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Updated 16 June 2021

Conversant v Daimler, District Court (Landgericht) of Munich I

LG Munich
30 October 2020 - Case No. 21 O 11384/19

A. Facts

The claimant, Conversant, holds patents declared as (potentially) essential to the practice of several wireless telecommunications standards (standard essential patents, or SEPs). Conversant has made a commitment towards the European Telecommunications Standards Institute (ETSI) to make patents essential to a standard accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions.

The defendant, Daimler, is a global car company with headquarters in Germany. Daimler manufactures and sells vehicles with connectivity features complying with the LTE standard developed by ETSI.

In October 2018, Conversant joined the Avanci licensing platform, which offers a patent licensing program tailored to connected cars. On 18 December 2018, Conversant made an offer for a bilateral worldwide licence to Daimler and provided information about its SEP portfolio including claim charts concerning several individual patents to the latter.

On 27 February 2019, following a respective reminder sent by Conversant, Daimler replied that it was willing to sign a FRAND licence, highlighted, however, that in the automotive sector it is common that intellectual property rights (IPRs) are licensed to suppliers. Daimler also requested information about existing licensees to Conversant's portfolio as well as an explanation which patents read on which components and why the terms offered were FRAND. Subsequently, Daimler started negotiations for a pool licence with Avanci.

On 5 July 2019, Conversant sent an e-mail to Daimler suggesting a meeting in person on 15 July 2019, since it had been informed by Avanci that the negotiations with Daimler had not been successful. Conversant also pointed out that the car makers participating in the Avanci-programme are licensed under its SEP portfolio and explained the royalty calculation underlying its own bilateral offer -inter alia- by reference to court cases (especially Unwired Planet v Huawei, UK High Court of Justice, judgment dated 5 April 2017). Conversant also intended to provide a full list of patents included in its portfolio to Daimler, the respective document was, however, not attached by mistake to the e-mail sent to Daimler.

On 29 July 2019, Daimler responded and referred to the ongoing negotiations with Avanci. It repeated the view that licensing at supplier level was more efficient and countered that a meeting in person should take place at a later point in time, since Conversant had not shared all necessary information yet.

On 13 August 2019, Conversant filed an infringement action against Daimler before the District Court of Munich I (Court), which did not include a claim for injunctive relief. On 24 August 2019, Conversant informed Daimler about the case filed in Munich and noted that it assumed that Daimler had no actual interest in obtaining a FRAND licence. Conversant also highlighted that for the calculation of royalties the value generated at end-device level should be taken into account.

On 18 September 2019, Daimler reiterated its willingness to obtain a licence and pointed out for the first time that Conversant's e-mail dated 5 July 2019 had not contained the full list of portfolio patents referred to by Conversant. This list was shared with Daimler on 20 September 2019. At the same time, Conversant suggested a meeting in person in the beginning of October 2019. On 8 October 2019, Daimler responded that a meeting could take place only in the end of October, since information needed was still missing.

On 4 December 2019, the parties met in person in Daimler's headquarters. On 15 January 2020, Conversant sent the presentation held in this meeting to Daimler and pointed out that it was willing to establish a licensing programme for Daimler's tier-1 suppliers and that it was prepared to have a meeting with Daimler and all supplier to that end. Conversant had also offered to take recourse to a neutral third party, e.g. in arbitration proceedings, for the determination of the licensing value. On 24 January 2020, Daimler explained that it had already discussed with its suppliers and was willing to organise a meeting.

On 29 January 2020, Conversant additionally raised claims for injunctive relief and the recall and destruction of infringing products against Daimler in the pending proceedings in Munich.

In February and March 2020, the parties discussed about a meeting with Daimler's tier-1 suppliers. Daimler did, however, not organise a meeting with the participation of all suppliers.

On 8 April 2020, Daimler made a counteroffer to Conversant. The counteroffer was based on the value of the Telematic Control Unit (TCU), which is the component enabling LTE-connectivity in cars.

On 30 June 2020, Conversant made a further offer to Daimler that was not accepted. On 10 August 2020, Daimler provided information to Conversant about past vehicle sales and placed security for past uses.

With the present judgment [1] , the Court found in favour of Conversant and – among other things – granted an injunction against Daimler.
 

B. Court's reasoning

The Court found that the patent in suit is essential to the LTE standard and infringed [2] . Consequently, the claims asserted by Conversant were given. The claims for injunctive relief as well as the recall and destruction of infringing products were also to be granted. By initiating infringement proceedings against Daimler, Conversant neither abused a dominant market position in terms of Article 102 TFEU (competition law defence, cf. item 1), nor violated its contractual obligations under ETSI's IPR Policy (contract law defence, cf. item 2.) [3] .
 

1. Competition law defence
Dominant market position

The Court held that Conversant had a dominant market position within the meaning of Article 102 TFEU [4] .

The exclusivity rights arising from a patent do not establish a dominant market position by themselves. [5] A market dominant position is established, when the patent is technically essential for complying with a standard developed by a standardisation body (or a de facto standard) and technical alternatives are not available for products brought on a (downstream) market [6] . In the Court's eyes, this applied to the patent in suit. [7]

Exceptional circumstances that could exclude Conversant's market dominant position here were not present. According to the Court, the sole fact that Conversant had made a FRAND commitment towards ETSI establishing an obligation to grant FRAND licences did not per se exclude market dominance; decisive is, moreover, whether the SEP holder actually meets this obligation. [8] Furthermore, the additional option to get a license from the patent in suit from Avanci did not limit Conversant's market dominant position. [9]
 

No abuse of market dominance

The Court found, however, that Conversant had not abused its dominance by filing an action for injunctive relief as well as the recall and destruction of infringing products against Daimler.

In cases, in which the implementer already uses protected standardised technology, the assessment of the SEP holder's behaviour requires a comprehensive analysis, in which the constitutionally guaranteed strong protection of IPRs, on the one hand, and the interest of users to access the standard, on the other hand, must be balanced against one another. [10] In this context, not only private interests, but also the public interest must be taken into account. [11] The Court highlighted that the public interest is not to be seen as just the 'sole sum of private interests in using standardised technology', but equally includes the substantial interest of the public to protect the integrity of IPRs and secure effective enforcement. [12]

Considering the 'particular nature' of SEPs especially in the telecommunications field, the Court held -in line with the Huawei v ZTE judgment (Huawei judgment) of the Court of Justice of the EU (CJEU) [13] - that it is justified to impose certain conduct obligations on SEP holders. Reason for this is, basically, that -unlike 'regular' patents- SEPs are established in the market through their inclusion in the standard, without further action by the patent holder. [14] Consequently, the need to secure a competitive advantage for the inventor of a patented technology in the market by granting exclusivity rights for a certain period of time is less compelling in relation to SEPs compared to non-standard-essential patents. [15]

Having said that, the Court made, however, clear that the conduct duties imposed on the SEP holder by the Huawei judgement exist only towards an implementer, who 'seriously and not only in words' wants to sign a licence. [16] Accordingly, a defence based on an alleged abuse of market dominance can be successful, only when the implementer that wants to use, or already uses the patent without authorisation is willing to obtain a FRAND licence and refrain from delaying tactics throughout the licensing negotiations with the SEP holder. [17] The Court noted that the key notion underlying the Huawei judgment that parties are best situated to determine FRAND in fair, balanced and swift negotiations relies on a constructive involvement of both parties which is driven by the actual 'sincere motivation' to reach an agreement. [18]
 

Notification of infringement

Looking at the parties' behaviour, the Court held that Conversant fulfilled the duty to notify Daimler about the infringement of its SEPs by sending the letter dated 18 December 2018, which contained sufficient information about its portfolio, including claim charts covering several patents. [19] Whether Conversant had sufficiently explained the royalty calculation underlying the licensing offer that was also attached to this letter, was not relevant, since, at this stage, Conversant had not even been obliged to make an offer to Daimler. [20]
 

Willingness

On the other hand, the Court found that Daimler had not been willing to take a licence from Conversant: On the contrary, the Court identified a 'particularly clear case of missing willingness'. [21]

In terms of content, the implementer must 'clearly' and 'unambiguously' declare willingness to conclude a licence agreement with the SEP holder on 'whatever terms are in fact FRAND' and, subsequently, engage in negotiations in a 'target-oriented' and 'constructive' manner. [22] By contrast, it is not sufficient, in response to the (first) notification of infringement, to just demonstrate willingness to consider signing a licensing agreement or to enter into negotiations about whether and under which conditions taking a licence comes into question. [22]

The Court explained that the assessment of willingness requires a comprehensive analysis of all facts until the end of the oral hearings in the infringement proceedings. [23] Establishing whether willingness is given cannot be a question answered by a 'formalistic snapshot' of the implementer's conduct; what is more, the implementer cannot remain inactive until -in its view- the SEP holder has met its obligations first. [23]

In addition, the Court highlighted that timing in negotiations is a factor, which must be considered in the assessment of willingness as well. [24] Otherwise, implementers would lack motivation to seriously engage in negotiations in a timely manner. [25] Rigid deadlines cannot be set, a case-by-case assessment is needed. [26] An implementer, who has been notified about the infringement, is, however, obliged to legitimize the -unlawful- use of the patent(s) as soon as possible by signing a FRAND-licence with the SEP holder. [26]

Furthermore, the Court reasoned that whether and at which time the implementer made a counteroffer to the SEP holder can also be an 'important indicator' of (un-)willingness. [27] A counteroffer made after the initiation of infringement proceedings will, as a rule, not be acceptable. [28] According to the Court, implementers should not be allowed to engage in negotiations only 'for appearance's shake' and then pull the 'emergency brake' against a potential conviction in infringement proceedings by making a counteroffer. [25] Exceptionally, a counteroffer made during trial could be considered in the assessment of willingness in cases, in which the implementer was willing from the start of the negotiations and always engaged constructively in the discussions with the patent holder. [29]

In line with the above, the Court pointed out that, in general terms, delaying tactics initially applied by an implementer cannot be 'undone' at a later point in time without more ado. [30] Nevertheless, the belated declaration of willingness does not 'automatically' prevent an implementer from raising a 'FRAND-defence' in infringement proceeding: Whether this will be the case or not, shall be decided on a case-by-case basis on grounds of the overall circumstances of the negotiation history. [31]

Against this backdrop and under consideration of Daimler's overall behaviour, the Court reached the conclusion that -although acting in a FRAND-compliant manner would have actually been possible and reasonable [32] - Daimler had chosen to apply delaying tactics [33] .

The Court found that by directing Conversant to its suppliers, Daimler had not expressed willingness to take a licence on 'whatever terms are in fact FRAND', but rather made clear that it was not prepared to take a licence from Conversant itself. [34] Indemnification clauses regarding third-party IPRs potentially agreed between Daimler and its suppliers played insofar no role, as Daimler infringed Conversant's patents independently and must, therefore, be held accountable for that. [34]

A further indication of Daimler's unwillingness was the fact that it took Daimler more than two months to inform Conversant that it had not received a list of portfolio patents that was unintentionally not attached to the e-mail sent by Conversant on 5 July 2020. [35] The Court equally criticized the fact that Daimler had at no point in time posed questions to Conversant on the claim charts provided by the later, but raised concerns against the quality of the patents only in the pending infringement trial. [36]

The Court saw an additional 'substantial' indication of unwillingness in Daimler's response dated 27 July 2020, in which the latter had expressly limited its willingness to sign a licence to products, which were either not licenced yet or purchased by suppliers unwilling to take a licence from Conversant themselves. [37] The Court particularly objected Daimler's choice to define the 'unwillingness' of its suppliers as a condition for signing an own licence with Conversant. [38]

The fact that Daimler had not responded to the proposal to use alternative dispute resolution methods and particularly arbitration for the determination of FRAND-royalties, which Conversant had made at the parties' meeting on 4 December 2019, was also considered as a sign of unwillingness on the side of Daimler. [39]

An additional 'clear' indication of unwillingness and delaying tactics was -according to the Court- the fact that, following the discussion of 4 December 2019, Daimler did not organise a meeting with all tier-1 suppliers, in order to discuss a potential direct licensing option with Conversant, despite having implied that this option had already been discussed with its suppliers. [40]
 

Counteroffer

Subsequently, the Court noted that Daimler's counteroffer dated 8 April 2020 could not remedy the missing willingness which Daimler had displayed until then. [41] Moreover, it rather served as an 'alibi'. [32]

In the eyes of the Court, the counteroffer was belated, since it was made more than 1 year and 4 months after Conversant's offer. [41] What is more, Daimler made the counteroffer during the pendency of the infringement proceedings, which was not acceptable, given that until that point it had been clearly unwilling to take a licence. [42] The Court also explained that Daimler could not excuse the delay by claiming that Conversant had not provided necessary information, since the counteroffer was based on generally known and available data without an underlying detailed analysis; accordingly, it could have been made earlier, that is shortly after receipt of Conversant's initial offer. [43]

Besides that, the Court found that Daimler's counteroffer was, in terms of content, 'evidently not FRAND'. [44] Based on a summary analysis, the licensing fees offered by Daimler were considered to be evidently too low. [45]

The Court noted that FRAND is a range and that there are several methods for calculating FRAND royalties. [45] The Court relied on the so-called 'top-down'-approach (which both Conversant and Daimler had used). [46] Looking at Daimler's 'top-down'-calculation, the Court held that taking the number of all patents declared as standard-essential towards ETSI as the basis for determining Conversant's share of LTE-related SEPs was not in line with FRAND-principles. [47] Considering that not all declared patents are actually standard-essential (a phenomenon described as 'over-declaration'), the use of the total number of declared patents benefits Daimler: Conversant's share of SEPs would per se be higher, if the (lower) number of actually standard-essential LTE patents would be used as basis for the calculation. [47]

In addition, the Court pointed out that the average purchase price of the TCU is no adequate royalty base under FRAND principles. [48] The value of a SEP is reflected by a royalty, which is adequately in proportion to the value of the service provided. [49] According to the Court, in the present case, economic value is created by the offering of LTE-enabled functionalities in Daimler's cars and the use of such functionalities by Daimler's customers. [49] As a consequence, relevant is the value, which Daimler's customers attach to the LTE-based features in a car. [49] The purchase price of TCUs paid by Daimler to its suppliers does not mirror this value. [49]
 

FRAND defence raised by suppliers / licensing level

The Court further explained that Daimler could not invoke the (alleged) willingness of its suppliers to take a licence from Conversant for establishing a FRAND defence. [50]

If an implementer, along with its own declaration of willingness, expresses the wish that licensing takes place at supplier level, it is obliged to comprehensively disclose in writing, which standard-compliant components are integrated in its products and which suppliers provide such components. [51] If this information and disclosure duty is not met, as it was the case here, a request for licensing at supplier level contradicts the implementer's declaration that it is willing to sign an own licence with the SEP holder, and is, therefore, a sign of bad faith (Sec. 242 German Civil Code). [52] In this context, the Court made clear that the implementer is obliged to still pursue bilateral negotiations with the SEP holder in a timely and target-oriented manner, even if -after having provided the aforementioned information to the latter- it is in parallel actively engaged towards facilitating the establishment of a licensing regime at supplier level. [53] In the bilateral negotiations with the SEP holder, the implementer could, however, insist that a clause excluding double payments for components already licensed to suppliers is included in the agreement. [53]

In line with the above, the Court confirmed that by seeking to license Daimler, Conversant did not act in an abusive or discriminatory way. [54]

In the view of the Court, the fundamental question whether the so-called 'license-to-all' or 'access-to-all' approach should be followed with respect to SEP licensing in a supply chain, did not need to be answered here. [55] In legal disputes between a SEP holder and an end-device manufacturer it is sufficient from a competition law angle that the objectives pursued by the SEP holder in the proceedings do not exclude suppliers from the market; this is true, when suppliers are granted access to the standardised technology through 'have-made' rights established by the licence signed by the end-device manufacturer, as Conversant had offered. [55] Whether suppliers have individual claims for being granted a licence is a distinct question, that could be potentially raised in separate proceedings between the SEP holder and the supplier. [56]

The Court added that the SEP holder is free to decide against which infringer within a supply chain court proceedings will be initiated. [57] The respective right of choice is derived from the constitutionally guaranteed protection of property as well as the very nature of patents as exclusionary rights. [58]

According to the Court, the common practice in the automotive field that components are sold to car manufacturers free of third-party rights does not render Conversant's pursuit to license Daimler abusive in antitrust terms. [59] Respective agreements between end-device manufacturers and suppliers have only bilateral (contractual) effects and cannot impair the legal position of third parties. [59] In particular, they cannot limit the SEP holder's right to choose the level of the value chain for the assertion of its patents. [60] The Court noted that the need to abandon existing practices in the automotive sector is of no importance from an antitrust angle, given that the integration of additional technologies serves Daimler's economic interest to access new markets and customer groups. [60]

In this context, the Court also explained that the SEP holder is not obliged to perform duties under the Huawei judgment towards suppliers, as far as infringement proceedings are initiated only towards the end-device manufacturer. [61] Accordingly, a supplier joining such proceedings cannot invoke that the SEP holder abused its market dominance e.g. by omitting a separate notification of infringement addressed to the supplier. [62] The Court denied such comprehensive notification duty of SEP holders, since in multi-level supply chains it is neither feasible nor reasonable to identify all suppliers involved. [63]

In the Court's view, the question whether the SEP holder has abused its market dominance by denying a direct licence to a supplier is subject to general competition law principles. [64] In the present case, the Court did not see sufficient grounds for such abuse. [64] It was not convinced that -absent an own bilateral licence- suppliers are left without rights or face legal uncertainty. [65] The fact that an individual bilateral licence would give suppliers broader freedom to operate than 'have-made' rights might serve their commercial interests, is, however, not of relevance with respect to proceedings between SEP holders and end-device manufacturers, as long as adequate access to the standard is provided to suppliers through 'have-made' rights. [66] Insofar, the Court noted that co-operation within a supply chain on basis of 'have-made' rights is wide-spread and common in practice and also supported by EU law (Commission notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85 (1) of the EEC Treaty, OJ C 1, 3 January 1979). [66]

Finally, the Court dismissed the argument, that Conversant had allegedly colluded with other members of the Avanci platform to specifically discriminate implementers by excluding access to the relevant standards. [67] The Court saw no indication that this was the case here, but rather highlighted the pro-competitive effects which patent pools are generally recognised to have, not least by EU law (para. 245 of the Guidelines on the application of Article 101 TFEU to technology transfer agreements; 2014/C 89/03). [67]
 

2. Contract law defence

The Court further found that Daimler could not defend itself against the claim for injunctive relief by invoking a contractual claim against Conversant for being granted a FRAND licence, since such claim did not exist. [68] Daimler had argued that Conversant's FRAND commitment towards ETSI prevented the latter from asserting claims for injunctive relief before court.

The Court found that the ETSI FRAND undertaking does not establish duties or rights different than those established by European competition law (especially Art. 102 TFEU), which Conversant had met in the present case. [69] In legal terms, the ETSI FRAND undertaking is a contract for the benefit of a third party under French law ('stipulation pour l'autrui'), containing a binding promise of the SEP holder to grant a FRAND licence at a later point in time. [70] The content and the extent of the corresponding obligation to negotiate a licence is, however, to be interpreted in line with the Huawei judgment, which has defined a standard of conduct based on Art. 102 TFEU. [70] The fact that the ETSI FRAND commitment materialises the requirement to provide access to the standard stipulated by Art. 101 TFEU speaks also in favour of applying a uniform standard of conduct. [70] In the eyes of the Court, French law cannot establish further going conduct duties, since it must be interpreted within the spirit of EU law. [70]
 

C. Other important issues

Finally, the Court took the view that there are no grounds for a limitation of Conversant's claim for injunctive relief due to proportionality considerations. [71] Under German law, proportionality is a general principle of constitutional rank to be considered also with respect to injunctive relief, if a respective objection is raised by the defendant in trial. [71] The Federal Court of Justice (Bundesgerichtshof) has also recognised that an injunction might not be immediately enforceable in exceptional cases, in which the implementer would suffer hardships not justified by the patent holder's exclusionary right in violation of the principle of good faith ('Wärmetauscher'ruling dated 10 May 2016, Case No. X ZR 114/13). [71] In the eyes of the Court, Daimler had, however, not pleaded any relevant facts in the present proceedings. [71]

  • [1] Conversant v Daimler, District Court of Munich I, 30 October 2020, Case-No. 21 O 11384/19 (cited by juris).
  • [2] Ibid, paras.122-265.
  • [3] Ibid, para. 285.
  • [4] Ibid, para.286.
  • [5] Ibid, para.288.
  • [6] Ibid, paras.287 et seqq.
  • [7] Ibid, paras.291 et seqq.
  • [8] Ibid, para.295.
  • [9] Ibid, para.296.
  • [10]  Ibid, para. 299.
  • [11] Ibid, para. 300.
  • [12] Ibid, para.300.
  • [13] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [14] Conversant v Daimler, District Court of Munich I, 30 October 2020, Case-No. 21 O 11384/19, para.301.
  • [15] Ibid, para.301.
  • [16] Ibid, para.307.
  • [17] Ibid, para.308.
  • [18] Ibid, paras.302 and 308.
  • [19] Ibid, paras. 323 et seqq.
  • [20] Ibid, para.324. The Court expressed, nevertheless, doubts that the sole reference to the calculation method used by the UK High Court in Unwired Planet v Huawei would prove sufficient for the explanation of the rates offered by Conversant to Daimler.
  • [21] Ibid, para. 309.
  • [22] Ibid, para. 310.
  • [23] Ibid, para. 316.
  • [24]  Ibid, para. 311.
  • [25] Ibid, para. 312.
  • [26] Ibid, para. 320.
  • [27] Ibid, para. 311.
  • [28] Ibid, paras. 312 and 316.
  • [29] Ibid, para. 315.
  • [30] Ibid, paras.317 et seqq.
  • [31] Ibid, para. 321.
  • [32] Ibid, para.357.
  • [33] Ibid, paras.322 and 358.
  • [34] Ibid, para.328.
  • [35] Ibid, paras.331 and 336.
  • [36] Ibid, para.332.
  • [37] Ibid, paras.334 and 336.
  • [38] Ibid, para.335.
  • [39] Ibid, para.337.
  • [40] Ibid, para.338.
  • [41] Ibid, para.339.
  • [42] Ibid, para.340.
  • [43] Ibid, paras.355 et seq.
  • [44] Ibid, paras.341 and 354.
  • [45] Ibid, para.341.
  • [46] Ibid, paras.341 and 348.
  • [47] Ibid, para.352.
  • [48] Ibid, para.353.
  • [49] Ibid, para.353
  • [50] Ibid, para.360.
  • [51] Ibid, para.362.
  • [52] Ibid, paras.362 and 364.
  • [53] Ibid, para.363.
  • [54] Ibid, para.365.
  • [55] Ibid, para.366.
  • [56] Ibid, para.367.
  • [57] Ibid, paras.368 and 382.
  • [58] Ibid, para.368.
  • [59] Ibid, para.370.
  • [60] Ibid, para.372.
  • [61] Ibid, paras.373 and 376-378.
  • [62] Ibid, para.373.
  • [63] Ibid, paras.373 and382.
  • [64] Ibid, paras.373 and 379.
  • [65] Ibid, para.374.
  • [66] Ibid, para.375.
  • [67] Ibid, para.380.
  • [68] Ibid, para.384.
  • [69] Ibid, paras.384 et seqq.
  • [70] Ibid, para.385.
  • [71] Ibid, para.269.

Updated 25 June 2020

IPCom v Lenovo, Court of Paris

French court decisions
20 January 2020 - Case No. RG 19/60318

A. Facts

In 2014, Lenovo acquired Motorola [72] . Both companies have a French subsidiary [73] .

Digital River Ireland Limited sells Lenovo products on Lenovo’s French website [74] . Modelabs Mobile S.A. (Modelabs) imports Motorola devices in France alongside Lenovo [73] .

IPCom GmbH & Co. KG (IPCom) acquired over 160 patent families from Robert Bosch in 2017 [72] . IPCom’s Patents cover the 2G, 3G and 4G wireless telecommunications standards [73] . One of the acquired patents is EP 1 841 268 B1 (EP 268) [73] , which is essential to the 3G standard [75] . EP 268 expires on 15 February 2020 [76] . IPCom made a FRAND commitment for its essential patents towards ETSI [77] .

In 2018, IPCom contacted Lenovo for a licence under its patents, including EP 268 [75] . There were some discussions between the parties [73] . On 1st March 2019 [73] , IPCom renewed its offer to license Lenovo and requested Lenovo to respond to this offer by 15 March 2019 [74] .

Absent a reply from Lenovo by this date, IPCom stated that it would initiate proceedings against Lenovo for patent infringement [73] .

On 14 March 2019, US subsidiaries of Lenovo and Motorola filed a claim against IPCom before the District Court for the Northern District of California (US District Court) in the US [73] . The requested the US District Court to set the terms for a worldwide FRAND licence for IPCom’s portfolio [73] .

On 4 July 2019, IPCom filed a complaint against the UK subsidiaries of Lenovo and Motorola before the High Court for England and Wales for patent infringement of the UK counterpart of EP 268 [78] .

On 18 September 2019, Lenovo’s and Motorola’s US subsidiaries filed a motion for an anti-suit injunction with the US District Court to prevent IPCom from continuing the infringement proceedings initiated in the UK as well as from filing any further infringement actions in any foreign jurisdiction, as long as there was no final decision on the US complaint [74] .

On 8 November 2019, the Court of Paris required Lenovo and Motorola to withdraw their anti-suit request with respect to EP 268 by 14 November 2019 the latest [78] . The anti-anti-suit injunction granted by the Court of Paris also applied to any subsequent request to the same end that would be introduced by Motorola and Lenovo. Lenovo and Motorola’s US counterparts partially withdrew the motion for an anti-suit injunction brought before the US District Court [73] .

On 14 November 2019, IPCom filed infringement proceedings against Lenovo and Motorola before the Court of Paris [79] . Before that, on 30 October 2019, IPCom had also sought temporary measures until the patent expiration day, i.e. a preliminary injunction, as well as an order for the recall of all 3G products and the confiscation and sequestration of 3G compliant products [80] .

With the present judgment, the Court rejected IPCom’s request for a preliminary injunction, holding that it was not proportionate and that it could provide an unjustified advantage to IPCom that could lead the company to negotiate licensing terms and conditions that would not be FRAND [81] .

B. Court’s reasoning

With respect to the request for a preliminary injunction, the Court applied Article L615-3 of the French Intellectual Property Code. This provision allows courts to order urgent measures to prevent an irreparable damage to be caused to the right-holder [82] . For this, it is required that patent infringement is likely and the damages potentially suffered cannot be compensated by monetary payments [83] .

The Court also took recourse to the EU Directive 2004/48, which provides that preliminary measures should be proportionate considering the specificity of a dispute on a case by case basis [84] .

The Court concluded that there was no irreparable harm to IPCom that could not be compensated by damages, if a preliminary injunction would be denied. [85] IPCom had claimed that the absence of an injunction would put existing licensees at a disadvantage and that a request for interim measures could not be considered as abusive, given the fact that the absence of a preliminary injunction would reduce the value of its patent portfolio [86] . The Court was not convinced that this would be the case. Moreover, the Court placed weight on the fact that IPCom did not practise the patents itself and, therefore, did not face a risk to lose market shares by competing products infringing IPCom’s rights [87] .

On the other hand, the Court found that an injunction, even of a temporary nature (until the patent expiration date, i.e. 15 February 2020), affecting almost all Lenovo and Motorola products, would heavily impact these companies. In addition, such an abrupt withdrawal of most of the products from the market would harm the reputation of the defendants and impair the distribution operations of Digital River [87] .

Lenovo and Motorola had argued that IPCom’s request was disproportionate [75] . They highlighted that the injunction request applied to most of their cellphones and tablets, what would lead to a serious financial harm [73] . In their view, IPCom’s behaviour was not FRAND, because IPCom did not wait for the end of the negotiations between the parties on the first offer to submit a second offer that was not negotiable [73] . And IPCom filed infringement procedures in the UK and France, instead of negotiating a FRAND license under the US proceedings [73] . Apart from that, Lenovo and Motorola claimed that the patent was not essential to a mandatory, but only to an optional portion of the standard [73] . They also added that the patent was close to expiration and IPCom did not exploit the patent itself [73] . Therefore, there was no harm that could not be compensated by financial damages [73] .

The injunction would impact Lenovo and Motorola market share, including on the new 5G market, and affect their reputation towards main telecom operators [77] .

C. Other issues

Translation of documents

Modelabs argued that IPCom had breached a French law dated 1539Ordonnance de Villers-Cotterêts by providing documents that were in their majority drafted in English instead of French. This behaviour violated Modelabs’ right to an equitable process [89] . The Court pointed out that, since Modelabs imports and commercialises electronic products in France, it had to understand English [73] . Additionally, IPCom had provided documents in French [73] . Therefore, the Court found that Modelabs’ right to an equitable process was not violated [73] .

Patent ownership / Transfer of patents

The defendants challenged IPCom’s ownership of the patent in suit [90] . They claimed that the patent had not been assigned to IPCom. Would the assignment from Robert Bosch to IPCom, nonetheless, have taken place, there had been a second assignment, since IPCom had merged with another company and as a result of the merger, a new company was created, IPCom GmbH & Co [73] .

The Court highlighted that neither Robert Bosch nor the inventors had made any claim under the patent [91] . Additionally, IPCom published the assignment and justified the transfer [92] . The merger came with a transfer of all IPCom assets to IPCom GmbH & Co [91] . The merger and the change of name were notified to the French Patent Office on 13 September 2019 and was published before the notification of the writ of summons to the defendants [75] .

  • [72] Court of Paris, judgement dated 20 January 2020, page 2.
  • [73] Ibidem
  • [74] Court of Paris, judgement dated 20 January 2020, page 3.
  • [75] Court of Paris, judgement dated 20 January 2020, page 13.
  • [76] Court of Paris, judgement dated 20 January 2020, page 8.
  • [77] Court of Paris, judgement dated 20 January 2020, page 14.
  • [78] Court of Paris, judgement dated 20 January 2020, page 4.
  • [79] Court of Paris, judgement dated 20 January 2020, page 5.
  • [80] Court of Paris, judgement dated 20 January 2020, pages 4-7.
  • [81] Court of Paris, judgement dated 20 January 2020, page 17.
  • [82] Court of Paris, judgement dated 20 January 2020, pages 10- 11.
  • [83] Court of Paris, judgement dated 20 January 2020, page 10.
  • [84] Court of Paris, judgement dated 20 January 2020, pages 11, 14-16.
  • [85] Court of Paris, judgement dated 20 January 2020, page17.
  • [86] Court of Paris, judgement dated 20 January 2020, page 15.
  • [87] Court of Paris, judgement dated 20 January 2020, page 16.
  • [88] Ordonnance de Villers-Cotterêts
  • [89] Court of Paris, judgement dated 20 January 2020, page 9.
  • [90] Court of Paris, judgement dated 20 January 2020, page 11.
  • [91] Court of Paris, judgement dated 20 January 2020, page 12.
  • [92] Court of Paris, judgement dated 20 January 2020, page 12-13.

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 [93] . In 2012, Sisvel acquired EP 1 129 536 B1 (EP 536) [94] . EP 536 relates to the EGPRS technology, which forms part of a GSM telecommunications standard that implements EDGE [95] .

Xiaomi is a manufacturer of mobile phones with headquarters in China [96] .

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) [97] .

On 15 October 2013, Sisvel notified Xiaomi about its Wireless Patent Portfolio [95] . On 16 July 2014, Sisvel sent a letter to Xiaomi, inviting Xiaomi to contact Sisvel regarding to the conclusion of a licence [95] . Further e-mails were sent to Xiaomi on 3 December 2014, 4 December 2014 and 5 March 2015 [95] .

In an article dated 29 March 2019 published on nu.nl [98] and ad.nl [98] , Xiaomi announced that it would enter the Dutch market with online shops and physical stores [99] .

On 23 April 2019, Sisvel initiated legal proceedings against Xiaomi before the English High Court of Justice in London (English proceedings) [100] . 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 [101] , are FRAND or alternatively, to determine FRAND licensing terms and conditions and find three patents (including EP 536) to be valid and infringed [100] .

On 30 August 2019, Xiaomi filed two legal actions against Sisvel in Beijing [102] . 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 [95] .

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 [103] . 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 [104] .

Sisvel appealed the first instance decision on 29 August 2019 [105] . During the course of the appeal proceedings, on 22 January 2020, Xiaomi deposited funds [106] on an escrow account held by Intertrust [107] . With the present judgment, the Court of Appeal of The Hague (Court) rejected Sisvel’s appeal and sentenced Sisvel to higher process costs [108] .

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 [109] . 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 [110] . Therefore, only financial damages could incur which the Court considers to be relatively simply compensated at a later point in time [111] . Additionally, Xiaomi had provided security [111] . The security addresses the problem raised by Sisvel, i.e. Xiaomi becoming insolvent and unable to pay damages for patent infringement [95] .

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 [112] . The consequences would thus be severe and could hardly be undone, even if Xiaomi could resume sales again after the expiration of EP 536 [95] . 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 [113] . By accepting a licence Xiaomi would be irrevocably bound to comply with it, including with its rate [114] . The stop of sales in the Netherlands would create loss of profits for Xiaomi and worsen its relationships with its customers [95] . 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 [95] .

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 [115] . 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 [95] . 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 [95] . 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 [115] .

The Court also rejected Sisvel’s claim that Xiaomi was an unwilling licensee [116] . 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 [95] .

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 [117] .

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 [118] . 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 [95] . 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 [95] .

Sisvel’s claim that the lack of an injunction would create an unfair playing field between market participants was also rejected by the Court [119] . 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 [95] . 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 [120] . 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 [95] .

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 [121] . Indeed, the Court underlined that Sisvel can unilaterally reclaim payment, especially if a FRAND rate is determined in the English proceedings [95] . 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 [95] . The Court noted it did not seem Sisvel made use of this possibility to adapt the amount [95] .

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 [122] . 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 [95] . The Court underlined that in the Huawei v. ZTE decision of the CJEU [123] , the security had to be “appropriate”, which depends on the context of the FRAND defence [95] .

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 [124] . 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 [95] . 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 [95] . Sisvel did also not explain why profits data should be disclosed in advance of the main proceedings [95] .

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 [125] . 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 [95] . The acceptance of such arbitration proposal without conditions would have drastic consequences on Xiaomi’s position [95] .

  • [93] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.2.
  • [94] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.4.
  • [95] Ibidem
  • [96] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.8.
  • [97] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.2.5.
  • [98] Dutch newspaper.
  • [99] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.11.
  • [100] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.12.
  • [101] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 3 and 4, par.2.7 and 2.12.
  • [102] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.13.
  • [103] Court of Appeal of The Hague, judgement dated 17 March 2020, page 4, par.2.14.
  • [104] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 4 and 5, par.3.3.
  • [105] Court of Appeal of The Hague, judgement dated 17 March 2020, page 2, par.1.
  • [106] Amount has been redacted.
  • [107] Court of Appeal of The Hague, judgement dated 17 March 2020, page 5, par.3.5.
  • [108] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 10 and 11, par. 4.24 and following.
  • [109] Court of Appeal of The Hague, judgement dated 17 March 2020, page 5, par.4.3.
  • [110] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 5 and 6, par.4.3.
  • [111] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par.4.3.
  • [112] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par.4.7.
  • [113] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 6 and 7, par.4.8.
  • [114] Court of Appeal of The Hague, judgement dated 17 March 2020, page 7, par.4.9.
  • [115] Court of Appeal of The Hague, judgement dated 17 March 2020, page 7, par.4.11.
  • [116] Court of Appeal of The Hague, judgement dated 17 March 2020, page 7, par.2.12.
  • [117] Court of Appeal of The Hague, judgement dated 17 March 2020, page 8, par.4.14.
  • [118] Court of Appeal of The Hague, judgement dated 17 March 2020, page 8, par.4.15.
  • [119] Court of Appeal of The Hague, judgement dated 17 March 2020, page 8, par.4.16.
  • [120] Court of Appeal of The Hague, judgement dated 17 March 2020, pages 8 and 9, par.4.17.
  • [121] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par. 4.5.
  • [122] Court of Appeal of The Hague, judgement dated 17 March 2020, page 6, par. 4.6.
  • [123] Court of Justice of the European Union, Huawei Technologies Co.Ltd. v. ZTE Corp. and ZTE Deutschland GmbH, 16 July 2015.
  • [124] Court of Appeal of The Hague, judgement dated 17 March 2020, page 9, par. 4.2.1.
  • [125] Court of Appeal of The Hague, judgement dated 17 March 2020, page 9, par.4.18.

Updated 7 May 2019

TQ Delta v Zyxel Communications, UK High Court of Justice

English court decisions
18 March 2019 - Case No. HP-2017-000045 - [2019] EWHC 745 (Pat)

A. Facts

The Claimant, TQ Delta LLC, holds patents which have been declared as essential to the practice of certain xDSL standards under the ITU Recommendations (Standard Essential Patents, or SEPs). The ITU Recommendations require from the SEP holder to make its patents accessible to users on Reasonable and Non-Discriminatory (RAND) terms and conditions.

The Defendants, Zyxel Communications Ltd. and Zyxel Communications A/S, manufacture and sell various types of equipment complying with the DSL standard.

In 2013, the Claimant approached the Defendants, seeking to license its SEPs. Since it failed to reach agreement, the Claimant issued infringement proceedings against the Defendants in the United States. Subsequently, the Claimant brought an infringement action against the Defendants before the UK High Court of Justice (Court) based on two SEPs it holds, asking inter alia for injunctive relief. These proceedings involved, on the one hand, technical issues concerning the validity, essentiality and infringement of the patents in suit (technical trial) and, on the other hand, the licensing of these patents on RAND terms (RAND trial).

The Defendants did not make any payments to the Claimant [126] . During the course of the proceedings, the Defendants also refused to confirm that they would take a (global or UK) licence on whatever terms the Court determined to be RAND [127] .

The Court proceeded in both the technical and RAND trial in parallel [128] . On 11 March 2019, the Court delivered its judgement in the technical trial: it found that one of the patents in suit was valid, essential and infringed, whereas the other patent in suit was invalid but would have been essential and infringed had it been valid [129] . The patent that was found valid, essential and infringed expires on 25 June 2019 [130] . The RAND trial is listed for September 2019.

On 18 March 2019, the Court considered the form of order arising from the technical trial [131] . The Court granted an immediate injunction against the Defendants. It refused to stay the injunction or order a carve-out of the injunction allowing the Defendants to process certain existing clients’ orders referring to infringing products. Finally, the Court also refused to grant the Defendants permission to appeal in this case [132] .


B. Court’s reasoning

When considering whether an injunction should be granted in the present case, the Court placed particular emphasis on the Defendants’ conduct. The Court held that there were no grounds to deny an injunction, since the Defendants engaged in ‘hold-out’: they have been infringing one of the two patents in suit for many years without paying any royalties to the Claimant and have also refused to submit to the outcome of an appropriate RAND determination by the Court [133] .

In the Court’s eyes, denying an injunction in these circumstances would be ‘unjust’ [134] , because it ‘would enable ZyXEL [the Defendants] to benefit from their strategy of hold-out’, since they ‘would avoid an injunction, and if the terms of a [F]RAND licence are not as they wish, could refuse to enter into a licence on the terms deemed appropriate by the Court’ [134] . Moreover, depriving the Claimant of injunctive relief would, ‘in effect, amount to a compulsory licence by the court’ which according to the Court would be ‘wrong in principle’ [135] . Against this background, the Court rejected the Defendants’ submission that the grant of an injunction would be disproportionate due to the fact that the patent in suit would expire a few months after the Court’s decision.

Besides that, the Court found that there were no grounds either for staying the injunction for one month, as the Defendants requested, or for granting a carve-out of the injunction to allow the Defendants to fulfil certain existing clients’ orders [136] . The Defendants had not produced sufficient evidence allowing an assessment of any disadvantages potentially arising from the immediate enforcement of the injunction [137] .

Furthermore, the Court refused to grant the Defendants permission to appeal from the grant of an injunction. The Court considered that it would be ‘wrong’ to grant permission, since the Court of Appeal had already set forth the correct general principles in its recent decision in the matter Unwired Planet v Huawei [138] . What is more, in the Court’s view, an appeal would not have any prospects of success; the decision to grant an injunction is an exercise of discretion, from which it is, in general, difficult to appeal. In addition, the Court’s decision was well founded, since refusing an injunction ‘would amount to a compulsory licence of the patentee's exclusive rights and deprive it of meaningful protection in circumstances where the Defendants have elected not to enforce the [F]RAND undertaking’ [139] .

  • [126] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 6.
  • [127] Ibid, para. 10.
  • [128] See TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 21 November 2017, [2017] EWHC 3305 (Pat). Summary available at www.4ipcouncil.com.
  • [129] See TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 11 March 2019, [2019] EWHC 562 (ChD).
  • [130] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 2.
  • [131] During the course of the RAND trial, the Court had rendered interim rulings concerning particularly the treatment of potentially confidential information in the proceedings; see TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 13 June 2018, [2018] EWHC 1515 (Ch); judgement dated 28 September 2018, [2018] EWHC 2577 (Pat) and judgment dated 11 October 2018, [2018] EWHC 2677 (Pat). Summaries of the above judgments are available at www.4ipcouncil.com.
  • [132] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 19.
  • [133] Ibid, para. 12.
  • [134] Ibid, para. 13.
  • [135] Ibid, para. 14.
  • [136] Ibid, para. 15.
  • [137] Ibid, paras. 16 et seqq.
  • [138] Unwired Planet v Huawei, UK Court of Appeal, judgement dated 23 October 2018, Case No. A3/2017/1784, [2018] EWCA Civ 2244, paras. 53 and 54. Summary available at www.4ipcouncil.com.
  • [139] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 22.