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Updated 7 April 2021

Sisvel v Wiko

OLG Karlsruhe
9 December 2020 - Case No. 6 U 103/19

A. Facts

The claimant, Sisvel, holds patents declared as (potentially) essential to the practice of the UMTS and LTE wireless telecommunications standards, which are subject to a commitment to be made accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions (standard-essential patents or SEPs). Sisvel also administrates a patent pool, comprising patents of several SEP holders, including Sisvel's own SEPs (patent pool).

The defendants are two companies that are part of the Wiko group (Wiko). [1] Wiko sells mobile phones complying with the LTE standard - among other markets- in Germany.

In June 2015, the patent pool informed Wiko for the first time about the need to obtain a licence. On 1 June 2016, Sisvel (as the patent pool's administrator) offered Wiko a portfolio licence, which also covered the patent in suit. Agreement was, however, not reached.

On 22 June 2016, Sisvel brought an action against Wiko before the District Court (Landgericht) of Mannheim in Germany (District Court) based on one patent reading on the LTE standard (infringement proceedings). Sisvel requested a declaratory judgment confirming Wiko's liability for damages on the merits, as well as information and rendering of accounts.

On 23 June 2016, Sisvel made an offer for a bilateral licence limited to its own SEP portfolio to the German subsidiary of Wiko. This offer was not accepted. Moreover, Wiko filed a nullity action against the SEP in suit before the German Federal Patent Court (nullity proceedings).

In October 2016, Sisvel extended the lawsuit. Claims for injunctive relief as well as the recall and destruction of infringing products were added to the other claims initially asserted.

On 11 November 2016, Wiko made a counteroffer to Sisvel. Some days prior to the oral hearing in the infringement proceedings, Wiko informed the Court that it had provided information to Sisvel and had also deposited a security amount for past uses.

On 8 November 2017, Sisvel made a new offer to Wiko with reduced royalty rates. Wiko did not immediately react to this offer.

On 22 December 2017, Sisvel asked the District Court to order a stay of the infringement proceedings, until the decision of the Federal Patent Court in the parallel nullity proceedings. Wiko agreed with Sisvel's motion. On 30 January 2018, the infringement proceedings were stayed.

On 9 February 2018, Sisvel sent a reminder to Wiko regarding the offer made on 8 November 2017. Wiko responded on 16 February 2018, requesting further claim charts and more time to examine the patents covered by the offer.

On 26 June 2018, during the stay of the infringement proceedings, Sisvel made another licensing offer to Wiko based on a new restructured licensing program (2018 offer). Along with the 2018 offer, Sisvel provided Wiko with claim charts regarding 20 selected patents and a list of existing licensees of both its new licensing program and two pre-existing programs. The list contained the date of the conclusion of each agreement as well as the agreed licence fees. The names of the licensees were, however, redacted.

Wiko did not react to the 2018 offer for more than three months. On 15 October 2018, following a respective reminder sent by Sisvel on 14 September 2018, Wiko replied, without, however, commenting the 2018 offer; it just referred back to its counteroffer dated 11 November 2016. Wiko also criticized the fact that Sisvel did not disclose the names of the existing licensees so far.

In response to that claim, Sisvel shared a draft Non-Disclosure Agreement (NDA) with Wiko on 22 October 2018, based on which it would be willing to disclose the names of the existing licensees. Wiko refused to sign the NDA proposed by Sisvel.

In October 2018, the Federal Patent Court upheld the SEP in suit in part. Subsequently, the District Court moved on with the infringement proceedings. After the end of the oral hearings in July 2019, Wiko made a new counteroffer to Sisvel and provided the latter with additional information. However, Wiko did not increase the amount of security deposited after its first counteroffer dated 11 November 2016.

In the beginning of September 2019, Sisvel set up an electronic data room containing redacted versions of Sisvel's existing licensing agreements with third parties and granted Wiko respective access rights. Wiko did not make use of this data room at any point in time.

On 4 September 2019, the District Court granted an injunction against Wiko and ordered the removal and destruction of infringing products from the market. It also confirmed Wiko's liability for damages on the merits and ordered Wiko to provide Sisvel with information required for the calculation of damages. Wiko appealed the decision of the District Court.

Shortly after the District Court rendered its decision, the term of the patent-in-suit expired. Sisvel, however, enforced the injunction granted by the District Court.

With the present judgment [2] (cited by http://lrbw.juris.de/cgi-bin/laender_rechtsprechung/list.py?Gericht=bw&GerichtAuswahl=Oberlandesgerichte&Art=en&sid=2b226ea73cc9637362d8e1af04a34d05), the Higher District Court (Oberlandesgericht) of Karlsruhe (Court) predominantly upheld the judgment of the District Court [3] .
 

B. Court's reasoning

The Court found that Wiko could not successfully raise a so-called 'FRAND-defence' based on an alleged abuse of market dominance (Article 102 TFEU) against the claims for injunctive relief and the recall and destruction of infringing products asserted by Sisvel. [4]

This question was still decisive in the present case, despite the fact that the patent-in-suit expired before the start of the appeal proceedings. The Court explained that the expiration of a patent affects only future acts of use (which, then, no longer constitute infringement): On the contrary, claims that had arisen prior to expiration based on acts of use during the lifetime of the patent are not impaired. [5] Whether claims were given before the expiration of the patent-in-suit is of particular importance, especially when the patent holder has enforced a (first-instance) judgment delivered in proceedings conducted within the term of protection of the patent, as it was the case here. [6]
 

Dominant market position

Having said that, the Court agreed with the finding of the District Court that Sisvel had a market dominant position in terms of Article 102 TFEU with respect to the patent-in-suit in the relevant time period prior to its expiration. [7]

The Court followed the District Court also insofar, as it confirmed that, by filing an infringement action, Sisvel had not abused its market dominance.
 

Notification of infringement

In the eyes of the Court, Sisvel had sufficiently notified Wiko about the infringement of the patent-in-suit prior to filing a court action. [8] The purpose of the notification of infringement is to draw the implementer's attention to the infringement and the necessity of taking a license on FRAND terms and conditions. [9] In terms of content, the notification must identify the patent infringed, the form of infringement and also designate the infringing embodiments. [9] Detailed technical or legal analysis of the infringement allegation is not required. [9] The production of so-called 'claim charts', which is common in practice, will, as a rule, suffice, but is not mandatory. [9] If the patent holder offers a portfolio licence, respective extended information duties occur. [9]

In the present case, it was not disputed that Sisvel had notified Wiko about the patent-in-suit prior to litigation. [10] As far as Wiko complained that no claim charts were presented before trial, the Court reiterated that no respective obligation of Sisvel existed. [11] What is more, the Court held that the court action initially filed by Sisvel, which did not include claims for injunctive relief and the recall and destruction of infringing products, could also be seen as an adequate notification of infringement. [10]
 

Willingness to obtain a licence

The Court then found that Wiko behaved as an unwilling (potential) licensee both prior and during the infringement proceedings [12] . The Court agreed with the assessment of the District Court that Wiko delayed the licensing negotiations between the parties with the goal to avoid taking a licence for as long as possible, in order to gain economic benefits. [13]

According to the Court, the 'expression of a general willingness to license' is not sufficient for assuming that an implementer is a 'willing licensee'. [14] Moreover, the implementer must 'clearly and unambiguously' declare willingness to conclude a license agreement on FRAND terms, 'whatever FRAND terms may actually look like" [14] . The respective declaration must be 'serious and unconditional'. [14]

The Court highlighted that for the assessment of willingness the overall facts and the particular conduct of the implementer shall be taken into account. [14] Willingness is not 'static': the finding that an implementer was willing (or unwilling) at a certain moment in time does not remain unchanged henceforth. [14]

The implementer must always be willing to obtain a licence and participate in negotiations in a 'target-oriented manner'; since implementers might be inclined to delay negotiations until the expiration of the patent-in-suit, there is a need to make sure that their behaviour in negotiations will not lead to delays. [15] Moreover, it should be expected that a willing implementer would seek a license as soon as possible, in order to shorten the period, in which it makes use of the patent-in-suit or the SEP holder's portfolio without authorisation and without paying licensing fees. [16] Accordingly, a willing licensee would not consider the 'negotiation obligations' of the SEP holder primarily as a means to defend itself against a court action, but as a means to utilize in order to reach a FRAND agreement, if needed. [16]

In the view of the Court, the above requirements are in line with the Huawei v ZTE judgment (Huawei judgment or Huawei) [17] of the Court of Justice of the EU (CJEU). [18] In Huawei, CJEU focused on the will of the infringer to conclude a license agreement on FRAND terms and emphasized that the latter must not pursue 'delaying tactics'. The Court explained that, although in Huawei the requirement to refrain from 'delaying tactics' is expressly mentioned only with respect to the duty of the implementer to react to a licensing offer of the SEP holder, it applies 'at all times' as long as the implementer uses the patents without a licence; otherwise, the suspension of SEP holder's right to the injunctive relief cannot be justified. [19]

In this context, the Court pointed out that not every 'reluctant involvement' of the implementer in licensing discussions will necessarily allow for the assumption of unwillingness. [20] Such behaviour could be justified in individual cases, especially when the SEP holder does not act in a 'target-oriented' manner itself. [20] Nevertheless, implementers must, as a rule, react timely even to a belated action of the SEP holder. [20] Furthermore, implementers must, in principle, inform the SEP holder of any objections at an early stage and should not wait to raise those much later in court proceedings. [20]

Looking at Wiko's conduct, the Court criticized especially the fact that it became active mostly as a reaction to new developments in the pending infringement proceedings. [21] A willing implementer would have, however, sought a licence independently of the initiation of legal steps and independently of the course of litigation. [22] As an example, the Court highlighted the fact that Wiko's counteroffer dated 11 November 2016 was made only shortly after Sisvel extended the infringement suit by adding a claim for injunctive relief. [23] Wiko also provided information on past acts of infringement only a few days prior to the first oral hearing in February 2017 (and refrained from constantly updating this information afterwards, as it would be expected by a willing licensee). [24]

The Court identified also further facts that indicate that Wiko engaged in delaying tactics. [25] Wiko reacted to Sisvel's licensing offers made during the course of the proceedings always belatedly and only after a reminder by Sisvel (for instance, it took Wiko more than three months to react to the 2018 offer) [26] . It also demanded further claim charts in February 2018, years after the action was filed. [27]

Wiko's refusal to sign the NDA offered by Sisvel -despite multiple reminders of the latter- without providing any reasons was also considered as a sign of unwillingness. [28] According to the Court, it should be expected by a willing licensee, who is not interested in delaying negotiations, to swiftly raise any criticisms regarding an NDA proposed by the SEP holder in writing or by e-mail, and not wait to raise any concerns several months later in the infringement proceedings, as Wiko had done here. [29] The Court also considered the fact that Wiko did not access the electronic data room set up by Sisvel containing redacted versions of Sisvel's third party agreements as an additional indication of unwillingness. [30]

Furthermore, the Court clarified that -contrary to Wiko's view- school holidays and/or staff shortages cannot provide sufficient justification for delays in negotiations. [31] Even if such circumstances occur, a willing implementer would have communicated any obstacles immediately. [31] Wiko failed to do so.
 

SEP holder's offer

Since Wiko was found to have been an unwilling licensee, the Court explained that the question whether Sisvel fulfilled its duty to make and adequately elaborate a FRAND licensing offer, was no longer decisive. [32] In fact, no such duty had arisen in the present case, due to Wiko's unwillingness to obtain a licence. [32] Notwithstanding the above, the Court provided guidance on the content and extend of the respective obligation of the SEP holder.

The Court first explained that FRAND is a 'range', which leaves room for flexibility. [33] As a rule, FRAND is determined in bilateral good faith negotiations between SEP holders and implementers, taking into account the specific circumstances of each individual case [33] ; indeed, parties are best situated to determine the exact content of FRAND in a specific setting. [33]

In order to meet its obligation, an SEP holder must present an offer to a willing licensee, which 'in general' complies with FRAND requirements and is fair, reasonable and not discriminatory with respect to the 'average licensee'. [34] The SEP holder shall further explain its offer in a way that permits the licensee to understand the assumptions, on which the offered rate and further conditions are based. [35] The rationale behind this obligation is to create a sufficient basis of information for the implementer for assessing the offer and eventually formulating a counteroffer. [36]

In this context, the Court made clear that implementers should not expect that the SEP holder individually adapts its (first) offer to the specific circumstances of each particular case. [37] The SEP holder's FRAND commitment does not give rise to such obligation. [37] The (first) offer is intended to launch the negotiations and provide an adequate information basis to the implementer, who will then be in a position to suggest necessary amendments by means of a counteroffer. [37] Accordingly, it will regularly be acceptable that the SEP holder's offer is 'not clearly and evidently' non-FRAND and sufficient information was provided to the implementer. [38]

The Court dismissed the notion that the implementer is obliged to negotiate (and eventually) make a counteroffer, only when the SEP holder's offer was fully FRAND-compliant. [38] This would bring the negotiations to a stand-still and, therefore, conflict with the spirit of the Huawei judgment, which is to encourage the parties to reach agreement on the licensing terms. [39] Moreover, the Court explained that –irrespective of whether the offer triggers an obligation of the implementer to submit a counter-offer– the latter will be regularly required, at least, to analyse the SEP holder's offer in due course and express any objections and queries without delay. [40]

Against this background, the Court found that none of the offers made to Wiko during the infringement proceedings was 'clearly and evidently' non-FRAND. [41] The fact that the offers did not define the start of the contract or the amount of royalties payable for past uses was not considered problematic. [42] The Court also found that the royalty rates offered were not 'evidently non-FRAND', since they were sufficiently substantiated by reference to existing licensing agreements and calculated on basis of a 'top-down' method. [43] A need to calculate royalties on grounds of the costs that incurred for the creation of the patented invention (cost-based approach) was not given, since this factor was not relevant for establishing value. [44]

In addition, the Court did not raise any concerns against the fact that Sisvel's offer concerned a worldwide portfolio licence: On the one hand, agreements with such scope are common in the telecommunications industry. [45] On the other hand, Wiko had worldwide activities, so that a licence with a limited scope would not provide sufficient coverage. [45]

The fact that some of the patents included in Sisvel's portfolio were -allegedly- not standard-essential did not render the offers 'un-FRAND'. [46] The Court stressed that, for the purpose of licensing negotiations and the conclusion of a licence, it is not necessary to conclusively clarify whether each portfolio patent is standard-essential. [47] Implementers can reserve the right to challenge the validity and essentiality of affected patents even after the conclusion of a licensing agreement. [47]

Similarly, the Court had no objections against a clause placing the burden of proof with regard to the exhaustion of licenced patents on Wiko. [48] This rule corresponds with the common allocation of the burden of proof under German law and does not place unreasonable weight on the licensee, since it will be better situated to trace the licensing chain by engaging with its suppliers. [49]

The question whether an adjustment clause is necessary for an offer to be considered FRAND was left unanswered by the Court. [50] Such clause would allow the implementer to adapt the agreed royalties, in case that patents fall out of the scope of the licence (e.g. due to expiration or invalidation). The Court saw no need for a respective contractual provision, since the licences offered by Sisvel would expire and, therefore, be re-negotiated after five years. [50] The Court did not express any concerns against the term of the offered licence or the termination clauses contained therein, either. [51]

Furthermore, the Court made clear that Sisvel had adequately elaborated the licensing rates offered to Wiko. [52] In the infringement proceedings, Sisvel responded to the 'top-down' calculation of Wiko in detail and made relevant clarifications. [53] According to the Court, Sisvel was under no circumstances obliged to elaborate on a cost-based calculation of royalties, as requested by Wiko; such demand was considered just another means to delay negotiations. [54]
 

Implementers' counteroffer

The Court also found that the counteroffers made by Wiko during the course of the first instance infringement proceedings were not FRAND. [55]

The Court highlighted that the obligation of the implementer to submit a FRAND counteroffer to the SEP holder is already triggered, when the previous licensing offer of the latter is not 'clearly and evidently' non-FRAND and sufficient information was provided, enabling the implementer to formulate its counteroffer. [56]

Having said that, the Court took the view that the royalty rates which Wiko offered were very low and, thus, not FRAND-compliant. [57] The Court criticized especially the fact that the rates were significantly lower than the rates which were considered to be adequate in previous court decisions. [58] Notwithstanding the above, the Court explained that, even if Wiko's counteroffer had been FRAND, this would not change the conclusion that Wiko had acted as an unwilling licensee. [59] According to the Court, a willing licensee would not have submitted a counteroffer around one year after receipt of the SEP holder's offer, as Wiko did. [60]
 

C. Other important issues

The Court stressed that for generating pressure-free licensing negotiations during pending infringement proceedings, it will, as a rule, be sufficient, if the proceedings are stayed with a view to parallel nullity proceedings concerning the patent-in-suit. [61] This is particularly true, when the SEP holder takes the respective initiative, as it was the case here. [61] Nevertheless, even if a pressure-free negotiation situation is not given, the infringers is not released from the obligation to act in good faith and engage in licensing negotiations, for instance by analysing a licensing offer of the SEP holder. [61] The refusal of the infringer to act accordingly could, in the eyes of the Court, allow the conclusion that it is an unwilling licensee. [61]

Apart from that, the Court confirmed that Wiko had no legal ground for requesting full disclosure of Sisvel's third party agreements [62] . Even if one would recognize a duty of the SEP holder to share information about the core content of existing licensing agreements (that are still in force), it is questionable whether this duty would also extend to agreements signed by previous patent holders. [63] The Court expressed particular doubts that this applies in cases in which a portfolio was assembled from patents acquired from different patent holders, since the relevance of bilateral or pool licensing agreements of the former patent holder can be limited in this case. [64]

Furthermore, the Court expressed the view that under German law a so-called 'covenant not to sue' does not have the effect of a (royalty-free) licence: such agreements will, as a rule, have only a procedural effect in terms of a pactum de non petendo, excluding only the initiation of court proceedings. [65]

Finally, the Court denied Wiko's motion to order a stay in the appeal proceedings due to the recent referral of several questions regarding the interpretation of the Huawei framework to the CJEU by the District Court of Düsseldorf in the matter Nokia v Daimler [66] . [67] According to the Court, it appears unlikely that the CJEU will establish criteria, by which SEP-based court actions against implementers engaging in delaying tactics would amount to an abuse of market dominance. [68]
 

  • [1] The action was extended to a third defendant, an individual person, who had served as a managing director for both aforementioned companies.
  • [2] Sisvel v Wiko, Higher Regional Court Karlsruhe, judgment dated 9 December 2020, Case-No. 6 U 103/19
  • [3] The claims for injunctive relief, rendering of accounts and damages asserted against the former managing director of the two Wiko companies were limited to the period of time until the end of its tenure; ibid, paras. 265-288.
  • [4] Ibid, para. 289.
  • [5] Ibid, paras. 284 et seqq.
  • [6] Ibid, para. 287.
  • [7] Ibid, paras. 290 et seq. Insofar, the Court made clear that a market dominant position ceases to exist after the expiration of the relevant patent.
  • [8] Ibid, paras. 292 et seqq.
  • [9] Ibid, para. 293.
  • [10] Ibid, para. 297.
  • [11] Ibid, paras. 297 et seq.
  • [12] Ibid, para. 299.
  • [13] Ibid, para. 299 and paras. 320 et seqq.
  • [14] Ibid, para. 301.
  • [15] Ibid, para. 302.
  • [16] Ibid, para. 303.
  • [17] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case-No. C-170/13.
  • [18] Sisvel v Wiko, Higher Regional Court of Karlsruhe, judgment dated 9 December 2020, para. 304.
  • [19] Ibid, para. 304.
  • [20] Ibid, para. 305.
  • [21] Ibid, paras. 321 et seqq.
  • [22] Ibid, para. 321.
  • [23] Ibid, para. 322.
  • [24] Ibid, paras. 323 et seq.
  • [25] In addition, the Court found that Wiko’s lack of willingness to obtain a license is also manifested in the fact that it (i) attempted to impede the enforcement of the first instance ruling of the District Court by questionable means (para. 335) and (ii) did not accept the offer of the District Court of The Hague, in which proceedings between the parties were pending in parallel, to engage in settlement negotiations (para. 336).
  • [26] Ibid, paras. 325, 328 and 331.
  • [27] Ibid, para. 327.
  • [28] Ibid, paras. 333 et seqq.
  • [29] Ibid, paras. 334 and 338.
  • [30] Ibid, paras. 337 and 341 et seqq.
  • [31] Ibid, para. 330.
  • [32] Ibid, para. 342.
  • [33] Ibid, para. 307.
  • [34] Ibid, para. 308.
  • [35] Ibid, paras. 308 and 310.
  • [36] Ibid, para. 309.
  • [37] Ibid, para. 310.
  • [38] Ibid, paras. 311 et seqq.
  • [39] Ibid, paras. 311 and 313 et seqq.
  • [40] Ibid, paras. 316 et seqq.
  • [41] Ibid, para. 352.
  • [42] Ibid, para. 353.
  • [43] Ibid, paras. 354 et seqq.
  • [44] Ibid, para. 358.
  • [45] Ibid, para. 359.
  • [46] Ibid, para. 360.
  • [47] Ibid, para. 361.
  • [48] Ibid, para. 362.
  • [49] Ibid, para. 363.
  • [50] Ibid, paras. 365 et seqq.
  • [51] Ibid, paras. 367 et seqq.
  • [52] Ibid, para. 366.
  • [53] Ibid, para. 344.
  • [54] Ibid, para. 346.
  • [55] Ibid, paras. 379 et seqq.
  • [56] Ibid, para. 311.
  • [57] Ibid, paras. 379 et seqq.
  • [58] Ibid, para. 380.
  • [59] Ibid, para. 378.
  • [60] Ibid, para. 384.
  • [61] Ibid, para. 348.
  • [62] Ibid, para. 389.
  • [63] Ibid, paras. 389 et seq.
  • [64] Ibid, para. 391.
  • [65] Ibid, paras. 260 et seqq.
  • [66] Nokia v Daimler, District Court of Düsseldorf, order dated 26 November 2020, Case No. 4c O 17/19.
  • [67] Sisvel v Wiko, Higher Regional Court of Karlsruhe, judgment dated 9 December 2020, para. 395.
  • [68] Ibid, para. 395.

Updated 26 July 2021

Nokia v Daimler

OLG Karlsruhe
12 February 2021 - Case No. 6 U 130/20

A. Facts

The claimant is part of the Nokia group with headquarters in Finland (Nokia). Nokia is a major provider of telecommunication services and holds a significant portfolio of patents declared as (potentially) essential to the practice of various wireless telecommunication standards (standard essential patents, or SEPs) developed by the European Telecommunications Standards Institute (ETSI).

The defendant, Daimler, is a German car manufacturer with a global presence. Daimler produces and sells cars in Germany with connectivity features which implement standards developed by ETSI.

Nokia declared the patent involved in the present case as essential for the 4G/LTE Standard towards ETSI. ETSI requires patent holders to commit to make patents that are or might become essential to the practice of a standard accessible to users on fair, reasonable and non-discriminatory (FRAND) terms.

In June 2016, Nokia informed Daimler about its SEP portfolio. In November 2016, Nokia made a first licensing offer to Daimler. In December 2016, Daimler replied that it would be more efficient to license suppliers manufacturing the so-called 'Telematics Control Units' (TCUs), which are built into Daimler's cars. From January 2017 until February 2019, Daimler did not engage in further negotiations with Nokia.

In February 2019, Nokia made a second licensing offer to Daimler which was also rejected.

In March 2019, Nokia filed infringement actions against Daimler before the District Court of Mannheim (District Court). Further cases were filed before the District Courts of Munich and Duesseldorf.

On 9 May 2019, shortly after the infringement proceedings were initiated, Daimler made a counteroffer to Nokia (first counteroffer) which was rejected. On 10 June 2020, Daimler made a further counteroffer that did not include specific royalty rates (second counteroffer). Nokia would be granted the right to unilaterally determine the royalties payable under the licence, whereas Daimler would have the option to contest Nokia's royalty determination before court. An agreement on these terms was not signed.

On 18 August 2020, the District Court granted an injunction against Daimler and further recognised Daimler's liability to pay damages on the merits. [69] The Court also ordered Daimler to render accounts and provide information necessary for the calculation of damages to Nokia.

Daimler appealed the decision of the District Court. It also filed a request for a stay of the enforcement of the injunction granted until the conclusion of the appeal proceedings.

With the present judgment [70] (cited by http://lrbw.juris.de), the Higher District Court of Karlsruhe (Appeal Court) found in favour of Daimler, ordering a stay of the enforcement of the injunction.
 

B. Court's reasoning

The Appeal Court placed particular focus on the reasoning, on which the District Court relied upon for dismissing the so-called 'FRAND-defence' raised by Daimler against Nokia's claim for injunctive relief. Daimler had argued that by filing infringement actions, Nokia had abused its dominant market position in violation of Article 102 of the Treaty on the Functioning of the EU and should, therefore, be denied an injunction. The District Court held that Daimler could not invoke this argument, since it had failed to sufficiently express willingness to obtain a FRAND licence from Nokia in accordance with the requirements established by the European Court of Justice (CJEU) in the matter Huawei v ZTE [71] (Huawei decision, or framework).
 

Willingness

The Appeal Court did not contest the standard applied by the District Court for the assessment of willingness: the implementer is expected to 'clearly' and 'unambiguously' declare that it is willing to sign a licence with the SEP holder 'on whatever terms are in fact FRAND' and, subsequently, engage in licensing negotiations in a 'target-oriented' manner. [72] The Appeal Court also agreed with the view expressed by the District Court that the declaration of willingness cannot be made subject to conditions. [73] Furthermore, it reasoned that willingness is not a 'one-off event', meaning that the implementer is required to constantly engage in negotiations in a 'serious and target-oriented' manner and to avoid 'delaying tactics'. [73]
 

Implementer's counteroffer

The Appeal Court also confirmed that the implementer's counteroffer is a factor that can be considered for the assessment of willingness [74] . On the one hand, a FRAND-compliant counteroffer could, in principle, 'heal' the initial 'unwillingness' of the implementer. [75] On the other hand, a counteroffer that is not FRAND can reinforce the finding of missing willingness. [75] Having said that, the Appeal Court held that the District Court erred as far as it assumed that Daimler's second counteroffer was not sufficient to 'heal' the unwilling behaviour displayed by Daimler up to the point in time, in which this counteroffer was made. [76] The Appeal Court pointed out that – contrary to the District Court's view – a counteroffer which does not specify concrete licensing fees but instead grants the patent holder the right to unilaterally determine the royalties and – at the same time – allows the implementer to challenge such determination before court in subsequent proceedings (Sec. 315 of the German Civil Code), should regularly be considered as a sufficient declaration of willingness to sign a licence 'on whatever terms are in fact FRAND'. [77] According to the Appeal Court, the fact that by such counteroffer the implementer does not back down from the own perception of how FRAND terms should look like and will, therefore, most likely contest the royalties unilaterally determined by the SEP holder is, as a rule, not harmful: the SEP holder will in any case receive either the royalties it determined or the royalties deemed to be reasonable by the court which will be called upon by the implementer to examine the royalty determination undertaken by the patent holder. [78]

In the eyes of the Appeal Court, the fact that in the above scenario the (final) determination of FRAND royalties is postponed to subsequent proceedings following the patent infringement trial does not per se suffice to question the willingness of the implementer. [79] The Appeal Court rather highlighted that it would regularly serve the interests of the SEP holder to 'unburden' the infringement trial from the FRAND determination, which would lead to a quicker judgment on the infringement issues. [79]

Furthermore, the Appeal Court disagreed with the view previously taken by the District Court, according to which a counteroffer without specific royalty calculation could be (mis-)used by implementers as a means for delaying the signing of an agreement until after the expiration of the patent in suit, in order to secure a more favourable position in negotiations absent the threat of an injunction. [80] The Appeal Court pointed out that, if a licence stipulating a unilateral royalty determination right in favour of the SEP holder is concluded, the latter will receive royalties for the use of its patents; in the court proceedings following the infringement trial only the actual amount of the royalties payable will be determined. [80]

Notwithstanding the above, the Appeal Court made, however, clear that a counteroffer containing no specific royalties can, nevertheless, be an indication of unwillingness in individual cases, especially when it is belated. [81] This could be true, when the counteroffer is made only after infringement proceedings have been initiated by the patent holder. Although it is, in principle, thinkable to remedy flaws during pending infringement proceedings, a counteroffer made after the trial has begun would be unacceptable, if it is part of delaying tactics on the side of the implementer. [82] The Appeal Court found that this approach is in line with the Huawei judgment. [83]

In this context, the Appeal Court pointed out that a counteroffer without specific royalty calculation, which could be sufficient for establishing willingness, does not necessarily also suffice for complying with the further going obligation of the implementer under the Huawei framework to make an own offer on FRAND terms to the SEP holder, if it chooses to reject the licensing offer of the latter. [84] In the present case, the Appeal Court did not take a closer look at this question, since the District Court had not examined whether Daimler had been obliged to make a FRAND counteroffer after rejecting Nokia's licensing offers. [84]

  • [69] Nokia v Daimler, District Court (Landgericht) of Mannheim, judgment dated 18 August 2020, Case-No. 2 O 34/19.
  • [70] Nokia v Daimler, Higher District Court (Oberlandesgericht) of Karlsruhe, judgment dated 12 February 2021, Case-No.6 U 130/20.
  • [71] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [72] Nokia v Daimler, Higher District Court of Karlsruhe (footnote No. 2), para.43.
  • [73] Ibid, para. 43.
  • [74] Ibid, paras. 45 et seq.
  • [75] Ibid, paras. 46.
  • [76] Ibid, para. 47.
  • [77] Ibid, para. 51.
  • [78] Ibid, para. 52.
  • [79] Ibid, para. 53.
  • [80] Ibid, para. 54.
  • [81] Ibid, para. 55.
  • [82] Ibid, para. 56.
  • [83] Ibid, para. 57.
  • [84] Ibid, para. 61.

Updated 15 October 2021

LG v TCL

LG Mannheim
2 March 2021 - Case No. 2 O 131/19

A. Facts

LG is a global electronics company headquartered in South Korea, holding a portfolio of patents declared as (potentially) essential to the practice of wireless telecommunications standards (standard essential patents, or SEPs), including 4G/LTE developed by the European Telecommunications Standards Institute (ETSI). ETSI requires from patent holders to commit to make SEPs accessible to users on fair, reasonable and non-discriminatory (FRAND) terms and conditions.

TCL is a Chinese manufacturer of electronic devices which imports and sells – among other things – mobile phones complying with 4G/LTE in Germany.

In March 2016, LG sent a letter to the parent company of the TCL group with information about its SEP portfolio. Until August 2018, LG sent in total seven similar letters to different companies within the TCL group. TCL did not react to these letters. In March 2018, LG also shared a licensing offer with TCL, which provided for running royalty payments. Again, TCL did not respond.

In November 2019, LG filed an infringement action against TCL before the District Court of Mannheim (Court). In January 2020, after the suit was filed, TCL contacted LG for the first time. In the following, the parties negotiated a Non-Disclosure Agreement (NDA), which was signed only in May 2020. Apart from that, several meetings and communications took place, in which LG provided information about its SEP portfolio as well as about existing licensing agreements to TCL. On the other hand, TCL shared information about past sales volumes. In June 2020, TCL brought up a licensing agreement between LG and Qualcomm that had expired in December 2018 (Qualcomm licence) in the negotiations. Qualcomm supplied TCL with chipsets. TCL argued that with respect to chipsets supplied by Qualcomm and covered by the Qualcomm licence LG's patent rights were exhausted.

In July 2020, LG made a modified licensing offer to TCL that provided for a lump sum payment (instead of the running royalty payments initially offered). TCL did not accept this offer.

In November 2020, TCL made a counteroffer to LG. The counteroffer was based on a running royalty regime. With a view to the Qualcomm licence, TCL requested to include a clause in the agreement, which would allow TCL to exclude phones with chipsets acquired by suppliers already licenced by LG from the royalty calculation.

Shortly afterwards, LG made another offer to TCL that corresponded to a large extent to TCL's counteroffer. LG proposed certain amendments with respect to the royalty calculation (e.g. the addition of caps and floors) and also removed the aforementioned clause, which would have allowed TCL to exclude a number of devices sold from royalty payments.

In December 2020, TCL indicated that it would prefer a lump sum payment. Subsequently, LG made minor modifications to its previous offer. However, the parties did not reach agreement.

In January 2021, TCL placed a security payment covering sales in Germany since 2016 (including devices with Qualcomm chipsets) and rendered accounts for past sales as well.

With the present judgment [85] , the Court found in favour of LG and -among other claims- granted an injunction against TCL.
 

B. Court's reasoning

The Court found that the patent in suit is valid and infringed. [86]

The Court further held that the claim for injunctive relief asserted by LG was enforceable. [87] LG had met the obligation to adequately notify TCL about the infringement of its SEPs prior to filing the present action and had also provided TCL with a FRAND-compliant offer. [88] On the contrary, TCL had failed to adequately express willingness to obtain a FRAND licence from LG. [89]
 

Notification of infringement

The Court took the view that by the first letter dated March 2016 (or, ultimately, by the licensing offer presented in March 2018), LG had sufficiently notified TCL about the infringement of the SEP in suit prior to initiating court proceedings. [90]

The fact that the letter of March 2016 was addressed to the parent company of the TCL group (and not the individual affiliates sued in the present proceedings) was not harmful [91] . According to the Court, addressing such type of letter to the parent company corresponds to the common practice in FRAND negotiations. [91]

Furthermore, the Court did not express concerns against the fact that the letter dated March 2016 did not indicate the number of the patent in suit, but instead contained only the underlying patent application number. [92] The Court noted that by making a search in the respective database of the European Patent Office, TCL could have been able to identify that the patent in suit had been granted and published. [92] Considering this, the Court highlighted that SEP holders are under no obligation to regularly update lists displaying the individual patents included in their portfolio. [92]
 

Willingness

According to the Court, TCL failed to sufficiently express willingness to obtain a FRAND licence. [93] An implementer is required to declare 'clearly and unambiguously' as well as 'seriously and unconditionally' that it is willing to conclude a licence agreement with the SEP holder on FRAND terms and, subsequently, engage in negotiations in a 'target-oriented' manner. [94] By contrast, it is not sufficient in response to the 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. [94]

For the assessment of willingness, all circumstances should be taken into account, especially the behaviour of the implementer. [95] In particular, courts must examine whether the implementer's conduct 'reasonably promotes negotiations.' [96]

In the Court's eyes, timing in negotiations is an important factor: The implementer is regularly required to react in due course; did it refrain from expressing interest in a FRAND licence over a longer period of time, then the implementer must make 'additional efforts'. [97] In exceptional cases, a 'reluctant involvement' of the implementer in negotiations could be justified, for instance when the SEP holder itself does not engage in a target-oriented manner in the discussion (e.g. by not sharing information about its licensing practice). [98] In case that the SEP holder has made a licensing offer, the implementer should raise any concerns swiftly and not hold back potential objections for use in subsequent court proceedings. [96]

Furthermore, the implementer's counteroffer shall also be considered in the assessment of willingness. According to the Court, an implementer who – after having received a licensing offer as well as sufficient information from the SEP holder – makes a non-FRAND counteroffer indicates, as a rule, that it has no intention to reach a FRAND solution. [96] The same can apply, when the implementer insists on its counteroffer and refuses any improvements. [96]

Against this backdrop, the Court found that, in overall terms, TCL did not adequately promote the negotiations with LG. [99] The Court noted that TCL made no efforts to clarify whether, respectively to what extent the Qualcomm licence led to a (partial) exhaustion of LG's patent rights [100] . The Qualcomm licence was mentioned by TCL for the first time in June 2020 (approx. 4 years after the first contact in March 2016) and was brought up again only during the pending trial in November 2020. TCL then rejected several offers of LG to elaborate further on this issue. In the view of the Court, TCL should have tried to address this issue much earlier and in a more transparent way, particularly since the wording of the Qualcomm agreement hardly supports TCL's exhaustion argument.Ibid, para. 147. The Court found that the Qualcomm licence did not lead to the exhaustion of LG's patent rights in the present case, see paras. 95-104.

The Court also saw an indication of delaying tactics in the fact that TCL had changed opinions (especially with respect to the preferred royalty regime) in several occasions, without having processed information shared by LG on the merits. [102] A further indication of delaying tactics was the fact that TCL, as a rule, aligned its behaviour in the negotiations with developments in the pending infringement trial (e.g. TCL contacted LG for the first time only after the action was served and made its counteroffer shortly before an oral hearing in the proceedings). [103] The Court noted as well that it took TCL almost four months to sign the NDA with LG, although it should have undertaken additional efforts to promote negotiations, given that at that point in time TCL had already delayed the beginning of the negotiations with LG for several years. [104]

In addition, the Court considered the fact that TCL had made a non-FRAND counteroffer to LG as a further indication that TCL had not sufficiently engaged in the licensing negotiations. [105] According to the Court, TCL's counteroffer was not FRAND, because the 'commercially significant' question whether the Qualcomm licence caused a (partial) exhaustion of LG's patent rights was left aside to be addressed in subsequent negotiations or court proceedings between the parties. [106]

The Court highlighted that FRAND is, in principle, a range; FRAND can differ from sector to sector and over time and shall be determined based on the individual circumstances of each case in good faith bilateral negotiations between the parties. [107]

In the view of the Court, a counteroffer that leaves a controversial question with 'significant impact' on the amount of the royalties payable unanswered is, regularly, not appropriate. [108] By signing a licensing agreement on that basis, the implementer would legitimize the use of the patents (and, consequently, no longer face the risk of an injunction), while, at the same time, preserve the right to withhold part of the royalty payments until the disputed question has been answered in future negotiations or court proceedings. [108] Such a counteroffer would resemble an offer pursuant to Section 315 of the German Civil Code, which – according to the Court – is also not sufficient for establishing implementer's willingness to enter into a FRAND licence. [109] Insofar, the Court pointed out that in Huawei v ZTE [110] the Court of Justice of the EU required from the implementer to make a 'specific counteroffer', which implies that the royalties must either be defined in the counteroffer itself or can be determined in due course. [111]

In the present case, TCL had preserved the right to exclude mobile phones with Qualcomm chipsets sold until the expiration of the Qualcomm licence from the calculation of the release payment covering past sales. From LG's perspective, this left the key question open whether TCL was prepared to pay royalties calculated under consideration of the respective mobile phones or not. This question was significant, since – according to the Court – the exclusion of mobile phones with Qualcomm chipsets could lead to a significant reduction of the amount of the release payment, given that such handsets accounted for a substantial share of the overall TCL sales. [112]
 

SEP holder's offer

The Court further found that LG could not be held responsible for TCL's missing willingness to obtain a FRAND licence; on the contrary, LG had met all its conduct obligations. [113] In particular, the Court pointed out that LG had made several FRAND-compliant licensing offers to TCL and had also been prepared to adapt its offers for the benefit of TCL. [113]

The Court held that the royalties suggested by LG (especially in its final offer) led to a total royalty burden within the frame generally accepted within the wireless telecommunications sector. [114] Furthermore, the fact that LG had concluded two licensing agreements with other implementers on the terms offered to TCL was considered by the Court as an indication that said terms are not 'evidently non-FRAND', even though LG had not formed a standard licensing programme established in the market yet. [115]
 

Provision of security

Having found that TCL had acted as an unwilling licensee, the Court did neither examine whether the amount of the security payment provided by TCL (that covered past sales only in Germany) was sufficient nor whether this payment was belated or not. [116]

  • [85] LG v TCL, District Court of Mannheim, 2 March 2021, Case-No. 2 O 131/19 (cited by GRUR-RS 2021, 6244).
  • [86] Ibid, paras. 49-104
  • [87] Ibid, paras. 111 et seqq.
  • [88] Ibid, paras. 117 and 158 et seqq.
  • [89] Ibid, para. 117.
  • [90] Ibid, para. 118.
  • [91] Ibid, para. 121.
  • [92] Ibid, para. 122.
  • [93] Ibid, para. 123. et seqq
  • [94] Ibid, para. 124.
  • [95] Ibid, para. 125.
  • [96] Ibid, para. 126.
  • [97] Ibid, para. 127.
  • [98] Ibid, para. 128.
  • [99] Ibid, paras. 129-130 and 142 et seqq.
  • [100] Ibid, paras. 144 et seqq.
  • [101] Ibid, para. 147. The Court found that the Qualcomm licence did not lead to the exhaustion of LG's patent rights in the present case, see paras. 95-104.
  • [102] Ibid, paras. 152 et seq.
  • [103] Ibid, para. 154.
  • [104] Ibid, para. 155.
  • [105] Ibid, paras. 129 et seq.
  • [106] Ibid, para. 130.
  • [107] Ibid, para. 132.
  • [108] Ibid, para. 133.
  • [109] Ibid, para. 134. Under Section 315 of the German Civil Code the patent holder can be granted the right to unilaterally determine the royalties payable under the licence. The implementer preserves, however, the right to challenge such determination before court. The final amount of the royalty payable will, ultimately, be decided by the court in trials following the conclusion of the licensing agreement.
  • [110] Huawei v ZTE, Court of Justice of the EU, judgment dated 16 July 2015, Case No. C-170/13.
  • [111] LG v TCL, District Court of Mannheim, 2 March 2021, Case-No. 2 O 131/19, para. 133.
  • [112] Ibid, paras. 136 et seq.
  • [113] Ibid, para. 157.
  • [114] Ibid, para. 160.
  • [115] Ibid, para. 161.
  • [116] Ibid, para. 156.