Huawei v Netgear, Unified Patent Court - Munich Local Division

A.      Facts

The Claimant, Huawei Technologies Co., Ltd (Huawei), owns European Patent EP 3 611 989, relating to methods and apparatus for transmitting information from a wireless local network (patent in suit).[1] The patent in suit has been declared as (potentially) essential to the Wi-Fi 6 standard towards the standard-development organization Institute of Electrical and Electronics Engineers (IEEE). Huawei submitted a Letter of Assurance to IEEE, committing to make licences to the patent in suit available on fair, reasonable and non-discriminatory (FRAND) terms and conditions (IEEE LoA).[2]

The Defendants are Netgear Inc., a US-based company that manufactures and sells network products, along with its German and Irish subsidiaries (Netgear). Huawei claims that Netgear offers access points that directly or indirectly use the device claims of the patent in suit.

Huawei made an offer for a bilateral licence to Netgear and improved its offer twice. In addition, Huawei indicated the availability of a pool licence covering its patent portfolio. Netgear made a counteroffer which Huawei rejected.

On 1 June 2023, Huawei filed an infringement action against Netgear before the Munich Local Division of the Unified Patent Court (UPC; Court).[3] Netgear filed a counterclaim for revocation of the patent-in-suit.

With the present ruling, the Court found predominantly in favour of Huawei and dismissed Netgear’s counterclaim for revocation.[4] Among other relief, the Court granted an injunction ordering Netgear to cease and desist from selling infringing products in Belgium, Germany, Italy, Finland, France, and Sweden.[5]

B.      Court’s reasoning

The Court found that the patent in suit is infringed.[6] Besides the counterclaim for revocation, the Court dismissed for the most part Netgear’s defences against the claims asserted.

Firstly, Netgear contested the Court’s jurisdiction, arguing that Huawei did not validly withdraw an ‘opt-out’ previously declared, by which the patent in suit had been exempted from the jurisdiction of the UPC. Secondly, Netgear invoked that the IEEE LoA barred Huawei from enforcing the patent in suit. Additionally, Netgear submitted that a contractual arrangement between Huawei and Qualcomm led to the exhaustion of rights arising from the patent in suit with respect to part of its products sold in a specific timeframe. Netgear raised also a so-called ‘FRAND defence’, claiming that Huawei both failed to comply with conduct duties under competition law and breached contractual obligations under the IEEE LoA.

Valid withdrawal of Opt-Out

The Court held that Huawei had validly withdrawn the ‘opt-out’ concerning the patent in suit.[7]

Huawei declared the respective ‘opt-out’ on 14 May 2023. On 24 May 2023, Huawei made a withdrawal request through the respective workflow in the Court’s Case Management System (CMS).[8] Netgear argued that Huawei could not base the infringement action on the patent in suit, as the request to withdraw the ‘opt-out’ was not valid: Huawei had not used a specific form, which requires repeating the patent owner’s details for each country for which the patent affected was granted.[9]

The Court held that the withdrawal from the ‘opt-out’ was valid, since it was done through the CMS workflow that is the only option available online for this purpose.[10] The specific form referred to by Netgear was considered to be just a ‘template to support’ the parties and not a mandatory form in terms of Rule 4.1 UPC Rules of Procedure.[11] Considering further that the form mentioned by Netgear would not contain any additional information than those submitted by Huawei through the CMS workflow (as all relevant patents here are owned by the same entity), the Court noted that holding the withdrawal invalid due to the lack of a ‘mindless repetition’ of identical data would be contrary to the requirements of a ‘proportionate, fair and equitable procedure.’[12]

No enforcement prohibition arising from IEEE LoA

The Court disagreed with Netgear’s contention that the IEEE LoA barred Huawei from filing the action at hand (particularly from seeking injunctive relief).[13]

In support of its argument, Netgear referred to the IEEE revised Bylaws in force from 2015 onwards which include a prohibition on legal action (2015 IEEE Bylaws).[14] Through the course of the trial, it was, however, shown that Huawei refused to submit an LoA with reference to the 2015 IEEE Bylaws, but made the IEEE LoA under the (preceding) 2007 IEEE Bylaws, which undisputedly did not contain an enforcement ban.[15]

The Court found that restrictions introduced by the 2015 IEEE Bylaws do not apply to Huawei’s IEEE LoA.​[16] The opposite cannot be derived neither from Section 8 nor another provision of the IEEE Bylaws.[17] What is more, Netgear did not plead that the law governing the IEEE LoA (i.e., the contract law of the State of New York) establishes a respective mechanism in case of a revision of the IEEE Bylaws.[18]

Exhaustion

The Court upheld the exhaustion defence raised by Netgear with respect to products with Qualcomm modems that were demonstrably first placed on the market of the European Union (EU) during a specific period.[19]

Netgear asserted that for the respective timeframe Huawei’s patent rights were exhausted for products with Qualcomm modems sold in the EU, due to a contractual arrangement between the latter and Huawei.[20]

In the view of the Court, the requirements under Article 29 of the Agreement on a Unified Patent Court (UPCA)[21] were met.[22] Huawei did not put forward legitimate reasons in terms of Article 29 UPCA, justifying an exception.[23]

Furthermore, the Court explained that in the present case the principle of ‘procedural economy’ required to address exhaustion issues in the pending infringement trial - and not in the subsequent enforcement proceedings.[24] Generally, when exhaustion impacts not all but only a part of the attacked embodiments, then the question of whether to deal with respective arguments in the infringement proceedings shall be answered on a case-by-case basis.[25] The Court held that clarifying the issues related to exhaustion in the infringement trial would facilitate subsequent proceedings between the parties, if not make such proceedings obsolete.[26]

FRAND defence

Netgear’s FRAND defence was based, on the one hand, on EU competition law and, on the other hand, on contract law (i.e., Huawei’s contractual commitments under the IEEE LoA).

The Court dismissed the FRAND defence on both counts.[27]

FRAND defence under competition law

In brief, Netgear argued that by filing the lawsuit, Huawei abused a market dominant position in violation of Article 102 of the Treaty on the Functioning of the EU (TFEU)[28].

Before examining the merits, the Court highlighted that the UPC applies EU law as the primary source of law.[29] The UPC may refer questions related to the interpretation of EU law to the Court of Justice of the EU (CJEU).[30] The Court saw, however, no (urgent) reason to refer the present case to the CJEU.[31]

The Amicus Curiae brief filed by the European Commission (EC) on 15 April 2024 in other proceedings pending before the Munich Higher Regional Court, specifically encouraging a referral of certain questions to the CJEU regarding the conduct duties of parties in licensing negotiations (EC Amicus Curiae brief), did not change the Court’s opinion.[32] The EC Amicus Curiae brief was introduced and discussed in the trial. The Court noted, however, that the views of the EC are not binding for courts and highlighted that the case at hand only involves questions specific to the individual circumstances, which can be resolved by applying the ‘balanced principles’ developed by the CJEU in the Huawei v ZTE decision[33] (Huawei v ZTE).[34]

Huawei v ZTE negotiation programme

In Huawei v ZTE, the CJEU established a ‘negotiation programme’ binding on national courts in the EU, which have ever since continuously applied and fleshed out this ‘programme’.[35] In this landmark decision, the CJEU imposed mutual conduct obligations on parties in the context of licensing negotiations.[36] The CJEU confirmed that the enforcement of exclusionary rights in case of infringement does not per se constitute an abuse of market dominance, even with respect to a market dominant undertaking – unless exceptionally an abusive conduct within the meaning of Article 102 TFEU is given.[37] The CJEU stressed the need to take the protection of Intellectual Property Rights (IPR) as guaranteed by the EU IPR Enforcement Directive into account, which establishes a number of remedies securing a high degree of IPR protection in line with Article 17 (2) and 47 of the EU Charter of Fundamental Rights.[38]​

Furthermore, the Court opined that the CJEU’s ‘negotiation programme’ does not focus exclusively on the determination of licensing conditions,​ disregarding parties’ mutual conduct in negotiations.[39]​ According to the Court, a ‘purely economic determination of amount of licensing fees’ – without considering parties’ conduct – violates mandatory EU law.[40]

No dominant market position

Turning to the merits, the Court found that Netgear did not succeed in proving that Huawei holds a dominant market position.[41] ​On the contrary, Netgear questioned that the standard requirements (and the use of the patent in suit) are mandatory.[42] Assuming accordingly that the standard in question does not set mandatory requirements, the Court concluded that the patent in suit confers no dominant market position to Huawei, even though it is infringed.[43]​

Conduct duties under Huawei v ZTE​

The Court further examined whether the parties complied with the conduct duties laid down in Huawei v ZTE.

Notification of infringement

In the view of the Court, Huawei made a sufficient notification of infringement prior to the launch of the proceedings.[44] Huawei had sent an infringement notice before the filing of the lawsuit and shared claim charts (also) for the patent in suit.[45]

The Court explained that in the infringement notification the patent owner must designate the patent in question and how it has been infringed; providing claim charts is in any case sufficient for this purpose.[46] The Court refused to follow the ‘formalistic understanding’ expressed in the EC Amicus Curiae brief, according to which the notification letter must include all relevant information.[47] Although a mere reference to the patent owner’s website containing general information may not be enough, a notification in the ‘formalistic format’ suggested by the EC can, according to the Court, lead to confusion rather than transparency, especially when a ‘great number’ of patents is involved​​.[48] The Court reminded that for this reason the CJEU refrained from fixing specific formal requirements for the infringement notification in Huawei v ZTE.​[49]

In this context, the Court disagreed with Netgear’s contention that sharing a great number of claim charts is prohibited under competition law.[50] According to the Court, it is ‘inevitable’ to discuss a higher number of technical details in negotiations concerning very large patent portfolios.[51]

Declaration of willingness

The Court ruled that Netgear was not sufficiently willing to obtain a licence from Huawei and that it delayed the negotiations.[52] The particular question of whether Netgear’s ‘licensing request’ was phrased sufficiently was left open, since the Court held that – among other reasons – Netgear’s FRAND defence under competition law failed due to the lack of a security payment (see for more details below).[53]

The Court observed that a declaration of willingness should not be mere ‘lip service’, but ‘seriously meant’.[54] A ‘cliché-ridden verbatim’ repetition of language derived from case-law is not suitable for assessing whether a declaration is ‘seriously meant’; for this, an ‘overall view’ of the parties’ behaviour is always required.[55]

The further conduct of the parties in subsequent negotiations must not be ignored when assessing a FRAND defence.[56] The Court reasoned that both parties must negotiate in good faith towards agreement, respecting ‘business practice’.[57] Their behaviour should sufficiently take into account the goal underlying the CJEU’s ‘negotiation programme’, which is the timely conclusion of a FRAND licence through target-oriented negotiations predominantly on basis of private autonomy.[58]

The Court added that parties’ conduct duties in the different negotiation stages shall be specified on an individual case basis.[59] The implementer must, however, regularly react to patent owner’s offer, expect from ‘extreme circumstances’.[60] Raising objections only in trial is not sufficient.[61]

Whether an offer or a counteroffer is FRAND cannot be assessed in an isolated manner but only based on the specific negotiations and parties’ concrete behaviour.[62] The Court explained that while an implementer cannot make a ‘helpful’ counteroffer if it does not have sufficient information regarding licensing terms potentially agreed with third parties, a patent owner cannot proceed with a ‘helpful’ offer if the infringer wilfully withholds information about acts of use and economic framework conditions, such as sales prices.[63] The Court noted that an infringer cannot demand more transparency from the patent owner than it itself is willing to provide.[64]

Patent owner’s offer

The Court assumed that the offers submitted by Huawei meet the FRAND requirements.[65] The Court noted that FRAND is a range and that Huawei had sufficiently fulfilled its competition law duties under Huawei v ZTE.[66]

Following a licensing request, the patent owner is obliged to make a FRAND licence offer, indicating particularly the licence fee and how it has been calculated.[67] The patent owner is required to explain why its offer meets the FRAND requirements.[68]

The Court found that it is not necessary to present a ‘fully formulated offer’ that is ready for signature.[69] It does not correspond to ‘business practice’ starting negotiations directly with draft contracts ready to be signed, when there is no consensus even on ‘key economic aspects’.[70] According to the Court, it is sufficient that the offer shows the ‘key economic framework conditions’, allowing the implementer to assess the offer (and eventually make a counteroffer). [71] Patent owner’s offer shall be the ‘constructive starting point’ for negotiations.[72]

If the patent owner made several offers, relevant for the assessment of FRAND-conformity is the last offer that is still open for acceptance​.[73] In this respect, the Court disagreed with the view expressed in the EC Amicus Curiae brief, according to which relevant for the FRAND assessment is solely the first offer made by the patent owner.[74] The Court reasoned that an abuse of market dominance is not given, if the first offer is not FRAND-compliant, since the latter is just the starting point of negotiations, in which a FRAND-compliant offer of the patent owner shall be developed.[75]

The Court further elaborated that in case the patent owner made multiple offers that are still capable of acceptance, for instance an offer for a bilateral licence and an offer for a pool licence covering also its portfolio, an infringement action seeking exclusionary remedies cannot be dismissed, when it can be assumed that at least one of these offers meets the requirements under competition law.[76] In the Court’s eyes, competition law only requires from the patent owner to point out a ‘licensing path’ meeting FRAND requirements.[77] Offering a pool licence is sufficient for fulfilling patent owner’s competition law obligations.​[78] What is more, if it can be assumed that the offer for a pool licence is FRAND, then it is irrelevant to examine a parallel bilateral offer under competition law in the context of a FRAND defence raised in infringement proceedings.[79]

Having said that, the Court assumed that the offer for a pool licence available to Netgear was FRAND.[80] The Court noted that Netgear did not deal with the pool licence in its pleadings and just argued that Huawei’s bilateral offer was discriminatory and, thus, the offer for the pool licence ‘could not be better’.[81] The Court held that a potential discrimination in the context of bilateral negotiations has no relevance for pool licensing agreements, given that pool licences have a broader scope (covering significantly more patents from several patent owners) and different rates than bilateral licences.[82]

Implementer’s counteroffer, provision of security and information

As mentioned above, the Court viewed the fact that Netgear did neither provide security nor sufficient information as grounds for dismissing the FRAND defence under competition law.[83] Netgear did not make a security payment until the end of the oral hearing before the Court and did not provide data beyond ‘generally available' figures, although Huawei had rejected its counteroffer.[84]

The Court reasoned that under Huawei v ZTE, an implementer cannot argue that by seeking exclusionary measures before court the patent owner acted abusively in violation of competition law, unless the implementer (i) made a specific counteroffer that meets FRAND terms ‘without delaying tactics’, and (ii) in case its counteroffer was rejected, provided adequate security as well as information about the extent of the use of the patent.[85] ​

​According to the Court, providing security and information is required even when the patent owner’s offer (to which the implementer reacted through a counteroffer) might not have been FRAND.​[86] Consequently, infringement courts shall regularly examine whether the implementer met these requirements, before assessing the FRAND-conformity of patent owner’s offer​.[87] In this regard, the Court disagreed with diverging views expressed by the Mannheim Local Division of the UPC and in the EC Amicus Curiae brief.[88]​

Turning to the security payment, the Court highlighted that the security amount must – at least – correspond with the implementer’s counteroffer​.[89] The question whether the (higher) patent owner’s offer should be the basis for the calculation of the security amount was left unanswered, since Netgear did not provide security at all.​[90] In case that the patent owner made in parallel both an offer for a bilateral licence and an offer for a pool licence, the Court suggested that the security should be placed based on the offer, to which the implementer’s counteroffer refers.[91]

The Court added that along with the security payment, the implementer must make a ‘binding declaration’, ensuring that the patent owner will receive the security amount as payment of licensing fees, should (i) patent owner’s offer prove to be FRAND at the end, and​ (ii) infringement of the patent in suit be confirmed by a final court ruling.​[92]

In case the implementer does not provide security under the above conditions, the Court clarified that the FRAND defence will be dismissed.[93]​ On the other hand, the question of whether providing security can (retroactively) ‘heal’ previous shortcomings in the implementer’s behaviour during licensing negotiations was not decided.[94]

FRAND defence under contract law

In addition to competition law, Netgear based its FRAND defence also on the IEEE LoA made by Huawei. In short, Netgear argued that Huawei violated its contractual obligation under the IEEE LoA to grant Netgear a licence on FRAND terms and should, thus, be denied exclusionary measures.

The Court dismissed Netgear’s FRAND defence pleaded under this (contractual) angle as well.[95]

In the view of the Court, the IEEE LoA forms a contract for the benefit of a third party under the applicable law of the State of New York, granting Netgear a contractual claim to obtain a royalty-bearing licence to standard-essential patent claims on reasonable and non-discriminatory rates and terms.[96]

The Court observed that Netgear’s pleadings suggesting that Huawei breached its contractual duties under the IEEE LoA suffer from an ‘irresolvable argumentative contradiction’.[97] Netgear argued that the relevant standard specifications are not mandatory: Huawei’s contractual duty under the IEEE LoA (and Netgear’s respective contractual claim) refers, however, only to standard-essential patent claims.[98]

On the other hand, the Court noted that Netgear failed to demonstrate that Huawei’s offers were discriminatory.[99] Netgear complained that Huawei’s bilateral offers were discriminatory but did not even plead that the parallel offer for a pool licence did not suffice to discharge Huawei’s duty under the IEEE LoA or that the terms of that pool licence are discriminatory.[100]

Proportionality

Finally, no circumstances were identified which would prevent the Court from exercising its discretionary power to grant permanent injunctive relief.[101]​

The Court highlighted that ‘proportionality aspects’ were comprehensively considered in the context of the FRAND defence raised by Netgear.[102]​ Additional elements that could support withholding an injunction were not sufficiently pleaded.[103] On the contrary, the Court reiterated that Netgear had argued that the standards requirements in question are not mandatory.[104] What is more, Netgear can sign a pool licence at any time.[105]

[1] Huawei v Netgear, Unified Patent Court – Munich Local Division, judgment dated 18 December 2024, Case-No. UPC_CFI_9/2023, page 15 (cited by <<https://www.unified-patent-court.org/en/decisions-and-orders>>).

[2] Ibid, p. 16.

[3] Ibid, p. 20.

[4] Ibid, p. 152.

[5] Ibid, p. 152.

[6] Ibid, pp. 89-116.

[7] Ibid, pp. 23 and 24.

[8] Ibid, pp. 19 et seq.

[9] Ibid, p. 20.

[10] Ibid, pp. 23 and 24.

[11] Ibid, p. 24.

[12] Ibid, p. 24.

[13] Ibid, p. 27.

[14] Ibid, p. 26.

[15] Ibid, p. 26.

[16] Ibid, pp. 27 et seq.

[17] Ibid, pp. 27 et seq.

[18] Ibid, pp. 27 et seq.

[19] Ibid, p. 123.

[20] Ibid, p. 119.

[21] Agreement on a Unified Patent Court, OJ C 175, 20 June 2013.

[22] Huawei v Netgear, Unified Patent Court, judgment dated 18 December 2024, p. 126.

[23] Ibid, p. 126.

[24] Ibid, p. 123.

[25] Ibid, p. 122.

[26] Ibid, p. 123.

[27] Ibid, p. 125.

[28] Treaty on the Functioning of the European Union, OJ C 326, 26 October 2012.

[29] Huawei v Netgear, Unified Patent Court, judgment dated 18 December 2024, p. 125.

[30] Ibid, p. 126.

[31] Ibid, p. 126.

[32] Ibid, p. 127.

[33] Huawei v ZTE, Court of Justice of the European Union, judgement dated 16 July 2015, Case No. C-170/13.

[34] Huawei v Netgear, Unified Patent Court, judgment dated 18 December 2024, p. 126.

[35] Ibid, p. 126.

[36] Ibid, p. 126.

[37] Ibid, p. 127.

[38] Ibid, p. 127.

[39] Ibid, p. 126.

[40] Ibid, p. 128.

[41] Ibid, p. 139.

[42] Ibid, p. 139.

[43] Ibid, p. 140.

[44] Ibid, p. 140.

[45] Ibid, pp. 140 et seq.

[46] Ibid, p. 128.

[47] Ibid, p. 128.

[48] Ibid, pp. 128 et seq.

[49] Ibid, p. 128.

[50] Ibid, p. 141.

[51] Ibid, p. 141.

[52] Ibid, p. 139.

[53] Ibid, p. 141.

[54] Ibid, p. 141.

[55] Ibid, p. 131.

[56] Ibid. p. 131.

[57] Ibid, p. 131.

[58] Ibid, p. 131.

[59] Ibid, p. 131.

[60] Ibid, p. 132.

[61] Ibid, p. 132.

[62] Ibid, pp. 131 et seq.

[63] Ibid, p. 132.

[64] Ibid, p. 132.

[65] Ibid, p. 142.

[66] Ibid, p. 143.

[67] Ibid, p. 132.

[68] Ibid, p. 133.

[69] Ibid, p. 134.

[70] Ibid, p. 134.

[71] Ibid, pp. 134 et seq.

[72] Ibid, p. 134.

[73] Ibid, p. 133.

[74] Ibid, p. 133.

[75] Ibid, p. 133.

[76] Ibid, pp. 133 et seq.

[77] Ibid, p. 134.

[78] Ibid, p. 134.

[79] Ibid, p. 134.

[80] Ibid, p. 143.

[81] Ibid, p. 143.

[82] Ibid, p. 143.

[83] Ibid, p. 142.

[84] Ibid, p. 142.

[85] Ibid, p. 136.

[86] Ibid, p. 137.

[87] Ibid, p. 137.

[88] Ibid, p. 137.

[89] Ibid, p. 137.

[90] Ibid, p. 137.

[91] Ibid, p. 138.

[92] Ibid, pp. 137 et seq.

[93] Ibid, p. 138.

[94] Ibid, p. 138.

[95] Ibid, p. 144.

[96] Ibid, p. 146.

[97] Ibid, p. 146.

[98] Ibid, p. 146.

[99] Ibid, p. 146.

[100] Ibid, p. 146.

[101] Ibid, p. 147.

[102] Ibid, p. 147.

[103] Ibid, pp. 147 et seq.

[104] Ibid, pp. 147 et seq.

[105] Ibid, pp. 147 et seq.