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In a decision written in Sisvel International SA v. Haier Germany GmbH, Germany’s highest court – the Senate Cartel of the German Federal Justice Court (“FCJ”) – stated that, during
pre-suit negotiations, before the patent expires, the executor of the essential-standard patent (“SEP”) must clearly and expressly state their willingness to complete the licensing agreement on fair, reasonable and non-discriminatory terms (“FRAND”). If not, the FCJ believes, the implementers may not be able to hold accountable SEP holders in Europe for anti-competitive behavior. The court also provides guidance on the obligations of SEP holders to avoid misuse of dominance fees, including in the context of filing requests for licensing of SEP portfolios worldwide. Ultimately, this decision provides important guidance for alleged perpetrators and violators of the steps needed to avoid abuse of allegations of dominance and to request the right to FRAND license in Germany.
Sisvel, a notoriously aggressive European non-practice entity, first sent Haier a letter of infringement notification in 2012, which identified hundreds of patents as important to the GSM standard (and, thus, in passing, SEP). Haier initially remained silent in response to Sisvel’s notice, but finally signaled “hope” to enter into formal negotiations, and then a willingness to enter a license with FRAND requirements if (but only if) the court found against Haier. In 2014, Sisvel sued Haier for patent infringement in Germany, requesting (inter alia) orders and destruction of infringed products. In response, Haier filed a defense of compulsory licenses under the EU antitrust laws (Article 102, Treaty on European Union Functions (“TFEU”)). After further proceedings, in 2015, a regional court ordered the defendant’s offense and rejected Haier’s anti-trust defense. On an antitrust dispute appeal, the appeals court concluded in 2017 that Sisvel’s lawsuit was an abuse of a dominant position because Sisvel only offered a discriminatory rate (not the FRAND level), although Haier expressed willingness to take a license for Sisvel’s SEPT. Sisvel appealed, and the FCJ overturned the decision of the appeals court. Sisvel won, with the court concluding that Sisvel was not involved in anticompetitive behavior by, inter alia, seeking the destruction of certain infringing Haier products.
Federal Court Decision
While the FCJ decision touches on a number of points, perhaps the most informative regarding the question of how the negotiating parties must proceed in the FRAND context without violating (or, if the violator is suspected, threatens the claim below) Article 102 of the TFEU.
As a preliminary matter, the Court affirmed Sisvel’s ownership of a dominant position, on the basis that non-standard phones that practiced Sisvel’s patents would not be competitive in the market. The court reasoned that simple patent ownership, even the SEP, was not enough to show market dominance, and that the deciding factor was the economic power granted by certain patents in relation to the related market as a whole. The court explained that the delay in implementing negotiations until after the end of the SEP would remove this dominance. However, the Court concluded, the limits on the ability of SEP owners to seek compensation – such as FRAND obligations or tactics of delay by implementers – depend on whether the behavior of SEP owners is rude, not on whether SEP owners occupy a dominant market position.
After finding Sisvel’s SEPS to occupy a dominant position, the Court continued to overturn the appeal court’s conclusion that Sisvel’s behavior was an abuse of that position. Specifically, the FCJ explained that the FRAND obligation only requires that SEP owners offer implementers
chance to agree to the FRAND requirements, and therefore there is no antitrust obligation in which the executor refuses to agree to take the FRAND license.
The court applied this reason for the behavior of SEP owners and implementers during the negotiations as follows:
According to the Court, where the executor is not aware that he is practicing SEP, the owner of the SEP has an initial obligation to notify the implementer of the patent being violated and the act of infringement (for example, certain technological standards and embodiments). The FCJ notes that graphs of claims, although often adequate, are not mandatory. Importantly, if the SEP holder demands that implementers take portfolio licenses or worldwide licenses for SEP, notification must be addressed to the entire portfolio.
After the SEP holder makes this initial notification, the Court concludes that the SEP owner may have no further obligations unless and until the implementer clearly and expressly states his willingness to finalize the licensing agreement on the FRAND requirements. Here, the FCJ refuses because it does not have a conditional willingness to enter a license under FRAND provisions. In particular, the Court observed that a statement that “we hope to have formal negotiations with you” is not enough. Instead, the Court concluded that “honest” negotiating partners were expected to increase and discuss any uncertainty regarding the validity or infringement of patents offered for licenses. The FCJ further indicates that SEP owners can also be exempt from further obligations if the implementer fails to participate in the next negotiation in a goal-oriented manner. In particular, the FCJ also expressed his view that the alleged offender remained silent “for several months” after the notification of the violation generally indicated that he was not interested in getting a license under FRAND provisions.
Focusing on the owner of the SEP, in the event that the implementer clearly and expressly agrees to enter the FRAND license, the SEP owner must then make sufficient efforts to enable the executor to enter the licensing agreement under FRAND. Although the Court noted that the efforts considered sufficiently depended on the circumstances, the Court gave a number of examples of explanations. Especially:
- If the executor unconditionally offers to conclude the license agreement on condition that the owner of the SEP cannot refuse without violating his FRAND obligations, the owner of the SEP cannot ignore or reject the offer and request the order.
- If the implementer states the intention to take a license for the SEP, but cannot easily formulate the FRAND terms themselves, the SEP owner may have an obligation to engage with violators who are accused of negotiating these terms.
- The SEP owner must also prove the license claim in detail to allow the alleged offender to verify that the conditions are FRAND. In this case, the Court notes that this obligation is very important for portfolio licenses and for licenses for users with products for geographically limited territories. (The FCJ suggests, however, that obligations may not be demanded, noting that the patent owner must inform the alleged infringer that, by applying the technical solutions required by the standard, he is illegally using the teaching of the patent. Accordingly.) The FCJ also notes that the FRAND provisions do not needs to be uniform, and can vary depending on the circumstances of a particular licensee without violating European law, as long as the owner of the SEP has an objective justification. As an example of such justification, the FCJ points to pressure from foreign authorities.
Importance and Implications
Along with the decision expected from the British Supreme Court in England Unwanted planet and Good case, which is
Sisvel the decision of the FCJ is one of several important decisions currently or expected that will likely shape the FRAND Europe doctrine for the foreseeable future, and can have implications in the United States and elsewhere as well. That Sisvel
this decision is very important because it shows that SEP holders and implementers, especially those present in Germany, may have to take certain steps at certain times during licensing negotiations to maintain all rights to FRAND requirements and avoid violating European antitrust laws. . While much remains for future litigation, the decision makes at least the following clear about SEP litigation in Germany:
- SEP holders can request SEP portfolios or licenses worldwide without having to abuse their market dominance.
- To avoid anti-competitive behavior, SEP holders who seek licenses must provide adequate notice to implementers that implementers violate certain SEPs or portfolios. The notice notifies the offender who is alleged that, by applying the technical solutions required by the standard, he is illegally using appropriate patent teaching.
- After receiving notification, in order to retain the rights to the FRAND requirements and the ability to increase the defense of Article 102, an implementer must clearly and expressly indicate a willingness to take a license on the FRAND requirements to be considered a “willing licensee.” The executive must not delay in responding, because the unreasonable delay itself can indicate such lack of willpower.
We can expect the FCJ general guidelines to translate into actual guiding guidelines in future litigation.
Originally published July 23, 2020
The contents of this article are intended to provide general guidance on this issue. Specialist advice should be sought about your particular situation.
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