessive royalties.
  3. Other important issues
    The court underlines that a SEP proprietor has to respect the Huawei rules of conduct only with regard to an action for prohibitory injunction or the recall of products (cf. LG Mannheim, 29 January 2016 - 7 O 66/15, above). Regarding claims for rendering of accounts it mentions, but does not decide the question whether the existence of a FRAND declaration has an impact on the content of such claims. [39]
    Even if the standard-setting at issue had—due to the lack of a timely FRAND commitment by Claimant—violated Art. 101 TFEU, this would not bar Claimant from enforcing its patents within the limits set by Art. 102 TFEU and the Huawei ruling. [40]
    Neither competition law nor the general principle of good faith required Claimant to primarily address entities that produce standard-implementing components of Defendant’s products. [41] On the contrary, Claimant was free to immediately demand the taking of a license from Defendant, all the more so because Defendant was not only engaged in marketing and selling third-party devices but also devices produced by Defendant’s group of companies using the standard-implementing components.
  • [30] Case No. 7 O 96/14, para. 84-107
  • [31] Case No. 7 O 96/14, para. 81-83
  • [32] Case No. 7 O 96/14, para. 109 et seq.
  • [33] Case No. 7 O 96/14, para. 114-117
  • [34] LG Mannheim, 29 January 2016 – Case No. 7 O 66/15, para. 58
  • [35] Case No. 7 O 96/14, para. 118-129
  • [36] Case No. 7 O 96/14, para. 131-133
  • [37] Case No. 7 O 96/14, para. 134 et seq.
  • [38] Case No. 7 O 96/14, para. 136-141
  • [39] Case No. 7 O 96/14, para. 142
  • [40] Case No. 7 O 96/14, para. 144 et seq.
  • [41] Case No. 7 O 96/14, para. 146

Updated 26 January 2017

Unwired Planet v Samsung

LG Düsseldorf
19 January 2016 - Case No. 4b O 120/14

  1. Facts
    Since 7 March 2014 Claimant, a non-practicing entity, is the proprietor of European patent EP D, allegedly covering a feature of the GSM standard, originally granted to the Intervener, and subsequently transferred to company “I”. Defendants, belonging to the K-group, produce and market GSM- and UMTS-based devices.
    In an agreement as of 26 October 2011, the Intervener granted a worldwide non-exclusive license to Qualcomm Inc., being, in turn, allowed to grant sub-licenses to its customers. Furthermore, by agreement as of 1 February 2014 one of the Defendants was granted a worldwide, non-exclusive license to patents owned by the Intervener.
    On 10 January 2013, the Intervener concluded a so-called “Master Sales Agreement” (MSA), concerning the exploitation of a portfolio of more than two thousand patents, with “E”, “F” and its subsidiaries. Claimant became a party to the MSA later on. After its accession to the MSA, “I”, by assuming the existing FRAND obligation of the Intervener in accordance with the MSA, made a separate FRAND commitment towards ETSI on 14 June 2013 and declared, in an agreement as of 13 February 2013, to ensure that subsequent acquirers equally assume this obligation. Accordingly, after the transfer of patent EP D to Claimant the latter made, on 6 March 2014, a separate commitment towards ETSI declaring to be willing to grant licenses on FRAND terms with regard to, inter alia, patent EP D.
    In order to implement the MSA the parties concluded three transfer agreements. Claimant argues that the Intervener validly transferred a part of its patent portfolio, including patent EP D, by agreement as of 11 February 2013 to undertaking “B”. On 13 February 2013, “B”, in turn, transferred the patent portfolio, including patent EP D, to “I”. After successfully requesting, on 3 September 2013, an amendment of the patent register, being performed on 24 October 2013, “I” transferred, on 27 February 2014, the patent portfolio, including patent EP D, to Claimant. Claimant successfully requested, on 7 March 2014, an amendment of the patent register which was performed on 3 July 2014.
    As a reaction to Claimant’s public license proposal including a royalty of USD 0.75 per mobile device Defendants allegedly submitted a counter-offer but no licensing agreement was concluded.
  2. Court’s reasoning
    1. Market power
      The court stressed that an application of Article 102 TFEU does not automatically result from SEP ownership but that it requires proof of a dominant position on the relevant market being conveyed by the SEP in question. Due to the fact that products not implementing the patent-in-suit could not effectively compete on the relevant market because of GSM being a key feature for such products market power of Claimant was affirmed. [54]
    2. Applicability of the Huawei rules to damages and the rendering of accounts
      While the Huawei rules of conduct apply to actions for injunction, recall and destruction of products they are, in principle, not directly applicable to claims for damages and the rendering of accounts. [55] Nor is it necessarily abusive for a SEP proprietor to bring an action for damages and the rendering of accounts without having notified the standard implementer of an infringement and without having offered a FRAND license beforehand. The Huawei obligations do, however, have an indirect impact on the extent to which damages and the rendering of accounts are due: Where the SEP proprietor fails to grant a FRAND license although he has made a FRAND commitment and the standard implementer has expressed its readiness to take a license, damages are limited to the FRAND royalty level but only for the period after the SEP proprietor’s abusive refusal to license. [56] Claims for information and the rendering of accounts must, in this event, be limited to what is necessary for determining FRAND-based damages. [57]
    3. Cap on damages/rendering of accounts in casu
      In casu Defendant could not show that he had complied with its Huawei obligation to sufficiently express its willingness to take a FRAND license. In consequence, no cap on Claimant’s claim for damages was deemed appropriate. [57]
  3. Other important issues
    Whether a SEP proprietor is free to enforce its patent in court or whether the proprietor is obliged to grant a FRAND license has to be determined under Art. 102 TFEU, not Art. 101 TFEU. [58] A FRAND declaration is not an unconditional offer made by the patent proprietor to enter into a licensing agreement with anyone willing to take a license, it merely expresses that the proprietor is, in principle, ready to grant a FRAND license if the patent in question conveys market dominance. As such, the FRAND commitment merely specifies a duty to license which competition law would impose anyway but it has an impact on the patent owner’s obligations under Art. 102 TFEU. [59]
    As regards the transfer of a SEP from the original patent proprietor to a non-practicing entity, registration in the patent register in accordance with § 30 (3) PatG establishes—also with regard to claims for damages and the rendering of accounts—presumption of ownership, allowing the proprietor to enforce all rights derived from the SEP as long as the presumption has not been successfully rebutted by Defendants. The non-registration of “B” as an interim owner was considered irrelevant under the circumstances of the present case (but not generally). Case No. 4b O 120/14, para. I, 1-2
    The MSA and the subsequent transfer agreements neither violate the German provisions on merger control (§§ 35-43 GWB) since, in any case, merger control thresholds are not reached.
    Nor was a violation of the European provisions on anticompetitive agreements (Article 101 TFEU) or on the abuse of a dominant position (Article 102 TFEU) found. Case No. 4b O 120/14, para. I, 4, a-c In particular, the transactions did not aim at enforcing non-FRAND royalties or at discriminating between licensees and the agreements framing the transactions ensured that the acquirers of the relevant patents were bound by (the initial) FRAND commitments. [60] The acquirer of a SEP is neither obliged to continue the transferor’s licensing practice in an unmodified manner nor to implement exactly the same conditions in all licensing agreements, provided the conditions are FRAND and no unjustified discrimination takes place. It is not abusive in itself for a (former) SEP proprietor to split its portfolio and to transfer the parts to several acquirers, thereby trying to arrive at higher overall royalties being paid for the portfolio. Nor is a resulting increase in the number of licenses a standard implementer has to take per se inacceptable. However, licensing conditions are FRAND only if the cumulative royalty level resulting from the licensing of all pertinent SEPs is not excessive. Putting it differently, where the royalty level for the entire portfolio was below or at the lower end of the FRAND range, it is not abusive to arrive, by way of splitting the portfolio and licensing its parts separately, at a higher overall royalty level within the FRAND range. Furthermore, the transaction agreements did not amount to price fixing. [61]
  • [54] Case No. 4b O 120/14, para. VII, 6, a
  • [55] Case No. 4b O 120/14, para. VII, 6, b, aa, bb
  • [56] Case No. 4b O 120/14, para. VII, 6, b, dd
  • [57] Case No. 4b O 120/14, para. VII, 6, b, ee
  • [58] Case No. 4b O 120/14, para. VII, 4
  • [59] Case No. 4b O 120/14, para. VII, 5
  • [60] Case No. 4b O 120/14, para. I, 4, b, aa
  • [61] Cf. for details LG Düsseldorf, 19 January 2016 - Case No. 4b O 120/14, para. I, 4, b, bb

Updated 30 July 2018

France Brevets v HTC, LG Düsseldorf

LG Düsseldorf
26 March 2015 - Case No. 4b O 140/13

A. Facts

The Claimant is a patent assertion entity established by the French State [1] . The Claimant was granted an exclusive licence by a company previously called Inside Technologies S.A. (SEP holder) for a European patent essential (Standard Essential Patent or SEP) for the implementation of the Standard LL V11.0.0, 2011-09 (LL standard) which was developed by the European Telecommunications Standards Institute (ETSI) [2] . The SEP holder had made an undertaking towards ETSI to make its SEP accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions [3] . The LL standard enables applications of the so-called “Near field Communication” (NFC) technology to run on smartphones over the phone’s SIM-card [4] . NFC-applications can alternatively be implemented on smartphones also by a so-called “Smartcard”, or so-called “embedded secure elements” [5] .

The Defendant is the German subsidiary of an international manufacturer of smartphones that incorporate a so-called “NFC-controller” implementing the LL standard [6] The Defendant promotes the offering and sale of smartphones manufactured by its parent company in Germany [7] .

The Claimant brought an action for infringement of the German part of the SEP in question against the Defendant before the District Court (Landgericht) of Düsseldorf (Court), requesting for injunctive relief, information and rendering of accounts [8] . The Claimant also sought for a declaratory judgment on the Defendant’s liability for damages on the merits [8] .

Against these claims, the Defendant raised inter alia a defence based on antitrust considerations; basically, it argued that the Claimant’s request for injunctive relief constitutes an abuse of market power conferred to the Claimant by the SEP in suit in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU) (antitrust defence) [9] . The Defendant also requested the Court to stay its proceedings, until the Court of Justice of the European Union (CJEU) rendered its final decision in the matter Huawei v ZTE which concerned the availability of injunctive relief to SEP holders [10] .

The Court dismissed the Defendant’s request to order a stay of the proceedings [11] and granted the Claimant’s motions to the full extent. In its analysis regarding to the antitrust defence, the Court took into account the opinion delivered by Advocate General Wathelet in the matter Huawei v ZTE (Wathelet opinion) [12] , before the final decision of the CJEU was delivered on 16th July 2015 [13] .


B. Court’s reasoning

As a starting point, the Court made clear that an entity granted an exclusive licence for a SEP is entitled to all rights arising from the patent, including claims for injunctive relief as well as claims for damages, information and rendering of accounts [14] .

Having said that, the Court pointed out that the protection of intellectual property rights (IPRs) is a high priority; IPRs are expressly protected under the Charter of Fundamental Rights of the European Union (Article 17 Sec. 2), which also guarantees right holders access to justice (Article 47). Limitations of these rights can be justified only by antirust rules for the protection of general public interest, particularly Article 102 TFEU [15] .

Following the Wathelet opinion, the Court found that a dominant position of the Claimant, which is re-quired for the implementation of Article 102 TFEU, cannot be established solely on grounds of its legal position with respect to the SEP in suit [16] . In the Court’s view, not every SEP confers market power relevant from an antitrust perspective to its holder [16] . Moreover, it has to be examined on a case-by-case basis whether the technical teachings protected by the SEP actually establish such market power [16] .

Further, the Court held that ownership of a SEP does not give rise to the presumption that market power exists [17] . Standards, particularly in the telecommunications sector, refer also to technical functionalities which are of secondary importance to the relevant market; with respect to such functionalities, there are no grounds for a presumption that the SEP holder has market power [17] . Insofar, the party asserting the existence of market power must plead and establish the relevant facts in trial [17] .

With respect to IPRs, the relevant market from an antitrust perspective is not the licensing market, but the downstream product market [18] . Looking at SEPs, relevant is the market in which products implement-ing the respective standard are offered [19] . Accordingly, the Court found that the relevant market in the present case is the smartphone market, because the NFC technology is almost solely used in smartphones [20] .

Since the NFC technology does not apply to basic functionalities of smartphones and is, therefore, no prerequisite for market entry, market power could only be established, if smartphones that do not use the teachings of a SEP could not compete in the market with products implementing this patent [21] .

In the eyes of the Court, this was not the case. The SEP in suit (and the LL Standard) enable NFC-applications to run over smartphones’ SIM-card. However, NFC-applications can alternatively also run over so-called “Smartcards” or “embedded secure elements”. The Defendant could not establish that NFC-applications running over the SEP in suit have reached market penetration to the extent that market power could be achieved [22] . On the contrary, smartphone byers do not appear to base their purchase decision on which of the three available technical solutions for enabling NFC-applications the smartphone uses [22] .

  • [1] France Brevets v HTC, Landgericht Düsseldorf, judgement dated 26 March 2015, Case-No. 4b O 140/13, para. 18
  • [2] Ibid, paras. 19, 20, 24 and 26
  • [3] Ibid, para. 22
  • [4] Ibid, para. 212
  • [5] Ibid, para. 213
  • [6] Ibid, para. 22.
  • [7] Ibid, paras. 151 et seq
  • [8] Ibid, para. 3
  • [9] Ibid, para. 46
  • [10] Ibid, para. 38
  • [11] Ibid, para. 219
  • [12] Opinion of Advocate General Wathelet delivered on 20 November 2014, ECLI:EU:C:2014:2391
  • [13] France Brevets v HTC, Landgericht Düsseldorf, judgement dated 26 March 2015, Case-No. 4b O 140/13, para. 197 et seqq
  • [14] Ibid, para. 61
  • [15] Ibid, para. 197
  • [16] Ibid, para. 199
  • [17] Ibid, para. 201
  • [18] Ibid, para. 204
  • [19] Ibid, para. 205
  • [20] Ibid, para. 206
  • [21] Ibid, para. 208
  • [22] Ibid, para. 217

Updated 3 December 2018

District Court, LG Düsseldorf

LG Düsseldorf
11 July 2018 - Case No. 4c O 81/17

A. Facts

The Claimant holds a patent essential to the data communication standards ADSL2+ and VDSL2 (Standard Essential Patent or SEP) [1] . The previous holder of the patent in question had declared towards the standardization organisation International Telecommunication Union (ITU) its willingness to make the patent accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions [2] .

The Defendant offers communication services in Germany to retail and wholesale clients, including DSL connections using the standards ADSL2+ and VDSL2 [3] .

The Intervener supplies the Defendant with equipment (especially DSL transceivers and DSL Boards), allowing network services based on the above standards [3] .

In January 2016, the Claimant brought an action against the Defendant before the District Court (Landgericht) of Düsseldorf (Court) requesting for a declaratory judgement recognizing Defendant’s liability for damages arising from the infringement of its SEP as well as the provision of information and the rendering of accounts (liability proceedings) [4] . During the course of these proceedings, the Claimant made two offers for a licensing agreement to the Defendant. The Defendant made a counter-offer to the Claimant and provided security for the use of the SEP [5] . The parties failed to reach an agreement.

In June 2016, the Defendant filed an action for a declaratory judgement against the Claimant before the Dublin High Court in Ireland, requesting the High Court to declare that both Claimant’s offers were not FRAND and that Defendant’s counter-offer was FRAND [6] . Taking the ongoing liability proceedings in Germany into account, the Dublin High Court stayed its proceedings [6] .

In September 2017, the Claimant brought a second action against the Defendant before the District Court of Düsseldorf, requesting for injunctive relief (injunction proceedings) [7] . In February 2018, the Claimant made another licensing offer to the Defendant in the pending injunction proceedings [5] .

With the present judgment, the Court dismissed Claimant’s action in the injunction proceedings [8] .


B. Court’s reasoning

Although the Court held that the services offered by the Defendant infringe the SEP in suit [9] , it found that the Claimant cannot enforce its patent rights for the time being [10] , since it failed to fully comply with the obligations stipulated by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTEHuaweiv ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13. (Huawei obligations or framework) with respect to dominant undertakings in terms of Article 102 of the Treaty for the Functioning of the EU (TFEU) [8] .

1. Dominant market position

The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU [12] .

In the Court’s eyes, the relevant market for assessing dominance with regards to SEPs is, as a rule, the (downstream) market for products or services implementing the standard, to which the SEP refers [13] . Each SEP outlines an own relevant (licensing) market, unless – from the SEP users’ perspective – equivalent alternative technologies for the same technical problem exist [14] . Since the Court held that, in the present case, none of the existing technological alternatives to the standards ADSL2+ and VDSL2 (e.g. HFC networks, LTE, HDSL, SHDSL, ADSL, SDSL, VDSL, fibre optic networks, radio relay technology or internet services via satellite) offers an equivalent solution to users [15] , it defined the relevant market as the market for products and services allowing for internet connections through DSL technology [16] .

Regarding to the subsequent question of whether the Claimant has a dominant position in the above market, the Court first made clear that ownership of a SEP does not per se establish such condition [17] . The fact that a patent is essential to a standard does neither give rise to the (rebuttable) presumption that the SEP holder can distort competition in downstream markets, because products complying with the standard need to use the SEP [17] . Since a high number of patents is usually declared as standard essential, not every SEP can actually (significantly) affect the competitiveness of products or services in downstream markets; the effect of each SEP on a downstream market has, therefore, to be established on a case-by-case basis by taking into account the circumstances of each individual case [17] .

The Court explained that a dominant market position is given, when the use of the SEP is required for entering the market, particularly for securing the general technical interoperability and compatibility of products or services under a standard [17] . The same is true, if the patent user could not market competitive products or services without a licence (for instance, because only a niche market exists for non-compliant products) [17] . No market dominance exists, however, when the SEP covers a technology which is only of little importance to the majority of the buyers in the relevant market [17] .

According to the Court, the latter was not the case here; on the contrary, the Defendant cannot offer competitive products or services in the market for DSL internet connections, without using the SEP in suit [18] .

2. Huawei framework

In the Court’s view, the parties to SEP licensing negotiations need to fulfill the mutual conduct obligations under the Huawei framework step by step and one after another [19] . The Court did not see any flaws in the parties’ conduct with respect to the first two steps of the Huawei framework (SEP holder’s notification of infringement and SEP user’s declaration of willingness to obtain a licence), held, however, that the Claimant did not meet its consequent obligation to make a FRAND licensing offer to the Defendant [20] .

Notification of infringement

The Court found that the Claimant had fulfilled its obligation to notify the Defendant about the infringing use of the SEP in suit prior to the commencement of the injunction proceedings [21] .

First, the Court pointed out that a respective notification (as well as a later licensing offer) can be made by the SEP holder itself, or by any other affiliated company within the same group of companies, especially by the patent holder’s parent company [22] . On the other hand, it is not required that the infringement notification is addressed to the company that will later be party to the infringement proceedings; in general, it is sufficient to address the notification to the parent company within a group of companies [22] .

In terms of content, the notification of infringement must name the patent in suit (including the patent number) and indicate the contested embodiments as well as the (allegedly) infringing acts of use [23] . A detailed (technical and/or legal) explanation of the infringement (particularly an analysis of how the individual features of the patent claims are infringed) is not required; the addressee needs just to be put in the position to assess the infringement allegations, if necessary by seeking expert advice [23] . In this context, the Court disagreed with the District Court of Mannheim which had requested the SEP holder to inform the user about the essentiality of the patent to the standard and/or attach claim charts to the notification of infringement [23] .

In terms of timeliness, the Court took the view that the notification of infringement can be made alongside with SEP holder’s offer for a FRAND licence to the user (prior to the initiation of court proceedings) [24] . In this case, the second step under the Huawei framework will be skipped (that is the SEP user’s declaration of its willingness to obtain a licence). According to the Court, this fact does not, however, have an impact on the SEP holder’s position: If the SEP user is willing to enter into a licence, this approach would safe time (although the SEP user should be granted more time than usual to assess and react to both the notification of infringement and the FRAND offer) [24] . If, on the other hand, the SEP user is unwilling to obtain a FRAND licence, then the SEP holder will just have made a licensing offer absent a respective obligation under the Huawei framework [24] .

In the present case, the fact that the Claimant did not make a separate notification of infringement prior to the initiation of the injunction proceedings, was not considered problematic. The Court pointed out that the Defendant was fully informed about the infringement allegation by the action for damages raised by the Claimant long before the injunction proceedings, so that a separate notification was not required [25] .

Willingness to obtain a FRAND licence

The Court further found that the Defendant had fulfilled its Huawei obligation to express its willingness to obtain a FRAND licence [26] .

In terms of content, no high demands should be placed on the SEP user’s respective declaration; it is not subject to formal requirements and can be of a general nature, as long as the willingness to obtain a licence is clearly stated [27] . Given the circumstances of the specific case, even an implicit behaviour can suffice [27] .

In terms of timeliness, the Court held that a strict deadline, within which the SEP user ought to make its declaration, cannot be set [28] . The respective time frame must be determined on a case-by-case basis under consideration of the circumstances of each case [28] . If the SEP holder’s notification of infringement contains only the minimum required information, a reaction within a period of five or even three months at the most could be expected [28] . In case that the infringement notification contains information going beyond the required minimum, an even quicker reaction could be required from the SEP user under certain circumstances [28] .

In the present case, the Court held that the Defendant has implicitly declared its willingness to enter into a FRAND licence with the Claimant at the latest at the point in time, in which the injunction proceedings were initiated [29] . At that time, the Defendant had already made a counter-offer for a FRAND licence to the Claimant and had also provided security for the use of Claimant’s patents [30] .

In this context, the Court noted that neither the fact that the Defendant contested Claimant’s claims in the parallel liability proceedings not the fact that it raised an action for declaratory judgement against the Claimant before the Dublin High Court can support the argument that the Defendant has deviated from its previous declaration of willingness [31] .

SEP holder’s licensing offer

The Court held that the offer which the Claimant made to the Defendant in course of the injunction proceedings was not FRAND [32] . Since the Claimant expressly relied only on this offer to establish its compliance with the Huawei framework, the Court did not assess the FRAND conformity of the two previous offers of the Claimant to the Defendant [5] .

In terms of timeliness, the Court stressed out that the SEP holder must make a FRAND licensing offer to the user before the initiation of infringement proceedings [33] . Under German procedural law, proceedings are initiated after the claimant has made the required advance payment on costs, even if the statement of claims has not been served to the defendant, yet [34] .

The Court did not rule out that SEP holder’s failure to fulfil its Huawei obligations prior to the commencement of infringement proceedings can be remedied during the course of the proceedings [35] . Depending on the circumstances of each case, the SEP holder should be given the opportunity – within the limits of procedural deadlines – to react to (justified) objections of the SEP user and eventually modify its offer [35] . Denying the SEP holder this opportunity without exceptions would be contrary to the principle of procedural economy; the patent holder would be forced to withdraw its pending action, make a modified licensing offer to the patent user and, subsequently, sue the latter again [35] . In this context, the Court explained that failure to meet the Huawei obligations does not permanently impair SEP holder’s rights [36] . Notwithstanding the above, the Court made, however, clear that the possibility of remedying a flawed licensing offer is subject to narrow limits; the CJEU intended to relieve licensing negotiations between SEP holder and SEP user from the burden imposed on parties by ongoing infringement proceedings, and particularly the potential undue pressure to enter into a licensing agreement which such proceedings can put on the SEP user [37] .

Against this background, the Court expressed doubts that the Claimant’s licensing offer, which was made in the course of the pending injunction proceedings could be considered as timely [7] . Nevertheless, the Court left this question open, because, in its eyes, the Claimant’s offer was not FRAND in terms of content [38] .

The Court did not deem necessary to decide whether the FRAND conformity of the SEP holder’s offer must be fully assessed in infringement proceedings, or whether only a summary assessment of its compatibility with FRAND suffices [39] . In the Court’s view, Claimant’s offer was anyway both not fair and discriminatory [40] .

Fair and reasonable terms

The Court held that the licensing terms offered by the Claimant to the Defendant were not fair and reasonable [41] .

First, the terms did not adequately consider the effects of patent exhaustion [42] . As a rule, FRAND requires licensing offers to contain respective provisions [43] . The clause contained in Claimant’s offer, establishing the possibility of a reduction of the royalties owed by the Defendant in case of the exhaustion of licensed patents, is not fair, because it puts the burden of proof regarding to the amount of the reasonable reduction of the royalties on the Defendant’s shoulders [44] .

Second, the clause, according to which Defendant’s payment obligations regarding to past uses of the SEP in suit should be finally settled without exceptions and/or the possibility to claim reimbursement, was also considered not fair [45] . The Defendant would be obliged to pay royalties for past uses, although it is not clear whether the Claimant is entitled to such payments [46] .

Third, the Court found that the exclusion of the Defendant’s wholesale business from Claimant’s licensing offer was also not fair [47] . According to the principle of contractual autonomy, patent holders are free to choose to which stage of the distribution chain they offer licences [48] . In the present case, however, excluding a significant part of the Defendant’s overall business, namely the wholesale business, from the licensing offer, hinders a fair market access [48] .

Non-discrimination

Besides from the above, the Court ruled that the Claimant’s offer was discriminatory [49] .

To begin with, the Court stressed out that FRAND refers to a range of acceptable royalty rates: As a rule, there is not only a single FRAND-compliant royalty rate [39] . Furthermore, as far as a corresponding commercial/industry practice exists, offers for worldwide portfolio licences are, in general, in line with the Huawei framework, unless the circumstances of the individual case require a different approach (for instance a limitation of the geographical scope of the licence, in case that the user is active only in a single market) [50] .

Furthermore, the Court explained that the non-discriminatory element of FRAND does not oblige the SEP holder to treat all users uniformly [51] . The respective obligation applies only to similarly situated users, whereas exceptions are allowed, provided that a different treatment is justified [51] . In any case, SEP holders are obliged to specify the royalty calculation in a manner that allows the user to assess whether the offered conditions are non-discriminatory or not. The respective information needs to be shared along with the licensing offer; only when the SEP user has obtained this information a licensing offer triggering an obligation of the latter to react is given [52] .

In the Court’s view, presenting all existing essential licensing agreements concluded with third parties, covering the SEPs in suit or a patent portfolio including said SEPs (comparable agreements), has priority over other means for fulfilling this obligation [53] . In addition, SEP holders have to produce also court decisions rendered on the FRAND-conformity of the rates agreed upon in the comparable agreements, if such decisions exist [54] .

Whether presenting comparable agreements (and relevant case law) suffices for establishing the non-discriminatory character of the offered royalty rates depends on the number and the scope of the available agreementsI [55] . In case that no or not enough comparable agreements exist, SEP holders must (additionally) present decisions referring to the validity and/or the infringement of the patents in question and agreements concluded between other parties in the same or a comparable technical field, which they are aware of [56] . If the SEP in suit is part of a patent portfolio, SEP holders must also substantiate the content of the portfolio and its impact on the offered royalty rates [57] .

Having said that, the Court pointed out that an unequal treatment resulting in a discrimination in antitrust terms is not only at hand, when a dominant patent holder grants preferential terms to specific licensees, but also when it chooses to enforce its exclusion rights under a SEP in a selective manner [58] . The latter is the case, when the SEP holder brings infringement actions only against certain competitors and, at the same time, allows other competitors to use its patent(s) without a licence [58] . However, such a conduct is discriminatory only if, depending on the overall circumstances of each case (for instance, the extend of the infringing use and the legal remedies available in the country, in which claims need to be asserted), it would have been possible for the SEP holder with reasonable efforts to enforce its patent rights against other infringers (which it was or should have been aware of) [58] . In favour of an equal treatment of competitors, the level of action which must be taken by the SEP holder in this respect should not be defined narrowly [58] . However, it has to be taken into account, that – especially in the early stages of the implementation of a standard – the SEP holder will usually not have the means required to enforce its rights against a large number of infringers; in this case, the choice to enforce its rights only against infringers with market strength first appears reasonable [59] .

Based on the above considerations, the Court ruled that the Claimant’s choice to sue only the Defendant and its two main competitors, without asserting the SEP in suit against the rest of their competitors, respectively against their suppliers, was discriminatory [60] . The Claimant should have already, at least, requested the companies, against which no action was filed, to obtain a licence, particularly since the remaining period of validity of the SEP in suit is limited [61] . Furthermore, the Court found that the Claimant’s refusal to make a licensing offer to the Intervener, although the latter had requested for a licence, was also discriminatory; in the Court’s view, the Claimant failed to provide an explanation justifying this choice [62] .

Since the Claimant’s offer was found to be non-compliant with FRAND, the Court refrained from ruling on the conformity of Defendant’s counter-offer and the security provided with the Huawei framework [63] .


C. Other issues

The Court ruled that in accordance with Article 30 para. 3 of the German Patent Law (PatG) the registration in the patent register establishes the presumption of ownership, allowing the entity which is registered as patent holder to assert the rights arising from the patent before court [64] .

  • [1] District Court of Düsseldorf, 11 July 2018, Case-No. 4c O 81/17Ibid, paras. 3 and 82.
  • [2] Ibid, para. 13.
  • [3] Ibid, para. 12.
  • [4] Ibid, paras. 14 and 211.
  • [5] Ibid, para. 15.
  • [6] Ibid, para. 16.
  • [7] Ibid, para. 236.
  • [8] Ibid, paras. 140 and 313 et seqq.
  • [9] Ibid, paras. 114 et seqq.
  • [10] Ibid, paras. 60 and 140.
  • [11] Huaweiv ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13.
  • [12] Ibid, para. 142.
  • [13] Ibid, para. 148.
  • [14] Ibid, paras. 153 and 146.
  • [15] Ibid, paras. 159 - 181.
  • [16] Ibid, para. 158.
  • [17] Ibid, para. 147.
  • [18] Ibid, paras. 183 et seqq.
  • [19] Ibid, para. 191.
  • [20] Ibid, para. 188.
  • [21] Ibid, paras. 195 et seqq.
  • [22] Ibid, para. 199.
  • [23] Ibid, para. 198.
  • [24] Ibid, para. 200.
  • [25] Ibid, para. 203.
  • [26] Ibid, para. 205.
  • [27] Ibid, para. 208.
  • [28] Ibid, para. 207.
  • [29] Ibid, para. 210.
  • [30] Ibid, para. 212.
  • [31] Ibid, paras. 215 et seq.
  • [32] Ibid, para. 220.
  • [33] Ibid, paras. 222 et seqq.
  • [34] Ibid, para. 225.
  • [35] Ibid, para. 233.
  • [36] Ibid, para. 228.
  • [37] Ibid, para. 230.
  • [38] Ibid, para. 237.
  • [39] Ibid. para. 241.
  • [40] Ibid, para. 242.
  • [41] Ibid, paras. 283 et seqq.
  • [42] Ibid, para. 285.
  • [43] Ibid, para. 288.
  • [44] Ibid, paras. 292 et seq.
  • [45] Ibid, paras. 298 et seqq.
  • [46] Ibid, para. 301.
  • [47] Ibid, para. 306.
  • [48] Ibid, para. 311.
  • [49] Ibid, para. 271.
  • [50] Ibid, para. 250.
  • [51] Ibid, para. 248.
  • [52] Ibid, para. 267.
  • [53] Ibid, paras. 256 and 259 et seq.
  • [54] Ibid, para. 262.
  • [55] bid, paras. 258 and 264.
  • [56] Ibid, paras. 263 and 265.
  • [57] Ibid, para. 265.
  • [58] Ibid, para. 273.
  • [59] Ibid, para. 274.
  • [60] Ibid, para. 276.
  • [61] Ibid, para. 277.
  • [62] Ibid, para. 281.
  • [63] Ibid, para. 315.
  • [64] Ibid, paras. 75 et seq.

Updated 12 March 2019

Fraunhofer-Gesellschaft (MPEG-LA) v ZTE.

LG Düsseldorf
9 November 2018 - Case No. Case-No. 4a O 15/15

A. Facts

The Claimant, Fraunhofer-Gesellschaft zur Förderung der Angewandten Forschung, holds a patent essential to the practice of the AVC/H.264 standard concerning the compression of video data (Standard Essential Patent of SEP) [65] . The patent holder committed towards the relevant standardization body to make this patent accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions. The Claimant contributed the SEP in question to a patent pool administered by MPEG LA LLC (MPEG LA), comprising more the 5,000 patents referring to the AVC/H.264 standard (MPEG LA pool) [66] .

The Defendant, a German subsidiary of a Chinese group of companies, sells – among other things – mobile phones manufactured by its parent company (parent company) which practise the AVC/H.264 standard in Germany [67] .

MPEG LA uses a standard licensing agreement, which is publicly available at its website [68] . It has signed licensing agreements with approx. 1,400 implementers [68] .

By e-mail dated 8 September 2011, MPEG LA sent a copy of its standard licensing agreement to the Defendant’s parent company and informed the latter that its “mobile handset and tablet products” infringe patents included in its “AVC patent portfolio” (without indicating, however, either the concrete patent numbers or the specific infringing products) [69] .

On 15 September 2011, the parent company asked MPEG LA to send any relevant documents by mail to its IPR Manager [70] . A copy of MPEG LA’s standard licensing agreement reached the parent company in late September 2011 [71] .

In 2012, the parent company acquired patents included in the MPEG LA pool [66] .

Since MPEG-LA and the parent company could not reach an agreement on a licence covering the MPEG LA pool [72] , the Claimant brought an action against the Defendant before the District Court of Düsseldorf in Germany (Court), requesting for injunctive relief, information and rendering of accounts, the destruction and the recall of infringing products as well as for a declaratory judgement confirming Defendant’s liability for damages on the merits [73] .

During the proceedings, the Defendant declared its willingness to obtain a licence for the patent in suit and other SEPs of the Claimant referring to the AVC/H.264 standard [74] . Moreover, the Defendant sent to MPEG LA two signed copies of MPEG LA’s standard licensing agreement, along with a statement of accounts of its past sales and a bank guarantee [75] . MPEG LA did not countersign this agreement. It insisted, instead, on a licence that would cover all companies belonging to the same group as the Defendant [76] .

With the present judgment, the Court granted Claimant’s requests.


B. Court’s reasoning

The Court held that the mobile phones sold by the Defendant in Germany infringe Claimant’s SEP in suit [77] . It also found that by filing the present suit the Claimant did not abuse its dominant market position in violation of Article 102 of the Treaty for the Functioning of the EU (TFEU), since it had fully complied with the conduct obligations stipulated by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE [78] (Huawei obligations or framework) with respect to dominant undertakings [79] .

1. Dominant market position

The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU [80] .

The Court defined the relevant market for the assessment of dominance as the market for licences for any given patent [81] . A dominant market position can further also exist, when the patent holder can hinder competition in downstream markets for standard-compliant products and services [81] .

The Court made, however, clear that ownership of a SEP does not per se establish market dominance [82] . A dominant market position is given, when the use of the SEP is required for entering the market [82] . The same is true, if the patent user could not market competitive products or services, without access to the respective SEP [82] .

Based on these considerations, the Court saw no ‘reasonable’ doubt that the Claimant was a dominant undertaking: It was undisputed that almost all mobile phones available worldwide use the AVC/H.264 standard and that no “realistic” alternative to the MPEG LA pool existed in the licensing market for patents essential to this standard [83] .

2. Huawei framework

The Court found, however, that the Claimant did not abuse its dominant position by suing the Defendant in the present case, since its conduct was in line with the Huawei framework [84] . The Huawei framework establishes mutual conduct obligations for both SEP holders and SEP users, which need to be fulfilled step by step and one after another (meaning that each party’s obligation to act arises only after the other party has fulfilled its own obligation) [85] . Subject to the Huawei framework is not only the patent holder’s claim for injunctive relief, but also the claim for the destruction of infringing products [86] .

In this context, the Court pointed out that the Huawei framework applies, irrespective of whether a ‘well-established’ licensing practice concerning the asserted patents already existed before the CJEU delivered the Huawei judgment, or not [87] . The Claimant had argued that, in the present case, the Court should apply the (German) legal standard that preceded the Huawei framework (which was based on the so-called ‘Orange-Book-Standard’ ruling of the Federal Supreme Court [88] ), since with respect to the SEP in suit a ‘routine’ practice already existed prior to the Huawei judgement [89] . The Court explained that the Huawei judgment does not contain either an explicit or an implicit limitation of its scope of application [90] . Furthermore, even if a ‘well-established’ licensing practice existed, the need to apply the Huawei framework will still be given, in order to bridge the nevertheless existing information gap between patent holder and implementer concerning the (potential) infringement of SEPs [91] . Finally, it would be very challenging for courts to distinguish whether a ‘well-established’ licensing practice excluding the application of the Huawei framework is at hand, or not [92] . Notwithstanding the above, according to the Court, the actual licensing practice of the patent holder could be of ‘particular significance’ when assessing the compliance of the latter with the Huawei obligations: Such practice could, for instance, serve as an indicator of the appropriateness of SEP holder’s licensing offer to the implementer [93] .

Having said that, the Court found no flaws in Claimant’s conduct. In the Court’s view, the Claimant had met its Huawei obligation to notify the Defendant about the infringement of its patent as well as the obligation to present the Defendant with a written licensing offer covering also the patent in suit. The Defendant, on the other hand, adequately expressed its willingness to enter into a licence, failed, however, to make a FRAND counter-offer to the Claimant. Since an adequate counter-offer was missing, the Court did not take up the question whether the bank guarantee provided by the Claimant to MPEG LA constitutes an adequate security in terms of the Huawei framework [94] .

Notification of infringement

The Court ruled that the Claimant had adequately notified the Defendant about the infringement of the SEP in suit through the e-mail sent by MPEG LA to the parent company on 8 September 2011 [95] .

The fact that this e-mail was not addressed to the Defendant, but to the parent company, did not raise any concerns as to the compatibility of the notification with the Huawei framework. The Court explained that a notification of infringement addressed only to the parent company of a group of companies is sufficient, as far as it can be assumed that the notification will be forwarded to the subsidiaries con­cerned [96] . The sole fact that a company belongs to a group justifies such an assumption, unless indications to the contrary exist [96] . This was, however, not the case here.

Besides that, the Court did not consider it inappropriate that the aforementioned e-mail was not sent to the parent company by the Claimant, but by MPEG LA (which is not the holder of the SEP in suit) [97] . The Court held that MPEG LA is entitled to perform legal actions in connection with the licensing of the MPEG LA pool on behalf of the Claimant [98] . The Defendant could not contest that this was not the case, since MPEG LA’s standard licensing agreement, which it is aware of, contains an indication about MPEG LA’s respective capacity [99] . In addition, the Defendant’s parent company was also aware of MPEG LA’s capacity to act on behalf of the Claimant, since it joined the MPEG LA pool as a patent holder in 2012 [100] .

The Court further ruled that, in terms of content, a notification of infringement must – at least – name the patent in suit (including the patent number) and indicate the contested embodiments as well as the (allegedly) infringing acts of use [101] . A detailed (technical and/or legal) explanation of the infringement is not required; the implementer needs just to be put in the position to assess the infringement allegations, if necessary, by seeking expert advice [102] . A notification of infringement is, therefore, not necessary, when it constitutes just a ‘pointless formality’ [102] . This is true, when according to the overall circumstances of the case, one can safely assume that the implementer is aware of the infringement, so that claiming that the SEP holder failed to provide adequate notification prior to the initiation of court proceedings would appear to be abusive [102] . The respective test is, however, subject to strict conditions [102] .

Based on the above considerations, the Court found that MPEG LA’s e-mail to the parent company dated 8 September 2011 should be considered – as an exception – to constitute a sufficient notification of infringement, although it did not contain the minimum information required (particularly the patent number and a reference to the specific infringing embodiments) [103] . The overall circumstances of the case (especially the fact that the parent company acquired patents included in the MPEG LA pool in 2012 and had also previously been in contact with MPEG LA regarding a standard licensing agreement) [104] , give rise to the assumption that the parent company had already been aware of the MPEG LA pool and the fact that AVC/H.264-compliant products need to be licensed [105] .

Willingness to obtain a FRAND-licence

The Court held that the parent company had adequately expressed its willingness to obtain a FRAND-licence through the e-mail sent to MPEG LA on 15 September 2011 [106] .

In the eyes of the Court, this e-mail indicates the parent company’s intention to deal with issues concerning the licensing of patents referring to the AVC/H.264 standard. This is sufficient under the Huawei framework [107] . The implementer is not required to refer to a specific licensing agreement [107] .

SEP holder’s licensing offer

The Court further found that the standard licensing agreement sent by MPEG LA to the parent company presents an offer accountable to the Claimant which is in line with the Huawei framework in terms of both form and content [108] .

The fact that the offer was addressed to the parent company and not to the Defendant was not relevant, since the parties were discussing about a licensing agreement on group level and the parent company had itself requested to receive the draft agreement [109] .

Furthermore, the fact that the draft agreement sent to the parent company did not directly provide for the licensing of all subsidiaries (including the Defendant) was also not considered as harmful [110] . Insofar, the Court held that under the Huawei framework it is, as a rule, acceptable that the patent holder enters into licensing negotiations only with the parent company within a group of companies [111] . Whether subsidiaries can (or should) also be licensed, will be the object of these negotiations [112] . An exception would apply only then, when it is made clear already at the beginning of the licensing negotiations that the offer made to the parent company cannot include its subsidiaries [113] . This was, however, not the case here, since the standard licensing agreement sent to the parent company indicates MPEG LA’s willingness to grant licences also to the subsidiaries of the former [114] .

Besides that, the Court did not consider the fact that the standard licensing agreement sent to the parent company did not cover the sale of licensed products to wholesalers and retailers (but regarded only sales to end users) to be in conflict with the Huawei framework, although the Defendant was engaged also in this business [115] . According to the Court, sales to wholesalers and retailers would be covered by the effects of patent exhaustion, even without an express provision in a potential licensing agreement [116] .

The Court further ruled that the Huawei requirement, according to which the SEP holder’s licensing offer must specify the royalty calculation, was met, although the draft standard licensing agreement sent to the parent company does not contain detailed explanation of the way the royalties were calculated [117] . In the Court’s view, the respective explanation does not require a ‘strict mathematical derivation’ of the royalty; moreover, it will, as a rule, suffice to demonstrate that the (standard) royalty rates offered have been accepted in the market by presenting existing licensing agreements with third parties (comparable agreements) [118] . If a sufficient number of comparable licences is presented, then the SEP holder will usually not be required to provide further information regarding the appropriateness of its licensing offer [118] . It will need, however, to provide information on all essential comparable agreements, in order to rule out the risk that only agreements supporting the offered royalty level are presented [118] . In this context, the Court noted that it cannot be required from the SEP holder to present all comparable agreements along with the licensing offer to the implementer; a respective industry practice does not exist [119] .

Against this background, the Court did not consider it to be harmful that the standard licensing agreement sent to the parent company by MPEG LA did not include a detailed explanation of the royalty calculation in the above sense [120] . On the one hand, the parent company was aware that this (standard) agreement had been accepted in the market by a great number of licensees [120] . On the other hand, the parent company was also adequately aware of the way the offered royalties were calculated, since it held patents included in the MPEG LA pool itself [121] .

Apart from the above, the Court held that the standard licensing agreement offered to the parent company was FRAND also in terms of content.

According to the Court, a licensing offer cannot be considered as fair and reasonable, if the patent holder requests royalties that go significantly beyond the (hypothetical) price that would have been formed in an effectively competitive market, unless there is a commercial justification for the royalty level requested [122] . Particularly in connection with the licensing of SEPs, an offer can lie outside the FRAND-scope, if the cumulative royalty burden imposed on the implementer would not be tenable in commercial terms [122] . The Court made clear that in this context, no exact mathematical derivation of a FRAND-conform royalty rate is required; moreover, an approximate value is to be determined based on assessments and estimations [122] . In this respect, comparable agreements can serve as an ‘important indicator’ of the fair and reasonable character of the offered royalty rates [122] .

Regarding to the non-discriminatory element of FRAND, the Court pointed out that it applied only to similar situated cases; an unequal treatment is allowed, as long as it is objectively justified [123] . Limitations in this context may especially occur, when the implementation of the patent is necessary for entering a downstream market or when a product becomes competitive only when it uses the patent’s teachings [123] . As a rule, the burden of proof with respect to the discriminatory character of a licensing offer rests on the implementer. Since the latter will usually not be aware of the existence or the content of comparable agreements of the patent holder, it may seem appropriate to request the patent holder to provide the implementer with respective details, as far as this is reasonable [124] . The information to be shared should cover all existing licensees and include which (concretely designated) company with which importance in the relevant market has obtained a licence on which conditions [124] .

Looking at the standard licensing agreement sent to the parent company, the Court observed that the fact the MPEG LA sought for a licence covering all companies within the group, to which the Defendant belonged, was not violating FRAND principles [125] . In the electronics and mobile communications industries, licences covering a group of companies are in line with the industry practice [126] . Patent holder have a special interest in concluding such licences particularly in cases, in which – as in the present case – the parent company manufactures products which are sold worldwide by its subsidiaries. This is because licences at group level makes sure that patent holders can enforce their rights effectively, without having to distinguish between licenced and unlicenced products within a group of companies [127] .

In addition, the Court made clear that pool licences, as the one offered to the parent company, are appropriate under the Huawei framework [128] . An offer for a pool licence cannot per se be seen as abusive (Article 101 TFEU) [129] . On the contrary, such licences usually serve the interest of potential licensees to be granted access to the whole standard on uniform conditions under one roof, without having to seek a licence from every single patent holder separately [129] .

Implementer’s counter-offer

The Court found that the Defendant failed to make a FRAND counter-offer [130] .

Sending signed copies of MPEG LA’s standard licensing agreement back to MPEG LA can be regarded as a counter-offer [131] . The fact, however, that this offer concerned a licence limited to the Defendant and, thus, not covering the parent company (and all further companies belonging to the same group) was not FRAND conform [132] . The Court accepted that licences at group level mirror the industry practice in the field in question; accordingly, no objections can be raised when a patent holder contributing its patents to a pool is willing to grant only licences covering all group companies [133] .

Since the counter-offer was not FRAND in terms of content, the Court did not have to decide, whether it was made in due time, or not [134] .

  • [65] Fraunhofer-Gesellschaft (MPEG-LA) v ZTE, District Court of Düsseldorf, judgement dated 9 November 2018, cited by www.nrwe.de, para. 56.
  • [66] Ibid, para. 58
  • [67] Ibid, para. 57
  • [68] Ibid, para. 59
  • [69] Ibid, paras. 61 et seqq. and 340
  • [70] Ibid, para. 65
  • [71] Ibid, para. 66
  • [72] Ibid, para. 73
  • [73] Ibid, para. 42
  • [74] bid, para. 74
  • [75] Ibid, paras. 75 et seq
  • [76] Ibid, para. 75
  • [77] Ibid, paras. 127 – 254
  • [78] Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13
  • [79] Fraunhofer-Gesellschaft (MPEG-LA) v ZTE, District Court of Düsseldorf, judgement dated 9 November 2018, cited by www.nrwe.de, Ibid, para. 280
  • [80] Ibid, para. 283 and paras. 291 et seqq
  • [81] Ibid, para. 286
  • [82] Ibid, para. 287
  • [83] Ibid, paras. 291 et seqq
  • [84] Ibid, para. 296
  • [85] Ibid, para. 300
  • [86] Ibid, para. 302
  • [87] Ibid, para. 308
  • [88] Under the ‘Orange-Book-Standard’ regime, in order to avoid an injunction, the implementer was required to make a licensing offer to the patent holder, which the latter could not refuse without acting in an anticompetitive manner; see Federal Supreme Court (Bundesgerichtshof), judgment dated 6 May 2009, Case No. KZR 39/06
  • [89] Ibid, para. 305
  • [90] Ibid, paras. 306 et seqq
  • [91] Ibid, para. 310
  • [92] Ibid, para. 311
  • [93] Ibid, para. 312
  • [94] Ibid, para. 421
  • [95] Ibid, para. 314
  • [96] Ibid, para. 320
  • [97] Ibid, para. 318
  • [98] Ibid, para. 329
  • [99] Ibid, paras. 336 et seq
  • [100] Ibid, para. 338
  • [101] Ibid, para. 198
  • [102] Ibid, para. 315
  • [103] Ibid, paras. 340 et seq
  • [104] Ibid, paras. 342 et seqq
  • [105] Ibid, para. 344
  • [106] Ibid, para. 346
  • [107] Ibid, para. 348
  • [108] Ibid, para. 352
  • [109] Ibid, para. 367
  • [110] Ibid, para. 369
  • [111] Ibid, para. 370
  • [112] Ibid, para. 378
  • [113] Ibid, para. 371
  • [114] Ibid, para. 374
  • [115] Ibid, para. 376
  • [116] Ibid, para. 377
  • [117] Ibid, para. 380
  • [118] Ibid, para. 381
  • [119] Ibid, para. 386
  • [120] Ibid, para. 382
  • [121] Ibid, para. 387
  • [122] Ibid, para. 391
  • [123] Ibid, para. 392
  • [124] Ibid, para. 393
  • [125] Ibid, para. 397
  • [126] Ibid, para. 398
  • [127] Ibid, para. 399
  • [128] Ibid, para. 402
  • [129] Ibid, para. 404
  • [130] Ibid, para. 410
  • [131] Ibid, para. 413
  • [132] Ibid, para. 416
  • [133] Ibid, para. 417
  • [134] Ibid, para. 411

Updated 30 October 2018

Unwired Planet v Huawei, UK Court of Appeal

English court decisions
23 October 2018 - Case No. A3/2017/1784, [2018] EWCA Civ 2344

A. Facts

The Claimant, Unwired Planet International Limited, holds a significant portfolio of patents which are essential for the implementation of the 2G/GSM, 3G/UMTS and 4G/LTE wireless telecommunications standards (Standard Essential Patents, or SEPs). The Defendants, Huawei Technologies Co. Ltd. and Huawei Technologies (UK) Co. Ltd., manufacture and sell mobile devices complying with the above standards worldwide.

Starting in September 2013, the Claimant contacted the Defendants several times, requesting the latter to engage in discussions for a licence regarding its SEP portfolio. [135] In March 2014, the Claimant sued the Defendants as well as Samsung and Google for infringement of five of its UK SEPs before the UK High Court of Justice (High Court). [136] The Claimant also initiated parallel infringement proceedings against the Defendants in Germany. [137]

The High Court conducted three technical trials first, focusing on the validity and essentiality of four of the SEPs in suit. [138] By April 2016, these trials were completed; the High Court held that two of the SEPs in suit were both valid and essential, whereas two other patents were found to be invalid. [138] The parties agreed to postpone further technical trials indefinitely. [138]

In July 2016, Samsung took a licence from the Claimant covering, among other, the SEPs in suit. [139] The Claimant also settled the infringement proceedings with Google. [140]

In late 2016, the trial concerned with questions regarding to the licensing of the SEPs in suit commenced between the Claimant and the Defendants. Over the course of these proceedings the parties made licensing offers to the each other. However, they failed to reach an agreement. The Defendants indicated they were willing to take a licence under Claimant’s UK patent portfolio, whereas the Claimant contended that it was entitled to insist upon a worldwide licence. [141]

In April 2017, the High Court granted an UK injunction against the Defendant, until such time as it entered into a worldwide licensing agreement with the Claimant on the specific rates, which the court determined to be Fair, Reasonable and Non-Discriminatory (FRAND) [142] in accordance with the undertaking given by the Claimant towards the European Telecommunications Standards Institute (ETSI). [143] Pending appeal, the High Court stayed the injunction. [144]

Shortly after the High Court delivered its decision, the Defendants began proceedings against the Claimant in China, which are still pending. [145]

With the present judgment, the UK Court of Appeal dismissed the Defendants’ appeal against the decision of the High Court. [146]


B. Court’s reasoning

The Defendants appealed the decision of the High Court on the following three grounds:

1. The High Court’s finding that only a worldwide licence was FRAND is erroneous; the imposition of such a licence on terms set by this court based on a national finding of infringement of UK patents is wrong in principle. [147]

2. The offer imposed to the Defendants by the High Court is discriminatory in violation of Claimant’s FRAND undertaking, since the rates offered are higher than the rates reflected in the licence granted by the Claimant to Samsung. [148]

3. The Claimant is not entitled to injunctive relief; by bringing the infringement proceedings against the Defendants, without meeting the requirements established by the Court of Justice of the European Union (“CJEU”) in the matter Huawei v ZTE [149] (Huawei judgment) before, the Claimant abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). [150]

Notably, the High Court’s determination of the rates which apply to the worldwide licence that the court requested the Defendants to take was not challenged by any of the parties to the proceedings. [151]


1. Worldwide licences

The Court of Appeal disagreed with the Defendants’ notion that imposing a worldwide licence on an implementer is wrong, because it amounts to an (indirect) interference with foreign court proceedings relating to patents subsisting in foreign territories, which would have been subject to materially different approaches to the assessment of FRAND royalty rates and could, therefore, lead to different results (particularly the ongoing litigation between the parties in China and Germany). [152]

The Court of Appeal explained that in imposing a worldwide licence the High Court did neither adjudicate on issues of infringement or validity concerning any foreign SEPs, nor was it deciding what the appropriate relief for infringement of any foreign SEPs might be (particularly since it made clear that a FRAND licence should not prevent a licensee from challenging the validity or essentiality of any foreign SEPs and should make provision for sales in non-patent countries which do not require a licence) [153] . [154]

Moreover, the High Court simply determined the terms of the licence that the Claimant was required to offer to the Defendants pursuant to its FRAND undertaking towards ETSI. [155] Such an undertaking has international effect. [156] It applies to all SEPs of the patent holder irrespective of the territory in which they subsist. [157] This is necessary for two reasons: first, to protect implementers whose equipment may be sold and used in a number of different jurisdictions. [157] Second, to enable SEP holders to prevent implementers from “free-riding” on their innovations and secure an appropriate reward for carrying out their research and development activities and for engaging with the standardisation process. [158]

Accordingly, the High Court had not erred in finding that a worldwide licence was FRAND. On the contrary, there may be circumstances in which only a worldwide licence or at least a multi-territorial licence would be FRAND. [159] German Courts (in Pioneer Acer [160] and St. Lawrence v Vodafone [161] ) as well as the European Commission in its Communication dated 29 November 2017 [162] had also adopted a similar approach. [163]

Having said that, the Court of Appeal recognized that it may be “wholly impractical” for a SEP holder to seek to negotiate a licence for its patents on a country-by-country basis, just as it may be “prohibitively expensive” to seek to enforce its SEPs by litigating in each country in which they subsist. [158] In addition, if in the FRAND context the implementer could only be required to take country-by-country licences, there would be no prospect of any effective injunctive relief being granted to the SEP holder against it: the implementer could avoid an injunction, if it agreed to pay the royalties in respect of its activities in any particular country, once those activities had been found to infringe. [164] In this way, the implementer would have an incentive to hold out country-by-country, until it was compelled to pay. [164]

In its discussion of this topic, the Court of Appeal disagreed with the view taken by the High Court that in every given set of circumstances only one true set of FRAND terms exists. Nevertheless, the court did not consider that the opposite assumption of the High Court had a material effect to the its decision. [165]

In the eyes of the Court of Appeal, it is “unreal” to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of licence terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances. [166] The reality is that a number of sets of terms may all be fair and reasonable in a given set of circumstances. [166] Whether there is only one true set of FRAND terms or not, is, therefore, more of a “theoretical problem” than a real one. [167] If the parties cannot reach an agreement, then the court (or arbitral tribunal) which will have to determine the licensing terms will normally declare one set of terms as FRAND. The SEP holder would then have to offer that specific set of terms to the implementer. On the other hand, in case that the court finds that two different sets of terms are FRAND, then the SEP holder will satisfy its FRAND undertaking towards ETSI, if it offers either one of them to the implementer. [167]

Furthermore, the Court of Appeal dismissed Defendants’ claim that imposing a worldwide licence is contrary to public policy and disproportionate. [168] In particular, the Defendants argued that this approach encourages over-declaration of patents [169] and is not compatible with the spirit of the Directive 2004/48/EC on the enforcement of intellectual property rights, [170] which requires relief for patent infringement to be proportionate. [171]

Although the Court of Appeal recognised the existence of the practice of over-declaration and acknowledged that it is a problem, it held that this phenomenon cannot justify “condemning” SEP holders with large portfolios to “impossibly expensive” litigation in every territory in respect of which they seek to recover royalties. [172] The court also found that there was nothing disproportionate about the approach taken by the High Court, since the Defendants had the option to avoid an injunction by taking a licence on the terms which the court had determined. [173]


2. Non-discrimination

The Court of Appeal rejected the Defendants’ argument [174] that the non-discrimination component of Claimant’s FRAND undertaking towards ETSI obliges the Claimant to offer to the Defendants the same rates as those contained in the licence granted to Samsung. [175]

The Court of Appeal made clear that the obligation of the SEP holder not to discriminate is, in principle, engaged in the present case, since the Claimant’s transaction with the Defendants is equivalent to the licence it granted to Samsung. [176] In the court’s eyes, when deciding whether two transactions are equivalent one needs to focus first on the transactions themselves. Insofar, differences in the circumstances in which the transactions were entered into, particularly economic circumstances, such as the parties’ financial position [177] or market conditions (e.g. cost of raw materials), cannot make two otherwise identical transactions non-equivalent (releasing, therefore, the patent holder from the obligation not to discriminate). Changes in such circumstances could only amount to an objective justification for a difference in treatment. [178]

Considering the specific content of the SEP holder’s respective obligation, the Court of Appeal agreed with the High Court’s finding that the non-discrimination element of a SEP holder’s FRAND undertaking does not imply a so-called “hard-edged” component (imposing on the patent holder an obligation to offer the same rate to similarly situated implementers). [179] It argued that the “hard-edged” approach is “excessively strict” and fails to achieve a balance between a fair return to the SEP owner and universal access to the technology. [180] It could have the effect of compelling the SEP holder to accept a level of compensation for the use of its invention which does not reflect the value of the licensed technology and, therefore, harm the technological development of standards. [181]

Furthermore, the “hard-edged” discrimination approach should be rejected also because its effects would result in the insertion of the “most favoured licensee” clause in the FRAND undertaking. In the view of the Court of Appeal, the industry would most likely have regarded such a clause as inconsistent with the overall objective of the FRAND undertaking. [182]

Conversely, the Court of Appeal followed the notion described by the High Court as the “general” non-discrimination approach: [183] the FRAND undertaking prevents the SEP holder from securing rates higher than a “benchmark” rate which mirrors a fair valuation of its patent(s), but it does not prevent the patent holder from granting licences at lower rates. [183] For determining the benchmark rate, prior licences granted by the SEP holder to third parties will likely form the “best comparables”. [184]

The Court of Appeal argued that the “general” approach is in line with the objectives of the FRAND undertaking, since it ensures that the SEP holder is not able to “hold-up” implementation of the standard by demanding more than its patent(s) is worth. [185] However, the FRAND undertaking does not aim at leveling down the royalty owed to the SEP holder to a point where it no longer represents a fair return for its patent(s), or to removing its discretion to agree royalty rates lower than the benchmark rate, if it chooses to do so. [185]

In this context, the Court of Appeal made clear that it does not consider differential pricing as per se objectionable, since it can in some circumstances be beneficial to consumer welfare. [186] The court sees no value in mandating equal pricing for its own sake. On the contrary, once the hold-up effect is dealt with by ensuring that licences are available at the benchmark rate, there is no reason for preventing the SEP holder from charging less than the licence is worth. [186] Should discrimination appear below the benchmark rate, it should be addressed through the application of competition law; as long as granting licences at rates lower than the benchmark rate causes no competitive harm, there is no reason to assume that the FRAND undertaking constrains the ability of the SEP holder to do so. [187]


3. Abuse of dominant Position / Huawei v ZTE

The Court of Appeal further rejected Defendants’ argument that, by bringing the infringement proceedings prior to fulfilling the obligations arising from the Huawei judgment, the Claimant abused its dominant market position in violation of Article 102 TFEU. [188]

To begin with, the Court of Appeal confirmed the finding of the High Court that the Claimant held a dominant market position and dismissed the respective challenge by the latter. [189] It did not find any flaw in the High Court’s view that the SEP holder has a 100% market share with respect to each SEP (since it is “common ground” that the relevant market for the purpose of assessing dominance in the case of each SEP is the market for the licensing of that SEP [190] ) and that the constrains imposed upon the SEP holder’s market power by the limitations attached to the FRAND undertaking [191] and the risk of hold-out that is immanent to the structure of the respective market, [192] can either alone or together rebut the assumption that it most likely holds market power. [193]

Notwithstanding the above, the Court of Appeal held that the Claimant had not abused its market power in the present case. [194]

The court agreed with the finding of the High Court that the Huawei judgment did not lay down “mandatory conditions”, in a sense that that non-compliance will per se render the initiation of infringement proceedings a breach of Article 102 TFEU. [195] The language used in the Huawei judgment implies that the CJEU intended to create a “safe harbor”: if the SEP holder complies with the respective framework, the commencement of an action will not, in and of itself, amount to an abuse. [196] If the SEP holder steps outside this framework, the question whether its behaviour has been abusive must be assessed in light of all of the circumstances. [197]

In the court’s eyes, the only mandatory condition that must be satisfied by the SEP holder before proceedings are commenced, is giving notice to the implementer about the infringing use of its patents. [198] This follows from the clear language used by the CJEU with respect to this obligation. [199] The precise content of such notice will depend upon all the circumstances of the particular case. [199] In general, if an alleged infringer is familiar with the technical details of the products it is dealing and the SEP it may be infringing, but has no intention of taking a licence on FRAND terms, it will not be justified to deny the SEP holder an injunction, simply because it had not made a formal notification prior to the commencement of proceedings. [200]

On the merits, the court accepted the High Court’s assessment that the Claimant had not behaved abusively and particularly the finding, that the Defendants, who were in contact with the Claimant prior to the proceedings, had sufficient notice that the Claimant held SEPs which ought to be licensed, if found infringed and essential. [201]

Considering further that the respective conduct requirements were not established at the point in time, in which the infringement action was filed (since the present proceedings were initiated before the CJEU delivered the Huawei judgment), the Court of Appeal noted that it would very likely not be fair to accuse the Claimant of abusive behavior. [202] Insofar the court agreed with the respective approach developed by German courts in co-called “transitional” cases (Pioneer v Acer, [203] St. Lawrence v Vodafone [203] and Sisvel v Haier [204] ) [205] .

  • [135] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, Case-No. A3/2017/1784, [2018] EWCA Civ 2344, para. 233.
  • [136] Ibid, para. 6 et seqq.
  • [137] Ibid, para. 233.
  • [138] Ibid, para. 7.
  • [139] Ibid, paras. 8 and 137 et seqq.
  • [140] Ibid, para. 8.
  • [141] Ibid, para. 9 et seqq.; para. 31 et seqq.
  • [142] Ibid, para 17.
  • [143] Ibid, para 130.
  • [144] Ibid, para 18.
  • [145] Ibid, para 112.
  • [146] Ibid, para 291.
  • [147] Ibid, paras. 19 and 45 et seqq.
  • [148] Ibid, paras. 20 and 132 et seqq.
  • [149] Huawei v ZTE, Court of Justice of the European Union, judgement dated 16 July 2015, Case No. C-170/13.
  • [150] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 21, paras. 211 et seqq and para. 251.
  • [151] Ibid, para. 17.
  • [152] Ibid, paras. 74 and 77 et seq.
  • [153] Ibid, para. 82.
  • [154] Ibid, para. 80.
  • [155] Ibid, para. 79 et seq.
  • [156] Ibid, para. 26.
  • [157] Ibid, para. 53.
  • [158] Ibid, para. 54 et seq., para. 59.
  • [159] Ibid, para. 56.
  • [160] Pioneer v Acer, District Court of Mannheim, judgement dated 8 January 2016, Case No. 7 O 96/14.
  • [161] St. Lawrence v Vodafone, District Court of Düsseldorf, judgement dated 31 March 2016, Case No. 4a O 73/14.
  • [162] Communication From the Commission to the European Parliament, the Council and the European Economic and Social Committee, “Setting out the EU Approach to Standard Essential Patents”, 29 November 2017, COM(2017) 712 final.
  • [163] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 74.
  • [164] Ibid, para. 111.
  • [165] Ibid, para. 128.
  • [166] Ibid, para. 121.
  • [167] Ibid, para. 125.
  • [168] Ibid, para. 75.
  • [169] Ibid, para. 92
  • [170] Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights (Official Journal of the EU L 195, 02/06/2004, p. 16)
  • [171] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 94.
  • [172] Ibid, para. 96.
  • [173] Ibid, para. 98.
  • [174] Ibid, para. 20 and 132 et seqq.
  • [175] Ibid, paras. 207 and 210.
  • [176] Ibid, para. 176.
  • [177] Ibid, para. 173.
  • [178] Ibid, para. 169 et seq.
  • [179] Ibid, paras. 194 et seqq.
  • [180] Ibid, para. 198.
  • [181] Ibid, para. 198.
  • [182] Ibid, para. 199.
  • [183] Ibid, para. 195.
  • [184] Ibid, para. 202.
  • [185] Ibid, para. 196.
  • [186] Ibid, para. 197.
  • [187] Ibid, para. 200.
  • [188] Ibid, para. 21, paras. 211 et seqq and para. 251.
  • [189] Ibid, para. 212.
  • [190] Ibid, para. 216.
  • [191] Ibid, para. 219.
  • [192] Ibid, para. 220.
  • [193] Ibid, para. 229.
  • [194] Ibid, para. 284.
  • [195] Ibid, para. 269.
  • [196] Ibid, para. 270.
  • [197] Ibid, para. 269 and 282.
  • [198] Ibid, para. 253 and 281.
  • [199] Ibid, para. 271.
  • [200] Ibid, para. 273.
  • [201] Ibid, para. 284
  • [202] Ibid, para. 275
  • [203] See above
  • [204] Sisvel v Haier, Higher District Court of Düsseldorf, judgement dated 30 March 2017, Case No. 15 U 66-15.
  • [205] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 279.