Case Law post CJEU ruling Huawei v ZTE

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Updated 6 June 2019

Conversant v LG, Court of Appeal of Paris

French court decisions
16 April 2019 - Case No. 061/2019

A. Facts

On 1 September 2011, the Claimant, Conversant Wireless Licensing SARL (Conversant; previously named Core Wireless Licensing SARL), acquired from Nokia more than 2,000 patents declared essential to the GSM, UMTS or LTE standards (Standard Essential Patents, or SEPs) towards ETSI [127] .

Conversant contacted the Defendants, LG Electronics France SAS and LG Electronics Inc. (LG) for a licence under the patents in March 2012. The parties held a few meetings to find an agreement on a Fair, Reasonable and Non-Discriminatory (FRAND) rate for a global license under Conversant’s essential patents [128] .

On 30 September 2014, Conversant brought an infringement action against LG based on five patents before the Paris Court (Court), asking inter alia for a FRAND rate determination [129] .

In first instance, the Court rejected Conversant’s claims, as it held that Conversant had not demonstrated the essentiality of the patents in suit [130] .

On appeal, Conversant solely asserted two out of the five patents asserted in first instance [131] . With the present judgment, the Court of Appeal of Paris (Court of Appeal) confirmed the first instance decision, finding the patents in suit valid but not essential [132] .

B. Court’s reasoning

Validity, Essentiality and Infringement

In first instance, Conversant alleged five patents to be essential and infringed by LG [127] . On appeal, both parties acknowledged that, for three of them, the essentiality was not sufficiently supported [133] .

Therefore, the Court of Appeal limited the analysis of validity, essentiality and infringement to the two other patents, EP 978 210 (EP 210) and EP 950 330 (EP 330) [129] . LG raised prior art documents to challenge the validity, novelty and inventive steps of the patents. The Court of Appeal analysed those documents to determine that none was destroying the validity of the patents [134] .

Regarding the essentiality, Conversant had alleged that EP 210 was essential to both UMTS and LTE standards [135] and EP 330 was essential to the LTE standard [136] . The Court of Appeal rejected those claims by comparing the patent specifications to the technical specifications of the relevant standards [137] and found hold that standard compliant devices do not necessarily have to use the patents in suit. The Court considered that it is possible to comply with the UMTS and LTE standards without implementing said patents. The Court, therefore, found that the patents are not essential [129] .

FRAND determination

Conversant and LG both had requested the Court to make a FRAND determination. However, as Conversant’s infringement claim was based on the essentiality of the patents, the Court of Appeal declared any request concerning a FRAND rate determination, past damages and the nomination of an expert without object [138] .

FRAND duties and abuse of a dominant position

In its decision, the Court of Appeal also briefly summarized two points addressed by the first instance Court regarding parties’ duties in negotiation and a potential abuse of dominant position without any further analysis.

One of them is the determination of bad faith of the parties in the negotiations. In first instance, the Court stated that it was difficult to assess bad faith in view of the history of the negotiations. The Court had underlined that the fact that the parties negotiated for more than two years tended to demonstrate that none of them was of particularly bad faith to push the other not to further pursue the negotiations [131] . The Court had further stressed that as each company passed the buck to the other, it was difficult to declare that bad faith lied more on one side than the other [129] .

Regarding a potential abuse of dominant position through the filing of an action based on SEPs by Conversant, the Court had stated that filing a judicial complaint to have a FRAND rate determined that could not be amicably fixed, without any other circumstance demonstrating among others the express willingness to deprive LG of its rights to exploit the patents against a fair and proportionate compensation, could not constitute an abuse of a dominant position [129] .

Confidentiality and Trade Secret Protection

The Court of Appeals also briefly referred to the rules for the protection of trade secrets that had been agreed upon by the parties and accepted by the Court of Appeal.

In application of Article L153-1 of French Commercial Code, the parties had set up a protection mechanism for confidential documents, which included the following steps [139] : (1) access to some licensing agreements from Nokia and Conversant would be restricted to the parties’ legal representatives, the court and persons (translators or experts) obliged to confidentiality by a Non-Disclosure Agreement, (2) the parties would submit two versions of each party’s written conclusions to the Court of Appeal, one with a reference to all disclosed agreements in full with confidential information highlighted and one without any reference to any confidential information [140] .

  • [127] Court of Appeal of Paris, judgement dated 16 April 2019, page 3.
  • [128] Ibidem.
  • [129] Ibid.
  • [130] Court of Appeal of Paris, judgement dated 16 April 2019, pages 5-6.
  • [131] Court of Appeal of Paris, judgement dated 16 April 2019, page 6.
  • [132] Court of Appeal of Paris, judgement dated 16 April 2019, pages 15-24.
  • [133] Court of Appeal of Paris, judgement dated 16 April 2019, page 15.
  • [134] Court of Appeal of Paris, judgement dated 16 April 2019, pages 15 and subsequent.
  • [135] Court of Appeal of Paris, judgement dated 16 April 2019, pages 19-21.
  • [136] Court of Appeal of Paris, judgement dated 16 April 2019, pages 23-24.
  • [137] Court of Appeal of Paris, judgement dated 16 April 2019, pages 19-21 and 23-24.
  • [138] Court of Appeal of Paris, judgement dated 16 April 2019, pages 24-25.
  • [139] Court of Appeal of Paris, judgement dated 16 April 2019, page 13
  • [140] Court of Appeal of Paris, judgement dated 16 April 2019, page 14

Updated 6 June 2019

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

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

A. Facts

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

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

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

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

In the Netherlands, Philips had brought an action against Asus before the District Court of The Hague (District Court), requesting inter alia for an injunction. The District Court dismissed Philips’s request for an injunction based on the EP 511 patent. [119] Philips appealed before the Court of Appeal of The Hague (Court of Appeal).

With the present judgment, the Court of Appeal upheld the validity and essentiality of the EP 511, rejected Asus’s FRAND defence based on Article 102 TFEU, and entered an injunction against Asus for its products infringing the patent in suit. [120]

B. Court’s Reasoning

The Court of Appeal dismissed Asus’s invalidity challenge, upholding the novelty and inventiveness of the EP 511 patent. [121] Moreover, the Court of Appeal found the patent essential and infringed. [122]

The Court of Appeal went on to examine the claims put forward by Asus, namely that Philips, in initiating infringement proceedings requesting injunctive relief, had violated its contractual FRAND obligations towards ETSI and infringed Article 102 TFEU, by failing to meet the requirements set forth in the decision of the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE (Huawei requirements) [123] . In particular, Asus argued that Philips (a) failed to properly and timely disclose the EP 511 in accordance with ETSI IPR Policy, and (b) that Philips failed to comply with the Huawei requirements, because it did not clarify why its proposed terms were FRAND.

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

Starting with the general purpose underlying the ETSI disclosure obligation, the Court of Appeal found that it was not—as Asus maintained—to allow ETSI participants to choose the technical solutions with the lowest cost, since ETSI standards seek to incorporate the best available technologies. [124] Rather, the purpose of the declaration obligation was to reduce the risk of SEPs being ex post unavailable to users. [125]

Having said that, the Court of Appeal found that the general blanket declaration by Philips was sufficient to fulfil its obligations under the ETSI IPR Policy. In this regard, the Court of Appeal dismissed the argument raised by Asus that Philips’s late declaration of specific SEPs would result in over-declaration: on the contrary, the Court of Appeal held, early disclosure is more likely to include patents that are not in fact essential to ETSI standards. [126] Moreover, the Court of Appeal pointed out that Philips’s blanket declaration did not infringe Article 101 TFEU, as per the Horizontal Guidelines by the EU Commission, blanket declarations are also an acceptable form of declaration of SEPs for the purposes of EU competition law. [127]

Having dismissed Asus’s first ground for a FRAND defence, the Court of Appeal assessed the compliance of both parties with the Huawei requirements in their negotiations. The Court of Appeal noted, as a preliminary point, that the decision of the CJEU in Huawei did not develop a strict set of requirements such that patent holders that failed to abide by they would automatically infringe Article 102 TFEU. [128] For such a finding an overall assessment of the particular circumstances of the case and the parties’ conduct is necessary.

The Court of Appeal then examined Philips’s compliance with the first Huawei requirement, the proper notification to the infringer. According to the Court of Appeal, the case record showed that Philips had clearly discharged its burden to notify Asus, by submitting a list of patents that were allegedly infringed, the standards to which they were essential, and by declaring its willingness to offer a licence on FRAND terms. [129] Moreover, in further technical discussions, Philips provided more technical details on its portfolio and licensing program, including claim charts and its standard licensing royalty rate. [130] However, Asus failed to demonstrate its willingness to obtain a licence on FRAND terms. The Court of Appeal found that talks commenced always at Philips’s initiative, and that Asus was not represented in these talks by technical experts able to evaluate Philips’s portfolio. [131] The technical issues raised by Asus in negotiations were merely pretextual with a view to stall the process, or as the Court of Appeal put it a ‘behaviour also referred to as “hold-out.”’ [132]

Although the Court of Appeal held that at this point Asus was already in breach of its obligations under Huawei and thus Philips was entitled to seek an injunction, the Court went on to discuss compliance with the further steps in the Huawei framework. The Court of Appeal found that Philips’s proposal of its standard licensing agreement fully satisfied the CJEU requirements in that it was specific and explained how the how the proposed rate was calculated. [133] Moreover, the Court of Appeal held that the counteroffer submitted by Asus after the initiation of proceedings in Germany did not in itself alter the conclusion that Philips was compliant with Huawei, and thus entitled to seek an injunction. [134] Finally, the Court rejected the request on behalf of Asus to access comparable licences signed by Philips to assess the latter’s FRAND compliance. According the Court, neither the ETSI IPR Policy nor Article 102 TFEU and the Huawei framework provide a basis for such a request. [135]

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