The EU’s Unified Patent Court (UPC) has delivered its first judgment in a fair, reasonable, and nondiscriminatory (FRAND) case. On November 22, the court’s Mannheim Local Division (Mannheim LD) issued an infringement ruling and imposed an injunction in litigation filed by standard essential patent (SEP) owner Panasonic against implementer Oppo. The decision confirms that the UPC has jurisdiction over FRAND counterclaims and takes a deep dive into the proper application of Huawei v. ZTE, the seminal 2015 decision from the Court of Justice of the European Union (CJEU) that laid out guidelines for SEP licensing negotiations. On multiple key points, the Mannheim LD diverged from positions taken by the European Commission, which in April pushed for a more rigid application of Huawei in an amicus brief filed in an unrelated German national court appeal.

The Mannheim LD case, which asserts a single European patent (EP 2 568 724) against certain 4G-capable Oppo smartphones and smartwatches, is part of a broader set of lawsuits filed by Panasonic against Oppo in multiple different venues, reportedly including five other UPC suits (two more in Mannheim and three in the Munich Local Division), plus four more actions filed in German national courts, at least one Chinese lawsuit, and a rate-setting case filed in the UK High Court. In the Mannheim LD suit, the defendant filed a counterclaim asking the UPC to either order Panasonic to accept a certain Oppo licensing offer or otherwise determine a FRAND rate and a corresponding lump sum, as well as seeking a declaration that the patent owner had abused its dominant position as a SEP owner. As to the scope of a potential FRAND license, Oppo initially argued that the FRAND rate set by the UPC should apply to Europe as well as the US and Japan, with a Chinese court to decide the FRAND rate for the rest of the world. Panasonic contended that the FRAND rate should be worldwide.

As recounted in the Mannheim LD’s November 22 decision (reviewed here, and quoted throughout, based on a machine translation from the original German), the parties also disputed their respective willfulness, as well as the proper application of the steps for determining willfulness under Huawei. Oppo contended in part that Panasonic had not acted as a willing licensor because it had not provided a sufficient notice of infringement, also arguing, consistent with the European Commission’s amicus brief, that the patent owner’s willingness to offer a FRAND license must be a formal step at the start of negotiations, rather than willingness being assessed based on later offers and counteroffers. As a result, the defendant alleged, Panasonic had acted abusively by not providing a written FRAND offer until the “statement of defence”, which under the Commission’s (and Oppo’s) view “could not be made up for in the ongoing infringement proceedings”. Relatedly, the defendant argued that until that point, the patent owner had not met its FRAND obligation to provide evidence of other settlements or licenses.

Panasonic, for its part, argued that its offers had been FRAND. It also asserted that Oppo could not invoke a FRAND defense because it had not behaved as a willing licensee, alleging in part that the defendant “never clearly declared [its] willingness to license, nor provided information or security”; that it had not sufficiently engaged during negotiations; and that it had “deliberately delayed” during the exchange of evidence on infringement, only declaring a desire to negotiate after Panasonic had sent claim charts. With respect to Panasonic’s initial offer, the patent owner countered that under EU law, it is not obligated to justify that offer’s FRAND compliance, in particular by providing evidence of settlements or license agreements. Moreover, Panasonic argued that the initial offer does not have to be a ready-to-sign license as long as it includes “economically central points” that can form the basis of further negotiations,

The November 22 decision by the Mannheim LD addressed these issues and also provided an extensive analysis of the technical aspects of the case, including the patents’ subject matter—the court in part construing certain claim language and denying Oppo’s revocation claim based on its understanding of the patent. In particular, the court declined to accept its arguments that the patent is invalid for being inadmissibly extended (i.e., claiming subject matter that extends beyond the application), lack of novelty, and lack of an inventive step (i.e., lack of obviousness). The court additionally ruled that the accused 4G-capable smartphones and smartwatches directly and indirectly infringed the patent-in-suit, again in extensive detail.

The Mannheim LD then held that an injunction is warranted in this case, ordering the removal and destruction of the infringing products and awarding €250K in provisional damages.

Notably, with respect to the propriety of SEP injunctions, the court declined to follow the UK Court of Appeal’s view that SEPs are merely a “means for allocating monetary assets” (as translated by Professor Tom Cotter of the University of Minnesota Law School), or a means for enforcing license claims—ruling instead that under EU caselaw, the holder of a SEP may enforce that patent’s exclusionary right. (Professor Peter Picht of the University of Zurich has characterized this as establishing that SEPs are not “‘second-class’ patents but fully enforceable via injunctions”.)

The court then proceeded to lay out its view of the proper application of Huawei, beginning with the initial step that the patent owner must provide notice of infringement prior to seeking injunctive relief. Noting that national courts have found claim charts to be sufficient, the Mannheim LD rejected the European Commission’s view that such references must be provided in the notice’s cover letter as a “formalistic understanding” that “cannot be accepted”. To the contrary, the court held that Huawei does not establish “strict formal requirements” for the form of the initial notice and allows national courts to make case-by-case determinations, for “good reason”—explaining that applying this requirement where numerous SEPs are asserted could “lead to confusion than the desired transparency”. In this case, the Mannheim LD found it was sufficient that Panasonic provided claim charts to a broader Chinese patent that referred to the patent here in suit, faulting Oppo for not raising the sufficiency of the notice until later.

The Mannheim LD next addressed the second step of Huawei, under which the accused infringer must then express a willingness to accept a license on FRAND terms before the filing of litigation. Here, the court rejected the Commission’s view that this step must be assessed solely based on the contents of the implementers’ willingness declaration but not on its later conduct. Rather, the Mannheim LD held that this step also requires consideration of the implementer’s subsequent behavior during negotiations, as the German Federal Court of Justice established in its 2020 decision in Sisvel v. Haier I. That said, the Mannheim LD agreed with the Commission that the implementer’s counteroffers should not be assessed without first considering the patent owner’s offer, based on more than just a cursory analysis.

This contextual assessment, the court explained, reflects the “reciprocal obligations” that underpin SEP negotiations under Huawei, wherein the parties must offer sufficient information to one another—holding that the implementer has an obligation to provide sufficient information to the patent owner, for instance with respect to the extent of infringement and economic conditions like sales prices, for the patent owner to be able to make “an offer tailored to [the implementer’s] circumstances”. The Mannheim LD found that Oppo had not met its obligation here by declining to provide information on its actual acts of use and instead referring the patent owner to data from third-party business data provider IDC, all the while “drag[ging] out the negotiations”.

Applying these standards to the present case, the Mannheim LD then addressed the proper application of Huawei’s third step, the patent owner’s offer. Here, the court noted that the patent owner presented the “economic cornerstones of an offer” over Zoom, laying out certain prices and stating why it believed those prices to be reasonable. While the defendant argued that this could not serve as the initial offer because a written contract is required, the court again found this position to be too “formalistic”—determining instead that under the applicable standard, concerning what a party interested in successfully concluding a mutually beneficial negotiation would do at this stage, it is not the custom to present a ready-to-sign agreement. Rather, the Mannheim LD held that it is “sufficient” if the patent owner’s offer provides the “essential economic conditions of a proposed license agreement” so that if needed the implementer may respond with a different counteroffer. Panasonic’s initial offer met this standard and was thus FRAND at that stage, the court concluded.

The Mannheim LD additionally ruled that the fact that the patent owner later made a concession from its original offer did not render that more recent offer non-FRAND under the circumstances. This was because FRAND is a “corridor”, the court held, wherein there is not just one FRAND rate but a range of terms that would be FRAND-compliant. Significantly, the court ruled that the patent owner is not obligated to submit the cheapest offer possible within that range.

In contrast, the Mannheim LD found that the defendant’s counteroffer (as considered at Huawei step four) had not been FRAND-compliant. While there have been significant redactions from this portion of the opinion, the court indicates in the publicly available language that Oppo had not acted in good faith, including by not giving sufficient information to Panasonic after the rejection of its counteroffer and by providing an “insufficient” security. Additionally, the court faulted Oppo for certain “self-contradictory conduct”. For instance, after challenging the UPC’s jurisdiction “in general”, the defendant then sought a FRAND determination, only then deciding not to pursue its jurisdictional objection on the “firm advice” of the panel of judges. Moreover, the court noted that after arguing that a FRAND rate would be global, Oppo then asked the court to issue a territorially limited license covering the EU, US, and Japan, though the defendant did revise its counterclaim so that its “main application” sought a global lump-sum royalty payment. The Mannheim LD expressed concerns that initiating FRAND proceedings covering certain sub-regions before various courts would bring the “risk of contradictory decisions”.

The Mannheim LD then turned to Oppo’s FRAND counterclaim seeking the determination of a FRAND license, holding that the UPC does in fact have the jurisdiction to do so. This is the case even though the defendant’s FRAND defense here is based in EU antitrust law, the court held in part, under the “generally recognised legal principle of good faith, that, for reasons of antitrust law, there is a corresponding entitlement to benefits that can be invoked against the exercise of patent powers”.

However, the court found that the defendant’s FRAND counterclaim here was unfounded, based in large part on the fact that its offer had been based on IDC data instead of being based on its own acts of use as well as the aforementioned issue with its regionally limited FRAND determination request.

The procedural posture of this decision is also notable, in that it issued after the parties had advised the Mannheim LD in October that they had reached a settlement agreement in principle. However, an order released on November 23 (the day after the court issued its injunction decision) denied an opposed motion to stay from Oppo filed November 21, indicating that the parties had in fact not finalized an agreement—and that the timing of the request for a stay factored into the court’s denial: The Mannheim LD criticized the defendant for leaving the “court in the dark, as it were, ‘until the last second’ as to whether a decision should be made or not”.

Additional background on the leadup to the FRAND ruling in this case, including the oral hearing and further details on the European Commission’s amicus brief, is available at  “UPC Holds Its First FRAND Hearing” (October 2024).