Dutch Court of Appeal injuncts unwilling licensee in first post-Huawei v ZTE FRAND decision

Dibbles was the definition of an unwilling licensee -
quiet, lacking in pro-activity and immovable (see claws)

Kat friend, Léon Dijkman, PhD researcher and candidate at the European University Institute in Florence, has brought news to the IPKat team of last week's FRAND decision in Philips v ASUS from the Dutch Court of Appeal - the first Dutch decision after Huawei v ZTE dealing with a FRAND-defence.  This is the latest decision in the growing body of FRAND related case law in Europe (and not just from the UK). 

Over to Léon who reports on this case:

"Last week, on 7 May 2019, the Court of Appeal of The Hague delivered its decision in a case between Philips and ASUS regarding the infringement of Philips’ European patent EP 1 623 511, which is essential to the HSUPA protocol of the UMTS standard. The decision is notable because it is the first Dutch decision addressing a FRAND-defense in infringement proceedings after the CJEU’s decision in Huawei v ZTE. 

On the FRAND nature of license offers, the District Court of The Hague previously rendered a declaratory judgment on 8 February 2017 in a case between Archos and Philips, rejecting Archos’ arguments why Philips’ offer would not be FRAND and finding instead that Archos’ own offer was too low for it to be FRAND [Dutch original here; English translation here]. The Court of Appeal of The Hague now also provides further guidance on the interpretation of Huawei/ZTE and the availability of injunctive relief for SEP holders whose rights are infringed. It offers a detailed analysis of the Huawei/ZTE, particularly regarding the willingness requirement for potential licensees. The decision shows that implementers can only rely on a FRAND defense in the Netherlands if they negotiate constructively and in good faith with the genuine aim of reaching an agreement. The Dutch decision can be downloaded via the IE-Forum blog here. An English translation is available here. 

The Court of Appeal considered EP '511 valid and infringed [overturning a first instance decision that invalidated the patent for lack of novelty, see here], and dedicated the rest of the decision to Asus' arguments that (i) Philips had not filed a SEP-declaration for the patent with ETSI sufficiently timely; that (ii) Philips had failed to offer it a license with an explanation why it was FRAND; and that (iii) Philips more generally had failed to respect the CJEU's Huawei/ZTE-guidelines.

All of Asus' arguments were rejected. Philips notified ETSI of the patent after it was granted and the relevant standard had been established, but it had already filed a FRAND-declaration long before that (par. 4.159). In addition, ETSI's IPR policy is intended to achieve a technically optimal standard available at FRAND-rates, rather than a standard that is largely royalty-free (par. 4.155). According to the Court of Appeal, contrary to the Rambus-case, in the present case the standard-setting process was not affected and access to the technology was safeguarded. Consequently, Philips did not engage in an abusive patent ambush (par. 4.163).

The Court of Appeal then turned to the CJEU's guidance in Huawei/ZTE and found that it should not be interpreted as setting strict requirements, failing which a patentee will necessarily abuse their dominant position (par. 4.171, under reference to a similar interpretation by Mr Justice Birss and the England and Wales Court of Appeal in Unwired Planet, here and here). Rather, the steps outlined in Huawei/ZTE must be understood as guidelines for good-faith negotiations over a FRAND-license. The good faith and willingness of both parties should be assessed based on the specifics of the case.

In the case at hand, Asus failed its obligations under Huawei/ZTE. Philips first informed Asus of its UMTS/LTE-patent portfolio in mid-2013 and thereafter met with Asus in Taiwan numerous times to introduce its SEP-portfolio, discuss claim charts and explain its licensing program, including the royalty rates. Despite Philips' consistent indication that it was willing to enter into a FRAND-license, Asus appeared to be unwilling to negotiate a FRAND license or even discuss the proposed licensing terms and each time ended the meeting after a couple of hours (par. 4.172). In September 2015 Philips provided Asus with a draft license agreement, but at a November 2015 meeting Asus again did not substantively discuss the license and failed to make a counter-proposal. Ultimately, Philips decided to enforce its rights and initiated infringement proceedings on 15 December 2015 (par. 4.173).

The Court of Appeal concluded from this that Asus engaged in hold-out. Below is a translation of part of the relevant paragraph 4.179, which summarizes the facts the Court considered decisive:

Merely consenting to holding discussions is insufficient for this purpose [to be considered a willing licensee]. Asus did not take any initiative for the discussions. Asus repeatedly requested that Philips offer a technical explanation, without having representatives with the required expertise take part in the discussions. The discussions were broken off after a few hours, so that the requested technical explanation could not be completed and/or they did not get round to discussing the licence conditions, making it necessary to schedule a further meeting. Asus did not respond to the points raised by Philips after any meeting, specifically not in respect of the licence conditions. Taking all this into account, the only conclusion can be that Asus did not take a constructive position in the discussions with Philips and the requests for a technical application apparently served the purpose of avoiding any substantive discussion regarding the licence conditions and delaying the process as much as possible. This practice is also referred to as ‘hold-out’ and in the Huawei / ZTE ruling, the ECJ referred to this as ‘delaying tactics’ from which the SEP user should refrain (par. 65).

The Court of Appeal added that, because of Asus' unwillingness, Philips was not obligated to make a FRAND-offer. In the case at hand, Philips nonetheless did (par. 4.181). The Court of Appeal furthermore considered that the Huawei/ZTE-guidelines do not obligate the SEP-holder to elaborate why their offer is FRAND; they merely need to explain what the royalty is and how it is calculated, so that it is clear what is to be paid (par. 4.183). Philips’ license offer complied with this and since Asus failed to diligently respond to the offer, Philips was also for that reason entitled to bring the infringement proceedings. The Court of Appeal further added that Asus' counteroffer, made during the proceedings, could not change this. After all, this would open the door to delaying tactics on the part of a SEP user, which is to be prevented according to the CJEU. Moreover, also the counteroffer was not in line with FRAND as it did not have any connection with Philips’ patented technology (par. 4.185). Lastly, the Court of Appeal held that Asus’ lack of genuine willingness to negotiate a license agreement in good faith also stands in the way of any FRAND defence based on Dutch tort law or French contract law (which governs the FRAND declaration) (par. 4.187).

Various interesting points are discussed that touch on current discussions surrounding FRAND. For instance, the Court of Appeal emphasizes the willingness requirement on part of the implementer and seems to apply a fair but relatively high threshold. Next, it is significant that the Court of Appeal considers Asus' unwillingness prior to the proceedings fatal: alleged willingness to enter into negotiations after the institution of the proceedings and a possible counteroffer in that regard cannot render the litigation abusive or trigger an obligation to stay the proceedings. Lastly, it is noteworthy that Court of Appeal of The Hague does not interpret Huawei/ZTE as obliging SEP holders to substantiate why their license offers are FRAND. In sum, the decision is an important contribution to the growing European FRAND case-law. "