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Updated 4 June 2020

Sisvel v Xiaomi, Court of Appeal of The Hague

Dutch court decisions
17 March 2020 - Case No. C/09/573969/ KG ZA 19-462

A. Facts

Sisvel International S.A. (Sisvel) is the parent company of the Sisvel group [753] . In 2012, Sisvel acquired EP 1 129 536 B1 (EP 536) [754] . EP 536 relates to the EGPRS technology, which forms part of a GSM telecommunications standard that implements EDGE [755] .

Xiaomi is a manufacturer of mobile phones with headquarters in China [756] .

On 10 April 2013, Sisvel submitted to the European Telecommunication Standards Institute (ETSI) a declaration under which it committed to make a list of patents, including EP 536, accessible to standard users under Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions (FRAND commitment) [757] .

On 15 October 2013, Sisvel notified Xiaomi about its Wireless Patent Portfolio [755] . On 16 July 2014, Sisvel sent a letter to Xiaomi, inviting Xiaomi to contact Sisvel regarding to the conclusion of a licence [755] . Further e-mails were sent to Xiaomi on 3 December 2014, 4 December 2014 and 5 March 2015 [755] .

In an article dated 29 March 2019 published on nu.nl [758] and ad.nl [758] , Xiaomi announced that it would enter the Dutch market with online shops and physical stores [759] .

On 23 April 2019, Sisvel initiated legal proceedings against Xiaomi before the English High Court of Justice in London (English proceedings) [760] . Sisvel requested the court to declare that the terms and conditions of the MCP Pool Licence, under which EP 536 as part of the Wireless Patent Portfolio is licensed [761] , are FRAND or alternatively, to determine FRAND licensing terms and conditions and find three patents (including EP 536) to be valid and infringed [760] .

On 30 August 2019, Xiaomi filed two legal actions against Sisvel in Beijing [762] . Xiaomi asked, in one of the cases, the court to determine FRAND terms and conditions for a licence limited to China and, in the other case, to declare that Sisvel had abused its dominant position [755] .

In the Netherlands, Sisvel requested a preliminary injunction against Xiaomi, until Xiaomi accepts Sisvel’s offer to go to arbitration, as well as the recall and destruction of products, information over profit made and additional documentation with respect to resellers, a penalty fee, and – as a subsidiary motion – the removal of the EGPRS/EDGE extension of the GSM functionality [763] . With judgment dated 1 August 2019, the Court of The Hague rejected Sisvel’s claims in first instance and sentenced Sisvel to the process costs, in view of the balance of interests between the parties and the complexity of the case [764] .

Sisvel appealed the first instance decision on 29 August 2019 [765] . During the course of the appeal proceedings, on 22 January 2020, Xiaomi deposited funds [766] on an escrow account held by Intertrust [767] . With the present judgment, the Court of Appeal of The Hague (Court) rejected Sisvel’s appeal and sentenced Sisvel to higher process costs [768] .

B. Court’s reasoning

The Court focused on the balance of interests between the parties.

Injunction

The Court considered that the harm caused to Sisvel by the infringement of EP 536 was limited, taking into account only infringing uses in the Netherlands, as well as the fact that EP 536 is only one out of many patents held by Sisvel, and almost expired [769] . Considering that Sisvel’s business model is to conclude licences, Sisvel did not have to fear damages caused by free riding on the cellphone market, but only damages resulting from denied profits under a license [770] . Therefore, only financial damages could incur which the Court considers to be relatively simply compensated at a later point in time [771] . Additionally, Xiaomi had provided security [771] . The security addresses the problem raised by Sisvel, i.e. Xiaomi becoming insolvent and unable to pay damages for patent infringement [755] .

With respect to Xiaomi’s interest, the Court noted that an injunction would force Xiaomi to stop sales, close shops in the Netherlands and stop its distribution contracts with customers [772] . The consequences would thus be severe and could hardly be undone, even if Xiaomi could resume sales again after the expiration of EP 536 [755] . The only way for Xiaomi to avoid those consequences would be to take a license, which also brings important consequences. Indeed, the MCP license offered by Sisvel is not only for EP 536 but for more than 1000 patents in all countries worldwide [773] . By accepting a licence Xiaomi would be irrevocably bound to comply with it, including with its rate [774] . The stop of sales in the Netherlands would create loss of profits for Xiaomi and worsen its relationships with its customers [755] . The Court highlighted such damages are difficult to evaluate as Xiaomi is still building its market position and there are many other players on the market [755] .

The Court further argued that the case was complex for a preliminary decision, because it required an opinion on the validity and scope of a patent protecting a complex technology as well as an assessment of Xiaomi’s FRAND defence, for which parties have arguments over many facts and the principles to determine a FRAND rate [775] . Additionally, the court that would be entrusted with the main proceedings could have a different opinion on the validity of the technology and the FRAND defence [755] . Therefore, the Court concluded there was no reason, even if the patent was valid and the FRAND defence had to be rejected, to force Xiaomi to leave the Dutch market or to take a licence from Sisvel [755] . The Court found that Xiaomi’s interest to reject the request for a preliminary injunction was stronger than Sisvel’s interest to stop the continuation of the infringement [775] .

The Court also rejected Sisvel’s claim that Xiaomi was an unwilling licensee [776] . Such claim could be used to invalidate Xiaomi’s FRAND defence, but the Court stated that the examination of Xiaomi’s FRAND defence had to be separated from the balance of interests’ assessment in preliminary proceedings [755] .

Reviewing Sisvel’s request based on the EU enforcement directive 2004/48 and Article 9 of such directive did not lead the Court to another conclusion: in light of the enforcement directive, the injunction would not be proportionate in this case, therefore the Court had no obligation to use Article 9 of the EU enforcement directive [777] .

Even in combining the application of Article 3 of the EU enforcement directive, Article 5, 17 and 47 of the European Charter of Fundamental Rights the Court came to the same interpretation: an injunction for the limited remaining time of EP 536 would not help [778] . The lack of an injunction would not unreasonably delay the case as the Court argued that the effective remedy would be compensation for the damages in main proceedings [755] . Additionally, the Court found this conclusion to be supported by the fact that Sisvel had only initiated main proceedings against other parties in the Netherlands and abroad [755] .

Sisvel’s claim that the lack of an injunction would create an unfair playing field between market participants was also rejected by the Court [779] . The Court stated that Xiaomi’s security and the possibility for Sisvel to get compensation for damages in main proceedings created an equal playing field [755] . Sisvel had relied on a decision of the Dutch Supreme Court, according to which a patent can only be effectively protected if there is a quick stop to further infringement [780] . The Court explained that this is the case only when the damages for patent infringement are difficult to determine; this was, however, not the case here [755] .

Security

The Court rejected Sisvel’s claim that the deposit on the escrow account had been made in such a way that it would be impossible for Sisvel to get paid [781] . Indeed, the Court underlined that Sisvel can unilaterally reclaim payment, especially if a FRAND rate is determined in the English proceedings [755] . Moreover, Xiaomi declared itself to be ready to adapt the amount placed on the escrow account in close cooperation with Sisvel, if Sisvel wishes to do so or has requests about the escrow account [755] . The Court noted it did not seem Sisvel made use of this possibility to adapt the amount [755] .

The amount deposited for fees under Sisvel’s MCP Patent Licence was considered as sufficient by the Court for the products sold in the Netherlands for the lifetime of EP 536 [782] . The Court added that this would still be the case even in the event that Sisvel wanted to increase the licensing rate for non-compliant users or to account for profits based on the infringement [755] . The Court underlined that in the Huawei v. ZTE decision of the CJEU [783] , the security had to be “appropriate”, which depends on the context of the FRAND defence [755] .

Recall and destruction of products

Sisvel’s request to have infringing products recalled and destroyed, as well as all mentions about those products removed, resellers informed and profits provided was rejected by the Court [784] . Sisvel had asserted the same urgent interest as for the preliminary injunction to support this request: stopping and preventing infringement of EP 536. Since the request for a preliminary injunction failed, the further claims asserted by Sisvel had to follow the same fate [755] . The Court stated that there was no urgent interest to have Xiaomi disclosing its profits, or at least that was more important than having Xiaomi keeping this information confidential [755] . Sisvel did also not explain why profits data should be disclosed in advance of the main proceedings [755] .

C. Other important issues

The Court also denied Sisvel’s request to grant a preliminary injunction, as long as Xiaomi did not agree to initiating arbitration procedures [785] . The Court argued that if Xiaomi would be forced to have an arbitration tribunal determining the terms and conditions for all patents of the MCP Patent Licence for the whole world, this would deprive Xiaomi of its fundamental right of access to a court [755] . The acceptance of such arbitration proposal without conditions would have drastic consequences on Xiaomi’s position [755] .

  • [753] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.2.
  • [754] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.4.
  • [755] Ibidem
  • [756] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.8.
  • [757] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.5.
  • [758] Dutch newspaper.
  • [759] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.11.
  • [760] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.12.
  • [761] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 3 and 4, par.2.7 and 2.12.
  • [762] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.13.
  • [763] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.14.
  • [764] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 4 and 5, par.3.3.
  • [765] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.1.
  • [766] Amount has been redacted.
  • [767] Court of Appeal of The Hague, judgement dated 17 March 2020, page 5, par.3.5.
  • [768] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 10 and 11, par. 4.24 and following.
  • [769] Court of Appeal of The Hague, judgement dated 17 March 2020, page 5, par.4.3.
  • [770] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 5 and 6, par.4.3.
  • [771] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par.4.3.
  • [772] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par.4.7.
  • [773] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 6 and 7, par.4.8.
  • [774] Court of Appeal of The Hague, judgement dated 17 March 2020, page 7, par.4.9.
  • [775] Court of Appeal of The Hague, judgement dated 17 March 2020, page 7, par.4.11.
  • [776] Court of Appeal of The Hague, judgement dated 17 March 2020, page 7, par.2.12.
  • [777] Court of Appeal of The Hague, judgement dated 17 March 2020, page 8, par.4.14.
  • [778] Court of Appeal of The Hague, judgement dated 17 March 2020, page 8, par.4.15.
  • [779] Court of Appeal of The Hague, judgement dated 17 March 2020, page 8, par.4.16.
  • [780] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 8 and 9, par.4.17.
  • [781] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par. 4.5.
  • [782] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par. 4.6.
  • [783] Court of Justice of the European Union, Huawei Technologies Co.Ltd. v. ZTE Corp. and ZTE Deutschland GmbH, 16 July 2015.
  • [784] Court of Appeal of The Hague, judgement dated 17 March 2020, page 9, par. 4.2.1.
  • [785] Court of Appeal of The Hague, judgement dated 17 March 2020, page 9, par.4.18.