On May 5, 2020, the German Federal Court of Justice (BGH) issued a fundamental and highly anticipated decision on the particularities of enforcing standard essential patents (SEPs) in Germany. It was the first time that the BGH had the opportunity to comment on important practical issues that arose from the Court of Justice of the European Union’s (CJEU) landmark 2015 decision in Huawei v ZTE.
In 2012 IP asset manager Sisvel sued Haier, a Chinese manufacturer of mobile devices, for infringing one of its SEPs (EP 852 885). Sisvel sought an injunction to block mobile phones and tablets, sold by Haier, that were implementing the General Packet Radio Service (GPRS) mobile data standard.
The patent in suit covered a procedure for the setup of data connections in a mobile communications system that was essential for the GPRS standard.
In December 2012, Sisvel informed Haier of the infringement and offered a portfolio licence for all patents that are essential for the GPRS standard. The licence fee offered by Sisvel was higher than a fee it had previously accepted from Chinese electronics manufacturer Hisense, after having been pressured by the Chinese authorities to agree to such reduced royalty rates.
It took Haier about one year to reply to Sisvel, indicating that it would hope to enter into formal negotiations. The parties did, however, not reach a licence agreement.
In 2014 Sisvel initiated an infringement action before the Regional Court of Düsseldorf, seeking the usual remedies, including an injunction. The court granted all claims and found that Haier had not complied with the requirements of Huawei in order to be able to raise the fair, reasonable and non-discriminatory (FRAND) objection.
Haier successfully appealed the decision, convincing the Higher Regional Court of Düsseldorf to reject most of Sisvel’s claims. Unlike the lower court, the Higher Regional Court found that Haier had complied with its Huawei obligations and could successfully raise the FRAND defence.
According to the court, Haier had sufficiently declared its willingness to take a licence. The court also found that the licence fees that Sisvel offered to Haier were not FRAND because Sisvel had previously agreed to lower rates in separate agreements. As Sisvel had not offered FRAND terms, Haier was not required to accept the licence, the court reasoned.
“The BGH found that Sisvel as the owner of an SEP had a dominant position in the market.”
Julia Schönbohm, Linklaters
Reasoning of the BGH
The BGH did not follow the reasoning of the Higher Regional Court of Düsseldorf and reinstated the first instance decision in Sisvel’s favour. The BGH found that the rates to which Sisvel agreed under pressure from the Chinese authorities were not relevant for determining FRAND standards.
The decision is not limited to this aspect. Rather, the BGH used the opportunity to address some other practical issues that are important for SEP enforcement.
Abuse of a dominant position
The BGH found that Sisvel as the owner of an SEP had a dominant position in the market. In case of an SEP infringement, enforcing the usual remedies amounts to an abuse of a dominant position according to the BGH, if:
- The patentee asserts these claims after the infringer has made an unconditional licence offer at conditions which the patentee cannot refuse (which corresponds to the requirements that the BGH had introduced in its 2009 decision Orange Book Standard); or
- The infringer is willing to take a licence, but the patentee did not sufficiently try to enable the infringer to conclude a licence agreement at reasonable conditions (which is in line with the requirements outlined by the CJEU in Huawei).
The BGH confirmed that the patentee must notify the infringer of the infringement if the infringer is not aware of it. In the field of information and telecommunications technology, the BGH found that a notification will usually be necessary since it is very difficult for implementers to identify all relevant patents.
The court also addressed the requirements infringement notices must fulfil. The patentee must name the patent and indicate the specific act of infringement, ie, the type of the infringing act and the infringing embodiment.
“Claim charts” are usually sufficient, according to the BGH, but not required. The patentee can expect the infringer to let him know if the details are not enough.
ursuant to the BGH, it is also possible to send the infringement notice to the parent company of the actual infringer.
- 1982: the year Sisvel was founded
- 1,500+: the number of licence agreements operated by Sisvel
Declaration of willingness to take a licence
The crux of the decision is the assessment of Haier’s willingness to take a licence for the patent in suit. Referring to the English High Court’s 2017 decision in Unwired Planet v Huawei, the BGH ruled that the infringer must clearly and unequivocally declare its willingness to conclude a licence agreement with the patentee on FRAND terms.
Subsequently, it also must participate in the negotiations with the targeted aim of reaching an agreement. The BGH added that willingness to consider entering into a licence agreement or negotiations about such an agreement are not sufficient.
On this basis, the BGH concluded, Haier was not a “willing licensee”. According to the BGH, silence over several months indicates a lack of interest in taking a licence. The court did not address the question of whether a late declaration of the willingness results in substantive foreclosure (materielle Präklusion).
The court found, however, that all of Haier’s statements were substantively insufficient. Haier had insisted on “claim charts” for all patents in Sisvel’s portfolio. The BGH considered this a formal objection with the aim of delaying negotiations.
The BGH decided that portfolio licences are generally possible. According to the BGH, a portfolio licence does not meet the FRAND requirements if the licensee is required to pay for non-essential patterns, or if it must agree to a worldwide licence even though its activities are geographically limited. The court further stressed that it is important that the patentee explains why the licence offered is FRAND.
In this respect, it is not clear who bears the burden of proof that the portfolio licence offered is limited to SEPs. In addition, the BGH did not address the question of whether the German courts are able to decide about worldwide portfolio licences, as is the case in UK courts.
“The BGH is moving in the direction that the UK courts chose following the High Court’s Unwired Planet decision.”
Differing licence fees and damages calculation
The BGH clarified that the patentee is usually not required to grant a “uniform tariff” for the licences it offers but may differentiate depending on the individual circumstances if objectively justified. The court found that pressure by Chinese authorities is a sufficient justification for such differentiation but did not provide any more general guidelines.
Finally, the BGH made clear that the owner of an SEP is entitled to the usual damages. The infringer may have a counterclaim for damages only if he declared his willingness to take a licence and the patentee failed to make an offer at FRAND terms.
Such a counterclaim should place the defendant infringer in the position he would have been in had the patentee fulfilled his FRAND obligations.
A win for patent owners
The decision of the BGH seems to benefit SEP owners more than implementers. The BGH is moving in the direction that the UK courts chose following the High Court’s Unwired Planet decision. The BGH quoted Justice Colin Birss on the willingness of the implementer to take a licence.
Moreover, the BGH and the High Court both accept global portfolio licences. The BGH, however, rightfully emphasises that portfolios in which SEPs are combined with non-SEPs are not FRAND.
The BGH also addressed selected other practical issues, such as the requirements that apply to the infringement notice and the declaration of willingness to take a licence. However, it remains unclear how FRAND royalties will be calculated. The BGH’s finding that governmental pressure justifies a differentiation is important.
Only time will tell what other circumstances will allow a patentee to grant licences at different royalty rates. It will be interesting to see how this approach develops outside Germany.
Another take on this issue could be that pressure from the authorities may indicate that the royalties offered before were too high and therefore not FRAND. Such an approach would be less favourable to the owners of SEPs and therefore likely to attract fewer SEP owners as plaintiffs.
Julia Schönbohm is a partner at Linklaters in Frankfurt. She can be contacted at: firstname.lastname@example.org
Images (from top): Shutterstock.com / simona pilolla 2, DisobeyArt