Case Law post CJEU ruling Huawei v ZTE

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Updated 6 March 2018

OLG Düsseldorf

OLG Düsseldorf
18 July 2017 - Case No. I-2 U 23/17

A. Facts

The Claimant is holder of a patent declared as essential to a standard (Standard Essential Patent, SEP). The Defendant is a provider of telecommuni­cation services. Under the policy governing the relevant standard, the Claimant is obliged to license its SEP on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions. Against Claimant’s SEP a nullity action is pending. The Claimant, nevertheless, concluded portfolio licensing agreements also covering the SEP in question with two companies.

Since November 2012, the Claimant made efforts to license his SEP also to the Defendant. The parties could, however, not reach an agreement. In January 2016, the Claimant brought an action against the Defendant before the Regional Court of Düsseldorf requesting for a declaration of the Defendant’s liability for damages as well as rendering of accounts (main proceedings). After the main proceedings were ini­tiated, the Claimant made two offers for a license agreement to the Defendant. In order to protect busi­ness secrets connected with these offers, the Claimant requested the Defendant to sign a Non-Disclosure Agreement (NDA). The Defendant refused to sign a NDA. Moreover, the Defendant brought an action against the Claimant before an Irish Court requesting for a declaration that Claimant’s offers did not comply with FRAND.

Subsequently, the Claimant filed a motion for a preliminary injunction against the Defendant before the Regional Court of Düsseldorf. The Regional Court of Düsseldorf dismissed Claimant’s motion. The Claimant appealed this judgement. With the present ruling the competent Higher Regional Court of Düsseldorf in­dicated that the Claimant’s appeal has no prospects of success.

B. Court’s reasoning

The court made clear that preliminary injunctions involving SEPs are subject to the same strict prerequi­sites as injunctions referring to non-SEPs. The SEP-holder has, therefore, to adequately establish the va­lidity of the SEP, its use by the alleged infringer as well as the urgency of its request for a preliminary injunction.

Besides this, prior to seeking for a preliminary injunction, the SEP holder also has to fulfill the require­ments set forth by the Court of Justice of the European Union in its decision in the matter Huawei ./. ZTE (Huawei judgement). This follows from the fact that SEP-holders’ claims for injunctive relief are, in prin­ciple, only enforceable, after the prerequisites established by the Huawei judgement have been fully met.

Since preliminary injunctions may severely affect alleged infringer’s ongoing business, such injunctions can only be granted, when both the validity and the use of the SEP by the alleged infringer appear to be given with a high degree of certainty.

The validity of a SEP is deemed to be given, when the SEP has been confirmed in patent opposition or nullity proceedings. Without a prior confirming decision, the validity of a SEP can, exceptionally, also be regarded as being given, when

  • the alleged infringer has unsuccessfully intervened in the proceedings, in which the SEP was granted,
  • no opposition or nullity proceedings were initiated against the SEP, because it is universally consid­ered to be able to receive patent protection (one indication for this being, for instance, the fact that the SEP was licensed to renowned licensees),
  • the objections raised against SEP’s validity can be proven to be unfounded even by the limited means of the summary examination foreseen in proceedings for interim relief, as well as
  • in “extraordinary circumstances”, in which the SEP-holder will face substantial disadvantages, if he is forced to wait with the initiation of proceedings against the infringer, until after the end of opposition or nullity proceedings pending against the SEP.

Against this background, the court argued that the Claimant is most likely not entitled to the requested preliminary injunction.

First, the Claimant failed to establish the validity of the SEP in dispute with the required high degree of certainty. A decision confirming the SEP in dispute is missing, since the nullity proceedings are still pending. Furthermore, the exceptions allowing this conclusion to be drawn, even without a prior con­firming decision, do most likely not apply. In particular, the fact that the Claimant concluded portfolio licensing agreements with two other companies covering also the SEP in question, does not suffice to adequately establish its validity. This fact only proves that the licensees held the SEP-holder’s portfolio as being able to receive patent protection as a whole, not, however, that they considered the SEP itself as being worthy of such protection. Furthermore, due to the high level of technical complexity, the court does not expect that the objections raised against the validity of the SEP can be proven as being unfounded solely on basis of the limited examination means available to the court in the present pro­ceedings for interim relief.

Second, the court has also substantial doubts that urgency is given. The Claimant was aware of the alleged infringement since 2012. Nevertheless, the Claimant refrained from making his claim for injunctive relief enforceable by fulfilling the Huawei judgement requirements. Furthermore, in the main proceedings ini­tiated prior to the present proceedings for preliminary injunction, the Claimant did not request for injunc­tive relief, but limited his action against the Defendant to damages and rendering of accounts. In terms of urgency, it could be expected from the Claimant to request for injunctive relief already in the main proceedings. Furthermore, the fact that the Defendant brought an action before an Irish Court requesting a declaration that Claimant’s offers did not comply with FRAND, also fails to establish urgency. It is the Defendant’s right to seek legal redress.

C. Other issues

In addition, the court expressed its view regarding the consequences of the refusal of a potential licensee to sign a NDA covering information connected with the SEP-holder’s offer for a licensing agreement on FRAND terms, without, however, ruling on this question on the merits of the present case.

The court suggested that the unjustified refusal of a licensee to enter into a NDA does not release the SEP-holder from the obligations established by the Huawei judgement, namely the obligation to make a FRAND offer to the licensee and specify the underlying conditions (particularly the price calculation). An unjusti­fied refusal of the licensee to sign a NDA shall, however, lead to easing the SEP-holder’s burden to provide the licensee with detailed explanations regarding the justification of its licensing conditions, to the extent that this is required for protecting its justified confidentiality interests. Instead of detailed information, “merely indicative observations would, basically, suffice. The licensee cannot object the FRAND con­formity of the SEP-holder’s offer based on the insufficient specification of the licensing terms.
Updated 26 January 2017

NTT DoCoMo v HTC

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

  1. Facts
    Claimant owns the patent EP 1 914 945, declared to be essential with regard to ETSI’s UMTS standard. Defendant markets devices implementing the UMTS standard (in particular the HSUPA/EUL technology). On 19 March 2014 Claimant sent to Defendant’s group parent a detailed licensing offer and explained its conditions at several instances before filing suit in April 2015. As of 7 April 2014 and 15 July 2014, Claimant communicated to Defendant’s group parent company claim charts in order to demonstrate standard-essentiality of its patent and further explained the issue in a presentation on 8 July 2014. Defendant submitted its first counter-offer on 30 October 2015. The counter-offer envisaged a 3 year-license limited to some of the countries in which Defendant markets its products. Claimant rejected the counter-offer on 12 November 2015. Defendant did not provide security but merely promised to do so, based on a calculation including sales of relevant devices in Germany only. Claimant rejected this and demanded security based on worldwide sales.
  2. Court’s reasoning
    1. General meaning of the Huawei framework
      Prior to discussing specific conduct requirements established by the Huawei ruling, the court sketches its approach in a general manner. [323] According to the court the Huawei decision establishes a set of rules of due conduct in SEP licensing negotiations. Based on whether the parties comply with these rules the respective court can determine whether an SEP owner’s seeking of an injunction and a recall of products constitutes an abuse of a position of market dominance or a justified reaction to a standard implementer’s delaying tactics. In consequence, the respective court does not—unless it has to decide a claim for the payment of licensing fees and not claims for injunction and recall of products—have to rule on the substance of the offered licensing conditions or their being FRAND. [324] This is in line with recognized commercial practice according to which reasonable parties will not usually want courts to determine their licensing conditions. Furthermore, the ECJ has—from the perspective of the Mannheim District court—stressed that the exercise of the exclusive rights conveyed by a patent will be barred only in very exceptional circumstances. As a result, it is up to the standard implementer to show that such exceptional circumstances are present. [325]
    2. Market power and notice of infringement
      The court does not elaborate on the market power issue. As part of the notice of infringement [326] the court deems it necessary for the proprietor to identify the (allegedly) violated patent, including the patent number, and to inform that the patent has been declared standard-essential. Furthermore, the proprietor has not only to name the standard but to specify the pertinent part of the standard and the infringing element of the implementer’s products in a way that enables the standard implementer to assess whether its use of the standard infringes on the patent-in-suit. The level of detail required must be determined on a case-by-case basis, depending mainly on the expertise of – or available to – the implementer. Presenting claim charts corresponding to recognized commercial practice for licensing negotiations is, in principle, an acceptable way to give notice of the alleged infringement. In casu the court considered the proprietor’s notice as sufficient. [327] In particular, notice was given before the bringing of an action for infringement and the proprietor had submitted claim charts not only with regard to the patent-in-suit but also with regard to six other patents from the portfolio offered for license, a sample which the court deemed in accordance with recognized commercial practice. Sufficient notice having taken place, the court left open the question whether, (1) the Huawei rules applied at all in spite of the action being brought before the ECJ’s decision, and whether (2) the proprietor was obliged to submit claim charts for other patents than the patent-in-suit.
    3. The SEP proprietor’s licensing offer
      The court’s general understanding of the Huawei rules of conduct (cf. above) has a considerable impact on the way it intends to react to a SEP proprietor’s licensing offer: [328] The offer must specify the relevant conditions in a way that, in order to conclude a licensing agreement, the standard implementer has merely to state his acceptance of the offer. The calculation of the license fee, in particular, must be explained in a manner that enables the standard implementer to objectively assess its FRAND conformity. Even if the standard implementer disputes the FRAND character of the offer it is not the court’s business to determine whether the licensing conditions are actually FRAND. Neither is the SEP proprietor prohibited from offering conditions slightly above the FRAND threshold. A differing view of the parties on what constitutes FRAND is to be expected and provides no reason for cartel law-based intervention. An exploitative abuse of market power can, however, be present where the proprietor, after having made a FRAND declaration, offers conditions that are, under the circumstances of the case and without objective justification, manifestly less favorable (in an economic sense) than the conditions offered to other licensees. Correspondingly, the respective court is only required to determine, based on a summary assessment, whether the proprietor’s licensing offer evidently violates the FRAND concept. In casu the court accepted the Huawei compliance of the licensing offer, [329] in particular because the proprietor had explained its calculation of the licensing fee based on the percentage of patents in the WCMA/SIPRO and the VIA patent pools held by the proprietor. The proprietor was not required to prove its share in the patent pools. The parties disagreed over whether the smallest saleable unit forms an appropriate basis for royalty calculation and whether it is acceptable to look only at the size, not the quality of a proprietor’s share in a relevant patent pool. The court, however, considered these issues as not decisive for the Huawei-conformity of the licensing offer.
    4. The standard implementer’s reaction
      As a further consequence of the court’s general approach, the standard implementer’s duty to diligently react to the proprietor’s licensing offer is not removed only because the offer does not fully comply with FRAND. [330] . An exception applies only where it can be established by a mere summary assessment that the offer evidently violates FRAND. If a reaction of the alleged infringer is due, the “diligence”, i.e. timeliness, of this offer has to be determined cases-by-case, based on the principles of good faith and recognized commercial practice. In casu the standard implementer’s reaction was insufficient (1) because a counter-offer was made only 1.5 years after receiving the licensing offer and 0.5 years after the bringing of the proprietor’s action, (2) because security was merely promised, not provided, and (3) because the amount of security offered fell short of the court’s suggestions.
  3. Other important issues
    The court underlines that a SEP proprietor has to respect the Huawei rules of conduct only with regard to an action for prohibitory injunction or the recall of products. It is, however, free from their grip when bringing an action seeking the rendering of accounts in relation to past acts of use or an award of damages in respect of those acts of use.
  • [323] Case No. 7 O 66/15, para. 53 et seq.
  • [324] Case No. 7 O 66/15, para. 56
  • [325] Case No. 7 O 66/15, para. 53
  • [326] Case No. 7 O 66/15, para. 57
  • [327] Case No. 7 O 66/15, para. 65-69
  • [328] Case No. 7 O 66/15, para. 58
  • [329] Case No. 7 O 66/15, para. 70-72
  • [330] Case No. 7 O 66/15, para. 59 et seq

Updated 23 January 2018

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

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

A. Facts

The claimant is a company that grants licenses for patented technologies in the telecommunications industry. The patents at issue (EP (UK) 2 229 744, EP (UK) 2 119 287, EP (UK) 2 485 514, EP (UK) 1 230 818, EP (UK) 1 105 991, EP (UK) 0 989 712) relate to telecommunication network coding and procedures. [427] Most were part of a large patent portfolio that the claimant had acquired from a major telecommunications company in 2013. [428] In 2014, the claimant made a declaration under the ETSI IPR Policy that it was willing to grant licenses on FRAND terms. There were five technical trials relating to the validity, infringement and essentiality of these patents. This summary focuses on the non-technical trial addressed competition law issues, FRAND issues, injunctive relief and damages for past infringements. [429]

In April 2014 the claimant made an open offer to the defendant, a major international smartphone manufacturer, to grant a license in respect of the claimant’s entire global patent portfolio (containing SEPs and non-SEPs). The defendant refused the offer, contending that there was no patent infringement, that the patents were not essential, and that they were invalid. The defendant also argued that the offer was not FRAND and thus did not constitute an abuse of a dominant market position under Art. 102 TFEU. In July 2014 the claimant made a further offer, limited to the claimant’s SEPs. Again, the defendant refused, arguing that the license conditions were not FRAND. [430] In June 2015 both parties made further offers. These offers were the result of directions from the court. The claimant offered a worldwide portfolio license while the defendant wanted to limit the territorial scope to the United Kingdom. [431] Between August and October 2016 the parties exchanged further offers without reaching an agreement. [432]

The Patents Court (Birrs J) held that the claimant was in a dominant position, but did not abuse this position. [433] The defendant was not prepared to take a license on FRAND conditions and the claimant was not in breach of competition law. Thus, the court held that a final injunction to restrain patent infringements should be granted. An injunction for infringements of patents EP (UK) 2 229 744 and EP (UK) 1 230 818 was granted on 7 June 2017. [434]

B. Court’s Reasoning

1. Market Power

The court defined the relevant market for assessing dominance as a distinct market for licensing each SEP individually. [435] European case law indicated that owning an SEP could be a rebuttable presumption for the existence of a dominant position. [436] The claimant’s pleaded position was a non-admission of dominance rather than a denial coupled with a positive case to the contrary. It was the view of the court that this was insufficient to rebut the presumption. In particular, the claimant’s argument of countervailing buyer power was unconvincing because it had not been supported by a proper economic analysis. [437]

2. SEP Proprietor’s Licensing Offer

a. FRAND Declaration as Conceptual Basis

The court pointed out that that the FRAND undertaking also applied in the case that the SEP proprietor was not in a dominant position. It held that the FRAND undertaking operated as a practical constraint on a SEP owner’s market power. [438] The ETSI declaration made by the SEP proprietor is also the starting point for determining the FRAND rate. The underlying issue, which is discussed at length by the court, [439] is if such a declaration forms a contract and whether that contract can benefit third parties. The court acknowledged that the legal effect of this declaration, in particular its enforceability, is a controversial issue under French law. [440] However, the court reasoned that the FRAND declaration is an important aspect of technology standardisation. Holders of SEPs are not compelled to give a FRAND declaration. If they do, the undertaking would be enforceable and irrevocable due to public interest. [440]

The court applied a procedural approach to FRAND. It emphasised that FRAND describes not only a set of license terms, but also the process by which a set of terms are agreed. [441] It applies to both the SEP-holder and the implementer/defendant. In particular, this approach allows for starting offers that leave room for negotiation. On the other hand, making extreme offers and taking an uncompromising approach which prejudices fair, reasonable, and non-discriminatory negotiation is not a FRAND approach. [442] This approach also means that the SEP proprietor is under an obligation to make a FRAND offer and to enter into FRAND license agreements. [443]

b. ‘True FRAND Rate’

The court considered that there is only a single set of terms for a given set of circumstances that would meet FRAND conditions (‘true FRAND rate’). [444] This eliminates the so-called Vringo-problem, [445] i.e. if FRAND were a range there would be two different but equally FRAND offers. Thus, if the court would grant or not an injunction, it would be unfair for the alleged infringer or SEP holder respectively. [446]

The court was of the opinion that the true FRAND rate approach does not cause problems under competition law. Theoretically, if only one set of terms is truly FRAND, and if FRAND also represents the line between abusive and non-abusive conduct under Art. 102 TFEU, then every agreed SEP-licence could be at serious risk of being abusive. [447] However, the court took the view that FRAND-compliance and compliance with Art. 102 TFEU are not the same thing (the court pointed out that the CJEU in the Huawei ruling appears to equate an obligation to make a FRAND offer with compliance with Art 102 TFEU).Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 154./span> Since Art. 102 TFEU condemns excessive pricing, [449] a royalty rate can be somewhat higher than the true FRAND rate and still not be contrary to competition law. Conversely, for a breach of competition law, it will be necessary but not sufficient that the rate is not the true FRAND rate. [449]

c. Discrimination

The court held that the correct approach is to start from a global rate as a benchmark and to then adjust this rate as appropriate. [450] It distinguished between two concepts of discrimination. First, the ‘general’ concept of non-discrimination describes an overall assessment of FRAND which can be used to derive the benchmark mentioned above. [451] It is based on the intrinsic value of the patent portfolio, but it does not depend on the licensee. The court held that this benchmark should be applied to all licensees seeking the same kind of license. [452]

Second, the ‘hard-edged’ non-discrimination obligation, which takes into account the nature of the potential licensee, [451] is a distinct concept that could be used to adjust license terms. However, the court held that the FRAND declaration does not introduce such a hard-edged non-discrimination concept. [453] If, contrary to the view taken by the court, the FRAND undertaking did include hard-edged non-discrimination, a licensee could only have the right to a lower rate granted to another licensee (i.e. a specific non-discrimination obligation resulting from the FRAND declaration) if the difference would otherwise distort competition between the two licensees. [452]

d. Territorial Scope of License

The court held that the defendant’s offer that was limited to UK licenses was not FRAND. In the court’s opinion country by country licensing is inefficient for goods such as mobile telecommunications devices that are distributed across borders. [454] It would also be inefficient to negotiate many different licenses and then to keep track of so many different royalty calculations and payments. No rational business would do this, if it could be avoided. [454] This was illustrated by the fact that the vast majority of licenses introduced in the trial were worldwide licenses. [455] Further, it is common ground that the industry assesses patent families rather than individual patents within the family. Assessing portfolios on a family basis inevitably involved tying a patent in one jurisdiction with a patent in another. [456] Thus, according to the court, a worldwide license would not be contrary to competition law. As willing and reasonable parties would agree on a worldwide licence, the insistence by the defendant on a license which was limited to the UK was not FRAND. [457]

C. Other Important Issues

1. Comparable agreements and reasonable aggregate royalty rate

The court held that for determining the royalty rate, the evidence of the parties would be relevant, including evidence of how negotiations actually work in the industry. [458] Other freely-negotiated license agreements might be used as comparables. [459] This may be compared with a top down approach [460] can also be used in which the rate is set by determining the patentee’s share of relevant SEPs and applying that to the total aggregate royalty for a standard, but this may be more useful as a cross-check. [461] Royalty rates determined by other courts might be useful as persuasive precedents. However, in the eyes of the court, a license rate determined at a binding arbitration does not carry much weight as to what parties are usually paying. [458] License agreements must meet certain criteria to be comparable. [462] First, the licensor is the claimant. Second, the license agreement is recent. However, it is not necessary that the licensee is the defendant or a comparable company because different market participants have different bargaining powers, which is reflected in the negotiations and the resulting royalty rates. [462] Finally the court confirmed that a royalty based on the handset price was appropriate and implied a reasonable aggregate royalty rate of 8.8%of the handset price. The court found that the 8.8% was reasonable, in part, because the aggregate implied by either party’s case was higher (10.4% and 13.3%). [463]

2. Principles derived from Huawei v. ZTE

The court also provided a compiled overview of its interpretation of the Huawei v. ZTE ruling. [464] In the eyes of the court, the ‘willingness to conclude a licence on FRAND terms’ refers to a willingness in general. The fact that concrete proposals are also required does not mean it is relevant to ask whether the proposals are actually FRAND or not. If the patentee complies with the procedure as set out by the CJEU, then bringing a claim for injunction is not abusive under Art 102. But even if sufficient notice is given, bringing a claim can constitute an abuse because complying with the procedure does not mean that a patentee can behave with impunity. In other words, there might be other aspects that make the claim abusive. Conversely, bringing such a claim without prior notice will necessarily be abusive.

Significantly, the court held, the legal circumstances of this case differ from the circumstances assumed by the CJEU in a crucial respect. A FRAND undertaking can be effectively enforced irrespective of Art 102. The defendant does not need Art 102 TFEU to have a defence to the injunction claim.
  • [427] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 2.
  • [428] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 54 et seqq.
  • [429] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 3.
  • [430] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 5.
  • [431] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 7-8.
  • [432] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 11-14.
  • [433] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 807.
  • [434] Unwired Planet v Huawei, EWHC 1304 (Pat).
  • [435] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 631.
  • [436] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 634.
  • [437] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 636-646.
  • [438] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 656.
  • [439] Unwired Planet v. Huawei [2017] EWHC 711(Pat), paras 108-145.
  • [440] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 146.
  • [441] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 162.
  • [442] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 163.
  • [443] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 159.
  • [444] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 164.
  • [445] See Vringo v ZTE [2013] EWHC 1591 (Pat) and [2015] EWHC 214 (Pat).
  • [446] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 158.
  • [447] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 152.
  • [448] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 154./span> Since Art. 102 TFEU condemns excessive pricing,Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 153. a royalty rate can be somewhat higher than the true FRAND rate and still not be contrary to competition law. Conversely, for a breach of competition law, it will be necessary but not sufficient that the rate is not the true FRAND rate.Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 153.
  • [449] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 153.
  • [450] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 176.
  • [451] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 177.
  • [452] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 503.
  • [453] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 501.
  • [454] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 544.
  • [455] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 534.
  • [456] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 546.
  • [457] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 572.
  • [458] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 171.
  • [459] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 170
  • [460] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 178
  • [461] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 806 (10)
  • [462] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 175.
  • [463] Unwired Planet v. Huawei [2017] EWHC 711(Pat), para 476.
  • [464] Unwired Planet v. Huawei [2017] EWHC 711(Pat), 744.

Updated 3 December 2018

District Court, LG Düsseldorf

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

A. Facts

The Claimant holds a patent essential to the data communication standards ADSL2+ and VDSL2 (Standard Essential Patent or SEP) [228] . 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 [229] .

The Defendant offers communication services in Germany to retail and wholesale clients, including DSL connections using the standards ADSL2+ and VDSL2 [230] .

The Intervener supplies the Defendant with equipment (especially DSL transceivers and DSL Boards), allowing network services based on the above standards [230] .

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) [231] . 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 [232] . 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 [233] . Taking the ongoing liability proceedings in Germany into account, the Dublin High Court stayed its proceedings [233] .

In September 2017, the Claimant brought a second action against the Defendant before the District Court of Düsseldorf, requesting for injunctive relief (injunction proceedings) [234] . In February 2018, the Claimant made another licensing offer to the Defendant in the pending injunction proceedings [232] .

With the present judgment, the Court dismissed Claimant’s action in the injunction proceedings [235] .


B. Court’s reasoning

Although the Court held that the services offered by the Defendant infringe the SEP in suit [236] , it found that the Claimant cannot enforce its patent rights for the time being [237] , 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) [235] .

1. Dominant market position

The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU [239] .

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 [240] . Each SEP outlines an own relevant (licensing) market, unless – from the SEP users’ perspective – equivalent alternative technologies for the same technical problem exist [241] . 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 [242] , it defined the relevant market as the market for products and services allowing for internet connections through DSL technology [243] .

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 [244] . 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 [244] . 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 [244] .

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 [244] . 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) [244] . 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 [244] .

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 [245] .

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 [246] . 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 [247] .

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 [248] .

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 [249] . 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 [249] .

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 [250] . 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 [250] . 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 [250] .

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) [251] . 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) [251] . 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 [251] .

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 [252] .

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 [253] .

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 [254] . Given the circumstances of the specific case, even an implicit behaviour can suffice [254] .

In terms of timeliness, the Court held that a strict deadline, within which the SEP user ought to make its declaration, cannot be set [255] . The respective time frame must be determined on a case-by-case basis under consideration of the circumstances of each case [255] . 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 [255] . 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 [255] .

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 [256] . 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 [257] .

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 [258] .

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 [259] . 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 [232] .

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 [260] . 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 [261] .

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 [262] . 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 [262] . 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 [262] . In this context, the Court explained that failure to meet the Huawei obligations does not permanently impair SEP holder’s rights [263] . 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 [264] .

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 [234] . Nevertheless, the Court left this question open, because, in its eyes, the Claimant’s offer was not FRAND in terms of content [265] .

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 [266] . In the Court’s view, Claimant’s offer was anyway both not fair and discriminatory [267] .

Fair and reasonable terms

The Court held that the licensing terms offered by the Claimant to the Defendant were not fair and reasonable [268] .

First, the terms did not adequately consider the effects of patent exhaustion [269] . As a rule, FRAND requires licensing offers to contain respective provisions [270] . 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 [271] .

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 [272] . The Defendant would be obliged to pay royalties for past uses, although it is not clear whether the Claimant is entitled to such payments [273] .

Third, the Court found that the exclusion of the Defendant’s wholesale business from Claimant’s licensing offer was also not fair [274] . According to the principle of contractual autonomy, patent holders are free to choose to which stage of the distribution chain they offer licences [275] . 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 [275] .

Non-discrimination

Besides from the above, the Court ruled that the Claimant’s offer was discriminatory [276] .

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 [266] . 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) [277] .

Furthermore, the Court explained that the non-discriminatory element of FRAND does not oblige the SEP holder to treat all users uniformly [278] . The respective obligation applies only to similarly situated users, whereas exceptions are allowed, provided that a different treatment is justified [278] . 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 [279] .

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 [280] . 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 [281] .

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 [282] . 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 [283] . 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 [284] .

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 [285] . 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 [285] . 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) [285] . 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 [285] . 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 [286] .

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 [287] . 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 [288] . 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 [289] .

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 [290] .


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 [291] .

  • [228] District Court of Düsseldorf, 11 July 2018, Case-No. 4c O 81/17Ibid, paras. 3 and 82.
  • [229] Ibid, para. 13.
  • [230] Ibid, para. 12.
  • [231] Ibid, paras. 14 and 211.
  • [232] Ibid, para. 15.
  • [233] Ibid, para. 16.
  • [234] Ibid, para. 236.
  • [235] Ibid, paras. 140 and 313 et seqq.
  • [236] Ibid, paras. 114 et seqq.
  • [237] Ibid, paras. 60 and 140.
  • [238] Huaweiv ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13.
  • [239] Ibid, para. 142.
  • [240] Ibid, para. 148.
  • [241] Ibid, paras. 153 and 146.
  • [242] Ibid, paras. 159 - 181.
  • [243] Ibid, para. 158.
  • [244] Ibid, para. 147.
  • [245] Ibid, paras. 183 et seqq.
  • [246] Ibid, para. 191.
  • [247] Ibid, para. 188.
  • [248] Ibid, paras. 195 et seqq.
  • [249] Ibid, para. 199.
  • [250] Ibid, para. 198.
  • [251] Ibid, para. 200.
  • [252] Ibid, para. 203.
  • [253] Ibid, para. 205.
  • [254] Ibid, para. 208.
  • [255] Ibid, para. 207.
  • [256] Ibid, para. 210.
  • [257] Ibid, para. 212.
  • [258] Ibid, paras. 215 et seq.
  • [259] Ibid, para. 220.
  • [260] Ibid, paras. 222 et seqq.
  • [261] Ibid, para. 225.
  • [262] Ibid, para. 233.
  • [263] Ibid, para. 228.
  • [264] Ibid, para. 230.
  • [265] Ibid, para. 237.
  • [266] Ibid. para. 241.
  • [267] Ibid, para. 242.
  • [268] Ibid, paras. 283 et seqq.
  • [269] Ibid, para. 285.
  • [270] Ibid, para. 288.
  • [271] Ibid, paras. 292 et seq.
  • [272] Ibid, paras. 298 et seqq.
  • [273] Ibid, para. 301.
  • [274] Ibid, para. 306.
  • [275] Ibid, para. 311.
  • [276] Ibid, para. 271.
  • [277] Ibid, para. 250.
  • [278] Ibid, para. 248.
  • [279] Ibid, para. 267.
  • [280] Ibid, paras. 256 and 259 et seq.
  • [281] Ibid, para. 262.
  • [282] bid, paras. 258 and 264.
  • [283] Ibid, paras. 263 and 265.
  • [284] Ibid, para. 265.
  • [285] Ibid, para. 273.
  • [286] Ibid, para. 274.
  • [287] Ibid, para. 276.
  • [288] Ibid, para. 277.
  • [289] Ibid, para. 281.
  • [290] Ibid, para. 315.
  • [291] Ibid, paras. 75 et seq.

Updated 3 December 2018

IP Bridge v HTC

LG Mannheim
28 September 2018 - Case No. 7 O 165/16

A. Facts

The Claimant, IP Bridge, is a non-practising entity holding a European patent (German part) which was declared essential to the wireless telecommunications standard LTE (Standard Essential Patent or SEP) developed by the European Telecommunications Standards Institute (ETSI) [357] . The previous holder of the SEP in question had made an undertaking towards ETSI according to Article 6.1 of ETSI IPR Policy to make the patent accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions [358] .

The Defendant is a German subsidiary of HTC, a company which manufactures and sells electronic devices worldwide, including mobile phones complying with the LTE standard [359] . The Defendant filed an action for invalidity against the Claimant’s SEP in Germany [359] .

In December 2014, the Claimant contacted the Defendant’s parent company (parent company) suggesting that the parties entered into negotiations regarding a licence for Claimant’s patent portfolio which also included the aforementioned SEP [359] . Subsequently, several licensing offers and counter-offers were made by the Claimant and the parent company respectively [359] . On 29 February 2016, the Claimant sent a letter to the parent company explaining how the LTE standard made use of the technology covered by its SEP inter alia under reference to an attached claims chart [360] . In response, the parent company confirmed that it is willing to obtain a licence, among others, by letter dated 7 September 2016 [361] . However, no licensing agreement was concluded.

On 27 September 2016, the Claimant brought an infringement action against the Defendant before the District Court of Mannheim (Court) requesting for a declaratory judgment confirming Defendant’s liability for damages arising from the use of its SEP as well as for information and rendering of accounts [362] .

On 16 February 2018, during the course of the pending proceedings against the Defendant, the Claimant made a further licensing offer to the parent company [363] . On 11 April 2018, after the parent company had signed a Non-Disclosure Agreement, the Claimant presented existing licensing agreements with third parties concerning its relevant patent portfolio (comparable agreements) to the parent company and requested the latter to respond to its last licensing offer of 16 February 2018 within one week (that is until 18 April 2018) [363] . This deadline was extended for almost three weeks until 7 May 2018 [363] .

On 15 May 2018, the Claimant extended its claims in the ongoing proceedings; in addition to its already pending claims, it sought for injunctive relief and also requested the recall and the destruction of products infringing its SEP (claims for injunction) [363] .

With the present judgment the Court ruled that the Defendant is liable for damages arising from the infringement of the SEP in suit [364] . The Court also ordered the Defendant to render accounts and to provide relevant information to the Claimant [364] . On the other hand, the Court dismissed the claim for injunctive relief and the recall and destruction of infringing products as being unenforceable for the time being [365] .


B. Court’s reasoning

The Court held that the products sold by the Defendant in Germany infringe Claimant’s SEP [366] . Thus, the Defendant is obliged to compensate the damages suffered by the Claimant and the previous holder of the patent in suit [364] . Since the Claimant has no knowledge of the details required for the quantification of the damages suffered, the Defendant is obliged to provide information on relevant uses (starting from the publication of the patent grant) and render accounts for such uses (starting from one month after the publication of the patent grant) [364] .

In the Court’s view, the Defendant cannot raise a defence based on a so-called “patent ambush” against these claims [367] . A “patent ambush” requires that the patent holder deliberately – in terms of a willful fraudulent misconduct – misled the participants in the standardisation process and intentionally prevented the adoption of an alternative technology into the standard [368] . Insofar, it needs to be established (by the defendant) that the disclosure of the patent during the standardisation process would have led to an alternative structure of the standard, which would have avoided making use of the teaching of the patent in suit; the mere theoretical possibility of an alternative technical solution does not suffice for supporting the allegation of a “patent ambush” [368] . The Court held that the Defendant failed to establish such fact [367] . Accordingly, the Court left the question regarding the legal consequences of a “patent ambush” open (obligation to licence royalty-free or just an obligation to offer FRAND licences?) [367] .

Furthermore, the Court stressed out that the FRAND undertaking given by the previous holder of the SEP in suit has no impact on both the scope and the enforceability of the above claims [369] .

In the Court’s eyes, the Claimant is bound to the FRAND undertaking made by the previous holder of the SEP in suit towards ETSI [370] . The wording of Article 6.1. ETSI IPR Policy establishes a respective assumption [370] . In any case, the assignee of a SEP abuses its market power, if it is aware of the FRAND-undertaking of its predecessor, but, nevertheless, refuses to fulfil the obligations arising from it [360] . The assignee of an SEP cannot draw benefits from the inclusion of its patent into a standard, without being bound to the FRAND commitment of its predecessor, since the latter enabled the inclusion of the SEP in the standard in the first place [360] . Indeed, antitrust law and particularly Article 101 of the Treaty for the Functioning of the EU (TFEU) obliges standard development organisations to make the inclusion of patented technology into a standard subject to a FRAND commitment of the patent holder, in order to secure that essential technology will be accessible to users [371] .

Having said that, the Court made clear that SEP holder’s claims for information and rendering of accounts are not limited by the FRAND undertaking [369] . Even if one would assume that such undertaking limits the SEP holder’s claims for damages to the amount of the FRAND royalty (which the Court left undecided), the patent holder would, nevertheless, be entitled, in principle, to information regarding the use of its SEP [369] .

In addition, the Court explained that a FRAND undertaking has also no influence on the enforceability of the claims for damages (on the merits), information and rendering of accounts asserted by the Claimant [369] . In particular, these claims are not subject to the conduct requirements set forth by the Court of Justice of the European Union (CJEU) in the matter Huawei v ZTEHuawei v ZTE, Court of Justice of the European Union, judgement dated 16 July 2015, Case No. C-130/13. (Huawei requirements or framework) with respect to dominant undertakings in terms of Article 102 TFEU [373] .

The opposite is, on the other hand, the case with respect to the claims for injunction asserted by the Claimant. These claims are not enforceable for the time being, since the Claimant failed to fully comply with the Huawei requirements [374] .

Regarding to the SEP in suit, the Court ruled that the Claimant has a dominant market position in terms of Article 102 TFEU: The patent is essential to the LTE standard, which, in turn, cannot be substituted by an alternative standard (from the users’ point of view) [375] .

Looking at the negotiations between the parties involved, the Court did not see any flaws in the parties’ conduct with respect to the first two steps of the framework; the Claimant had effectively notified the Defendant about the infringing use of its SEP and the Defendant (in fact, its parent company) had effectively declared its willingness to obtain a licence covering also the SEP in suit [360] . In this context, the Court pointed out that the SEP holder’s obligation to notify the user of the infringing use of its SEP is also met, when the respective notification is addressed to the parent company of the (alleged) infringer (as is was the case here, especially with the Claimant’s letter to the parent company dated 29 February 2016) [360] .

However, the Court held that the Claimant failed to fulfil its consequent obligation under the Huawei framework, namely to make a FRAND licensing offer to the Defendant (respectively its parent company) [376] .

The Court considered only two offers made by the Claimant to the Defendant’s parent company prior to the extension of its claims in the pending proceedings on 15 May 2018 (since the other offers made were either indisputably not FRAND or were not produced by the Claimant in trial) [361] .

An offer made in February 2016 was found not to be FRAND in terms of content, since it contained a clause, according to which the licensee was obliged to pay the full amount of the royalties agreed, even if only one patent of the licensed portfolio was valid and used by the Defendant [361] .

The Court reached the same conclusion also with respect to the further offer made by the Claimant on 11 April 2018 (that is short before the Claimant extended its claims in the proceedings, adding the claims for injunction) [377] . The Court held that this offer did not comply with the Huawei requirements, since the Defendant was not given sufficient time to assess the offer and eventually make a counter-offer to the Claimant, before the latter asserted the claims for injunction against him in the proceedings [361] .

In the Court’s eyes, a licensing offer complying with the Huawei requirements is only given, when the SEP holder provides the SEP user with all information required from assessing the FRAND conformity of the offer [378] . Only then, the SEP user’s consequent obligation under the Huawei framework to make a FRAND counter-offer to the SEP holder is triggered [378] . In particular, the SEP holder must make the requested royalty amount transparent with reference to a standard licensing programme implemented in the market or to rates actually paid by third parties to a patent pool, covering also patents relevant to the standard [378] . For the assessment of the non-discriminatory character of the offer, information on comparable agreements is needed [378] .

Based on the above considerations, the Court held that the period of 22 workdays between the presentation of the comparable agreements to the parent company (11 April 2018) and the assertion of the injunction claims in the proceedings by the Defendant (15 May 2018) was too short for a competent assessment of the Claimant’s licensing offer [379] . The fact that the Defendant (and/or its parent company) would have had sufficient time to react to the Claimant’s offer until the end of the oral hearings in mid-July 2018 was considered irrelevant by the Court in this respect [379] . The Huawei framework aims at preventing the situation, in which the SEP user agrees to unfavourable licensing conditions under the pressure of pending infringement proceedings (defined by the Court as “patent hold-up”) [379] . In case that the SEP holder has not fulfilled the Huawei requirements prior to the initiation of proceedings (as it was the case here), it has to make sure that the parties can again negotiated without the pressure of an ongoing trial, for instance by asking the court to stay its proceedings pursuant to Article 251 of the German Court of Civil Procedure [380] . Otherwise, the initiation of the infringement proceedings shall be considered as abusive in terms of antitrust law [380] . In the present case, the Claimant chose to not ask for a stay in the proceedings, ignoring the Court’s respective indication [380] .


C. Other issues

The Court explained that the registration in the patent register allows the registered patent holder to assert the patent rights in court [381] . On the other hand, it does not define the ownership of the patent in material legal terms [382] . Nevertheless, the patent registration establishes an assumption of ownership which must be rebutted by the defendant in infringement proceedings based on concrete indications [383] .

Besides that, the Court pointed out that a stay in the infringement proceedings (pursuant to Article 148 of the German Code of Civil Procedure) until the end of parallel invalidation proceedings concerning the patent(s) in suit can be considered only under special circumstances [384] . As a rule, it must be expected with a sufficient degree of probability that the patent(s) in suit will be invalidated [384] . The Defendant failed convince the Court that this was the case with the SEP in suit [384] .

  • [357] District Court of Mannheim, judgment dated 28 September 2018, Case-No. 7 O 165/16, page 2 and 23.
  • [358] Ibid, page 23 et seq.
  • [359] Ibid, page 5.
  • [360] Ibid, page 25.
  • [361] Ibid, page 26.
  • [362] Ibid, pages 5 et seq.
  • [363] Ibid, page 6.
  • [364] Ibid, page 19.
  • [365] Ibid,page 23.
  • [366] Ibid, pages 16 et seqq.
  • [367] Ibid, page 20.
  • [368] Ibid, page 21.
  • [369] Ibid, page 22.
  • [370] Ibid, page 24.
  • [371] Ibid, pages 24 et seq.
  • [372] Huawei v ZTE, Court of Justice of the European Union, judgement dated 16 July 2015, Case No. C-130/13.
  • [373] District Court of Mannheim, judgment dated 28 September 2018, Case-No. 7 O 165/16, pages 22.
  • [374] Ibid,pages 23 and 25.
  • [375] Ibid, page 23.
  • [376] Ibid, pages 23 and 25 et seq.
  • [377] Ibid, pages 26 et seqq.
  • [378] Ibid, page 27.
  • [379] Ibid, page 28.
  • [380] Ibid, page 29.
  • [381] Ibid, page 10.
  • [382] Ibid, pages 10 et seq.
  • [383] Ibid, page 11.
  • [384] Ibid, page 30.

Updated 12 March 2019

Fraunhofer-Gesellschaft (MPEG-LA) v ZTE.

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

A. Facts

The Claimant, Fraunhofer-Gesellschaft zur Förderung der Angewandten Forschung, holds a patent essential to the practice of the AVC/H.264 standard concerning the compression of video data (Standard Essential Patent of SEP) [1] . 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) [2] .

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 [3] .

MPEG LA uses a standard licensing agreement, which is publicly available at its website [4] . It has signed licensing agreements with approx. 1,400 implementers [4] .

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) [5] .

On 15 September 2011, the parent company asked MPEG LA to send any relevant documents by mail to its IPR Manager [6] . A copy of MPEG LA’s standard licensing agreement reached the parent company in late September 2011 [7] .

In 2012, the parent company acquired patents included in the MPEG LA pool [2] .

Since MPEG-LA and the parent company could not reach an agreement on a licence covering the MPEG LA pool [8] , 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 [9] .

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 [10] . 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 [11] . 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 [12] .

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 [13] . 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 [14] (Huawei obligations or framework) with respect to dominant undertakings [15] .

1. Dominant market position

The Court found that the Claimant holds a dominant market position in terms of Article 102 TFEU [16] .

The Court defined the relevant market for the assessment of dominance as the market for licences for any given patent [17] . A dominant market position can further also exist, when the patent holder can hinder competition in downstream markets for standard-compliant products and services [17] .

The Court made, however, clear that ownership of a SEP does not per se establish market dominance [18] . A dominant market position is given, when the use of the SEP is required for entering the market [18] . The same is true, if the patent user could not market competitive products or services, without access to the respective SEP [18] .

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 [19] .

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 [20] . 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) [21] . 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 [22] .

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 [23] . 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 [24] ), since with respect to the SEP in suit a ‘routine’ practice already existed prior to the Huawei judgement [25] . The Court explained that the Huawei judgment does not contain either an explicit or an implicit limitation of its scope of application [26] . 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 [27] . 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 [28] . 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 [29] .

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 [30] .

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 [31] .

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 [32] . The sole fact that a company belongs to a group justifies such an assumption, unless indications to the contrary exist [32] . 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) [33] . 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 [34] . 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 [35] . 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 [36] .

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 [37] . 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 [38] . A notification of infringement is, therefore, not necessary, when it constitutes just a ‘pointless formality’ [38] . 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 [38] . The respective test is, however, subject to strict conditions [38] .

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) [39] . 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) [40] , 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 [41] .

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 [42] .

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 [43] . The implementer is not required to refer to a specific licensing agreement [43] .

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 [44] .

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 [45] .

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 [46] . 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 [47] . Whether subsidiaries can (or should) also be licensed, will be the object of these negotiations [48] . 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 [49] . 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 [50] .

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 [51] . 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 [52] .

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 [53] . 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) [54] . 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 [54] . 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 [54] . 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 [55] .

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 [56] . 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 [56] . 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 [57] .

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 [58] . 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 [58] . 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 [58] . In this respect, comparable agreements can serve as an ‘important indicator’ of the fair and reasonable character of the offered royalty rates [58] .

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 [59] . 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 [59] . 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 [60] . 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 [60] .

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 [61] . In the electronics and mobile communications industries, licences covering a group of companies are in line with the industry practice [62] . 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 [63] .

In addition, the Court made clear that pool licences, as the one offered to the parent company, are appropriate under the Huawei framework [64] . An offer for a pool licence cannot per se be seen as abusive (Article 101 TFEU) [65] . 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 [65] .

Implementer’s counter-offer

The Court found that the Defendant failed to make a FRAND counter-offer [66] .

Sending signed copies of MPEG LA’s standard licensing agreement back to MPEG LA can be regarded as a counter-offer [67] . 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 [68] . 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 [69] .

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 [70] .

  • [1] Fraunhofer-Gesellschaft (MPEG-LA) v ZTE, District Court of Düsseldorf, judgement dated 9 November 2018, cited by www.nrwe.de, para. 56.
  • [2] Ibid, para. 58
  • [3] Ibid, para. 57
  • [4] Ibid, para. 59
  • [5] Ibid, paras. 61 et seqq. and 340
  • [6] Ibid, para. 65
  • [7] Ibid, para. 66
  • [8] Ibid, para. 73
  • [9] Ibid, para. 42
  • [10] bid, para. 74
  • [11] Ibid, paras. 75 et seq
  • [12] Ibid, para. 75
  • [13] Ibid, paras. 127 – 254
  • [14] Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13
  • [15] Fraunhofer-Gesellschaft (MPEG-LA) v ZTE, District Court of Düsseldorf, judgement dated 9 November 2018, cited by www.nrwe.de, Ibid, para. 280
  • [16] Ibid, para. 283 and paras. 291 et seqq
  • [17] Ibid, para. 286
  • [18] Ibid, para. 287
  • [19] Ibid, paras. 291 et seqq
  • [20] Ibid, para. 296
  • [21] Ibid, para. 300
  • [22] Ibid, para. 302
  • [23] Ibid, para. 308
  • [24] 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
  • [25] Ibid, para. 305
  • [26] Ibid, paras. 306 et seqq
  • [27] Ibid, para. 310
  • [28] Ibid, para. 311
  • [29] Ibid, para. 312
  • [30] Ibid, para. 421
  • [31] Ibid, para. 314
  • [32] Ibid, para. 320
  • [33] Ibid, para. 318
  • [34] Ibid, para. 329
  • [35] Ibid, paras. 336 et seq
  • [36] Ibid, para. 338
  • [37] Ibid, para. 198
  • [38] Ibid, para. 315
  • [39] Ibid, paras. 340 et seq
  • [40] Ibid, paras. 342 et seqq
  • [41] Ibid, para. 344
  • [42] Ibid, para. 346
  • [43] Ibid, para. 348
  • [44] Ibid, para. 352
  • [45] Ibid, para. 367
  • [46] Ibid, para. 369
  • [47] Ibid, para. 370
  • [48] Ibid, para. 378
  • [49] Ibid, para. 371
  • [50] Ibid, para. 374
  • [51] Ibid, para. 376
  • [52] Ibid, para. 377
  • [53] Ibid, para. 380
  • [54] Ibid, para. 381
  • [55] Ibid, para. 386
  • [56] Ibid, para. 382
  • [57] Ibid, para. 387
  • [58] Ibid, para. 391
  • [59] Ibid, para. 392
  • [60] Ibid, para. 393
  • [61] Ibid, para. 397
  • [62] Ibid, para. 398
  • [63] Ibid, para. 399
  • [64] Ibid, para. 402
  • [65] Ibid, para. 404
  • [66] Ibid, para. 410
  • [67] Ibid, para. 413
  • [68] Ibid, para. 416
  • [69] Ibid, para. 417
  • [70] Ibid, para. 411

Updated 30 October 2018

Unwired Planet v Huawei, UK Court of Appeal

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

A. Facts

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

Starting in September 2013, the Claimant contacted the Defendants several times, requesting the latter to engage in discussions for a licence regarding its SEP portfolio. [540] In March 2014, the Claimant sued the Defendants as well as Samsung and Google for infringement of five of its UK SEPs before the UK High Court of Justice (High Court). [541] The Claimant also initiated parallel infringement proceedings against the Defendants in Germany. [542]

The High Court conducted three technical trials first, focusing on the validity and essentiality of four of the SEPs in suit. [543] By April 2016, these trials were completed; the High Court held that two of the SEPs in suit were both valid and essential, whereas two other patents were found to be invalid. [543] The parties agreed to postpone further technical trials indefinitely. [543]

In July 2016, Samsung took a licence from the Claimant covering, among other, the SEPs in suit. [544] The Claimant also settled the infringement proceedings with Google. [545]

In late 2016, the trial concerned with questions regarding to the licensing of the SEPs in suit commenced between the Claimant and the Defendants. Over the course of these proceedings the parties made licensing offers to the each other. However, they failed to reach an agreement. The Defendants indicated they were willing to take a licence under Claimant’s UK patent portfolio, whereas the Claimant contended that it was entitled to insist upon a worldwide licence. [546]

In April 2017, the High Court granted an UK injunction against the Defendant, until such time as it entered into a worldwide licensing agreement with the Claimant on the specific rates, which the court determined to be Fair, Reasonable and Non-Discriminatory (FRAND) [547] in accordance with the undertaking given by the Claimant towards the European Telecommunications Standards Institute (ETSI). [548] Pending appeal, the High Court stayed the injunction. [549]

Shortly after the High Court delivered its decision, the Defendants began proceedings against the Claimant in China, which are still pending. [550]

With the present judgment, the UK Court of Appeal dismissed the Defendants’ appeal against the decision of the High Court. [551]


B. Court’s reasoning

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

1. The High Court’s finding that only a worldwide licence was FRAND is erroneous; the imposition of such a licence on terms set by this court based on a national finding of infringement of UK patents is wrong in principle. [552]

2. The offer imposed to the Defendants by the High Court is discriminatory in violation of Claimant’s FRAND undertaking, since the rates offered are higher than the rates reflected in the licence granted by the Claimant to Samsung. [553]

3. The Claimant is not entitled to injunctive relief; by bringing the infringement proceedings against the Defendants, without meeting the requirements established by the Court of Justice of the European Union (“CJEU”) in the matter Huawei v ZTE [554] (Huawei judgment) before, the Claimant abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). [555]

Notably, the High Court’s determination of the rates which apply to the worldwide licence that the court requested the Defendants to take was not challenged by any of the parties to the proceedings. [556]


1. Worldwide licences

The Court of Appeal disagreed with the Defendants’ notion that imposing a worldwide licence on an implementer is wrong, because it amounts to an (indirect) interference with foreign court proceedings relating to patents subsisting in foreign territories, which would have been subject to materially different approaches to the assessment of FRAND royalty rates and could, therefore, lead to different results (particularly the ongoing litigation between the parties in China and Germany). [557]

The Court of Appeal explained that in imposing a worldwide licence the High Court did neither adjudicate on issues of infringement or validity concerning any foreign SEPs, nor was it deciding what the appropriate relief for infringement of any foreign SEPs might be (particularly since it made clear that a FRAND licence should not prevent a licensee from challenging the validity or essentiality of any foreign SEPs and should make provision for sales in non-patent countries which do not require a licence) [558] . [559]

Moreover, the High Court simply determined the terms of the licence that the Claimant was required to offer to the Defendants pursuant to its FRAND undertaking towards ETSI. [560] Such an undertaking has international effect. [561] It applies to all SEPs of the patent holder irrespective of the territory in which they subsist. [562] This is necessary for two reasons: first, to protect implementers whose equipment may be sold and used in a number of different jurisdictions. [562] Second, to enable SEP holders to prevent implementers from “free-riding” on their innovations and secure an appropriate reward for carrying out their research and development activities and for engaging with the standardisation process. [563]

Accordingly, the High Court had not erred in finding that a worldwide licence was FRAND. On the contrary, there may be circumstances in which only a worldwide licence or at least a multi-territorial licence would be FRAND. [564] German Courts (in Pioneer Acer [565] and St. Lawrence v Vodafone [566] ) as well as the European Commission in its Communication dated 29 November 2017 [567] had also adopted a similar approach. [568]

Having said that, the Court of Appeal recognized that it may be “wholly impractical” for a SEP holder to seek to negotiate a licence for its patents on a country-by-country basis, just as it may be “prohibitively expensive” to seek to enforce its SEPs by litigating in each country in which they subsist. [563] In addition, if in the FRAND context the implementer could only be required to take country-by-country licences, there would be no prospect of any effective injunctive relief being granted to the SEP holder against it: the implementer could avoid an injunction, if it agreed to pay the royalties in respect of its activities in any particular country, once those activities had been found to infringe. [569] In this way, the implementer would have an incentive to hold out country-by-country, until it was compelled to pay. [569]

In its discussion of this topic, the Court of Appeal disagreed with the view taken by the High Court that in every given set of circumstances only one true set of FRAND terms exists. Nevertheless, the court did not consider that the opposite assumption of the High Court had a material effect to the its decision. [570]

In the eyes of the Court of Appeal, it is “unreal” to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of licence terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances. [571] The reality is that a number of sets of terms may all be fair and reasonable in a given set of circumstances. [571] Whether there is only one true set of FRAND terms or not, is, therefore, more of a “theoretical problem” than a real one. [572] If the parties cannot reach an agreement, then the court (or arbitral tribunal) which will have to determine the licensing terms will normally declare one set of terms as FRAND. The SEP holder would then have to offer that specific set of terms to the implementer. On the other hand, in case that the court finds that two different sets of terms are FRAND, then the SEP holder will satisfy its FRAND undertaking towards ETSI, if it offers either one of them to the implementer. [572]

Furthermore, the Court of Appeal dismissed Defendants’ claim that imposing a worldwide licence is contrary to public policy and disproportionate. [573] In particular, the Defendants argued that this approach encourages over-declaration of patents [574] and is not compatible with the spirit of the Directive 2004/48/EC on the enforcement of intellectual property rights, [575] which requires relief for patent infringement to be proportionate. [576]

Although the Court of Appeal recognised the existence of the practice of over-declaration and acknowledged that it is a problem, it held that this phenomenon cannot justify “condemning” SEP holders with large portfolios to “impossibly expensive” litigation in every territory in respect of which they seek to recover royalties. [577] The court also found that there was nothing disproportionate about the approach taken by the High Court, since the Defendants had the option to avoid an injunction by taking a licence on the terms which the court had determined. [578]


2. Non-discrimination

The Court of Appeal rejected the Defendants’ argument [579] that the non-discrimination component of Claimant’s FRAND undertaking towards ETSI obliges the Claimant to offer to the Defendants the same rates as those contained in the licence granted to Samsung. [580]

The Court of Appeal made clear that the obligation of the SEP holder not to discriminate is, in principle, engaged in the present case, since the Claimant’s transaction with the Defendants is equivalent to the licence it granted to Samsung. [581] In the court’s eyes, when deciding whether two transactions are equivalent one needs to focus first on the transactions themselves. Insofar, differences in the circumstances in which the transactions were entered into, particularly economic circumstances, such as the parties’ financial position [582] or market conditions (e.g. cost of raw materials), cannot make two otherwise identical transactions non-equivalent (releasing, therefore, the patent holder from the obligation not to discriminate). Changes in such circumstances could only amount to an objective justification for a difference in treatment. [583]

Considering the specific content of the SEP holder’s respective obligation, the Court of Appeal agreed with the High Court’s finding that the non-discrimination element of a SEP holder’s FRAND undertaking does not imply a so-called “hard-edged” component (imposing on the patent holder an obligation to offer the same rate to similarly situated implementers). [584] It argued that the “hard-edged” approach is “excessively strict” and fails to achieve a balance between a fair return to the SEP owner and universal access to the technology. [585] It could have the effect of compelling the SEP holder to accept a level of compensation for the use of its invention which does not reflect the value of the licensed technology and, therefore, harm the technological development of standards. [586]

Furthermore, the “hard-edged” discrimination approach should be rejected also because its effects would result in the insertion of the “most favoured licensee” clause in the FRAND undertaking. In the view of the Court of Appeal, the industry would most likely have regarded such a clause as inconsistent with the overall objective of the FRAND undertaking. [587]

Conversely, the Court of Appeal followed the notion described by the High Court as the “general” non-discrimination approach: [588] the FRAND undertaking prevents the SEP holder from securing rates higher than a “benchmark” rate which mirrors a fair valuation of its patent(s), but it does not prevent the patent holder from granting licences at lower rates. [588] For determining the benchmark rate, prior licences granted by the SEP holder to third parties will likely form the “best comparables”. [589]

The Court of Appeal argued that the “general” approach is in line with the objectives of the FRAND undertaking, since it ensures that the SEP holder is not able to “hold-up” implementation of the standard by demanding more than its patent(s) is worth. [590] However, the FRAND undertaking does not aim at leveling down the royalty owed to the SEP holder to a point where it no longer represents a fair return for its patent(s), or to removing its discretion to agree royalty rates lower than the benchmark rate, if it chooses to do so. [590]

In this context, the Court of Appeal made clear that it does not consider differential pricing as per se objectionable, since it can in some circumstances be beneficial to consumer welfare. [591] The court sees no value in mandating equal pricing for its own sake. On the contrary, once the hold-up effect is dealt with by ensuring that licences are available at the benchmark rate, there is no reason for preventing the SEP holder from charging less than the licence is worth. [591] Should discrimination appear below the benchmark rate, it should be addressed through the application of competition law; as long as granting licences at rates lower than the benchmark rate causes no competitive harm, there is no reason to assume that the FRAND undertaking constrains the ability of the SEP holder to do so. [592]


3. Abuse of dominant Position / Huawei v ZTE

The Court of Appeal further rejected Defendants’ argument that, by bringing the infringement proceedings prior to fulfilling the obligations arising from the Huawei judgment, the Claimant abused its dominant market position in violation of Article 102 TFEU. [593]

To begin with, the Court of Appeal confirmed the finding of the High Court that the Claimant held a dominant market position and dismissed the respective challenge by the latter. [594] It did not find any flaw in the High Court’s view that the SEP holder has a 100% market share with respect to each SEP (since it is “common ground” that the relevant market for the purpose of assessing dominance in the case of each SEP is the market for the licensing of that SEP [595] ) and that the constrains imposed upon the SEP holder’s market power by the limitations attached to the FRAND undertaking [596] and the risk of hold-out that is immanent to the structure of the respective market, [597] can either alone or together rebut the assumption that it most likely holds market power. [598]

Notwithstanding the above, the Court of Appeal held that the Claimant had not abused its market power in the present case. [599]

The court agreed with the finding of the High Court that the Huawei judgment did not lay down “mandatory conditions”, in a sense that that non-compliance will per se render the initiation of infringement proceedings a breach of Article 102 TFEU. [600] The language used in the Huawei judgment implies that the CJEU intended to create a “safe harbor”: if the SEP holder complies with the respective framework, the commencement of an action will not, in and of itself, amount to an abuse. [601] If the SEP holder steps outside this framework, the question whether its behaviour has been abusive must be assessed in light of all of the circumstances. [602]

In the court’s eyes, the only mandatory condition that must be satisfied by the SEP holder before proceedings are commenced, is giving notice to the implementer about the infringing use of its patents. [603] This follows from the clear language used by the CJEU with respect to this obligation. [604] The precise content of such notice will depend upon all the circumstances of the particular case. [604] In general, if an alleged infringer is familiar with the technical details of the products it is dealing and the SEP it may be infringing, but has no intention of taking a licence on FRAND terms, it will not be justified to deny the SEP holder an injunction, simply because it had not made a formal notification prior to the commencement of proceedings. [605]

On the merits, the court accepted the High Court’s assessment that the Claimant had not behaved abusively and particularly the finding, that the Defendants, who were in contact with the Claimant prior to the proceedings, had sufficient notice that the Claimant held SEPs which ought to be licensed, if found infringed and essential. [606]

Considering further that the respective conduct requirements were not established at the point in time, in which the infringement action was filed (since the present proceedings were initiated before the CJEU delivered the Huawei judgment), the Court of Appeal noted that it would very likely not be fair to accuse the Claimant of abusive behavior. [607] Insofar the court agreed with the respective approach developed by German courts in co-called “transitional” cases (Pioneer v Acer, [608] St. Lawrence v Vodafone [608] and Sisvel v Haier [609] ) [610] .

  • [540] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, Case-No. A3/2017/1784, [2018] EWCA Civ 2344, para. 233.
  • [541] Ibid, para. 6 et seqq.
  • [542] Ibid, para. 233.
  • [543] Ibid, para. 7.
  • [544] Ibid, paras. 8 and 137 et seqq.
  • [545] Ibid, para. 8.
  • [546] Ibid, para. 9 et seqq.; para. 31 et seqq.
  • [547] Ibid, para 17.
  • [548] Ibid, para 130.
  • [549] Ibid, para 18.
  • [550] Ibid, para 112.
  • [551] Ibid, para 291.
  • [552] Ibid, paras. 19 and 45 et seqq.
  • [553] Ibid, paras. 20 and 132 et seqq.
  • [554] Huawei v ZTE, Court of Justice of the European Union, judgement dated 16 July 2015, Case No. C-170/13.
  • [555] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 21, paras. 211 et seqq and para. 251.
  • [556] Ibid, para. 17.
  • [557] Ibid, paras. 74 and 77 et seq.
  • [558] Ibid, para. 82.
  • [559] Ibid, para. 80.
  • [560] Ibid, para. 79 et seq.
  • [561] Ibid, para. 26.
  • [562] Ibid, para. 53.
  • [563] Ibid, para. 54 et seq., para. 59.
  • [564] Ibid, para. 56.
  • [565] Pioneer v Acer, District Court of Mannheim, judgement dated 8 January 2016, Case No. 7 O 96/14.
  • [566] St. Lawrence v Vodafone, District Court of Düsseldorf, judgement dated 31 March 2016, Case No. 4a O 73/14.
  • [567] Communication From the Commission to the European Parliament, the Council and the European Economic and Social Committee, “Setting out the EU Approach to Standard Essential Patents”, 29 November 2017, COM(2017) 712 final.
  • [568] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 74.
  • [569] Ibid, para. 111.
  • [570] Ibid, para. 128.
  • [571] Ibid, para. 121.
  • [572] Ibid, para. 125.
  • [573] Ibid, para. 75.
  • [574] Ibid, para. 92
  • [575] Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights (Official Journal of the EU L 195, 02/06/2004, p. 16)
  • [576] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 94.
  • [577] Ibid, para. 96.
  • [578] Ibid, para. 98.
  • [579] Ibid, para. 20 and 132 et seqq.
  • [580] Ibid, paras. 207 and 210.
  • [581] Ibid, para. 176.
  • [582] Ibid, para. 173.
  • [583] Ibid, para. 169 et seq.
  • [584] Ibid, paras. 194 et seqq.
  • [585] Ibid, para. 198.
  • [586] Ibid, para. 198.
  • [587] Ibid, para. 199.
  • [588] Ibid, para. 195.
  • [589] Ibid, para. 202.
  • [590] Ibid, para. 196.
  • [591] Ibid, para. 197.
  • [592] Ibid, para. 200.
  • [593] Ibid, para. 21, paras. 211 et seqq and para. 251.
  • [594] Ibid, para. 212.
  • [595] Ibid, para. 216.
  • [596] Ibid, para. 219.
  • [597] Ibid, para. 220.
  • [598] Ibid, para. 229.
  • [599] Ibid, para. 284.
  • [600] Ibid, para. 269.
  • [601] Ibid, para. 270.
  • [602] Ibid, para. 269 and 282.
  • [603] Ibid, para. 253 and 281.
  • [604] Ibid, para. 271.
  • [605] Ibid, para. 273.
  • [606] Ibid, para. 284
  • [607] Ibid, para. 275
  • [608] See above
  • [609] Sisvel v Haier, Higher District Court of Düsseldorf, judgement dated 30 March 2017, Case No. 15 U 66-15.
  • [610] Unwired Planet v Huawei, UK Court of Appeal, 23 October 2018, para. 279.

Updated 30 October 2018

­Vodafone v Intellectual Ventures, High Court of Ireland

English/Irish court decisions
10 March 2017 - Case No. 2016 5102P, [2017] IEHC 160

A. Facts

The Claimant, Vodafone GmbH, is a German company offering communication services in Germany, including DSL internet connections based on the standards ADSL2+ and VDSL2 [629] .

The first Defendant, Intellectual Ventures II LLC (IV LLC), is a US company that holds patents declared as essential to the above standards (Standard Essential Patents or SEPs), including German designations of several European patents [630] . The second Defendant, Intellectual Ventures International Licensing (IV Licensing), is an Irish company engaged in patent licensing [630] . IV LLC granted IV Licensing a sub-licence which allows the latter to grant non-exclusive licences in respect to IV LLC’s portfolio [631] .

In January 2016, IV LLC brought infringement actions against the Claimant before the District Court (Landgericht) of Düsseldorf in Germany (Düsseldorf Court) based on the German designation of two of its SEP relating to the ADSL2+ and VDSL2 standards (German proceedings) [632] . In the German proceedings, IV LLC sought for a declaration that the Claimant is liable for damages arising from the infringement of the SEPs in suit as well as the provision of information and the rendering of accounts [632] .

During the course of the German proceedings, IV Licensing made an offer for a licensing agreement to the Claimant comprising the German designations of sixteen European Patents, including the two patents already asserted before the Düsseldorf Court [633] . The Claimant made a counter-offer which was, however, rejected [634] .

Subsequently, the Claimant filed an action for a declaratory judgement against the Defendants before the Dublin High Court (High Court) in Ireland (Irish proceedings). The Claimant requested the High Court inter alia to declare (1) that IV Licensing’s offer was not Fair, Reasonable and Non-Discriminatory (FRAND) and, therefore, amounted to an abuse of dominant position contrary to Article 102 of the Treaty on the Functioning of the EU (TFEU) and (2) that Claimant’s counter-offer was FRAND [635] . In case that the High Court held that neither IV Licensing’s offer nor Claimant’s counter-offer were FRAND, the Claimant also sought for a declaration as to which terms and conditions would be FRAND [635] .

The Defendants challenged the jurisdiction of the High Court. They requested the High Court – among other motions – to decline jurisdiction in favour of the Düsseldorf Court, or, in the alternative to stay its proceedings [636] .

With the present judgment the High Court refused to decline jurisdiction over the dispute brought before it [637] . The Court ordered, however, a stay in the proceedings, until the Düsseldorf Court delivered its final judgment in the German proceedings [637] .

B. Court’s reasoning

The High Court held that neither Article 24 nor Article 29 of the Recast Brussels Regulation [638] require the court to decline jurisdiction in favour of the Düsseldorf Court, even though the German proceedings were initiated prior to the Irish proceedings.

Pursuant to Article 24 of the Regulation, the Courts of each EU Member State have exclusive jurisdiction in proceedings concerned with the validity of any European Patent granted for that Member State. Both pending proceedings concern German designations of IV LLC’s European patens. However, this fact did not hinder the High Court to assume jurisdiction over the present case: In the High Court’s eyes, no issue as to the validity the patents which ought to be licensed has been placed in issue in the Irish proceedings; moreover, no part of Claimant’s cause of action concerning the (alleged) abuse of dominance depends in any way on the validity of the SEPs in suit [639] .

Furthermore, the High Court found that Article 29 of the Regulation does not apply to the present case, either. The High Court took the view that the Irish proceedings and the German proceedings do not involve the “same cause of action”, as Article 29 of the Regulation requires [640] . Although there are overlapping issues in both proceedings (for instance, Article 102 TFEU is mentioned in parties’ pleadings in both trials), this fact does not suffice to establish a “same cause of action” in terms of Article 29 of the Regulation [640] . In particular, Article 102 TFEU, to the extent that it features in the German proceedings is not concerned with an (alleged) abuse of dominant position by way of the offer made to the Claimant by IV Licensing [640] . Besides that, the High Court also pointed out, that – at least regarding to IV Licensing – it is not presented with proceedings “between the same parties” (since IV Licensing in not party to the German proceedings) which is, however, a further prerequisite for the application of Article 29 of the Regulation [641] .

Notwithstanding the above, the High Court held that some form of relief under Article 30 of the Regulation ought to be granted to the Defendants [642] . Under this provision, a court is allowed (meaning that the power given to the court is discretionary) to either stay its proceedings (Article 30 para. 1) or decline jurisdiction (Article 30 para. 2), in case that a “related action” is already pending before another court [643] . The objective of Article 30 of the Regulation is “to improve co-ordination of the exercise of judicial functions” within the EU and to avoid “irreconcilable judgments” [644] . In the matter at hand, the High Court found that these ob­jectives are served by an order to stay the proceedings according to Article 30 para. 1 of the Regulation [637] .

Looking at the present case, the High Court explained that a risk of “irreconcilable judgments” exists, since at the heart of both the Irish and the German proceedings lies the question whether the parties have complied with their conduct obligations under the judgment of the Court of Justice of the EU in the matter Huawei v ZTE [645] (Huawei requirements), especially with the obligation to exchange licensing offers on FRAND terms [646] .

In the Irish Proceedings, the claims made by the Claimant expressly address this question. In the German Proceedings, the same question will be of “direct relevance” for the nature and scope of the claim for damages and the accessory claim for the rendering of accounts asserted by IV LLC [647] . Although compliance with the Huawei requirements is – in contrast to claims for injunctive relief – no direct prerequisite for the enforcement of SEP holder’s damage claims (including the auxiliary claims for information and the rendering of accounts) [648] , it has an impact on the scope of such claims: according to the case law of the Düsseldorf Courts, if the patent holder does not meet the Huawei requirements or both the patent holder and the potential licensee comply with the Huawei requirements, the patent holder’s damage claim is limited to the FRAND licence fees and the claim for the rendering of accounts is limited to the information needed in order to calculate the respective damages (using the so-called “licence analogy” method) [649] . Accordingly, the Düsseldorf Court would not be able to decide on the merits of the claims raised by IV LLC before it, without first determining whether the parties fulfilled the Huawei requirements [650] .

In addition, the High Court pointed out that setting the FRAND terms and conditions for the patent portfolio offered to the Claimant, as the latter requested in the Irish proceedings, could also lead to “irreconcilable judgments”, particularly if the Düsseldorf Court would be asked by IV LLC at a later point in time to fix the damages for the two SEPs asserted in the German proceedings (since these SEPs were also part of the portfolio offered) [651] . Insofar, the High Court was not convinced by the Claimant’s argument, that fixing of rates for a patent portfolio usually involves different considerations to the fixing of a rate for individual patents [651] . On the contrary, the High Court recognized that within the “longstanding industry practice” of portfolio licensing, the fixing of rates for a portfolio of patents does, in general, involve the same methodology as the fixing of rates for individual patents. Consequently, rates set by the High Court in the Irish proceedings might conflict with any rates determined by the Düsseldorf Court with respect to the damage claims made in the German proceedings [651] .

  • [629] Vodafone v Intellectual Ventures, High Court of Ireland, 10 March 2017, para. 1.
  • [630] Ibid, para. 2.
  • [631] Ibid, para. 3.
  • [632] Ibid, para. 37.
  • [633] Ibid, paras. 10-12 and 93.
  • [634] Ibid, paras. 13-16.
  • [635] Ibid, para. 5.
  • [636] Ibid, para. 7.
  • [637] Ibid, para. 180.
  • [638] Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12th December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), OJ L 351/1 of 20th December 2012.
  • [639] Vodafone v Intellectual Ventures, High Court of Ireland, 10 March 2017, para. 122.
  • [640] Ibid, para. 146.
  • [641] Ibid, para. 148.
  • [642] Ibid, para. 166.
  • [643] Ibid, para. 119.
  • [644] Ibid, para. 165.
  • [645] Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case No. C-170/13.
  • [646] Vodafone v Intellectual Ventures, High Court of Ireland, 10 March 2017, para. 52.
  • [647] Ibid, paras. 52 and 60.
  • [648] Ibid, paras. 55 et seqq.
  • [649] Ibid, para. 61 et seq.
  • [650] Ibid, para. 62.
  • [651] Ibid, para. 93.