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Updated 10 April 2019

Huawei v ZTE

CJEU decisions
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 9 November 2020

Sharp v Daimler

LG Munich
10 September 2020 - Case No. 7 O 8818/19

A. Facts

The claimant is part of the Sharp group with headquarters in Japan (Sharp). Sharp holds a portfolio of patents declared as (potentially) essential to the practice of various wireless telecommunication standards (Standard Essential Patents, or SEPs) developed by the European Telecommunications Standards Institute (ETSI).

The defendant, Daimler, is a major German car manufacturer. Daimler produces and sells cars in Germany with connectivity features which implement standards developed by ETSI.

Sharp declared the patent involved in the present case as (potentially) essential for the 4G/LTE standard towards ETSI. ETSI requires right holders to commit to make patents that are or might become essential to the practice of a standard accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.

In 2017, Sharp joined the Avanci licensing platform. Avanci offers licences to SEPs reading on connectivity standards to car manufacturers based on a standard licensing agreement and fixed rates. Avanci had been in contact with Daimler about a potential licence already since September 2016 without, however, signing an agreement.

On 20 May 2019, after an initial contact, Sharp sent claim charts to Daimler mapping its SEPs – including the patent in suit – to the relevant parts of the affected standards.

On 7 June 2019, Daimler responded that it is, in principle, willing to take a licence for patents used, but asked whether Sharp offered a bilateral licence or a licence from the Avanci platform. If a bilateral licence was offered, Daimler pointed out that it assumed that its suppliers could also be licensed.

On 23 July 2019, Daimler sent a further letter to Sharp arguing that not Daimler, but its (not individually identified) suppliers should be licensed. Daimler claimed that Sharp would breach its FRAND commitment towards ETSI, in case no licences were offered to Daimler's suppliers and requested information about agreements already signed by Sharp, especially with companies supplying connectivity units to Daimler.

On 8 August 2019, Sharp responded and informed that it intended to make an individual licensing offer to Daimler. For this, Sharp requested certain information from Daimler, particularly regarding Daimler's suppliers.

On 18 September 2019, Daimler refused to provide the information requested by Sharp and referred again to its suppliers as the correct addressees for Sharp's licensing demands.

On 22 October 2019, Sharp made an offer for a bilateral FRAND licence to Daimler. This offer was not accepted.

Subsequently, Sharp filed the present infringement action against Daimler before the District Court of Munich (Court). Several of Daimler's suppliers joined the proceeding in support of Daimler.

On 17 December 2019, after the action was filed, Daimler made a counteroffer which was followed by a request towards Sharp to consent to a stay of the pending infringement proceedings. On 31 December 2019, Sharp rejected Daimler's counteroffer.

During the course of the trial, Sharp agreed with one of Daimler's suppliers that joined the proceedings on a licensing agreement. Consequently, Sharp adapted the claims asserted in trial.

With the present judgment [27] (cited by https://www.gesetze-bayern.de/Content/Document/Y-300-Z-BECKRS-B-2020-N-22577?hl=true), the Court granted an injunction against Daimler and also recognised Daimler's liability to pay damages on the merits. The Court further ordered Daimler to recall and destroy infringing products, render accounts and provide information necessary for the calculation of damages to Sharp.


B. Court's reasoning

The Court found that the patent-in-suit is essential to the practice of the 4G/LTE standard [28] and infringed [29] . For this reason, Sharp was entitled -among other claims- to injunctive relief [30] .

Daimler asserted a so-called 'FRAND-defence', basically, arguing that by filing an infringement action, Sharp abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU) and should, therefore, be denied an injunction. Among other points, it was argued that Sharp had failed to comply with the conduct requirements established by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE [31] (Huawei decision, or framework).

The Court dismissed the FRAND-defence raised by Daimler and also found that Daimler could not rely on a FRAND-defence derived from its suppliers [32] .

Abuse of market dominance

According to the Court, an abuse of market dominance by the enforcement of SEPs can occur, if the patent holder did not make 'sufficient efforts' to satisfy the 'particular responsibility' attached to its dominant position and facilitate the signing of an agreement with a licensee, which is 'in principle willing to take a licence' [33] . This requires, however, that the implementer, who already uses the protected technology without authorization by the right holder, is willing to take a licence on FRAND terms [34] . The Court explained that it cannot be requested by the SEP holder to 'impose' a licence to any standards user [34] .

Based on the above, the Court found that the initiation of the present proceedings by Sharp was not abusive in terms of Article 102 TFEU [35] . The Court did not establish whether Sharp had a dominant market position, but just assumed that this was the case [35] Nevertheless, an abuse of (assumed) dominance was not given, since Daimler had failed to adequately express willingness to obtain a licence for Sharp's SEP portfolio [36] .

Willingness

The Court explained that the implementer has to 'clearly' and 'unambiguously' declare that it is willing to sign a licence with the SEP holder 'on whatever terms are in fact FRAND' and, subsequently, engage in licensing negotiations in a 'target-oriented' manner (citing Federal Court of Justice, judgment dated 5 May 2020 – Sisvel v Haier, Case No. KZR 36/17 and High Court of Justice of England and Wales, judgment dated 5 April 2017, Case No. [2017] EWHC 711(Pat) – Unwired Planet v Huawei) [34] .

This means that the implementer should not delay licensing negotiations [37] . In the eyes of the Court, this is particularly important since implementers, which already use the patented standardized technology prior to negotiations, could have the -sole or predominant- interest to delay the signing of a licence until the expiration of the patent [37] .

Having said that, the Court found that Daimler did not behave as a 'willing' licensee [36] .

Looking at Daimler's behaviour before the counteroffer to Sharp was made, the Court held that a 'clear' declaration of willingness is missing [38] . In its first response to Sharp dated 7 June 2019, Daimler did not express a commitment of any kind going beyond the general willingness to discuss a licence, if Sharp's patents were used [39] . Furthermore, Daimler's letter dated 23 July 2019 did neither contain an adequate declaration of willingness, particularly since Daimler referred Sharp -without specification- to its suppliers and insisted that Sharp is obliged to license the latter [40] . The same is true with respect to the statement dated 18 September 2019, in which Daimler again referred to its suppliers and refused to provide Sharp with information necessary for drawing up a licensing offer [41] . The Court noted that although no legal obligation to share the information requested by Sharp existed, Daimler's respective refusal made clear that it did not engage in the discussions in a 'target-oriented manner', but rather aimed at delaying the negotiations [42] . This is also confirmed by the fact that Daimler's response came almost six weeks after Sharp's respective request; the Court did not see any reason why Daimler's reaction took so long [42] .

In addition, the Court noted that the finding that Daimler acted as an 'unwilling' licensee was reinforced by Daimler's overall behaviour in the discussions with the Avanci platform [43] . The Court held that for the assessment of the 'willingness' of an implementer who raises a FRAND defence the entire conduct must be taken into account, not only facts occurring, in terms of time, directly after receipt of an infringement notification [44] . The standard for the assessment of willingness should not depend on the -rather random- fact of whether the implementer was first approached by the patent holder or took the initiative to seek a licence itself, instead [45] . Although the duties established in the Huawei judgment (one of which is to react to an infringement notification by expressing 'willingness' to obtain a licence) shall, as a rule, be followed as 'steps' in the order described by the CJEU, exceptions must be allowed on a case-by-case basis, if the parties' behaviour allows for that and a purely 'formalistic' view of the Huawei framework does not appear appropriate [46] . According to the Court this was the case here, since Daimler that had been in contact with Avanci since September 2016 and had not expressed the willingness to take a licence at any point in time [47] .

The Court further found that Daimler's counteroffer dated 17 December 2019, which was made only after the infringement action was filed, could not remedy the missing willingness [48] . In the view of the Court, the fact that the counteroffer was followed by a request towards Sharp to consent to a stay of the ongoing proceedings showed, in the present case, that Daimler only aimed at causing delay; the counteroffer could, therefore, not compensate the 'massive unwillingness' which Daimler had demonstrated up to that point in time [49] . In this respect, the Court noted that the possibility to remedy flaws during pending court proceedings (e.g. by making a counteroffer), is, in principle, given, however, under increasingly stricter conditions as the trial progresses [50] .

The Court also highlighted that, in terms of content, Daimler's counteroffer did not express a willingness to obtain a licence on 'whatever terms are in fact FRAND' [51] . By using a different 'reference point' for the royalty calculation, Daimler had counteroffered only a fraction of the fees offered by Sharp or collected by Avanci from its competitors, so that the rejection of the counteroffer was 'logically necessary' [52] .

In this context, the Court made clear that for the assessment of willingness only the behaviour of Daimler was relevant [53] . What is more, Daimler could not rely on the -alleged- willingness of the suppliers that joined the proceedings to obtain a licence from Sharp, in order to avoid an injunction [54] . Accordingly, the Court did not examine whether Daimler's suppliers had indeed acted as 'willing licensees' [54] .

Non-discrimination / licensing level

Apart from the above, the Court explained that Sharp did not act in an abusive or discriminatory manner by seeking to license only Daimler as the end device manufacturer [55] .

The Court took the view that Sharp was not obliged to license Daimler's suppliers [56] . The fact that in the (German) automotive sector it is common that suppliers take licences concerning components sold to car manufacturers, does not oblige Sharp to respect and accept this practice [57] . On the contrary, as far as its products increasingly use wireless telecommunications technologies, Daimler must accept the practices prevailing in this field which include licensing also to end device manufacturers [57] .

Irrespective of this, Sharp is under no legal duty to grant licences to component manufacturers; it is only obliged to grant 'access' to the standard, on which its SEPs read [58] . The patent holders' commitment towards ETSI creates an obligation to license SEPs to third parties [59] . The Court highlighted that this does not entail, however, an obligation to grant licences at all levels of the value chain [60] . Such an obligation does not arise either from competition nor from patent or contract law in conjunction with the FRAND undertaking towards ETSI [60] .

In particular, EU competition law does not establish an obligation to license SEPs at all levels of the value chain [61] . According to the Court, patent holders are, in principle, free to choose the level of the value chain for licensing [62] . In the Huawei judgment, the CJEU pointed out that the FRAND undertaking creates 'legitimate expectations' on the part of third parties to be licensed by the patent holder. The Court held, however, that by that no obligation to license all suppliers of an end-device manufacturer is created; access to the market does not necessarily require a licence, but just a 'possibility of legal use', which can be, for instance, given through a licence granted at the last level of the value chain, from which suppliers can draw 'have-made-rights' [62] .

The Court also explained that neither patent law dictates the level of the value chain, at which SEP licences must be granted [63] . Especially the fact that not all patents contained in a SEP portfolio are necessarily exhausted at all times at the level of component manufacturers speaks for licensing at the end-device level (in addition to the more efficient 'management' of the licensing fees which is possible in this scenario) [64] .

Finally, the Court pointed out that contract law in conjunction with the FRAND undertaking towards ETSI do not impose an obligation on the patent holder to license every interested third party [65] . Under the applicable French law, Section 6.1. ETSI IPR Policy is to be understood as establishing only an obligation to negotiate a FRAND agreement in good faith with a party seeking a licence [66] . However, by referring to 'equipment', this provision addresses only end-device manufacturers, since not all components necessarily implement the standard as a whole [67] . In the eyes of the Court, the views expressed by the European Commission in different occasions in the past do not lead to a different conclusion [68]

FRAND defence raised by suppliers

The Court further found that Daimler cannot profit from a FRAND defence raised by suppliers [69] . The defendant can rely on such defence only if the patent holder is under an obligation to license the suppliers; this does not apply, however, when the defendant is in a position to sign a licence with the SEP holder itself which sufficiently considers patent exhaustion within the relevant value chain [69] .

The Court considered that this was the case here. Daimler's suppliers did not have an own claim to be granted a licence against Sharp, but a claim for a 'legally secured access' to standardised technology which cannot be considered in favour of Daimler [70] .


C. Other issues

Furthermore, the Court ruled that there are no grounds for a limitation of Sharp's claim for injunctive relief based on proportionality considerations [71] . Daimler had argued that no injunction should be granted based on the patent in suit, since the vehicles it manufactures are 'complex' products integrating a large number of components and the telematic control unit, on which Sharp's SEPs read, is of minor importance for the car.

The Court made clear that, under German law, proportionality is a general principle of constitutional rank that is to be considered also with respect to injunctive relief, if a respective objection is raised by the defendant [72] . According to the jurisprudence of the Federal Court of Justice, an injunction might not be immediately enforceable in exceptional cases, in which the implementer would suffer hardships not justified by the patent holder's exclusionary right in violation of the principle of good faith [73] .

In the eyes of the Court, any limitation of the right to injunctive relief shall come into question 'in very few exceptional cases' and must, thus, be subject to strict conditions, not least for preserving the 'legal order' as well as 'legal certainty and predictability' [74] . A case-by-case assessment of all relevant facts must take place, whereas the overall substantive and procedural framework (including e.g. the need to provide security for the enforcement of first-instance injunctions) should be considered [74] . The Court explained that only hardships going beyond the usual consequences of an injunction can be taken into account [74] . It should be expected from the infringer to make efforts towards the signing of a licence as soon as possible and take precautions against a potential injunction after receipt of an infringement notification, at the latest [74] .

Against this background, the Court noted that even if only a single component of Daimler's vehicles might be affected in the present case, the dispute revolves around the licensing of a complex patent portfolio (either Sharp's or Avanci's portfolio) [75] . The Court was further not convinced that the features enabled by Sharp's patents were of minor importance to Daimler's vehicles, since a significant part of innovation referring to 'connected cars' relates from both technical and economic angle closely to mobile telecommunications technologies [76] . Finally, the Court also criticized the fact that Daimler did not make serious efforts for signing a licence with Sharp or Avanci [77] .

  • [27] Sharp v Daimler, District Court of Munich, judgment dated 10 September 2020, Case-No. 7 O 8818/19
  • [28] Ibid, paras. 68 et seqq
  • [29] Ibid, paras. 25 et seqq
  • [30] Ibid, para. 90
  • [31]  Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13
  • [32] Sharp v Daimler, District Court of Munich, judgment dated 10 September 2020, Case-No. 7 O 8818/19, para. 121
  • [33] Ibid, para. 124
  • [34] Ibid, para. 125
  • [35] Ibid, para. 128
  • [36] Ibid, paras. 130 et seqq
  • [37] Ibid, para. 126
  • [38] Ibid, paras. 132 et seqq
  • [39] Ibid, paras. 134 et seq
  • [40] Ibid, paras. 136 et seq
  • [41] Ibid, paras. 138 et seqq
  • [42] Ibid, para. 140
  • [43] Ibid, para. 141
  • [44] Ibid, paras. 142 et seq
  • [45] Ibid, paras. 143 et seq
  • [46] Ibid, para. 144
  • [47] Ibid, paras. 146-149
  • [48] Ibid, para. 150
  • [49] Ibid, paras. 151 and 153
  • [50] Ibid, para. 152
  • [51] Ibid, para. 154
  • [52] Ibid, paras. 154 et seqq
  • [53] Ibid, paras. 158 and 159
  • [54] Ibid, para. 158
  • [55] Ibid, paras. 161 et seqq
  • [56] Ibid, para. 162
  • [57] Ibid, para. 164
  • [58] Ibid, para. 165
  • [59] Ibid, para. 168
  • [60] Ibid, para. 169
  • [61] Ibid, paras. 170 et seqq
  • [62] Ibid, para. 171
  • [63] Ibid, paras. 173 et seq
  • [64] Ibid, para. 174
  • [65] Ibid, paras. 175 et seqq
  • [66] Ibid, paras. 177 et seqq
  • [67] Ibid, para. 178
  • [68] Ibid, paras. 180-183. The Court referred particularly to the decision of the European Commission, Case No. AT.39985 – Motorola; the Communication on the Guidelines on the applicability of Article 101 TFEU to horizontal co-operation agreements (2011/C 11/01); and the Communication on ICT Standardisation Priorities for the Digital Single Market, COM(2016) 176 final.
  • [69] Ibid, para. 167
  • [70] Ibid, para. 185
  • [71] Ibid, paras. 92-102
  • [72] Ibid, para. 93
  • [73] Ibid, para. 94
  • [74] Ibid, para. 95
  • [75] Ibid, paras. 97 et seq
  • [76] Ibid, paras. 100 et seq
  • [77] Ibid, para. 99

Updated 24 July 2020

Sisvel v Haier, Federal Court of Justice (Bundesgerichtshof)

Federal Court of Justice - BGH
5 May 2020 - Case No. KZR 36/17

A. Facts

The claimant, Sisvel, holds patents declared as (potentially) essential to the practice of several wireless telecommunications standards (Standard Essential Patents, or SEPs).

The defendants are a German and a French subsidiary of the Haier group (Haier) which has its headquarters in China. The Haier group produces and markets -among other things- electronic devices complying with the GPRS standard.

On 20 December 2012, Sisvel informed the parent company of the Haier group (Haier China) about the infringing use of Sisvel's SEPs. Sisvel provided a list of approx. 450 patents included in its portfolio and informed Haier that Sisvel offers licences for its SEPs.

On 10 April 2013, Sisvel made a commitment towards the European Telecommunications Standards Institute (ETSI) to make SEPs accessible to standards users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.

In August and November 2013, Sisvel sent further letters with information about its licensing program to Haier China. Haier China replied to Sisvel only in December 2013. It expressed the hope to have 'a formal negotiation' with Sisvel and asked for information regarding potential discounts mentioned by Sisvel in previous communications.

In August 2014, Sisvel made a licensing offer to Haier, which was rejected in September 2014. Shortly after that, Sisvel filed an infringement action against Haier before the District Court of Duesseldorf (District Court) based on a SEP covering data transmission technology under the GPRS standard (patent in suit). As a reaction to this step, Haier filed a nullity action against the patent in suit before the German Federal Patent Court in March 2015.

On 3 November 2015, the District Court granted an injunction against Haier [78] . The District Court also ordered the recall and destruction of infringing products. It further recognised Haier's liability for damages on the merits and ordered Haier to render full and detailed account of the sales of infringing products to Sisvel.

Haier appealed this decision and also requested the Higher District Court of Duesseldorf (Appeal Court) to order a stay in the enforcement of the injunction granted by the District Court. In January 2016, the Appeal Court rendered a respective order [79] .

In the appeal proceedings, Haier argued –among other things– that the District Court had not adequately taken into account the conduct requirements imposed on SEP holders by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE in a decision rendered in July 2015 (Huawei judgment), that is after Sisvel had filed the infringement action [80] . During the course of the proceedings before the Appeal Court, on 16 January 2016, Haier further declared that is was willing to take a FRAND licence from Sisvel, however, only in case that the German courts would finally confirm the validity and infringement of the patent in suit. On 23 March 2016, Haier sent another letter to Sisvel, stating that their position remained unchanged. Moreover, Haier requested claim charts with respect to all of Sisvel's patents as well as further information about the royalty calculation. In December 2016, Sisvel made a further licensing offer to Haier, which was also rejected.

By judgment dated 30 March 2017, the Appeal Court partially granted Haier's appeal [81] . It confirmed Haier's liability for damages on the merits as well as its obligation to render accounts. However, the Appeal Court held that Haier was under no obligation to recall and destroy infringing products, because Sisvel had not complied with its obligations under the Huawei judgment, especially by failing to make a FRAND licensing offer to Haier. The Appeal Court did not have to decide about the claim for injunctive relief, because the parties had agreed to settle the matter in this regard. Reason for that was that the patent in suit had expired in September 2016. Sisvel appealed the decision of the Appeal Court.

In October 2017, the Federal Patent Court narrowed certain claims of the patent in suit and, otherwise, confirmed its validity [82] . In March 2020, the Federal Court of Justice (FCJ or Court), basically, confirmed this decision in second instance [83] .

With the present judgment dated 5 May 2020 [84] (cited by https://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&sid=3abd1ba29fc1a5b129c0360985553448&nr=107755&pos=0&anz=1), the FCJ reversed the judgment of the Appeal Court. The ruling of the District Court in first instance was confirmed with respect to Sisvel's damage claims and claims for information and rendering of accounts. Sisvel's claims for the recall and destruction of infringing products were limited to products that were in the possession of Haier or had been produced or delivered until the expiration of the patent in suit in September 2016. Sisvel's claim for injunctive relief was not subject to the Court's ruling, since this claim was withdrawn in the course of the preceding proceedings before the Appeal Court after the patent in suit had lapsed.

B. Court's reasoning

The Court found that the patent in suit was essential to the GPRS standard and infringed [85] .

Furthermore, the Court held that by initiating infringement proceedings against Haier, Sisvel had not abused a dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU) [86] .

In the Court's eyes, Sisvel met its obligation under the Huawei judgment to notify Haier about the infringing use of its SEPs prior to filing the infringement action. On the other hand, Haier had failed to comply with its Huawei obligation to adequately express its willingness to enter into a licensing agreement with Sisvel. Although this fact was no longer decisive for the present case, the Court also expressed the view that Sisvel had made a FRAND licensing offer to Haier in line with the respective Huawei requirement.

Dominant market position

The Court held that Sisvel had a dominant market position within the meaning of Article 102 TFEU [87] .

The FCJ explained that a dominant market position does not arise alone from the exclusivity rights granted by a patent [88] . For this, several factors need to be considered [89] . One key factor is the relevant market. When a patent is technically essential for complying with a standard developed by a standardisation body (or a de facto standard) and technical alternatives to the standard are not available for products brought on a downstream market, relevant for the assessment of dominance is the (distinct) market, in which licences for the patent in question are offered [90] .

On this basis, the Court found that Sisvel was in a dominant market position: The patent in suit was essential to the practice of the GPRS standard and non GPRS compliant mobile phones could not compete in the (downstream) market, since neither the previous not subsequent standards generations allowed the same features [91] .

In this context, the FCJ was not convinced by Sisvel's argument that SEP holders' market dominance is restricted by the fact that standards implementers – compared to buyers in markets for goods and services – often have a stronger standing in negotiations [92] . The Court saw that –unlike buyers of goods and services– standards implementers are in the favourable position to be able to access protected technology needed for producing standard compliant products, even without an agreement with the patent holder [93] . According to the Court, however, this fact does not suffice to rule out market dominance. The extent of SEP holders' bargaining power towards individual implementers in licensing negotiations is not relevant [94] . A dominant market position is conferred by the patent holder's structural superior market power arising from the legal ability to exclude any implementer from the market by enforcing exclusivity rights [95] .

Similarly, the Court pointed out that the limitations imposed by the Huawei judgment with respect to the enforcement of SEPs likewise do not impair market dominance [96] . The Court noted that these limitations significantly weaken the bargaining position of the SEP holder, since the lever needed for negotiations on an equal footing is not available to the latter to the full extent [96] . Nevertheless, this does not suffice to question the dominant position of the patent holder, even in cases in which the implementer might engage in 'hold-out' by delaying negotiations until the patent expires [96] .

Having said that, the Court pointed out that Sisvel's dominant market position ended, when the patent in suit expired [97] . An SEP holder is no longer dominant, if the legal power to exclude infringing products from entering a (downstream) market is no longer given [97] .

Abuse of market dominance

Looking at the parties' conduct, the Court found – in contrast to the Appeal Court – that Sisvel did not abuse its dominant market position [98] .

The Court made clear that SEP holders are not per se prevented from enforcing the exclusivity rights arising from their patents [99] . The fact that a patent is standard essential does not mean that the patent holder is obliged to tolerate the use of its technology, unless it has allowed such use or was under an obligation to allow such use, as a consequence of holding a dominant market position [99] . According to the FCJ, an obligation to allow the use of SEPs does, however, not exist, when the implementer is not willing to obtain a licence on FRAND terms. A patent holder –even with a dominant market position– is not obliged to 'impose' a licence to any standards user, not least because it has no legal claim to request the signing of a licensing agreement [100] .

Against this background, the Court identified two cases, in which the assertion of exclusivity rights (claims for injunctive relief and/or the recall and destruction of infringing products) by an SEP holder can amount to an abuse of market dominance:

1. The implementer has made an unconditional licensing offer on terms which the patent holder cannot reject, without abusing its dominance or violating its non-discrimination obligation (insofar the Court repeated its previous ruling in 'Orange-Book-Standard'; judgment dated 6 May 2009 – Case No KZR 39/06) [101] ;

2. the implementer is, basically, willing to take a licence, but the SEP holder has not made 'sufficient efforts' to facilitate the signing of an agreement in line with the 'particular responsibility' attached to its dominant position [102] .

Notification of infringement

Consequently, the Court took the view that the SEP holder has an obligation to notify the implementer about the infringing use of the patent in suit prior to filing an infringement action [103] . The FCJ seems to suggest that this obligation arises, only when the implementer is not already aware of the infringement [104] .

The Court explained that technology implementers are, in principle, obliged to make sure that no third party rights are infringed, before assuming the manufacturing or sales of products [105] . However, this task is often significantly challenging, especially in the Information and Communication Technology (ICT) sector, in which a product might be affected by numerous patent rights [106] . The patent holder, who will regularly have already examined infringement, should, therefore, inform the implementer about the use of the patent before initiating court proceedings, allowing the latter to assess the need to obtain a licence on FRAND terms and, consequently, avoid an injunction [107] .

In the eyes of the Court, it will usually be sufficient to address a respective notification of infringement to the parent company within a group of companies [108] . In terms of content, the notification must name the patent(s) infringed and describe the specific infringing use and the attacked embodiments [109] . A detailed technical and legal analysis of the infringement is not required: the implementer should only be placed in a position to evaluate the infringement allegation, eventually by taking recourse to expert and/or legal advice [109] . As a rule, presenting claim charts, as it is often the case in practice, will be sufficient (but not mandatory) [109] .

Furthermore, the FCJ added that a patent holder which has provided information about the patent infringed and the standard affected can expect that the implementer will indicate within a short period of time that the information received is not sufficient for the assessment of infringement [110] . This applies also to cases, in which a number of patents and standards are involved [110] .

Taking the above into consideration, the Court found that Sisvel had given proper notification of infringement to Haier. The letter dated 20 December 2012 and the following correspondence met the relevant requirements [111] .

Willingness

Considering Haier's conduct, on the other hand, the Court found that Haier did not act as a licensee willing to obtain a FRAND licence from Sisvel [112] . In this respect, the FCJ disagreed with the respective assessment of the Appeal Court which had reached the opposite conclusion.

The Court observed that the first response of Haier China to Sisvel's notification was belated, since Haier had waited for almost one year (December 2012 – December 2013) to react [113] . An implementer taking several months to respond to a notification of infringement typically sends a signal that there is no interest in taking a licence [113] . The fact that Sisvel made a FRAND commitment towards ETSI covering the patent in suit only after the first notification to Haier in December 2012 did not change anything in the assessment of timeliness: in its letter dated 20 December 2012, Sisvel had already declared that it is prepared to offer a FRAND licence to Haier [113] . The question, whether a late response made prior to the start of infringement proceedings (as it was the case with Haier's response from December 2013) shall, nevertheless, be taken into account, when assessing parties' compliance with the Huawei judgment (as the Appeal Court had assumed) was left undecided by the FCJ [114] . In the present case, this question was not relevant, since –in terms of content – none of Haier's responses could be seen as a sufficient declaration of willingness to obtain a licence [115] .

In the Court's eyes, the implementer has to 'clearly' and 'unambiguously' declare that it is willing to sign a licence with the SEP holder 'on whatever terms are in fact FRAND' (citing High Court of Justice of England and Wales, judgment dated 5 April 2017, [2017] EWHC 711(Pat) - Unwired Planet v Huawei) [116] . The implementer is, subsequently, obliged to engage in licensing negotiations in a 'target-oriented' manner [116] . On the contrary, it is not sufficient, in response to a notification of infringement, to just demonstrate willingness to consider signing a licensing agreement or to enter into negotiations about whether and under which conditions taking a licence comes into question [116] .

On this basis, the Court found that Haier's response in December 2013, in which only the hope to have a 'formal negotiation' was expressed, was not a sufficient declaration of willingness: This declaration was neither clear not unambiguous in the above sense [117] .

Similarly, Haier's letter dated 16 January 2016 did not contain a sufficient declaration of willingness, since Haier had made the signing of a licence subject to the prior confirmation of the validity and infringement of the patent in suit by German courts [118] . Although the implementer is, in principle, allowed to preserve the right to contest the validity of a licensed patent after conclusion of a licensing agreement, the Court held that a declaration of willingness cannot be placed under a respective condition [118] .

Furthermore, the FCJ found that Haier did not sufficiently express its willingness by the letter dated 23 March 2016 either. Apart from the fact that Haier had not withdrawn the above unacceptable condition, the Court took the view that requesting the production of claim charts for all of Sisvel's patents almost three years after the receipt of the notification of infringement was an indication that Haier was only interested in delaying the negotiations until the expiration of the patent in suit [119] .

Since no adequate declaration of willingness by Haier was in place, the Court did not answer the question, whether it is possible for the implementer to fulfil this obligation after infringement proceedings have been initiated [120] .

  • [78] Sisvel v Haier, District Court of Duesseldorf, judgment dated 3 November 2015, Case No. 4a O 93/14.
  • [79] Sisvel v Haier, Higher District Court of Duesseldorf, judgment dated 13 January 2016, Case No. I-15 U 66/15.
  • [80] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [81] Sisvel v Haier, Higher District Court of Duesseldorf, judgment dated 30 March 2017, Case No. I-15 U 66/15.
  • [82] Federal Patent Court, judgment dated 6 October 2017, Case No. 6 Ni 10/15 (EP).
  • [83] Federal Court of Justice, judgment dated 10 March 2020, Case No. X ZR 44/18.
  • [84] Sisvel v Haier, Federal Court of Justice, judgment dated 5 May 2020, Case No. KZR 36/17.
  • [85] Ibid, paras. 9 et seqq. and 59.
  • [86] Ibid, para. 52.
  • [87] Ibid, para. 54.
  • [88] Ibid, para. 56.
  • [89] Ibid, paras. 57 et seqq.
  • [90] Ibid, para. 58.
  • [91] Ibid, paras. 59 et seq.
  • [92] Ibid, para. 61.
  • [93] Ibid, para. 63.
  • [94] Ibid, para. 62.
  • [95] Ibid, paras. 61 et seqq. According to the FCJ, market entry barriers are created already by the fact that the respective legal obstacles make it unreasonable for any company to enter a market, without having taken a licence before, see para. 63.
  • [96] Ibid, para. 64.
  • [97] Ibid, para. 65.
  • [98] Ibid, paras. 67 et seqq.
  • [99] Ibid, para. 69.
  • [100] Ibid, para. 70.
  • [101] Ibid, para. 71.
  • [102] Ibid, para. 72.
  • [103] Ibid, paras. 73 et seqq.
  • [104] Ibid, para. 73. According to the Court, the patent holder has to notify the standards user about the infringement of the patent, if the latter 'is not aware of the fact' that by implementing the standard the teaching of the patent is used without permission.
  • [105]  Ibid, para. 74.
  • [106] Ibid, para. 74.
  • [107] Ibid, para. 74 and 85.
  • [108] Ibid, para. 89.
  • [109] Ibid, para. 85.
  • [110] Ibid, para. 87.
  • [111] Ibid, paras. 86 et seqq.
  • [112] Ibid, paras. 91 et seqq.
  • [113] Ibid, para. 92.
  • [114] Ibid, paras. 93 et seq.
  • [115] Ibid, para. 94.
  • [116] Ibid, para. 83.
  • [117] Ibid, para. 95.
  • [118] Ibid, para. 96.
  • [119] Ibid, para. 98.
  • [120] Ibid, para. 97.

Updated 6 June 2019

Koninklijke Philips N.V. v Asustek Computers INC., Court of Appeal of The Hague

Dutch court decisions
7 May 2019 - Case No. 200.221.250/01

A. Facts

The present case concerns a dispute between Philips—a consumer electronics manufacturer and holder of a portfolio of patents declared potentially essential to the practice of various standards (Standard Essential Patents or SEPs) developed by the European Telecommunications Standards Institute (ETSI)—and Asus—a manufacturer of wireless devices, such as laptops, tablets and smartphones.

Philips had committed towards ETSI to make its SEPs accessible to users on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. In particular, in 1998 Philips had provided ETSI with a general (blanket) commitment to offer access to its SEPs on FRAND terms.

In 2013, Philips notified Asus of its portfolio reading on the 3G-UMTS and 4G-LTE wireless telecommunications standards and proposed a licensing agreement. In subsequent meetings between the parties, Philips provided further details on its patents, as well as claim charts mapping its patents on the standards on which they were reading. Philips also submitted to Asus its standard licensing agreement, which included the standard royalty rate in Philips’s licensing program and the way it is calculated.

In 2015, negotiations fell apart and Philips initiated infringement proceedings based, among others, on its European Patent 1 623 511 (EP 511) in various European jurisdictions, namely England, France, Germany. The EP 511 patent was declared by Philips to be potentially essential to the 3G-UMTS and 4G-LTE standards. The High Court of Justice of England and Wales delivered a preliminary verdict, upholding the validity of the EP 511 patent.

In the Netherlands, Philips had brought an action against Asus before the District Court of The Hague (District Court), requesting inter alia for an injunction. The District Court dismissed Philips’s request for an injunction based on the EP 511 patent. [121] Philips appealed before the Court of Appeal of The Hague (Court of Appeal).

With the present judgment, the Court of Appeal upheld the validity and essentiality of the EP 511, rejected Asus’s FRAND defence based on Article 102 TFEU, and entered an injunction against Asus for its products infringing the patent in suit. [122]

B. Court’s Reasoning

The Court of Appeal dismissed Asus’s invalidity challenge, upholding the novelty and inventiveness of the EP 511 patent. [123] Moreover, the Court of Appeal found the patent essential and infringed. [124]

The Court of Appeal went on to examine the claims put forward by Asus, namely that Philips, in initiating infringement proceedings requesting injunctive relief, had violated its contractual FRAND obligations towards ETSI and infringed Article 102 TFEU, by failing to meet the requirements set forth in the decision of the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE (Huawei requirements) [125] . In particular, Asus argued that Philips (a) failed to properly and timely disclose the EP 511 in accordance with ETSI IPR Policy, and (b) that Philips failed to comply with the Huawei requirements, because it did not clarify why its proposed terms were FRAND.

With regard to the former, the Court of Appeal found that, in declaring EP 511 as potentially essential two years after it was granted, Philips had not breached its contractual obligations under Article 4.1 ETSI IPR Policy which requires ‘timely disclosure’ of SEPs.

Starting with the general purpose underlying the ETSI disclosure obligation, the Court of Appeal found that it was not—as Asus maintained—to allow ETSI participants to choose the technical solutions with the lowest cost, since ETSI standards seek to incorporate the best available technologies. [126] Rather, the purpose of the declaration obligation was to reduce the risk of SEPs being ex post unavailable to users. [127]

Having said that, the Court of Appeal found that the general blanket declaration by Philips was sufficient to fulfil its obligations under the ETSI IPR Policy. In this regard, the Court of Appeal dismissed the argument raised by Asus that Philips’s late declaration of specific SEPs would result in over-declaration: on the contrary, the Court of Appeal held, early disclosure is more likely to include patents that are not in fact essential to ETSI standards. [128] Moreover, the Court of Appeal pointed out that Philips’s blanket declaration did not infringe Article 101 TFEU, as per the Horizontal Guidelines by the EU Commission, blanket declarations are also an acceptable form of declaration of SEPs for the purposes of EU competition law. [129]

Having dismissed Asus’s first ground for a FRAND defence, the Court of Appeal assessed the compliance of both parties with the Huawei requirements in their negotiations. The Court of Appeal noted, as a preliminary point, that the decision of the CJEU in Huawei did not develop a strict set of requirements such that patent holders that failed to abide by they would automatically infringe Article 102 TFEU. [130] For such a finding an overall assessment of the particular circumstances of the case and the parties’ conduct is necessary.

The Court of Appeal then examined Philips’s compliance with the first Huawei requirement, the proper notification to the infringer. According to the Court of Appeal, the case record showed that Philips had clearly discharged its burden to notify Asus, by submitting a list of patents that were allegedly infringed, the standards to which they were essential, and by declaring its willingness to offer a licence on FRAND terms. [131] Moreover, in further technical discussions, Philips provided more technical details on its portfolio and licensing program, including claim charts and its standard licensing royalty rate. [132] However, Asus failed to demonstrate its willingness to obtain a licence on FRAND terms. The Court of Appeal found that talks commenced always at Philips’s initiative, and that Asus was not represented in these talks by technical experts able to evaluate Philips’s portfolio. [133] The technical issues raised by Asus in negotiations were merely pretextual with a view to stall the process, or as the Court of Appeal put it a ‘behaviour also referred to as “hold-out.”’ [134]

Although the Court of Appeal held that at this point Asus was already in breach of its obligations under Huawei and thus Philips was entitled to seek an injunction, the Court went on to discuss compliance with the further steps in the Huawei framework. The Court of Appeal found that Philips’s proposal of its standard licensing agreement fully satisfied the CJEU requirements in that it was specific and explained how the how the proposed rate was calculated. [135] Moreover, the Court of Appeal held that the counteroffer submitted by Asus after the initiation of proceedings in Germany did not in itself alter the conclusion that Philips was compliant with Huawei, and thus entitled to seek an injunction. [136] Finally, the Court rejected the request on behalf of Asus to access comparable licences signed by Philips to assess the latter’s FRAND compliance. According the Court, neither the ETSI IPR Policy nor Article 102 TFEU and the Huawei framework provide a basis for such a request. [137]

  • [121] Koninklijke Philips N.V. v. Asustek Computers INC, District Court of the Hague, 2017, Case No. C 09 512839 /HA ZA 16-712.
  • [122] Koninklijke Philips N.V. v. Asustek Computers INC, Court of Appeal of The Hague, judgment 7 May 2019, dated Case No. 200.221.250/01.
  • [123] ibid, paras 4.63, 4.68, 4.75, 4.80, 4.82, 4.93, 4.100, and 4.117.
  • [124] ibid, paras 4.118 et seq.
  • [125] Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case-No. C-170/13.
  • [126] Koninklijke Philips N.V. v. Asustek Computers INC, Court of Appeal of The Hague, judgment 7 May 2019, dated Case No. 200.221.250/01, paras 4.153 et seq.
  • [127] ibid, paras 4.155 and 4.157.
  • [128] ibid, para 4.159.
  • [129] ibid, para 4.164.
  • [130] ibid, para 4.171.
  • [131] ibid, para 4.172.
  • [132] ibid.
  • [133] ibid, paras 4.172-4.179.
  • [134] ibid, para 4.179.
  • [135] ibid, para 4.183.
  • [136] ibid, para 4.185.
  • [137] ibid, paras 4.202 et seq.

Updated 9 November 2020

Nokia v Daimler

LG Mannheim
18 August 2020 - Case No. 2 O 34/19

A. Facts

The claimant is part of the Nokia group with headquarters in Finland (Nokia). Nokia is a major provider of telecommunication services and holds a significant portfolio of patents declared as (potentially) essential to the practice of various wireless telecommunication standards (Standard Essential Patents, or SEPs) developed by the European Telecommunications Standards Institute (ETSI).

The defendant, Daimler, is a German car manufacturer with a global presence. Daimler produces and sells cars in Germany with connectivity features which implement standards developed by ETSI.

Nokia declared the patent involved in the present case as essential for the 4G/LTE Standard towards ETSI. ETSI requires patent holders to commit to make patents that are or might become essential to the practice of a standard accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.

On 21 June 2016, Nokia informed Daimler about its SEP portfolio by providing a list containing all patents and patent applications which Nokia declared as (potentially) essential towards ETSI. Daimler responded that a licence could be taken under the condition that its products actually infringe Nokia's patents.

On 9 November 2016, Nokia made a first licensing offer to Daimler. On 7 December 2016, Nokia shared further information regarding its patent portfolio with Daimler. On 14 December 2016, Daimler replied that it would be more efficient to license its suppliers manufacturing the so-called 'Telematics Control Units' (TCU), which are built into Daimler's cars. From January 2017 until February 2019, Daimler did not engage in further negotiations with Nokia and also refrained from participating in discussions which Nokia had with Daimler's suppliers.

On 27 February 2019, Nokia made a second licensing offer to Daimler to which further claim-charts mapping its patents to the relevant parts of the affected standards were attached. On 19 March 2019, Daimler rejected this offer as well, basically, by arguing that the royalties for Nokia's portfolio should be calculated on basis of the components provided to Daimler by its suppliers and not the cars produced by Daimler.

Subsequently, Nokia filed several infringement actions against Daimler before the District Courts of Munich, Duesseldorf and Mannheim in Germany.

On 9 May 2019, shortly after the infringement proceedings were initiated, Daimler made a counteroffer to Nokia. Basis for the calculation of the royalties for Nokia's portfolio was the average selling price for TCUs paid by Daimler to its suppliers. Nokia rejected this counteroffer.

On 10 June 2020, Daimler made a second counteroffer to Nokia. Nokia would be able to unilaterally determine the licensing fees (in accordance with Sec. 315 of the German Civil Code). Daimler would, however, have the right to contest the fee determined before court. The second counteroffer was also rejected.

On 18 June 2020, the German Federal Cartel Office (Cartel Office) intervened in the present proceedings before the District Court of Mannheim (Court) and recommended that the Court referred certain questions concerning the nature of the FRAND commitment to the Court of Justice of the EU (CJEU). The Court did not follow the recommendation of the Cartel Office.

With the present judgment [138] (cited by www.juris.de), the Court granted an injunction against Daimler and also recognised Daimler's liability to pay damages on the merits. The Court further ordered Daimler to render accounts and provide information necessary for the calculation of damages to Nokia.


B. Court's reasoning

The Court found that Daimler infringed the patent-in-suit [139] . For this reason, Nokia was entitled -among other claims- to injunctive relief [140] .

Daimler and its suppliers that joined the proceedings asserted so-called 'FRAND-defences', arguing that by filing infringement actions, Nokia had abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU) and should, therefore, be denied an injunction. In particular, it was argued that Nokia had failed to comply with the conduct requirements established by the CJEU in the matter Huawei v ZTE [141] (Huawei decision, or framework).

The Court dismissed the FRAND-defences raised by Daimler and its suppliers as unfounded [142] .

Huawei framework

The Court made clear that SEP holders are not per se prevented from enforcing the exclusivity rights arising from their patents Ibid, para. 146. The fact that a patent is standard essential does not mean that the patent holder is obliged to tolerate the use of its technology, unless it has allowed such use or was under an obligation to allow such use, as a consequence of holding a dominant market position Ibid, para. 146.

An abuse of market dominance by the enforcement of patent rights does not occur, if the patent holder complies with its duties under the Huawei framework [144] . These duties presuppose, however, that the implementer, who already uses the protected technology without authorization by the right holder, is willing to take a licence on FRAND terms [145] . The Court explained that it cannot be requested by the patent holder to 'impose' a licence to any standards user, not least because it has no legal claim to request the signing of a licensing agreement [145] . Moreover, the 'particular responsibility' attached to its dominant position requires from the SEP holder to make 'sufficient efforts' to facilitate the signing of an agreement towards a licensee in principle willing to take a licence [146] .

Notification of infringement

According to the Court, these 'efforts' include a duty to notify the implementer about the infringement of the patent(s) involved as well as the possibility and need to take a licence prior to filing an infringement action Ibid, para. 152. Looking at the specific case, the Court found that Nokia met this obligation Ibid, paras. 151-156.

In terms of content, the notification of infringement must name the patent infringed and describe the specific infringing use and the attacked embodiments [147] . A detailed technical and legal analysis of the infringement is not required: the implementer should only be placed in a position to evaluate the infringement allegation, eventually by taking recourse to expert and/or legal advice [147] . As a rule, presenting claim charts will be sufficient (but not mandatory) [147] . The Court also pointed out that the patent holder is not required to address a separate notification of infringement to each supplier of an end-device manufactures infringing its patents [149] .

In the eyes of the Court, Nokia's e-mails dated 21 June 2016, 9 November 2016 and 7 December 2016 meet the above requirements [150] . The fact that -at least initially- Nokia did not indicate the concrete section of the standards documentation to which the patent-in-suit referred to was not considered harmful, since the notification of infringement is not required to facilitate a final assessment of infringement [151] .

Furthermore, the Court held that it was not necessary for Nokia to identify in the notification of infringement the specific components which generate connectivity according to the relevant standard, e.g. the TCUs built into Daimler's cars [152] . Since Daimler purchases and uses these components in its products, no information deficit could occur [152] .

Willingness

Moreover, the Court found that Daimler did not adequately express its willingness to enter into a FRAND licence with Nokia and could, thus, not rely on a FRAND defence to avoid an injunction Ibid, paras. 157-231.

In the Court's eyes, the implementer has to 'clearly' and 'unambiguously' declare that it is willing to sign a licence with the SEP holder 'on whatever terms are in fact FRAND' and, subsequently, engage in licensing negotiations in a 'target-oriented' manner (citing Federal Court of Justice, judgment dated 5 May 2020 – Sisvel v Haier, Case No. KZR 36/17 and High Court of Justice of England and Wales, judgment dated 5 April 2017, Case No. [2017] EWHC 711(Pat) – Unwired Planet v Huawei) [154] . The 'target-oriented' engagement of the implementer in licensing negotiations is of decisive importance: since implementers, as a rule, already use the patented standardized technology prior to the initiation of licensing negotiations, they could have an interest to delay the signing of a licence until the expiration of the patent, which, however, conflicts with the spirit of the Huawei decision [155] . Accordingly, it is not sufficient, in response to a notification of infringement, to just demonstrate willingness to consider signing a licensing agreement or to enter into negotiations about whether and under which conditions taking a licence comes into question [154] .

The Court further pointed out that making the declaration of willingness subject to conditions was not acceptable [154] . What is more, refusing to discuss about any improvement of a counteroffer made to the patent holder could also be considered as an indication of unwillingness from the side of the implementer [154] .

Based on the above, the Court took the view that by initially making the signing of a licence subject to the condition that its products actually infringe Nokia's patents, Daimler did not adequately express willingness to sign a FRAND licence [156] . The Court added that Daimler's counteroffers could neither be considered as a sufficient sign of willingness: especially the second counteroffer, giving Daimler the right to contest the royalty rates that Nokia would unilaterally set, would just postpone the actual dispute between the parties about the determination of the licensing fees to later court proceedings [157] .

The Court also held that Daimler did not act as an 'willing' licensee, since it did not engage in negotiations with Nokia, but insisted that its suppliers take a direct licence from the latter, instead [158] . Furthermore, the missing willingness of Daimler was also confirmed by its insistence on applying the average selling price of TCUs purchased by Daimler by its suppliers as base for the calculation of the licensing fees for Nokia's SEP portfolio [159] .

Calculation of FRAND fees

The Court found that the use of TCUs as the 'reference value' for the calculation of the royalty fees for Nokia's SEP portfolio was not appropriate Ibid, para. 169.

In general, there is not only a single set of FRAND terms and conditions; usually, there is a range of licensing conditions and fees which are FRAND [161] . Moreover, what can be considered as FRAND may differ from industry sector to industry sector as well as in time [161] .

The Court pointed out, however, that the patent holder must, in principle, 'be given a share' in the 'economic benefits of the technology to the saleable end product at the final stage of the value chain' [162] . Reason for that is, that the use of the protected invention 'creates the chance' to gain an 'economic profit' with the end product, which is based on the invention [162] . The Court did not agree with the notion that by considering the value of the patented technology for the end product SEP holders benefit from innovation taking place at other stages of the value chain [163] . The Court noted that there are several instruments available to make sure that this will not occur [163] .

Accordingly, the Court rejected the notion of using the so-called 'Smallest Saleable Patent Practising Unit' (SSPPU), that is the smallest technical unit integrated in a product, as base for the calculation of FRAND royalty rates [163] . The effects of patent exhaustion would prevent the SEP holder from participating in the value created at the final stage of the value chain [163] . Apart from that, this option would make it more complex to identify and avoid 'double-dipping', meaning licensing the same patent at several stages of the value chain [163] .

Having said that, the Court clarified that the above principle does not necessarily mean that licensing agreements should be signed exclusively with end-device manufacturers [164] . The Court considered that there are various possibilities to factor the value of the patented technology for the saleable end product also at other stages of a supply chain [164] .

Against this background, the Court found that the selling price of TCUs did not sufficiently mirror the value of Nokia's SEPs for the cars produced by Daimler, which are the relevant end devices in the present case [165] . The selling price of TCUs corresponds only to Daimler's respective costs [166] . Connectivity, on the other hand, allows Daimler to generate income from additional services offered to its clients, save costs and optimise R&D expenses [167] . Connectivity secures the chance to create this value [168] . In addition, the Court noted that the acceptance of the licensing model of the Avanci platform (which grants licences exclusively to car manufacturers) by several of Daimler's main competitors serves as a further indication that focusing on the value of the protected technology for the end product is reasonable also in the automotive sector [169] .


Non-discrimination

Furthermore, the Court found that the assertion of patent claims against Daimler by Nokia was not discriminatory and could, therefore, not justify Daimler's insistence that licences must be taken by its suppliers Ibid, paras. 201-212.

The Court explained that the patent holder is, basically, allowed to freely choose the stage of the supply chain, at which it will assert its rights [171] . The same is true with respect to patent holders with a dominant market position, since competition law does not per se limit this possibility [171] . What is more, a dominant patent holder is not obliged to offer all potential licensees a 'standard-rate' [171] . The non-discrimination obligation established by Article 102 TFEU intends to prevent a distortion of competition in upstream or downstream markets, but does not exclude different treatment of licensees, if sufficient justification exists [172] .

In the present case, the Court saw no indication that Nokia's claim to use the end-product as a royalty base could impact competition [173] . Especially the fact that in the automotive sector it is common that suppliers take licences for components sold to car manufacturers, does not require Nokia to change its practice, not least because the licences granted by the Avanci platform to Daimler's competitors show that the respective practice -which is prevailing in the telecommunications sector- has already been applied also in the automotive field [174] . Furthermore, the Court did not consider that the assertion of SEPs against end-device manufacturers could lead to limitations in production, sales and technical development to the detriment of consumers [175] . In this respect, the Court referred to so-called 'have-made-rights' which according to the ETSI IPR Policy should be included in a FRAND licence and allow component manufacturers to produce, sell and develop their products [176] .

SEP holder's offer / information duty

Furthermore, the Court held that Daimler could not justify its unwillingness to obtain a licence by claiming that Nokia had refused to provide sufficient information concerning its licensing offers Ibid, paras. 216 et seqq.

The Court pointed out that the SEP holder can be obliged to substantiate the FRAND conformity of its licensing request [178] . In case that the patent holder has already concluded agreements with third licensees on non-standard terms, it will be, as a rule, under a duty to disclose and present –at least– the content of the key contractual provisions in a way, which would allow the implementer to assess whether it has been offered different commercial conditions [178] . The scope and level of detail of the respective duty shall be determined on a case-by-case basis [178] .

Considering this, the Court expressed the view that Nokia had provided sufficient information to Daimler, by sharing –among other things– a study on the value of connectivity for vehicles and a licensing agreement signed with another major car manufacturer [179] . In this context, the Court denied that Nokia was under a duty to disclose licensing agreements with smartphone manufacturers to Daimler. The Court rejected the notion that the SEP holder's information duty extends to the full content of every licensing agreement previously signed and that the SEP holder is obliged to disclose all existing agreements [180] . Adding to that, the Court noted that licensing agreements from the telecommunications sector are not relevant for the assessment of FRAND conformity of licences in the automotive field [180] .

FRAND defence raised by suppliers

Apart from the above, the Court also highlighted that Daimler could not profit from the FRAND defences raised by its suppliers that joined the proceedings Ibid, paras. 232 et seqq.

The Court left the question open whether an end-device manufacturer that has been sued can, in principle, rely on a FRAND defence raised by one of its suppliers, or not. According to the Court, this would, however, in any case require that the supplier is willing to obtain a licence from the patent holder calculated on basis of the value of the patent(s) in question for the end-product (and not for the component it produces) [182] . This had not been the case in the present proceedings [183] .

The Court did not ignore that it can be challenging for suppliers to pass on the royalty fees paid to the SEP holder to their clients [184] . However, the contractual arrangements of third parties (here: the arrangements between suppliers and end-device manufacturers) should not, in the eyes of the Court, direct the SEP holder towards licencing agreements that do not allow a participation in the value created by the patented technology for the end-product [184] .


C. Other issues

Finally, the Court held that -contrary to the recommendation of the Cartel Office – there was no need to suspend the proceedings and refer certain questions revolving around whether the SEP holders' FRAND commitment establishes a direct claim for everyone within a value chain to be granted a bilateral licence (License-to-all approach), or just a claim to have access to the standardised technology (Access-to-all approach), to the CJEU.

The Court left this question open, since neither Daimler nor its suppliers were willing to obtain a licence on FRAND terms from Nokia based on the value of the protected technology for the cars manufactured by Daimler  Ibid, paras. 253 and 291. The Court also noted that the fact that the patent-in-suit would expire in few years from now would also speak against ordering a stay of the proceedings [186]

  • [138] Nokia v Daimler, District Court of Mannheim, judgment dated 18 August 2020, Case-No. 2 O 34/19
  • [139] Ibid, paras. 49-136
  • [140] Ibid, para. 138
  • [141] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13
  • [142] Nokia v Daimler, District Court of Mannheim, judgment dated 18 August 2020, Case-No. 2 O 34/19, para. 144
  • [143] Ibid, para. 146
  • [144] Ibid, para. 147
  • [145] Ibid, para. 148
  • [146] Ibid, para. 149
  • [147] Ibid, para. 152
  • [148] Ibid, paras. 151-156
  • [149] Ibid, para. 248
  • [150] Ibid, paras. 153 et seq
  • [151] Ibid, para. 154
  • [152] Ibid, para. 155
  • [153] Ibid, paras. 157-231
  • [154] Ibid, para. 158
  • [155] Ibid, para. 159
  • [156] Ibid, para. 161
  • [157] Ibid, para. 197-199
  • [158] Ibid, paras. 157, 160 and 162-164
  • [159] Ibid, paras. 160 and 165-168
  • [160] Ibid, para. 169
  • [161] Ibid, para. 170
  • [162] Ibid, para. 171
  • [163] Ibid, para. 172
  • [164] Ibid, para. 173
  • [165] Ibid, paras. 174 et seqq
  • [166] Ibid, paras. 174
  • [167] Ibid, paras. 177
  • [168] Ibid, para. 180
  • [169] Ibid, paras. 187 et seqq
  • [170] Ibid, paras. 201-212
  • [171] Ibid, para. 202
  • [172] Ibid, para. 203
  • [173] Ibid, para. 205
  • [174] Ibid, para. 210
  • [175] Ibid, para. 213
  • [176] Ibid, para. 215
  • [177] Ibid, paras. 216 et seqq
  • [178] Ibid, para. 217
  • [179] Ibid, para. 218
  • [180] Ibid, para. 230
  • [181] Ibid, paras. 232 et seqq
  • [182] Ibid, paras. 234 and 236 et seqq
  • [183] Ibid, paras. 240 et seqq
  • [184] Ibid, para. 239
  • [185]  Ibid, paras. 253 and 291
  • [186] Ibid, para. 291.

Updated 2 August 2019

Philips v Wiko, Court of Appeal of The Hague

Dutch court decisions
2 July 2019 - Case No. C/09/511922/HA ZA 16-623

A. Facts

By letter dated 13 October 2013, the Claimant, Koninklijke Philips N.V. (“Philips”), informed the Defendant, Wiko SAS (“Wiko”), that it holds patents declared essential to the UMTS and LTE mobile telecommunication standards (Standard Essential Patents or “SEPs”) towards the European Telecommunications Standards Institute (“ETSI”). The letter included a list of some of Wiko’s products and invited Wiko to discuss a FRAND licensing agreement [187] . Wiko did not react to the letter [188] .

On 28 July 2015, Philips sent Wiko claim charts and a licensing agreement [189] . The communication remained unanswered by Wiko [188] .

On 19 October 2015, Philips started the present proceedings against Wiko [190] . On 25 August 2016, Wiko made a counteroffer [191] . Since 2016, it has also provided information about worldwide units sold and blocked an amount of EUR 895.000 into an escrow account [188] .

After the present proceedings were filed, Philips brought a further action against Wiko before the District Court of Mannheim (Mannheim Court), Germany (German proceedings). On 2 March 2018, the Mannheim Court honoured Wiko’s FRAND defence and dismissed Philips’ action.

In an interlocutory decision dated 16 April 2019, the Court of Appeal of The Hague (Court) held that the patent in suit EP1 623 511 (EP 511) is valid and that Wiko is infringing this patent [192] . Wiko claimed that, as this patent is a SEP and Philips has not complied with its contractual duties, Philips is abusing its dominant position by initiating infringement proceedings against Wiko [188] .

With the present judgment, the Court granted Philips’ request for injunctive relief [193] , destruction [194] and the recall of products [195] , but partly invalidated EP 511, insofar it goes beyond the claims of the second auxiliary request [196] .

B. Court’s reasoning

German Proceedings and Lis Pendens

Since the Court of Manheim in Germany had honoured its FRAND defence, Wiko argued that Articles 29 and 30 of Brussels Regulation 1215/2012 on jurisdiction and enforcement of judgements (Brussels Regulation) are applicable and that the Court is not competent for the present case [197] .

The Court rejected this argument, underlying that each national proceedings are based on a national counterpart of a European patent. For each national counterpart, the concerned national jurisdiction is exclusively competent [198] .

The fact the same FRAND defence has been raised in the German proceedings does not prevent the Court from moving on with its proceedings. The application of Articles 29 and 30 of the Brussels Regulation on cases with same object requires that the filed claims, not the raised defences, are identical [197] .

The Court concluded that recognition of the Mannheim decision would not affect the pending proceedings, as the patents at stake were not the same [199] .

Patent essentiality and infringement

Philips had declared EP 511 as essential to HSUPA (part of UMTS standard) towards ETSI on 26 November 2009 [200] . The fact that EP 511 is essential to HSUPA was not challenged by Wiko [201] .

Moreover, the interlocutory decision of the Court dated 16 April 2019 confirmed that claims 1, 9 and 12 of EP 511 are implemented in the UMTS standard [188] .

FRAND negotiations and application of the Huawei steps

The Court considers that the Huawei decision [202] does not set up strict rules, but rather guidelines for FRAND negotiations in good faith between the parties [203] .

Regarding the first step of the Huawei decision, that is the SEP-holder’s obligation to notify the implementer of the patents at stake and the infringement [204] , the Court underlines that this approach is different than what had been previously decided in a Dutch case prior to the Huawei decision, Philips v. SK Kassetten [205] .

Moving on to the next step, the Court found that Wiko had not fulfilled its duty as it did not react to Philips’ notification [206] . The Court, therefore, held that Philips was not obliged to make a licensing offer to Wiko, before starting proceedings against Wiko [188] .

FRAND offer

Nevertheless, Philips had made an offer to Wiko on 28 July 2015 [207] . This offer was for a worldwide licence under Philips’ UMTS and LTE SEPs [208] .

Philips’ expert explained that the offered rate amounting to USD 1,0 per product (non-compliant rate) and USD 0,75 per product (compliant rate) was justified in view of all UMTS and LTE SEPs [188] .

However, Wiko argued that Philips’ offer is not FRAND for the following reasons: Philips did not specify that its offer was FRAND compliant and did not explain how the offer was FRAND [209] .

Contrary to German courts, the Court held that the Huawei steps do not imply a substantiation duty [210] , but solely the duty to specify the amount of the rate and the way it is calculated [211] . It bases this reasoning on the fact that the Huawei decision has to be read in light of a previous German decision, the Orange Book Standard decision, where the German Supreme Court decided it was up to the implementer to make a first FRAND offer [188] . The Court interprets the Huawei decision as requiring the SEP-holder, as it is in a better position to do so, to make a first FRAND offer after the implementer has demonstrated itself to be a “willing licensee” [188] . But it does not require the SEP-holder to substantiate its FRAND offer and give insights on why he believes the offer is FRAND. The Court also considers there is no duty for the SEP-holder to justify its rate in view of what other licensees are paying [212] .

Wiko also challenged specific terms of the license, i.e. the suggested duration (until expiry of the last patent), the coupling of UMTS and LTE SEPs, as well as the requested fixed licence fees [213] . The Court held, however, that Wiko did not provide any evidence to support its position that Philips’ offer is not FRAND [188] . Additionally, the Court attached importance to the fact that Philips had expressed its willingness to discuss the offer and specific circumstances with Wiko [214] . Philips had even asked Wiko to make a counteroffer, which the latter did not [215] .

The Court further pointed out that the fact that there are different terms and conditions with other parties does not necessarily imply that the offer made to Wiko is discriminatory [216] . It stressed that “non-discriminatory” does not mean that every licensee must be offered the same structure and rate; the “non-discriminatory” nature of an offer depends on the facts and circumstances of the specific case [188] .

Wiko’s counteroffer

Wiko GmbH, an entity legally independent from other Wiko entities, had made a counteroffer to Philips [217] . However, the Court did not consider this counteroffer as a counteroffer made by the Defendant of the present proceedings to Philips [188] .

Besides that, the Defendant had also made a counteroffer to Philips after the start of the present proceedings [218] . This offer was based on the following estimates: the total number of UMTS and LTE SEPs was 12.000, out of which Wiko estimated that Philips holds 97 families, and the aggregated royalty rate for all SEPs amounted to 12% [219] . Wiko derived a rate of 0.001% per SEP family and made the following counteroffer to Philips [188] :

- 0.042% for the compliant rate (EUR 0.027)

- 0.066% for the non-compliant rate (EUR 0.043)

- 0.0315% for past sales (EUR 0.020).

Subsequently, Wiko made a further offer to Philips of 0.084 (which, in Philips‘ eyes, referred to a percentage) [188] .

The Court held that Wiko’s counteroffers were not FRAND. It found that the counteroffer included too many patents into the total SEPs pool, because it included base station and infrastructure patents, while Philips portfolio was focused on cellphone patents [220] . Consequently, the Court concluded that Philips held a higher percent of SEPs than estimated by Wiko [188] . It also highlighted that Wiko did not provide any explanation with respect to a proposed discount of the initially estimated rate of 0.097% and the aggregated royalty rate [220] . The Court also noticed that, while Wiko stated Philips’ rate should account for the technical and economic value of Philips’ SEPs, this analysis was missing from Wiko’s counteroffer [221] . It added that Wiko’s counteroffer did not account for the value of Philips’ SEPs in view of other SEPs for the same standard [222] .

Abuse of a dominant position

The Court held that the Huawei case requires that the facts and circumstances of a case have to be assessed to determine if there is an abuse of a dominant position [203] . Furthermore, the Court also referred to the decision of the UK High Court of Justice in Unwired Planet v. Huawei to note that the fact that the circumstances of a case diverge from the Huawei scheme does not automatically lead to the conclusion of an abuse of a dominant position, if the SEP-holder, nonetheless, files an action against an implementer [188] .

The Court expressly pointed out that if starting proceedings is considered as an abuse of a dominant position, then implementers have no incentives to comply with the Huawei steps and can just delay the negotiations [223] .

With respect to the asserted claims for injunction and recall of products, the Court found that the facts and circumstances of this case were different from the German proceedings, where the Mannheim Court viewed Wiko as a “willing licensee” [224] .

Wiko did not demonstrate itself to be a “willing licensee”, as it did not react to Philips’ notification, and did not comply with the required Huawei steps. Therefore, the Court rejected Wiko’s FRAND defence and granted Philips’ request for an injunction and recall of products.

  • [187] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.1
  • [188] Ibidem
  • [189] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.2
  • [190] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.3
  • [191] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.4
  • [192] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 3.1
  • [193] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.1
  • [194] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.4
  • [195] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.3
  • [196] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 5.8
  • [197] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.1
  • [198] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.2
  • [199] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.3
  • [200] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraphs 4.5 and 4.6
  • [201] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.5
  • [202] Huawei v ZTE, Court of Justice of the EU, judgement dated 16 July 2015, Case No. C-170/13.
  • [203] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.14
  • [204] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.10
  • [205] Case reference: Court of The Hague, Philips v. SK Kassetten, 17 March 2019, referred to in Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.10.
  • [206] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.15
  • [207] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.16
  • [208] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.27
  • [209] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.17
  • [210] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.18 and 4.19
  • [211] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.18
  • [212] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.19
  • [213] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.31
  • [214] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraphs 4.26, 4.31, 4.32, 4.36
  • [215] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.36
  • [216] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.34
  • [217] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.20
  • [218] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 2.4
  • [219] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.38
  • [220] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.40
  • [221] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.39
  • [222] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.41
  • [223] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.21
  • [224] Court of Appeal of The Hague, judgement dated 2 July 2019, paragraph 4.22

Updated 6 October 2020

Unwired Planet v Huawei & Conversant v Huawei and ZTE, UK Supreme Court

English court decisions
26 August 2020 - Case No. [2020] UKSC 37

A. Facts

The present judgment of the UK Supreme Court (Supreme Court) addresses appeals resulting from two separate cases, both of which concern the infringement of patents declared as (potentially) essential to the practice of wireless telecommunications standards (Standard Essential Patents or SEPs) developed by the European Telecommunications Standards Institute (ETSI). Under the Intellectual Property Rights Policy of ETSI (ETSI IPR Policy), patent holders are encouraged to commit that their SEPs will be made accessible to standards users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.

Unwired Planet v Huawei

The first case involves a dispute between Unwired Planet International Limited (Unwired Planet), a company holding a portfolio of SEPs reading on several wireless telecommunications standards, and two companies of the Huawei group (Huawei), a Chinese manufacturer and vendor of -among other things- standard compliant mobile phones.

In March 2014, Unwired Planet sued Huawei as well as Samsung and a third company for infringement of five of its UK SEPs before the High Court of Justice for England and Wales (High Court). During the course of these proceedings, Unwired Planet made several licensing offers to Huawei, which, however, did not lead to the conclusion of an agreement. On the other hand, Unwired Planet signed a licence with Samsung.

On 5 April 2017, the High Court granted an injunction against Huawei, until such time as it entered into a worldwide licensing agreement with Unwired Planet on the specific terms, which the court determined to be FRAND [225] . Huawei appealed this decision. Pending appeal, the High Court stayed the enforcement of the injunction.

On 23 October 2018, the UK Court of Appeal (Court of Appeal) dismissed Huawei's appeal against the decision of the High Court [226] . Subsequently, Huawei appealed before the Supreme Court for the United Kingdom (Supreme Court or Court).

Conversant v Huawei and ZTE

The second case revolves around a dispute between the licensing company Conversant Wireless Licensing S.A.R.L. (Conversant), on the one hand, and Huawei as well as two companies of the ZTE group (ZTE), on the other hand. ZTE is a China-based group of companies manufacturing network equipment, mobile phones, and consumer electronics sold worldwide.

In 2017, Conversant brought an infringement action against Huawei and ZTE before the High Court. Conversant requested -among other claims- injunctive relief for the infringement of four of its UK patents and also asked the High Court to determine the terms of a global FRAND licence for its SEP portfolio. Both Huawei and ZTE contested the jurisdiction of the High Court to hear and decide the case and initiated proceedings in China challenging the validity of Conversant's Chinese patents.

On 16 April 2018, the High Court confirmed its jurisdiction over the dispute, including its competence to determine the terms for a global portfolio licence [227] . Huawei and ZTE appealed the decision of the High Court.

On 30 January 2019, the Court of Appeal dismissed the appeal and affirmed the jurisdiction of UK courts to determine FRAND terms for a global licence on the basis of infringement of UK patents [228] . Huawei and ZTE appealed before the Supreme Court.

With the present judgment [229] , the Supreme Court unanimously dismissed the appeals in both cases.


B. Court's reasoning

The Supreme Court identified and addressed the following five issues raised by the appeals:

1. Jurisdiction

The Supreme Court confirmed that UK courts have jurisdiction to determine the terms of a global FRAND licence for a multinational SEP portfolio and, accordingly, grant an injunction based on UK SEPs, in case a standards implementer refuses to enter into such licence [230] .

The Court held that under the ETSI IPR Policy SEP holders are not prohibited from seeking an injunction by national courts [231] . On the contrary, the possibility to stop infringement by means of an injunction granted by a national court was considered to be 'a necessary component of the balance which the IPR Policy seeks to strike', by ensuring that implementers are incentivised to negotiate a FRAND licence [231] .

Apart from granting an injunction based on UK patents, English courts can also set the terms of a global FRAND licence. In the view of the Supreme Court, the 'contractual arrangement' established by the ETSI IPR Policy gives UK courts the jurisdiction to exercise the respective power [232] .

According to the Court, the ETSI IPR Policy is 'intended to have an international effect', as it attempts to 'mirror commercial practice in the telecommunications industry' [233] . In the telecommunications industry, it is common practice to sign global licences for a portfolio of patents, 'without knowing precisely how many of the licenced patents are valid or infringed' [234] . On the one hand, the patent holder cannot know at the time of the declaration of a patent as (potentially) essential whether it will be valid and infringed by the still developing standard [234] . The implementer, on the other hand, does not know which patents are valid and infringed when using the standard [234] .

This 'unavoidable uncertainty' is dealt with by the conclusion of portfolio licences covering all declared SEPs of the patent holder worldwide, at a price which 'ought to reflect the untested nature of many patents in the portfolio' [234] . By taking such a licence, the implementer 'buys access' to the standard and 'certainty' that it has authorisation to use all technology needed to comply with the standard [234] .

Since, according to the commercial practice, FRAND licences include 'untested' patents, the Supreme Court took the view that the determination of the terms and conditions of a global licence does not imply an assessment of the validity of all patents covered. Therefore, when setting the terms of a worldwide portfolio licence, English courts do not rule on the validity and infringement of foreign patents, which is, indeed, a question subject to the exclusive jurisdiction of the national courts of the state that granted each patent [235] . Accordingly, it will, as a rule, be 'fair and reasonable' for the implementer to 'reserve the right to challenge those patents or a sample of those patents in the relevant foreign court and to require that the licence provide a mechanism to alter the royalty rates as a result' [236] .

In this context, the Supreme Court highlighted that the above approach is not unique to UK jurisprudence, but is in line with case law delivered in other jurisdictions, particularly in the United States, Germany, China and Japan [237] .


2. Suitable forum (forum conveniens)

The second issue which the Supreme Court addressed dealt also with the jurisdiction of the English courts. In the Conversant v Huawei case, the defendants had argued that English courts should have declined jurisdiction in favour of Chinese courts or at least stayed their proceedings, until the Chinese courts have decided on validity challenges raised against Conversant's Chinese patens.

The Supreme Court found that UK Courts were not obliged to decline jurisdiction in favour of the Chinese courts [238] . The so-called 'forum conveniens' doctrine was not applicable in the present case, since -unlike the courts in England- Chinese courts had currently no jurisdiction to determine the terms of global FRAND portfolio licences in the absence of an agreement of the parties to the dispute [238] . What is more, the Court found that it could reasonably not be expected by Conversant to consent in granting jurisdiction to the Chinese courts in the current setting [238] .

In the eyes of the Supreme Court, the English courts involved in the present dispute were also not obliged to stay their proceedings in expectation of the outcome of the Chinese validity proceedings [239] . The latter concerned only the validity of Conversant's Chinese patents, whereas the proceedings initiated in England referred to the determination of the terms of a FRAND licence for Conversant's global SEP portfolio [239] .


3. Non-discrimination

The third issue examined by the Supreme Court referred to the interpretation of the non-discrimination element of FRAND. In the proceedings, the question had arisen whether Unwired Planet had breached the non-discrimination prong of FRAND by offering to Huawei licensing terms less favourable than those agreed with Samsung after the start of the trial.

The Supreme Court agreed with both the High Court and the Court of Appeal and found that this was not the case. The Court explained that FRAND does not imply a so-called 'hard-edged' non-discrimination obligation, requiring from the patent holder to offer the same or similar terms to all similarly situated licensees [240] .

Under the ETSI IPR Policy (Article 6.1.), the patent holder must commit to make licences available on FRAND terms. In the eyes of the Supreme Court, this is a 'single, unitary obligation', not three distinct obligations that the licence terms should be fair, and separately, reasonable, and separately, non-discriminatory [241] . Accordingly, the terms and conditions should be 'generally available as a fair market price for any market participant' and reflect the 'true value' of the SEP portfolio, 'without adjustment depending on the individual characteristics' of a particular licensee [242] .

The Supreme Court made further clear, that the FRAND undertaking under the ETSI IPR Policy does not imply a so-called 'most favourable licence' clause, obliging patent holders to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees [243] . Looking in detail at the creation of the ETSI IPR Policy, the Court observed that ETSI had previously expressly rejected proposals to include such a clause in the FRAND undertaking [244] .

Furthermore, the Court noted that there is no 'general presumption' that differential pricing is harmful to private or public interests involved [245] . On the contrary, there are circumstances in which the SEP holder's choice to offer lower than the benchmark rates to specific licensees is reasonable in a commercial sense [246] . This applies, for instance, with respect to the so-called 'first mover advantage': The Court recognised that it can be 'economically rational' and 'commercially important' to agree a lower rate with the first ever licensee, because, apart from generating initial income on the SEPs, the licence signed can also 'validate' the portfolio in the market and facilitate licensing in the future [246] . The same is also true with respect to so-called 'fire sales', that is cases, in which the patent holder is forced to licence at lower rates in order to secure its commercial survival, as it has been the case at the time, in which Unwired Planet signed the licensing agreement with Samsung [247] .


4. Abuse of market dominance / Huawei framework

The fourth issue examined by the Supreme Court was whether, by bringing infringement proceedings against Huawei, Unwired Planet had abused a dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU) and should, therefore, be denied access to injunctive relief. In particular, Huawei had argued that an injunction should be denied, because Unwired Planet had failed to comply with the conduct requirements established by the Court of Justice of the European Union (CJEU) in the matter Huawei v ZTE (Huawei judgment or scheme) [248] .

The Supreme Court held that this was not the case [249] . In the eyes of the Court, the Huawei judgment establishes an obligation of the patent holder to notify the standards implementer about the infringing use of the SEPs in question, prior to filing an action for injunctive relief, which, if breached, results in abusive behaviour in terms of Article 102 TFEU [250] . The 'nature' of this obligation depends on the circumstances of each individual case [250] . The Court held that Unwired Planet had given adequate notice to Huawei prior to filing the present infringement action [251] .

Considering the further duties established by the Huawei judgment, the Supreme Court confirmed the view previously taken by the High Court and the Court of Appeal that the Huawei scheme is not 'mandatory', but rather establishes a 'route map, which, if followed precisely, will ensure that [the patent holder] can seek an injunction without risking infringing article 102' [252] . Other than that, the Huawei judgment provides 'a number of points of reference to assist in assessing the all-important question of whether each of the parties is willing to enter into a licence on FRAND terms' [251] . Having said that, the Supreme Court found that Unwired Planet had been willing to grant a FRAND licence to Huawei, so that it had not behaved abusively [251] .


5. Damages instead of injunctive relief?

The fifth and final issue addressed by the Court concerned the proper remedies for the infringement of SEPs. In the appeal proceedings before the Supreme Court, it was argued for the first time that the most appropriate and proportionate measure to remedy the infringement of Unwired Planet's SEPs would have been an award of damages instead of an injunction.

The Supreme Court found that there is no basis for substituting an injunction by an award of damages in the present case [253] . On the one hand, neither Unwired Planet nor Conversant could employ the 'threat of an injunction' as a means for imposing 'exorbitant fees' on Huawei or ZTE, since they would be entitled to an injunction, only if they have offered a licence on terms which the court would have already confirmed as FRAND [254] .

Furthermore, the Court took the view that an award of damages is 'unlikely to be an adequate substitute for what would be lost by the withholding of an injunction', since the SEP holder would be required to bring proceedings against an implementer patent-by-patent and country-by-country, which was considered to be 'impractical' [255] . What is more, standards implementers would then have 'an incentive to continue infringing until, patent by patent, and country by country, they were compelled to pay royalties', a fact that would make FRAND licensing more difficult, since, as the Supreme Court pointed out, 'it would not make economic sense' for infringers to voluntarily take a licence [256] .

On the other hand, an injunction 'is likely to be a more effective remedy': By prohibiting infringement altogether, an injunction may give an infringer 'little option' but to accept the FRAND terms offered by the SEP holder, 'if it wishes to remain in the market' [256] . For the above reasons, the Supreme Court highlighted that an injunction is 'necessary in order to do justice' [257] .

  • [225] Unwired Planet v Huawei, High Court of Justice for England and Wales, judgment dated 5 April 2017, Case No. [2017] EWHC 711(Pat).
  • [226] Unwired Planet v Huawei, UK Court of Appeal, judgment dated 23 October 2018, Case No. [2018] EWCA Civ 2344.
  • [227] Conversant v Huawei and ZTE, High Court of Justice for England and Wales, judgment dated 16 April 2018, Case No. [2018] EWHC 808 (Pat).
  • [228] Conversant v Huawei and ZTE, UK Court of Appeal, judgment dated 30 January 2019, Case No. [2019] EWCA Civ 38.
  • [229] Unwired Planet v Huawei and Conversant v Huawei and ZTE, UK Supreme Court, judgment dated 30 January 2019, Case No. [2019] EWCA Civ 38.
  • [230] Ibid, paras. 49 et seqq.
  • [231] Ibid, para. 61.
  • [232] Ibid, para. 58.
  • [233] Ibid, para. 62.
  • [234] Ibid, para. 60.
  • [235] Ibid, para. 63.
  • [236] Ibid, para. 64.
  • [237] Ibid, paras. 68-84.
  • [238] Ibid, para. 97.
  • [239] Ibid, paras. 99 et seqq.
  • [240] Ibid, paras. 112 et seqq.
  • [241] Ibid, para. 113.
  • [242] Ibid, para. 114.
  • [243] Ibid, para. 116.
  • [244] Ibid, paras. 116 et seqq.
  • [245] Ibid, para. 123.
  • [246] Ibid, para. 125.
  • [247] Ibid, para. 126.
  • [248] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [249] Unwired Planet v Huawei and Conversant v Huawei and ZTE, UK Supreme Court, judgment dated 30 January 2019, Case No. [2019] EWCA Civ 38, paras. 149 et seqq.
  • [250] Ibid, para. 150.
  • [251] Ibid, para. 158.
  • [252] Ibid, paras. 157 and 158.
  • [253] Ibid, para. 163.
  • [254] Ibid, para. 164.
  • [255] Ibid, para. 166.
  • [256] Ibid, para. 167.
  • [257] Ibid, para. 169.