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Updated 3 December 2018
Updated 6 June 2017
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Updated 12 March 2019
11 July 2018 - Case No. 4c O 81/17
The Claimant holds a patent essential to the data communication standards ADSL2+ and VDSL2 (Standard Essential Patent or SEP)  . The previous holder of the patent in question had declared towards the standardization organisation International Telecommunication Union (ITU) its willingness to make the patent accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions  .
The Defendant offers communication services in Germany to retail and wholesale clients, including DSL connections using the standards ADSL2+ and VDSL2  .
The Intervener supplies the Defendant with equipment (especially DSL transceivers and DSL Boards), allowing network services based on the above standards  .
In January 2016, the Claimant brought an action against the Defendant before the District Court (Landgericht) of Düsseldorf (Court) requesting for a declaratory judgement recognizing Defendant’s liability for damages arising from the infringement of its SEP as well as the provision of information and the rendering of accounts (liability proceedings)  . During the course of these proceedings, the Claimant made two offers for a licensing agreement to the Defendant. The Defendant made a counter-offer to the Claimant and provided security for the use of the SEP  . The parties failed to reach an agreement.
In June 2016, the Defendant filed an action for a declaratory judgement against the Claimant before the Dublin High Court in Ireland, requesting the High Court to declare that both Claimant’s offers were not FRAND and that Defendant’s counter-offer was FRAND  . Taking the ongoing liability proceedings in Germany into account, the Dublin High Court stayed its proceedings  .
In September 2017, the Claimant brought a second action against the Defendant before the District Court of Düsseldorf, requesting for injunctive relief (injunction proceedings)  . In February 2018, the Claimant made another licensing offer to the Defendant in the pending injunction proceedings  .
With the present judgment, the Court dismissed Claimant’s action in the injunction proceedings  .
B. Court’s reasoning
Although the Court held that the services offered by the Defendant infringe the SEP in suit  , it found that the Claimant cannot enforce its patent rights for the time being  , since it failed to fully comply with the obligations stipulated by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTEHuaweiv ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13. (Huawei obligations or framework) with respect to dominant undertakings in terms of Article 102 of the Treaty for the Functioning of the EU (TFEU)  .
1. Dominant market position
The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU  .
In the Court’s eyes, the relevant market for assessing dominance with regards to SEPs is, as a rule, the (downstream) market for products or services implementing the standard, to which the SEP refers  . Each SEP outlines an own relevant (licensing) market, unless – from the SEP users’ perspective – equivalent alternative technologies for the same technical problem exist  . Since the Court held that, in the present case, none of the existing technological alternatives to the standards ADSL2+ and VDSL2 (e.g. HFC networks, LTE, HDSL, SHDSL, ADSL, SDSL, VDSL, fibre optic networks, radio relay technology or internet services via satellite) offers an equivalent solution to users  , it defined the relevant market as the market for products and services allowing for internet connections through DSL technology  .
Regarding to the subsequent question of whether the Claimant has a dominant position in the above market, the Court first made clear that ownership of a SEP does not per se establish such condition  . The fact that a patent is essential to a standard does neither give rise to the (rebuttable) presumption that the SEP holder can distort competition in downstream markets, because products complying with the standard need to use the SEP  . Since a high number of patents is usually declared as standard essential, not every SEP can actually (significantly) affect the competitiveness of products or services in downstream markets; the effect of each SEP on a downstream market has, therefore, to be established on a case-by-case basis by taking into account the circumstances of each individual case  .
The Court explained that a dominant market position is given, when the use of the SEP is required for entering the market, particularly for securing the general technical interoperability and compatibility of products or services under a standard  . The same is true, if the patent user could not market competitive products or services without a licence (for instance, because only a niche market exists for non-compliant products)  . No market dominance exists, however, when the SEP covers a technology which is only of little importance to the majority of the buyers in the relevant market  .
According to the Court, the latter was not the case here; on the contrary, the Defendant cannot offer competitive products or services in the market for DSL internet connections, without using the SEP in suit  .
2. Huawei framework
In the Court’s view, the parties to SEP licensing negotiations need to fulfill the mutual conduct obligations under the Huawei framework step by step and one after another  . The Court did not see any flaws in the parties’ conduct with respect to the first two steps of the Huawei framework (SEP holder’s notification of infringement and SEP user’s declaration of willingness to obtain a licence), held, however, that the Claimant did not meet its consequent obligation to make a FRAND licensing offer to the Defendant  .
Notification of infringement
The Court found that the Claimant had fulfilled its obligation to notify the Defendant about the infringing use of the SEP in suit prior to the commencement of the injunction proceedings  .
First, the Court pointed out that a respective notification (as well as a later licensing offer) can be made by the SEP holder itself, or by any other affiliated company within the same group of companies, especially by the patent holder’s parent company  . On the other hand, it is not required that the infringement notification is addressed to the company that will later be party to the infringement proceedings; in general, it is sufficient to address the notification to the parent company within a group of companies  .
In terms of content, the notification of infringement must name the patent in suit (including the patent number) and indicate the contested embodiments as well as the (allegedly) infringing acts of use  . A detailed (technical and/or legal) explanation of the infringement (particularly an analysis of how the individual features of the patent claims are infringed) is not required; the addressee needs just to be put in the position to assess the infringement allegations, if necessary by seeking expert advice  . In this context, the Court disagreed with the District Court of Mannheim which had requested the SEP holder to inform the user about the essentiality of the patent to the standard and/or attach claim charts to the notification of infringement  .
In terms of timeliness, the Court took the view that the notification of infringement can be made alongside with SEP holder’s offer for a FRAND licence to the user (prior to the initiation of court proceedings)  . In this case, the second step under the Huawei framework will be skipped (that is the SEP user’s declaration of its willingness to obtain a licence). According to the Court, this fact does not, however, have an impact on the SEP holder’s position: If the SEP user is willing to enter into a licence, this approach would safe time (although the SEP user should be granted more time than usual to assess and react to both the notification of infringement and the FRAND offer)  . If, on the other hand, the SEP user is unwilling to obtain a FRAND licence, then the SEP holder will just have made a licensing offer absent a respective obligation under the Huawei framework  .
In the present case, the fact that the Claimant did not make a separate notification of infringement prior to the initiation of the injunction proceedings, was not considered problematic. The Court pointed out that the Defendant was fully informed about the infringement allegation by the action for damages raised by the Claimant long before the injunction proceedings, so that a separate notification was not required  .
Willingness to obtain a FRAND licence
The Court further found that the Defendant had fulfilled its Huawei obligation to express its willingness to obtain a FRAND licence  .
In terms of content, no high demands should be placed on the SEP user’s respective declaration; it is not subject to formal requirements and can be of a general nature, as long as the willingness to obtain a licence is clearly stated  . Given the circumstances of the specific case, even an implicit behaviour can suffice  .
In terms of timeliness, the Court held that a strict deadline, within which the SEP user ought to make its declaration, cannot be set  . The respective time frame must be determined on a case-by-case basis under consideration of the circumstances of each case  . If the SEP holder’s notification of infringement contains only the minimum required information, a reaction within a period of five or even three months at the most could be expected  . In case that the infringement notification contains information going beyond the required minimum, an even quicker reaction could be required from the SEP user under certain circumstances  .
In the present case, the Court held that the Defendant has implicitly declared its willingness to enter into a FRAND licence with the Claimant at the latest at the point in time, in which the injunction proceedings were initiated  . At that time, the Defendant had already made a counter-offer for a FRAND licence to the Claimant and had also provided security for the use of Claimant’s patents  .
In this context, the Court noted that neither the fact that the Defendant contested Claimant’s claims in the parallel liability proceedings not the fact that it raised an action for declaratory judgement against the Claimant before the Dublin High Court can support the argument that the Defendant has deviated from its previous declaration of willingness  .
SEP holder’s licensing offer
The Court held that the offer which the Claimant made to the Defendant in course of the injunction proceedings was not FRAND  . Since the Claimant expressly relied only on this offer to establish its compliance with the Huawei framework, the Court did not assess the FRAND conformity of the two previous offers of the Claimant to the Defendant  .
In terms of timeliness, the Court stressed out that the SEP holder must make a FRAND licensing offer to the user before the initiation of infringement proceedings  . Under German procedural law, proceedings are initiated after the claimant has made the required advance payment on costs, even if the statement of claims has not been served to the defendant, yet  .
The Court did not rule out that SEP holder’s failure to fulfil its Huawei obligations prior to the commencement of infringement proceedings can be remedied during the course of the proceedings  . Depending on the circumstances of each case, the SEP holder should be given the opportunity – within the limits of procedural deadlines – to react to (justified) objections of the SEP user and eventually modify its offer  . Denying the SEP holder this opportunity without exceptions would be contrary to the principle of procedural economy; the patent holder would be forced to withdraw its pending action, make a modified licensing offer to the patent user and, subsequently, sue the latter again  . In this context, the Court explained that failure to meet the Huawei obligations does not permanently impair SEP holder’s rights  . Notwithstanding the above, the Court made, however, clear that the possibility of remedying a flawed licensing offer is subject to narrow limits; the CJEU intended to relieve licensing negotiations between SEP holder and SEP user from the burden imposed on parties by ongoing infringement proceedings, and particularly the potential undue pressure to enter into a licensing agreement which such proceedings can put on the SEP user  .
Against this background, the Court expressed doubts that the Claimant’s licensing offer, which was made in the course of the pending injunction proceedings could be considered as timely  . Nevertheless, the Court left this question open, because, in its eyes, the Claimant’s offer was not FRAND in terms of content  .
The Court did not deem necessary to decide whether the FRAND conformity of the SEP holder’s offer must be fully assessed in infringement proceedings, or whether only a summary assessment of its compatibility with FRAND suffices  . In the Court’s view, Claimant’s offer was anyway both not fair and discriminatory  .
Fair and reasonable terms
The Court held that the licensing terms offered by the Claimant to the Defendant were not fair and reasonable  .
First, the terms did not adequately consider the effects of patent exhaustion  . As a rule, FRAND requires licensing offers to contain respective provisions  . The clause contained in Claimant’s offer, establishing the possibility of a reduction of the royalties owed by the Defendant in case of the exhaustion of licensed patents, is not fair, because it puts the burden of proof regarding to the amount of the reasonable reduction of the royalties on the Defendant’s shoulders  .
Second, the clause, according to which Defendant’s payment obligations regarding to past uses of the SEP in suit should be finally settled without exceptions and/or the possibility to claim reimbursement, was also considered not fair  . The Defendant would be obliged to pay royalties for past uses, although it is not clear whether the Claimant is entitled to such payments  .
Third, the Court found that the exclusion of the Defendant’s wholesale business from Claimant’s licensing offer was also not fair  . According to the principle of contractual autonomy, patent holders are free to choose to which stage of the distribution chain they offer licences  . In the present case, however, excluding a significant part of the Defendant’s overall business, namely the wholesale business, from the licensing offer, hinders a fair market access  .
Besides from the above, the Court ruled that the Claimant’s offer was discriminatory  .
To begin with, the Court stressed out that FRAND refers to a range of acceptable royalty rates: As a rule, there is not only a single FRAND-compliant royalty rate  . Furthermore, as far as a corresponding commercial/industry practice exists, offers for worldwide portfolio licences are, in general, in line with the Huawei framework, unless the circumstances of the individual case require a different approach (for instance a limitation of the geographical scope of the licence, in case that the user is active only in a single market)  .
Furthermore, the Court explained that the non-discriminatory element of FRAND does not oblige the SEP holder to treat all users uniformly  . The respective obligation applies only to similarly situated users, whereas exceptions are allowed, provided that a different treatment is justified  . In any case, SEP holders are obliged to specify the royalty calculation in a manner that allows the user to assess whether the offered conditions are non-discriminatory or not. The respective information needs to be shared along with the licensing offer; only when the SEP user has obtained this information a licensing offer triggering an obligation of the latter to react is given  .
In the Court’s view, presenting all existing essential licensing agreements concluded with third parties, covering the SEPs in suit or a patent portfolio including said SEPs (comparable agreements), has priority over other means for fulfilling this obligation  . In addition, SEP holders have to produce also court decisions rendered on the FRAND-conformity of the rates agreed upon in the comparable agreements, if such decisions exist  .
Whether presenting comparable agreements (and relevant case law) suffices for establishing the non-discriminatory character of the offered royalty rates depends on the number and the scope of the available agreementsI  . In case that no or not enough comparable agreements exist, SEP holders must (additionally) present decisions referring to the validity and/or the infringement of the patents in question and agreements concluded between other parties in the same or a comparable technical field, which they are aware of  . If the SEP in suit is part of a patent portfolio, SEP holders must also substantiate the content of the portfolio and its impact on the offered royalty rates  .
Having said that, the Court pointed out that an unequal treatment resulting in a discrimination in antitrust terms is not only at hand, when a dominant patent holder grants preferential terms to specific licensees, but also when it chooses to enforce its exclusion rights under a SEP in a selective manner  . The latter is the case, when the SEP holder brings infringement actions only against certain competitors and, at the same time, allows other competitors to use its patent(s) without a licence  . However, such a conduct is discriminatory only if, depending on the overall circumstances of each case (for instance, the extend of the infringing use and the legal remedies available in the country, in which claims need to be asserted), it would have been possible for the SEP holder with reasonable efforts to enforce its patent rights against other infringers (which it was or should have been aware of)  . In favour of an equal treatment of competitors, the level of action which must be taken by the SEP holder in this respect should not be defined narrowly  . However, it has to be taken into account, that – especially in the early stages of the implementation of a standard – the SEP holder will usually not have the means required to enforce its rights against a large number of infringers; in this case, the choice to enforce its rights only against infringers with market strength first appears reasonable  .
Based on the above considerations, the Court ruled that the Claimant’s choice to sue only the Defendant and its two main competitors, without asserting the SEP in suit against the rest of their competitors, respectively against their suppliers, was discriminatory  . The Claimant should have already, at least, requested the companies, against which no action was filed, to obtain a licence, particularly since the remaining period of validity of the SEP in suit is limited  . Furthermore, the Court found that the Claimant’s refusal to make a licensing offer to the Intervener, although the latter had requested for a licence, was also discriminatory; in the Court’s view, the Claimant failed to provide an explanation justifying this choice  .
Since the Claimant’s offer was found to be non-compliant with FRAND, the Court refrained from ruling on the conformity of Defendant’s counter-offer and the security provided with the Huawei framework  .
C. Other issues
The Court ruled that in accordance with Article 30 para. 3 of the German Patent Law (PatG) the registration in the patent register establishes the presumption of ownership, allowing the entity which is registered as patent holder to assert the rights arising from the patent before court  .
-  District Court of Düsseldorf, 11 July 2018, Case-No. 4c O 81/17Ibid, paras. 3 and 82.
-  Ibid, para. 13.
-  Ibid, para. 12.
-  Ibid, paras. 14 and 211.
-  Ibid, para. 15.
-  Ibid, para. 16.
-  Ibid, para. 236.
-  Ibid, paras. 140 and 313 et seqq.
-  Ibid, paras. 114 et seqq.
-  Ibid, paras. 60 and 140.
-  Huaweiv ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13.
-  Ibid, para. 142.
-  Ibid, para. 148.
-  Ibid, paras. 153 and 146.
-  Ibid, paras. 159 - 181.
-  Ibid, para. 158.
-  Ibid, para. 147.
-  Ibid, paras. 183 et seqq.
-  Ibid, para. 191.
-  Ibid, para. 188.
-  Ibid, paras. 195 et seqq.
-  Ibid, para. 199.
-  Ibid, para. 198.
-  Ibid, para. 200.
-  Ibid, para. 203.
-  Ibid, para. 205.
-  Ibid, para. 208.
-  Ibid, para. 207.
-  Ibid, para. 210.
-  Ibid, para. 212.
-  Ibid, paras. 215 et seq.
-  Ibid, para. 220.
-  Ibid, paras. 222 et seqq.
-  Ibid, para. 225.
-  Ibid, para. 233.
-  Ibid, para. 228.
-  Ibid, para. 230.
-  Ibid, para. 237.
-  Ibid. para. 241.
-  Ibid, para. 242.
-  Ibid, paras. 283 et seqq.
-  Ibid, para. 285.
-  Ibid, para. 288.
-  Ibid, paras. 292 et seq.
-  Ibid, paras. 298 et seqq.
-  Ibid, para. 301.
-  Ibid, para. 306.
-  Ibid, para. 311.
-  Ibid, para. 271.
-  Ibid, para. 250.
-  Ibid, para. 248.
-  Ibid, para. 267.
-  Ibid, paras. 256 and 259 et seq.
-  Ibid, para. 262.
-  bid, paras. 258 and 264.
-  Ibid, paras. 263 and 265.
-  Ibid, para. 265.
-  Ibid, para. 273.
-  Ibid, para. 274.
-  Ibid, para. 276.
-  Ibid, para. 277.
-  Ibid, para. 281.
-  Ibid, para. 315.
-  Ibid, paras. 75 et seq.
Updated 6 June 2017
Dutch court decisions
8 February 2017 - Case No. C/09/505587 / HA ZA 16-206 (ECLI:NL:RBDHA:2017:1025)
Defendant (Koninklijke Philips N.V.) is the proprietor of a number of patents declared essential to ETSI’s UMTS (3G) and LTE (4G) standards. Defendant made FRAND commitments towards ETSI on 15 January 1998 and 26 November 2009. Claimant (Archos S.A.) markets mobile devices which are alleged to infringe upon Defendant’s patents.
By letter of 5 June 2014, Defendant brought her UMTS and LTE patent portfolio and her licensing program to the attention of Claimant. In this letter, Defendant made clear that Claimant was infringing her patents by marketing products incorporating the UMTS and LTE standards and explained the possibility of obtaining a FRAND license. On 15 September 2014, a meeting took place to inform Claimant of Defendant’s patent portfolio and to discuss the licensing offer. In another meeting on 25 November 2014, Claimant suggested Defendant to grant her a royalty-free license to all of Defendant’s patents (i.e. not only to the UMTS/LTE patents but also to other patents related to so-called ‘Portable Features’) in exchange for the transfer of certain patents of Claimant to Defendant. Defendant informed Claimant by email of 23 December 2014 that it was not interested in Claimant’s patents because it considered them to represent ‘relatively low value’.
By letter of 28 July 2015 Defendant sent Claimant an updated list of UMTS/LTE patents as well as a draft licensing agreement in which she confirmed her earlier licensing offer. The proposed royalty amounted to $ 0.75 per product containing UMTS and/or LTE functionality. For products already sold, a royalty of $ 1 would need to be paid. At a next meeting on 3 September 2015, it became clear that Claimant did not wish to obtain the license offered. On behalf of Claimant, it was made clear during the meeting that Defendant would have to take legal action if she wished to obtain a license fee. In October 2015, Defendant started proceedings before the Rechtbank Den Haag for infringement of her European Patents EP 1 440 525, EP 1 685 659 and EP 1 623 511.
By letter of 12 January 2016, Claimant made a written counter offer of 0.071% of her net revenue from products incorporating the UMTS and/or LTE standards. For a net sale price per product of € 100, the offered royalty would amount to 7 eurocent per product.
- Court’s reasoning
Claimant asked the court to declare that Defendant’s licensing offer of 28 July 2015 is not FRAND and to declare that a royalty fee of € 0.007 for every product sold by Claimant incorporating the UMTS standard and a royalty fee of € 0.020 for every product sold by Claimant incorporating the UMTS and LTE standards is FRAND. In addition, Claimant asked the court to rule that its own licensing offer of 12 January 2016 is higher than what a fair, reasonable and non-discriminatory royalty fee would require.
- Market power and notice of infringement
The court left open whether the SEPs conferred market power to Defendant since it did, in any case, find no abuse of such potential market power. The court argued that it is generally accepted and to be inferred from the system laid down in the Huawei/ZTE judgment that a FRAND license has a certain bandwidth. After all, the Huawei/ZTE judgment contemplates that the SEP holder makes a FRAND offer first and afterwards, if the SEP user does not agree with the offer, makes a counter offer which also has to be FRAND. During this negotiation process, the characteristics of the SEP user as well as its specific objections can be taken account in the license at the discretion of the parties. As such, the court noted that the fact that Defendant’s initial offer would turn out to be unreasonable for Claimant because she finds itself in the low budget segment of the market and her margins are small does not imply that the offer made by Defendant on 28 July 2015 is not FRAND.
The court also made clear that until the Huawei/ZTE judgment the initiative to obtain a license was incumbent on the SEP user and not on the SEP holder in line with the common interpretation of the judgment of the Rechtbank Den Haag in Philips/SK Kassetten and the Orange Book ruling of the Bundesgerichtshof. In the view of the court the, on this crucial point, contrary Huawei/ZTE judgment that was delivered on 15 July 2015 constituted a new moment for negotiation between the parties. The court noted that, in line with the Huawei/ZTE judgment, Defendant took initiative with its licensing offer of 28 July 2015. Since Claimant made clear in the meeting on 3 September 2015 that Defendant would have to take legal action if she wished to obtain more than a few thousand euros in licensing fees, it seems unfitting that Archos reproaches Philips to have not been open to negotiation, or at least that position is insufficiently substantiated (par. 4.3).
- The SEP owner’s licensing offer
Claimant put forward a number of arguments for its claim that Defendant’s offer of 28 July 2015 is not FRAND. All of these arguments were rejected by the court on the ground that Claimant had not sufficiently substantiated them. The main arguments raised are as follows.
Claimant argued that Defendant’s rights regarding devices incorporating Qualcomm baseband chips had been exhausted due to the cross-license that Defendant had already concluded with Qualcomm for these chips. Since a number of Claimant’s products rely on Qualcomm baseband chips, the compensation that Defendant had already received from Qualcomm should, in the view of Claimant, at least have been taken into account in the license offer. The court noted that Claimant had not sufficiently contested that the Qualcomm license did not cover production and sales of mobile phones – as Defendant had made clear before the court – and that Claimant could have raised this point during the negotiations (par. 4.4).
The court continued by stating that the fact that Defendant’s licensing offer covered both UMTS and LTE SEPS could not affect the FRAND-ness of the offer in the case at hand considering that Claimant’s products do not merely require a license under the LTE SEPs but also under the UMTS SEPs (par. 4.5).
While the parties agreed that the Defendant’s share of the absolute number of SEPs in the UMTS-SEP portfolio is an important factor for assessing the FRAND-character of Defendant’s offer, they each reached different absolute numbers. The court concluded that the calculations in the consultancy reports on which Claimant relied do not lead to accurate results and are rather speculative in nature. As such, the Claimant downplayed the value of Defendant’s SEPs (par. 4.6-4.7).
With regard to Claimant’s argument that Defendant’s proposed royalty rate would amount to impermissible royalty stacking, the court argued that this was insufficiently substantiated by Claimant (par. 4.8).
Claimant also argued that the royalty rate should not be based on the total price of a phone but merely on the part in which the technology at issue is incorporated (the Smallest Saleable Patent-Practising Unit, SSPPU). In this context, the court noted that Defendant rightly pointed out that the requested royalty was set at a fixed amount as a result of which there is no relationship with the market value of the phone. Furthermore, since the SSPPU concept is at the very least subject to debate, the court noted that this issue could have been considered in the negotiations. That the royalty rate suggested by Defendant, which was not based on the SSPPU price, would not be FRAND for that mere reason could not be established by the court (par. 4.10).
The court also dismissed Claimant’s reference to patent hold-up on the ground that a situation of hold-up can only occur in the case of a non-FRAND license which had not been established in the case at issue (par. 4.13).
In the end, the court dismissed Claimant’s request to make a declaratory statement that Defendant’s offer of 28 July 2015 was not FRAND.
- The standard implementer’s reaction
Considering that Claimant’s counter offer of 12 January 2016 is more than a factor 10 lower than the Defendant’s offer and is based on an inaccurate (at least insufficiently substantiated) share of Defendant’s SEPs in the relevant UMTS standard, the court refused to declare the counter offer to be FRAND, let alone to declare that this counter offer is higher than a FRAND royalty rate as requested by Claimant (par. 4.17-4.18).
- Market power and notice of infringement
- Other important issues
AA defence that Defendant invoked was that Claimant had no interest (anymore) in the requested declaratory statements because its respective FRAND commitments were exhausted due to the unwilling attitude of Claimant. However, as Claimant’s requests for the declaratory statements were found not to be sufficiently substantiated, there was no need for the court to discuss this issue anymore (par. 4.18).
Updated 12 March 2019
9 November 2018 - Case No. Case-No. 4a O 15/15
The Claimant, Fraunhofer-Gesellschaft zur Förderung der Angewandten Forschung, holds a patent essential to the practice of the AVC/H.264 standard concerning the compression of video data (Standard Essential Patent of SEP)  . The patent holder committed towards the relevant standardization body to make this patent accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions. The Claimant contributed the SEP in question to a patent pool administered by MPEG LA LLC (MPEG LA), comprising more the 5,000 patents referring to the AVC/H.264 standard (MPEG LA pool)  .
The Defendant, a German subsidiary of a Chinese group of companies, sells – among other things – mobile phones manufactured by its parent company (parent company) which practise the AVC/H.264 standard in Germany  .
By e-mail dated 8 September 2011, MPEG LA sent a copy of its standard licensing agreement to the Defendant’s parent company and informed the latter that its “mobile handset and tablet products” infringe patents included in its “AVC patent portfolio” (without indicating, however, either the concrete patent numbers or the specific infringing products)  .
On 15 September 2011, the parent company asked MPEG LA to send any relevant documents by mail to its IPR Manager  . A copy of MPEG LA’s standard licensing agreement reached the parent company in late September 2011  .
In 2012, the parent company acquired patents included in the MPEG LA pool  .
Since MPEG-LA and the parent company could not reach an agreement on a licence covering the MPEG LA pool  , the Claimant brought an action against the Defendant before the District Court of Düsseldorf in Germany (Court), requesting for injunctive relief, information and rendering of accounts, the destruction and the recall of infringing products as well as for a declaratory judgement confirming Defendant’s liability for damages on the merits  .
During the proceedings, the Defendant declared its willingness to obtain a licence for the patent in suit and other SEPs of the Claimant referring to the AVC/H.264 standard  . Moreover, the Defendant sent to MPEG LA two signed copies of MPEG LA’s standard licensing agreement, along with a statement of accounts of its past sales and a bank guarantee  . MPEG LA did not countersign this agreement. It insisted, instead, on a licence that would cover all companies belonging to the same group as the Defendant  .
With the present judgment, the Court granted Claimant’s requests.
B. Court’s reasoning
The Court held that the mobile phones sold by the Defendant in Germany infringe Claimant’s SEP in suit  . It also found that by filing the present suit the Claimant did not abuse its dominant market position in violation of Article 102 of the Treaty for the Functioning of the EU (TFEU), since it had fully complied with the conduct obligations stipulated by the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE  (Huawei obligations or framework) with respect to dominant undertakings  .
1. Dominant market position
The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU  .
The Court defined the relevant market for the assessment of dominance as the market for licences for any given patent  . A dominant market position can further also exist, when the patent holder can hinder competition in downstream markets for standard-compliant products and services  .
The Court made, however, clear that ownership of a SEP does not per se establish market dominance  . A dominant market position is given, when the use of the SEP is required for entering the market  . The same is true, if the patent user could not market competitive products or services, without access to the respective SEP  .
Based on these considerations, the Court saw no ‘reasonable’ doubt that the Claimant was a dominant undertaking: It was undisputed that almost all mobile phones available worldwide use the AVC/H.264 standard and that no “realistic” alternative to the MPEG LA pool existed in the licensing market for patents essential to this standard  .
2. Huawei framework
The Court found, however, that the Claimant did not abuse its dominant position by suing the Defendant in the present case, since its conduct was in line with the Huawei framework  . The Huawei framework establishes mutual conduct obligations for both SEP holders and SEP users, which need to be fulfilled step by step and one after another (meaning that each party’s obligation to act arises only after the other party has fulfilled its own obligation)  . Subject to the Huawei framework is not only the patent holder’s claim for injunctive relief, but also the claim for the destruction of infringing products  .
In this context, the Court pointed out that the Huawei framework applies, irrespective of whether a ‘well-established’ licensing practice concerning the asserted patents already existed before the CJEU delivered the Huawei judgment, or not  . The Claimant had argued that, in the present case, the Court should apply the (German) legal standard that preceded the Huawei framework (which was based on the so-called ‘Orange-Book-Standard’ ruling of the Federal Supreme Court  ), since with respect to the SEP in suit a ‘routine’ practice already existed prior to the Huawei judgement  . The Court explained that the Huawei judgment does not contain either an explicit or an implicit limitation of its scope of application  . Furthermore, even if a ‘well-established’ licensing practice existed, the need to apply the Huawei framework will still be given, in order to bridge the nevertheless existing information gap between patent holder and implementer concerning the (potential) infringement of SEPs  . Finally, it would be very challenging for courts to distinguish whether a ‘well-established’ licensing practice excluding the application of the Huawei framework is at hand, or not  . Notwithstanding the above, according to the Court, the actual licensing practice of the patent holder could be of ‘particular significance’ when assessing the compliance of the latter with the Huawei obligations: Such practice could, for instance, serve as an indicator of the appropriateness of SEP holder’s licensing offer to the implementer  .
Having said that, the Court found no flaws in Claimant’s conduct. In the Court’s view, the Claimant had met its Huawei obligation to notify the Defendant about the infringement of its patent as well as the obligation to present the Defendant with a written licensing offer covering also the patent in suit. The Defendant, on the other hand, adequately expressed its willingness to enter into a licence, failed, however, to make a FRAND counter-offer to the Claimant. Since an adequate counter-offer was missing, the Court did not take up the question whether the bank guarantee provided by the Claimant to MPEG LA constitutes an adequate security in terms of the Huawei framework  .
Notification of infringement
The Court ruled that the Claimant had adequately notified the Defendant about the infringement of the SEP in suit through the e-mail sent by MPEG LA to the parent company on 8 September 2011  .
The fact that this e-mail was not addressed to the Defendant, but to the parent company, did not raise any concerns as to the compatibility of the notification with the Huawei framework. The Court explained that a notification of infringement addressed only to the parent company of a group of companies is sufficient, as far as it can be assumed that the notification will be forwarded to the subsidiaries concerned  . The sole fact that a company belongs to a group justifies such an assumption, unless indications to the contrary exist  . This was, however, not the case here.
Besides that, the Court did not consider it inappropriate that the aforementioned e-mail was not sent to the parent company by the Claimant, but by MPEG LA (which is not the holder of the SEP in suit)  . The Court held that MPEG LA is entitled to perform legal actions in connection with the licensing of the MPEG LA pool on behalf of the Claimant  . The Defendant could not contest that this was not the case, since MPEG LA’s standard licensing agreement, which it is aware of, contains an indication about MPEG LA’s respective capacity  . In addition, the Defendant’s parent company was also aware of MPEG LA’s capacity to act on behalf of the Claimant, since it joined the MPEG LA pool as a patent holder in 2012  .
The Court further ruled that, in terms of content, a notification of infringement must – at least – name the patent in suit (including the patent number) and indicate the contested embodiments as well as the (allegedly) infringing acts of use  . A detailed (technical and/or legal) explanation of the infringement is not required; the implementer needs just to be put in the position to assess the infringement allegations, if necessary, by seeking expert advice  . A notification of infringement is, therefore, not necessary, when it constitutes just a ‘pointless formality’  . This is true, when according to the overall circumstances of the case, one can safely assume that the implementer is aware of the infringement, so that claiming that the SEP holder failed to provide adequate notification prior to the initiation of court proceedings would appear to be abusive  . The respective test is, however, subject to strict conditions  .
Based on the above considerations, the Court found that MPEG LA’s e-mail to the parent company dated 8 September 2011 should be considered – as an exception – to constitute a sufficient notification of infringement, although it did not contain the minimum information required (particularly the patent number and a reference to the specific infringing embodiments)  . The overall circumstances of the case (especially the fact that the parent company acquired patents included in the MPEG LA pool in 2012 and had also previously been in contact with MPEG LA regarding a standard licensing agreement)  , give rise to the assumption that the parent company had already been aware of the MPEG LA pool and the fact that AVC/H.264-compliant products need to be licensed  .
Willingness to obtain a FRAND-licence
The Court held that the parent company had adequately expressed its willingness to obtain a FRAND-licence through the e-mail sent to MPEG LA on 15 September 2011  .
In the eyes of the Court, this e-mail indicates the parent company’s intention to deal with issues concerning the licensing of patents referring to the AVC/H.264 standard. This is sufficient under the Huawei framework  . The implementer is not required to refer to a specific licensing agreement  .
SEP holder’s licensing offer
The Court further found that the standard licensing agreement sent by MPEG LA to the parent company presents an offer accountable to the Claimant which is in line with the Huawei framework in terms of both form and content  .
The fact that the offer was addressed to the parent company and not to the Defendant was not relevant, since the parties were discussing about a licensing agreement on group level and the parent company had itself requested to receive the draft agreement  .
Furthermore, the fact that the draft agreement sent to the parent company did not directly provide for the licensing of all subsidiaries (including the Defendant) was also not considered as harmful  . Insofar, the Court held that under the Huawei framework it is, as a rule, acceptable that the patent holder enters into licensing negotiations only with the parent company within a group of companies  . Whether subsidiaries can (or should) also be licensed, will be the object of these negotiations  . An exception would apply only then, when it is made clear already at the beginning of the licensing negotiations that the offer made to the parent company cannot include its subsidiaries  . This was, however, not the case here, since the standard licensing agreement sent to the parent company indicates MPEG LA’s willingness to grant licences also to the subsidiaries of the former  .
Besides that, the Court did not consider the fact that the standard licensing agreement sent to the parent company did not cover the sale of licensed products to wholesalers and retailers (but regarded only sales to end users) to be in conflict with the Huawei framework, although the Defendant was engaged also in this business  . According to the Court, sales to wholesalers and retailers would be covered by the effects of patent exhaustion, even without an express provision in a potential licensing agreement  .
The Court further ruled that the Huawei requirement, according to which the SEP holder’s licensing offer must specify the royalty calculation, was met, although the draft standard licensing agreement sent to the parent company does not contain detailed explanation of the way the royalties were calculated  . In the Court’s view, the respective explanation does not require a ‘strict mathematical derivation’ of the royalty; moreover, it will, as a rule, suffice to demonstrate that the (standard) royalty rates offered have been accepted in the market by presenting existing licensing agreements with third parties (comparable agreements)  . If a sufficient number of comparable licences is presented, then the SEP holder will usually not be required to provide further information regarding the appropriateness of its licensing offer  . It will need, however, to provide information on all essential comparable agreements, in order to rule out the risk that only agreements supporting the offered royalty level are presented  . In this context, the Court noted that it cannot be required from the SEP holder to present all comparable agreements along with the licensing offer to the implementer; a respective industry practice does not exist  .
Against this background, the Court did not consider it to be harmful that the standard licensing agreement sent to the parent company by MPEG LA did not include a detailed explanation of the royalty calculation in the above sense  . On the one hand, the parent company was aware that this (standard) agreement had been accepted in the market by a great number of licensees  . On the other hand, the parent company was also adequately aware of the way the offered royalties were calculated, since it held patents included in the MPEG LA pool itself  .
Apart from the above, the Court held that the standard licensing agreement offered to the parent company was FRAND also in terms of content.
According to the Court, a licensing offer cannot be considered as fair and reasonable, if the patent holder requests royalties that go significantly beyond the (hypothetical) price that would have been formed in an effectively competitive market, unless there is a commercial justification for the royalty level requested  . Particularly in connection with the licensing of SEPs, an offer can lie outside the FRAND-scope, if the cumulative royalty burden imposed on the implementer would not be tenable in commercial terms  . The Court made clear that in this context, no exact mathematical derivation of a FRAND-conform royalty rate is required; moreover, an approximate value is to be determined based on assessments and estimations  . In this respect, comparable agreements can serve as an ‘important indicator’ of the fair and reasonable character of the offered royalty rates  .
Regarding to the non-discriminatory element of FRAND, the Court pointed out that it applied only to similar situated cases; an unequal treatment is allowed, as long as it is objectively justified  . Limitations in this context may especially occur, when the implementation of the patent is necessary for entering a downstream market or when a product becomes competitive only when it uses the patent’s teachings  . As a rule, the burden of proof with respect to the discriminatory character of a licensing offer rests on the implementer. Since the latter will usually not be aware of the existence or the content of comparable agreements of the patent holder, it may seem appropriate to request the patent holder to provide the implementer with respective details, as far as this is reasonable  . The information to be shared should cover all existing licensees and include which (concretely designated) company with which importance in the relevant market has obtained a licence on which conditions  .
Looking at the standard licensing agreement sent to the parent company, the Court observed that the fact the MPEG LA sought for a licence covering all companies within the group, to which the Defendant belonged, was not violating FRAND principles  . In the electronics and mobile communications industries, licences covering a group of companies are in line with the industry practice  . Patent holder have a special interest in concluding such licences particularly in cases, in which – as in the present case – the parent company manufactures products which are sold worldwide by its subsidiaries. This is because licences at group level makes sure that patent holders can enforce their rights effectively, without having to distinguish between licenced and unlicenced products within a group of companies  .
In addition, the Court made clear that pool licences, as the one offered to the parent company, are appropriate under the Huawei framework  . An offer for a pool licence cannot per se be seen as abusive (Article 101 TFEU)  . On the contrary, such licences usually serve the interest of potential licensees to be granted access to the whole standard on uniform conditions under one roof, without having to seek a licence from every single patent holder separately  .
The Court found that the Defendant failed to make a FRAND counter-offer  .
Sending signed copies of MPEG LA’s standard licensing agreement back to MPEG LA can be regarded as a counter-offer  . The fact, however, that this offer concerned a licence limited to the Defendant and, thus, not covering the parent company (and all further companies belonging to the same group) was not FRAND conform  . The Court accepted that licences at group level mirror the industry practice in the field in question; accordingly, no objections can be raised when a patent holder contributing its patents to a pool is willing to grant only licences covering all group companies  .
Since the counter-offer was not FRAND in terms of content, the Court did not have to decide, whether it was made in due time, or not  .
-  Fraunhofer-Gesellschaft (MPEG-LA) v ZTE, District Court of Düsseldorf, judgement dated 9 November 2018, cited by www.nrwe.de, para. 56.
-  Ibid, para. 58
-  Ibid, para. 57
-  Ibid, para. 59
-  Ibid, paras. 61 et seqq. and 340
-  Ibid, para. 65
-  Ibid, para. 66
-  Ibid, para. 73
-  Ibid, para. 42
-  bid, para. 74
-  Ibid, paras. 75 et seq
-  Ibid, para. 75
-  Ibid, paras. 127 – 254
-  Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13
-  Fraunhofer-Gesellschaft (MPEG-LA) v ZTE, District Court of Düsseldorf, judgement dated 9 November 2018, cited by www.nrwe.de, Ibid, para. 280
-  Ibid, para. 283 and paras. 291 et seqq
-  Ibid, para. 286
-  Ibid, para. 287
-  Ibid, paras. 291 et seqq
-  Ibid, para. 296
-  Ibid, para. 300
-  Ibid, para. 302
-  Ibid, para. 308
-  Under the ‘Orange-Book-Standard’ regime, in order to avoid an injunction, the implementer was required to make a licensing offer to the patent holder, which the latter could not refuse without acting in an anticompetitive manner; see Federal Supreme Court (Bundesgerichtshof), judgment dated 6 May 2009, Case No. KZR 39/06
-  Ibid, para. 305
-  Ibid, paras. 306 et seqq
-  Ibid, para. 310
-  Ibid, para. 311
-  Ibid, para. 312
-  Ibid, para. 421
-  Ibid, para. 314
-  Ibid, para. 320
-  Ibid, para. 318
-  Ibid, para. 329
-  Ibid, paras. 336 et seq
-  Ibid, para. 338
-  Ibid, para. 198
-  Ibid, para. 315
-  Ibid, paras. 340 et seq
-  Ibid, paras. 342 et seqq
-  Ibid, para. 344
-  Ibid, para. 346
-  Ibid, para. 348
-  Ibid, para. 352
-  Ibid, para. 367
-  Ibid, para. 369
-  Ibid, para. 370
-  Ibid, para. 378
-  Ibid, para. 371
-  Ibid, para. 374
-  Ibid, para. 376
-  Ibid, para. 377
-  Ibid, para. 380
-  Ibid, para. 381
-  Ibid, para. 386
-  Ibid, para. 382
-  Ibid, para. 387
-  Ibid, para. 391
-  Ibid, para. 392
-  Ibid, para. 393
-  Ibid, para. 397
-  Ibid, para. 398
-  Ibid, para. 399
-  Ibid, para. 402
-  Ibid, para. 404
-  Ibid, para. 410
-  Ibid, para. 413
-  Ibid, para. 416
-  Ibid, para. 417
-  Ibid, para. 411