Germany’s Highest Patent Court Clarifies FRAND Rules

May 25, 2020

The German Federal Court of Justice (Bundesgerichtshof) has issued a long-awaited decision on fair, reasonable, and nondiscriminatory (FRAND) patent licensing, ruling in favor of patent pool administrator Sisvel International S.A. earlier this month in a long-running standard essential patent (SEP) dispute with Haier over mobile devices. The Sisvel v. Haier decision reportedly sets a higher bar for accused infringers hoping to show that their prior licensing behavior had been FRAND-compliant. It is also the first FRAND ruling by Germany’s highest patent court since the Court of Justice of the European Union’s (CJEU’s) 2015 decision in Huawei v. ZTE, which established a framework for injunctive relief in SEP litigation.

Sisvel filed the underlying infringement litigation against Haier in late 2014 following a series of licensing negotiations over two patents (EP 1 264 504, EP 0 852 885) allegedly essential to the UMTS and GPRS cellular networking standards. During the pendency of the litigation, the CJEU issued its decision in Huawei v. ZTE, holding that “SEP holders may not seek injunctions against users willing to enter into a licence on FRAND terms” and addressing how courts may determine whether or not a potential licensee has shown the requisite willingness to do so. The decision also laid out the criteria for a FRAND defense, which arises under antitrust law and is available in part when the SEP-holder has a market-dominant position and the accused infringer has made a FRAND counter-offer, has provided an accounting of past sales, and has provided payment for past royalties (through, for example, a security). To rely on the defense, under Huawei v. ZTE, an alleged infringer must have negotiated in good faith and without undue delay.

The Regional Court of Düsseldorf found that Haier was not entitled to the FRAND defense because it did not submit sales data for the accused devices or provide a bond until just before the oral hearing in September 2015. Finding that Sisvel had complied with its requirements as the SEP holder, the court held that Haier’s conduct constituted improper delay under Huawei v. ZTE, thereby obligating Haier to respond to Sisvel’s offer without delay because it had refused the NPE’s original licensing offer. However, that decision was reversed in March 2017 by the Higher Regional Court of Düsseldorf, which held that Sisvel’s offers had not been FRAND because they were discriminatory against Haier compared to agreements with other licensees—and found that Sisvel had not met its burden of proof to show that there was an objective reason for the highlighted differences. The court declined to reinstate injunctive relief but ordered Haier to pay damages and provide an accounting of specific sales information.

The Federal Court of Justice then announced its ruling on appeal on May 5, the same day that it heard the case. While the decision has not yet been published in written form, media coverage from publications like Juve Patent describe a reversal of the Higher Regional Court’s decision that applied the Huawei v. ZTE factors and largely reinstates the Regional Court’s 2015 judgment. Presiding Judge Peter Meier-Beck reportedly held that under CJEU law, an accused infringer is “obliged to make a concrete licence offer” and “must subsequently demonstrate this through its overall conduct in negotiations with the SEP holder”, as summarized by Juve Patent. Judge Meier-Beck is quoted as explaining, “It is not enough to simply declare your willingness to take a licence. You have to be more specific”, further underscoring that “the potential licensee has to make clear it seeks for a FRAND licence, whatever FRAND means”. To that end, the court purportedly expressed skepticism that Haier had done enough to convey a willingness to take a license.

On the other hand, the court reportedly underscored that under Huawei v. ZTE, a SEP holder may violate its FRAND commitment by declining a FRAND offer from an accused infringer. A SEP holder must also provide an implementer with enough information to evaluate whether the SEP holder’s own offer is FRAND or to make its own FRAND offer, including details on existing licenses and the rationale for treating the accused infringer differently, the court held.

While the court’s full reasoning will not be apparent until the release of its written opinion, the Sisvel v. Haier decision has already been touted as providing some much-needed standardization in this area of FRAND law, as German courts have struggled to uniformly apply the Huawei v. ZTE factors—diverging on the appropriate procedural and substantive requirements for determining FRAND compliance.

Meanwhile, Sisvel continues to litigate other patents allegedly essential to various cellular standards in the US. On May 15, three Sisvel entities launched a new campaign targeting a wide variety of products offering 3G and/or 4G networking, including connected cars from Tesla as well as a host of other products, including wireless adapters, cellular modems, computers, payment terminals, routers, smartphones, and vehicle tracking devices. For more details, see “Sisvel Files Slew of Networking Cases, Many Against Defendants in Suit Since Last Summer” (May 2020).