For years, the so-called Orange Book case law of the German Federal Court of Justice (FCJ) shaped European case law and provided a reliable framework for the enforcement of standard essential patents (SEP).
When the Regional Court (RC) Düsseldorf decided in 2013 to submit a catalogue of questions to the CJEU for a preliminary ruling in the patent infringement proceedings between Huawei and ZTE, the Orange Book decision of the FCJ formed the key reference point for the questions.
In summer 2015, the CJEU in Huawei v ZTE redefined the necessary procedure that implementers and dominant SEP holders must complete before the SEP holder can seek injunctive relief and recall from the implementer without abusing its dominant position (see here). Since then, the FCJ has been waiting for a chance to digest the CJEU case.
Although the German courts quickly decided a large number of cases, hardly any infringement dispute reached the highest German court. The high-profile infringement dispute between Unwired Planet and Huawei settled before the FCJ could decide a further appeal, and in the infringement dispute between Sisvel and Haier it long looked as if the validity of the two patents in suit would thwart an FCJ decision. Yet, the dispute between Sisvel and Haier shaped the post-Huawei/ZTE era like no other.
Background on the dispute between Sisvel and Haier
The first instance decision of the RC Düsseldorf was issued on 3 November 2015 [judgment in German here] and marked the beginning of an ongoing and highly complex process. The RC ruled against Haier on the grounds that the company had not issued its counteroffer quickly enough, and that the necessary security deposit and accounting had not been provided in due time.
It came as a surprise when the Higher Regional Court (HRC) Düsseldorf suspended the enforcement of the first instance judgment regarding the injunction and the motions for recall and destruction in January 2016 [judgment in German here] and, after a summary review, determined that the mutual obligations of the CJEU should be examined consecutively.
The counteroffer of the implementer willing to license was not decisive as long as the SEP holder had not made a FRAND offer and had explained it sufficiently. During the main proceedings, the HRC issued detailed instructions to the parties in November 2016 [judgment in German here] in order to bring focus to the dispute and to specify the requirements for a FRAND offer from the perspective of the Senate.
HRC Düsseldorf gave its decision in March 2017 [translated judgment here]. The court’s decision dealt with the burden of proof and presentation of the parties in the context of the FRAND defence and explained which points must be observed so that a licence offer can be considered non-discriminatory compared to the existing licences.
Against this background, the Senate concluded that Sisvel had discriminated against Haier in comparison to a comparable licensor without objective justification and had thus violated its FRAND undertaking. The HRC dismissed the motions for injunction, recall and destruction (to the extent that they had not ceased to exist because the patent in suit expired). Because of the fundamental importance of the matter, the Senate allowed the further appeal to the FCJ.
After an unsuccessful attempt by Sisvel to obtain a preliminary injunction against Haier in the summer of 2017 [translated judgment here], the case received little public interest for some time. Only after the newly appointed X. Civil Senate of the FCJ confirmed the validity of EP 885 on 10 March 2020, the way was cleared for a prompt decision by the FCJ's antitrust Senate – which was also newly appointed.
On 5 May 2020, the antitrust Senate held the oral hearing and on the same day reversed the appeal decision of the HRC Düsseldorf. The Senate rejected Haier's FRAND defence in its entirety.
Analysing the FCJ’s decision
The reports from the oral hearing on 5 May 2020 already suggested that the FCJ will base its decision against Haier primarily on the fact that the group only declared its willingness to license with a delay, if at all, i.e. it did not fulfill the second obligation of the CJEU steps or did so too late. The reasons for the decision, which is now publicly available [translated here] confirm this impression.
1. Incorporation of the CJEU case law into German case law
As was already the case after the earlier Orange Book case law, the FCJ affirms that even the patent holder with market power does not have to force anyone into taking of a licence. Rather, it was abusive if the SEP holder asserted claims for injunction, recall and destruction in court, even though the licence seeker has made the SEP holder an offer (see para. 71) which the latter may not refuse without violating his FRAND undertaking.
Accordingly, the FCJ seems to continue to focus its assessment on the offer of the licence seeker. Thus, the first three steps pursuant to Huawei/ZTE, (i.e. infringement notification, licensing request and FRAND offer of the SEP holder) are merely preparatory steps which should enable the licence seeker to make an offer or counteroffer. This can be inferred in particular from the wording that an allegation of abuse could arise from the preceding steps if the SEP holder had not "made sufficient efforts" to "enable an infringer who is in principle willing to license to conclude a licence agreement on reasonable terms" (see para. 72).
The SEP holder's obligation to provide information was merely intended to make it easier for the implementer to submit an offer (para. 83). Since appropriate conditions for a contractual relationship could not be objectively established on a regular basis but could only be determined as the result of (possibly similar) negotiated market processes, the serious and focused involvement of the company seeking a licence in the negotiation of appropriate contractual conditions was of decisive importance (para. 81).
Therefore, it seems the FCJ does not want to deviate significantly from its Orange Book approach and merely uses the CJEU's guidelines to check whether the SEP holder would exceptionally have been obliged to support the licence seeker (see also para. 75).
a) Infringement notification requirements
The FCJ sees the infringement notification as a mere formality in order to make the implementer aware of the patent in suit in case it was not aware. The court maintains that the implementer must in principle ascertain which technical property rights of third parties are used before manufacturing and distributing a standardized product (para. 74). If the company fails to do so, it culpably encroaches on the scope of protection of the patent and is liable for damages (para. 109).
Consequently, according to the understanding of the FCJ, the notice of infringement serves another purpose, namely to "give the infringer the opportunity to assert his claim to conclude a license agreement on reasonable terms and thus to avert the enforcement of the patentee's right to injunctive relief" (para. 74). For this purpose, it is sufficient for the SEP proprietor to identify the patent and to indicate the infringing act and the attacked embodiments to the parent company without detailed technical or legal explanation of the infringement allegation (see para. 85 and para. 89). Even the submission of claim charts is not mandatory, but it is useful.
Other portfolio patents may also be included in the negotiations, provided that the licensee is not obliged to pay for the use of non-standard essential patents and that the remuneration is calculated in such a way that users who wish to develop a product for a specific, geographically limited area are not disadvantaged (para. 78).
b) Licence request requirements
The implementer must respond to the infringement notification within a short period of time and if necessary with professional support (para. 85 and para. 87). The appropriate period of time depends on the individual case (para. 79), whereas an infringer who does not respond to the notice of infringement for several months regularly indicates that he is not interested in obtaining a licence (para. 92).
In terms of content, the implementer must declare "clearly and unambiguously" and unconditionally that he is prepared to take a licence (paras. 95 and 96). In the view of the FCJ, Haier's statements did not meet this requirement and only then would Sisvel have been obliged to explain its licence offer (paras. 94 to 99).
2. Little more generalisable statements
The FCJ‘s decision contains hardly any further generalisable statements on the problems which the parties encounter in practice when licensing and enforcing SEPs.
The FCJ left the detailed explanation of the HRC on discriminatory licence terms largely open but clarified that terms which were concluded under administrative pressure are not benchmark terms (para. 101).
The future of FRAND
Now that the requirements for a serious licensing request have been clarified by the FCJ, only few licence seekers are likely to pursue a similar defence approach as Haier in the future and will instead make clear, unconditional licensing requests.
Admittedly, the FCJ will expect more than just lip service from an implementer who is actually willing to license. However, the Senate left open how and to what extent the licence seeker must cooperate in future so that the SEP holder can meet his secondary disclosure obligations, in particular the obligation to explain the FRAND offer.
The question of what the licence seeker must do in order to be considered ‘willing to license’ is likely to become relevant, as well as what the seeker must do in order to remain ‘willing to license’.
As long as this “test of conduct" is to be applied without the FCJ's guidance, the courts are likely to essentially maintain their respective previous interpretation of the CJEU case law or ask the CJEU for clarification. This means that European, or at least domestic German, case law would (to the detriment of all companies seeking legal certainty) remain inconsistent for an unforeseeable period.
Instead of attempting to issue a quick decision in this dispute, the antitrust Senate could have overturned the appeal judgment and referred the case back to the HRC Düsseldorf to establish further facts. This applies all the more in view of the fact that the patent in suit had already lapsed and the matter was therefore unlikely to have been of tremendous significance any longer for the companies involved.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, any other of its practitioners, its clients, or any of its or their respective affiliates. This article is for general information purposes only and is not intended to be and should not be taken as legal advice. Please contact the author(s) if you have any questions about this article.
About the author
Jonas Block is Head of AI Development at IPwe Inc, a company leveraging the power of AI and blockchain to facilitate transactions in the patent ecosystem. Prior to joining IPwe in July 2020, Block worked as a patent litigator in a German boutique firm, where he focused on cross-border assertion of standard essential patent (SEP). In autumn 2019, he submitted his PhD thesis on SEP valuation and licensing at low transaction costs using exponential technologies. Block was featured in the 2019 edition of Managing IP’s Rising Stars publication.