Düsseldorf Court of Appeal in SISVEL v Haier publishes "guidebook" to SEP litigation under Huawei/ZTE

The AmeriKat, ever alert, after reading a guide book
about SEP litgiation

"What is going on in Germany?!"  That is often one of the first question the AmeriKat is asked when she returns to the U.S. (sometimes even before the dreaded Brexit question).  It seems for those outside of Germany, even those in Europe, it can be a little bit opaque as to what and how many cases are coursing through the various courts. With an increased emphasis on Europe for many telecoms and standard essential patent (SEP) disputes, with Germany being a first stop, the AmeriKat is increasingly relying on her German friends to keep everyone up to date.

One such friend, Christopher Weber (Kather Augenstein) brings news of a decision of the Higher Regional Court of Düsseldorf (docket no. I-15 U 66/15).  Although dated March 30, 2017 it was only recently published after some heavy redacting by the parties SISVEL and Haier.  Why is it important?  It essentially reads like a guidebook to SEP-litigation under the Huawei/ZTE criteria in Germany. The decision is subject to a further appeal on legal reasons to the German Federal Court of Justice. Nevertheless, Christopher comments, litigators should keep this decision handy, just in case.  He explains further:

"The case

The Claimant holds a patent for a digital mobile communication system which supports the GPRS system. The Claimant declared the patents as essential for the standard and gave ETSI the corresponding FRAND-commitment.

In December 2012 the Claimant informed the holding company of the Defendant about the infringement of the patent and the respective license program "X4 Wireless patent program". After that, the parties negotiated several times about the conclusion of a license agreement. Both parties provided several offers, to which the respective party disagreed each time. Long story short, the whole negotiation process ended without results acceptable to both parties.

The court of first instance (Regional Court of Düsseldorf) approved the claim. The court decided that the patent claim 12 is infringed by the Defendant. Moreover, the defense of the Defendant against the legal action did not convince the judges. The Dependent attempted to use the antitrust objection of compulsory license (Art. 102 TFEU). The Court, however, found that the Claimant did not abuse its dominant position.

Once the judgment was handed down by the regional court, the Defendant filed an application for a temporary stay of enforcement. The court of appeal (Higher Regional Court of Düsseldorf) decided to grant the application on the basis that the court of first instance did not ascertain whether the FRAND-offers of the Claimant to the Defendant were reasonable and non-discriminatory. The Higher Regional Court held that according to the jurisdiction of the Court of Justice of the European Union it is not sufficient to submit any license offer to the potential patent infringer.

During the appeal proceedings the Claimant submitted some of the license agreements which were already concluded on basis of the X4 Wireless patent program.

The decision of the Court of appeal

The Higher Regional Court of Düsseldorf considered the claim as temporarily predominantly substantiated. The Claimant has, in the current state,  no right to claim recall and destruction of the infringing products. The claim for an injunction had lapsed when the patent had meantime expired. Claims for finding liability for damages and respective claims for rendering of accounts were successful, because the FRAND-objection does not stop such claims. However, the Higher Regional Court found that the claim for damages is limited to a FRAND royalty. This in itself is already an important part of the decision.

In its decision, the Higher Regional Court of Düsseldorf determines that the Defendant infringes the patent claim. The embodiment uses the technical invention of the patent.

Second, although the patent claim is infringed by the Defendant, he is not liable for recall and destruction because the antitrust objection of compulsory license is justified. The Claimant abused its dominant market position pursuant to Art. 102 TFEU. The Higher Regional Court of Düsseldorf discussed the case against the background of the CJEU jurisdiction in Huawei/ZTE (which should be known to any Kat friend  - see here).  Per the Court’s decision, the principles of the CJEU are applicable even if the license negotiation between the parties took place previous to the CJEU judgement.

The Claimant fulfilled its obligation to inform the Defendant about the patent infringement. It is sufficient to inform the holding company about the concerned patent (stating the publication number of the patent) and the manner of the infringing act. The information duty of the patent holder does not require any explanation about technical or legal facts. The patent holder must only ensure that the patent infringing party is able to inform himself about the violation with the submitted information.

Once the patent infringer is informed about the violation, he must demonstrate his willingness to conclude a FRAND-license agreement. The patent infringing party has to react in a reasonable period of time after it received the notice of patent infringement because it has to be ensured that the conclusion of a license agreement is not part of a delaying tactic. The reasonable period is to be evaluated for each case separately and will depend on the time that is necessary for the Defendant to inform himself. Thus, a Claimant that only gives very limited information (e.g. “You infringe patent x with product y”) will have to wait for a longer time than a Claimant who gives more detailed information (e.g. “You infringe patent x with product y per the attached claim chart which maps features of the product and the relevant standard to the patent”). In the present case the Court held that a reaction period of three or five month cannot be considered as reasonable. However, if the infringing party does not react in a reasonable time this does not lead into a legal preclusion. The required behavior can at least still be performed until the submission of the lawsuit. Hence, the Higher Regional Court of Düsseldorf found that the Defendant showed his willingness to conclude a license agreement sufficiently. Thus, the court gives some leeway to Claimant and Defendant.

However, in the present case the Court found that the Claimant did not submit an offer in conformity with the FRAND-requirements. None of the offers submitted to the Defendant was non-discriminatory in comparison to license agreements between the Claimant and other licenses on the same patent. FRAND would not mean that each offer has to be similar, but the difference has to be justified in an objective way. If the patent holder did not offer a FRAND-conform license to the infringer, the infringer is not obliged to show his willingness with a counter offer in conformity with the FRAND-principles. The duties established by the ECJ are not independent from each other. This highlights a certain difference to case-law from other jurisdiction: Quite obviously German courts think that the letters "ND" are points that need to be discussed separately from "FR". An offer may be fair and reasonable but still be discriminatory.

In principle, the patent infringer bears the burden of proof for the fact that the license offer was not in conformity with the FRAND principles not only under German procedural rules but also under European Competition law. However, the patentee bears the subsidiary burden of proof ("sekundäre Darlegungslast") about the details of the FRAND-license agreements with third licensees. The reason is that the opponent is generally not able to provide the court with details about such agreements. Therefore, it was reasonable in the opinion of the Court to transfer the burden of proof to the patent holder.

The Court then held that the offer of the Claimant to conclude a FRAND-license agreement discriminates the Defendant in comparison to the relevant license agreements with third parties. The fees are exorbitantly higher. The fact that another licensee received a better deal could not be justified in the present case by arguments such as a first mover advantage, quick conclusion of a license agreement and/or a license by down payment, although these are viable arguments in principle. It was also considered irrelevant that the discounts the Claimant granted to other licensees are usual in the industry because the Claimant did not offer any discounts to the Defendant. Moreover, other licensees cannot be qualified as reference customers as the Defendant is forced to conclude the license agreement. The Claimant privileged third licensees in an unreasonable manner.

Comments

The Higher Regional Court of Düsseldorf intensively argued about the FRAND-principles established by the CJEU. The decision can serve as a general guide on how to deal with and, in particular, how to fulfill the duties of the CJEU decision in German SEP infringement actions. Furthermore, it is possible for the parties to fulfill the FRAND-obligations and provide for an offer in conformity with the FRAND principles after proceedings finish. The Higher Regional Court was aware of this fact, as it dismissed the claims for recall and destruction only "temporarily”. After judgment it is possible for the Claimant to still fulfill his FRAND-obligations. If further negotiations for a license agreement are again not successful, it is possible for the Claimant to file a further action for the recall and destruction of the infringing products. Thus, the success of the antitrust objection may only be temporary and the pressure on both parties to conclude a FRAND license agreement remains high."