The two most important FRAND-cases at present in Germany and the United Kingdom

08 September 2020

I. Introduction

Standardised technology is nothing new nor is the tension between the need to comply with a standard in order to operate on a market and the need for a patentee to recoup their R&D and investment costs in developing innovative technologies by way of patent licence fees. Understandably this tension has seen a plethora of cases being brought in various jurisdictions to include the US District Courts, ITC proceedings, the UK Courts, the German Courts, the Chinese Courts, the Indian Courts and complaints being made to various anti-trust bodies. There have been a number of notable cases and developments over the past few years to include the US decision in FTC v Qualcomm, the Guangdong Guidelines, the German decision in Sisvel v Haier and of course the UK decision in Unwired Planet v Huawei & ZTE. This article focuses on the key cases in the UK and Germany.

II. Germany

1. Sisvel v Haier (BGH)

On May 5, 2020, the German Federal Court of Justice (BGH) issued the written judgment in the case of Sisvel v Haier (docket no.: KZR 36/17). It was the first ever "FRAND-decision" of the BGH after the CJEU judgment in Huawei v ZTE (C‑170/13). Both implementers of standardised technologies and proprietors of corresponding patents had eagerly awaited the decision, hoping that the BGH would finally harmonise the diverging case law of the lower courts in line with the standards set in Huawei v ZTE.

In fact, in the written judgment the BGH not only deals with the issues relevant for the holding, but also with additional aspects. In particular, the BGH explains in detail how to assess whether a standard essential patent confers market dominance. Further, the BGH comments on some general questions concerning (FRAND) licensing negotiations, e.g. by confirming that licenses are commonly negotiated as having worldwide and portfolio-wide effect and that a FRAND royalty is not a "uniform tariff" to be offered to all implementers. Notably, the BGH states ‑ with reference to Judge Birss in Unwired Planet v Huawei ‑ that the potential licensee must express clearly and unambiguously that it is willing to take a license on whatever terms are in fact FRAND.

For some, the decision is an important milestone, which in a convincing and legitimate manner aims to put a stop to the delaying tactics of some implementers. Others criticise that the BGH should not have issued the decision in this form without a prior further referral to the CJEU and that the judgment is thus questionable from constitutional perspective. Consequently, Haier took the extremely unusual step of filing a constitutional complaint against the BGH-judgment with the German Federal Constitutional Court.

2. Nokia v Daimler (Regional Courts of Mannheim and Düsseldorf)

Haier's constitutional complaint against the BGH-judgment is not the only unusual event to leave patent(-law) experts somewhat surprised at the moment. In the case of Nokia v Daimler (docket no.: 2 O 34/19), the Regional Court of Mannheim already held a hearing on Mai 19, 2020 during which it reportedly took a rather patentee-friendly view in the connected cars dispute concerning Daimler's alleged infringement of SEPs relating to certain wireless communications standards. However, the case took a surprising turn when the German Federal Cartel Office (FCO) intervened by filing an amicus curiae brief, suggesting that the Regional Court should stay the proceedings in order to refer a number of questions to the CJEU before issuing a final judgment.

The questions revolve around one of the most controversial FRAND-issue so far, namely the right approach to FRAND-licensing within a supply chain. In particular, it is controversial if an SEP-owner is free to choose which company to sue within a supply chain, or if there are or should be any fixed criteria for the decision (and scope of the respective license). This is not a question limited to the case of Nokia v Daimler but of general and significant importance.

On August 18, 2020, the court granted Nokia an injunction despite the FCO's intervention, finding that neither Daimler nor any of the suppliers, who had joined the proceedings to support Daimler, had been genuinely willing to take a license. Therefore, in the court's opinion, the questions addressed by the FCO were, for the most part, not relevant for the holding. However, in parallel proceedings before the Regional Court of Düsseldorf, the judges have indicated that, in contrast to Mannheim, they do intend to refer questions to the CJEU.

II. United Kingdom

1. Unwired Planet v Huawei; Conversant v Huawei & ZTE (UK Supreme Court)

In a long awaited and wide-ranging judgment the Supreme Court of the United Kingdom has confirmed the ability of the UK courts to determine the terms of a global portfolio patent licence in appropriate circumstances, and to grant a 'FRAND injunction' to restrain the activities of any implementer who refuses to enter into a licence with the patentee on FRAND terms. In doing so the Court has firmly rejected any suggestion that SEP owners should not be entitled to injunctive relief for infringement of such patents and should instead be entitled to damages only – an argument which the defendants attempted.

The judgment deals with combined appeals by the defendants in the Unwired Planet v Huawei and the Conversant v Huawei & ZTE cases. It addresses a number of important issues relating to the UK Courts' approach to FRAND cases that provides both implementers and patentees with clarity as to the nature and scope of the detailed evaluation the UK courts will conduct when determining FRAND terms for a portfolio. Two themes are notable throughout the detailed judgment: first is the recognition of the real-world, commercial realities of disclosing patents to ETSI and the nature of FRAND negotiations; and the second is the detailed analysis and consideration of the principles and approaches taken by courts in other jurisdictions such as Germany, the United States and China.

These themes were particularly apparent in the Court's confirmation that UK Courts are able to determine the terms of a global FRAND licence, and that no jurisdiction issues arise because such an exercise does not involve the UK court determining essentiality or validity of foreign patents. The Court was clear in its analysis of the nature of the case before it which is one of infringement/essentiality and validity of UK patents in relation to acts done in the UK for which the appropriate remedies include an injunction. The Court then offers the defendant the option of being enjoined or, mindful of the patentee's undertaking to the standard setting organisation, of taking a licence on FRAND terms to be determined by the Court on the evidence put before it by the patentee and the implementer. Consequently because the case is about UK patents the UK will be the correct forum to determine global FRAND even if there is evidence other courts are capable of performing a similar evaluation (which was not the case on the evidence before the Court on these appeals).

The Supreme Court's judgment also dealt with other issues relevant to the approach to determining whether a FRAND offer has been made. In particular, it held that the approach taken by Mr Justice Birss to assessing a FRAND rate based on a number of comparable licences ensured non-discrimination between licensees "because the FRAND rate is objectively determined based on the value of the portfolio and it does not take into account the characteristics of individual licensees". The Court also confirmed that from a UK perspective the only mandatory condition laid down by the CJEU in the Huawei v ZTE case is to provide the implementer with prior notice and that the patentee remains willing to license the implementer on whatever terms the Court determines to be FRAND. The implementer does not need to have made an offer which matches that which the Court ultimately finds to be FRAND.

As to what happens next, the FRAND injunction that was granted in the Unwired Planet proceedings in June 2017 will now become effective unless Huawei agrees to enter into the form of licence settled by Mr Justice Birss in 2017. One would think that would be the end of the matter although, interestingly, the term of the licence settled by Mr Justice Birss back in 2017 is due to expire on 31 December 2020 and both parties have liberty to apply if terms for a renewal cannot be agreed (the patent found valid and infringed in trial A does not expire until 2028), so it remains to be seen what will happen next. The Conversant case is due to go to a FRAND trial in January 2021 and will see the High Court address issues including the extent to which the UK courts should 'factor in' (if at all) decisions of foreign courts on parts of the global portfolio.

2. Optis v Apple (High Court of England & Wales)

This case promises to address a number of issues, including in relation to the timing of a patentee's FRAND disclosures. Most recently, a trial has been listed for June 2021 to decide whether or not Apple is a willing licensee and is entitled to rely on Optis' FRAND undertaking (as well as certain competition issues relating to the terms under which Optis acquired the patents).

The 'willing licensee' trial is a particularly significant development because if the Court finds that Apple is not entitled to rely on Optis' FRAND undertaking for any reason for example, due to Apple's failure to commit to taking a licence on whatever terms the Court determines to be FRAND) it would mean there would be no need for the FRAND trial that is currently listed for June 2022 to determine FRAND terms. Instead, Apple would simply be enjoined (subject to appeal) if it is found to infringe a valid and essential patent in any of the four technical trials listed to be heard between October 2020 and January 2022, Not only would the time and cost of the FRAND trial be avoided, but it would exert significant commercial pressure on the implementer by depriving them of the option of whether to accept the injunction or take a licence on FRAND terms.

III. Joint comment

In both Germany and the UK, an increasingly patentee-friendly approach seems to be gaining ground in recent case law. The fact that the courts in both countries refer to each other to justify their decisions shows a strong tendency for cross-border harmonisation. This development is not only to be welcomed from a legal perspective, but it also seems necessary in view of the common strategy of SEP-owners to bring parallel actions in both Germany and the UK.

With the Unwired Planet v Huawei decision, the UK-courts are positioned to resolve international FRAND disputes including a determination of global FRAND terms. German courts have so far refrained from determining specific FRAND terms, although they have recognised specifically that global licenses (if in line with the relevant industry practice) are FRAND and have already granted injunctions in a number of FRAND cases. For the time being, whilst such a strategy requires careful coordination, SEP-owners are likely to benefit from pursuing a holistic litigation strategy and combining the strengths of these two jurisdictions, namely the possibility of quick and cost-efficient injunctions in Germany on the one hand, and the possibility of determining global FRAND terms in the UK on the other hand.

While the expected referrals to the CJEU in the context of the Nokia v Daimler dispute leave a certain legal uncertainty for the moment, they could surely pave the way for a much more solid framework for FRAND-licensing and -disputes in the future for patentees and implementers in both Germany and the UK.

This article will be published in the September 2020 edition of the German "Intellectual Property Magazine".


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