Are FRAND-disputes too complex for PI proceedings?

The answer might be "yes", according to a recent decision by the District Court of the Hague [here]. As far as this Kat is aware, the decision is the first in Europe to address the issue of preliminary relief in FRAND-cases and is therefore worth a closer look.

The dispute

Sisvel holds a SEP-portfolio relating to various wireless communications technologies. On 15 October 2013, it informed Chinese phone manufacturer Xiaomi of this portfolio and stated its willingness to license it on FRAND-terms. The negotiations carried on for several years but were apparently unsuccessful. Sisvel brought suit against Xiaomi in the UK on 23 April 2019 and asked the High Court to set a global FRAND-rate between the parties. PI proceedings in the Netherlands were initiated shortly thereafter, on 29 May 2019. The decision suggests Sisvel also initiated proceedings on the merits in the Netherlands, but it is unclear what is claimed there.

Sisvel requested the District Court to enjoin all of Xiaomi's sales in the Netherlands; or, in the alternative, to grant the injunction subject to Xiaomi's agreement to have a FRAND-rate determined in arbitration; or, in the further alternative, to order Xiaomi to disable the patented functionalities in the phones it sells in the Netherlands.

In a nutshell, the District Court considered (i) Sisvel's interest in relief in these proceedings insufficiently urgent and (ii) the FRAND-dispute too complex for condensed PI proceedings. Consequently, it did not address validity, infringement or the parties' compliance with FRAND-obligations, but dismissed Sisvel's claims out of hand.

Urgency should be assessed in the context of global negotiations

The District Court started its analysis by considering that in FRAND-cases, the damage suffered by the patentee is not so much the involuntary loss of exclusivity, but rather the failure to conclude a FRAND-licence and consequently missing out on royalties. Interestingly, the District Court found that this makes the present case more similar to a claim for payment than to a regular IP dispute, where the patentee's monopoly is violated. Under Dutch procedural law, monetary claims normally lack sufficient urgency to be heard in preliminary relief proceedings.

Still, Xiaomi's recent market entry would normally entitle Sisvel to a preliminary injunction. But Sisvel is after a global FRAND-rate, which it asked the UK court to set, so the District Court failed to see why Sisvel would urgently need an injunction for the Netherlands. It has been negotiating with Xiaomi since 2013 so there seemed no significant harm in waiting a bit longer for the royalty rate to be set in merits proceedings, according to the District Court.

In fact, Sisvel stated at the hearing that it's not interested in FRAND-payments relating just to the Netherlands: it is wiling to grant a FRAND-licence on a global basis and rejects attempts by licensees to pay on a per-country basis as they see fit. That is fair enough, but it should then come as no surprise that it is also denied a preliminary injunction for an individual market.

In other words, the case should not be understood as being about patent exclusivity on the Dutch market. Rather, the District Court explicitly considered that the proceedings seem to be "a way to force Xiaomi to the negotiation table and maybe even force on it a royalty rate that won't necessarily be FRAND" (par. 4.6). That is significant: Dutch courts usually do not inquire what the underlying motive is for requesting an injunction, but limit themselves to establishing validity and infringement.

If this is a sign of willingness to consider the commercial realities of an injunction's consequences, I applaud the District Court for it. The decision also suggests global jurisdiction in FRAND-cases is a double-edged sword: patentees can obtain a global licence in a single forum, but the price might be the loss of the ability to separately obtain relief elsewhere (or at least a higher burden to establish a legitimate interest in such relief).

A Kat's take on PI's in FRAND-disputes (Meme Credit: makeameme.org)

FRAND-proceedings too complex for preliminary assessment?

The District Court also devoted attention to the problems that could result from granting preliminary relief in FRAND-cases, ahead of the resolution of the dispute by the UK court by setting a global rate. If the District Court were to issue the injunction subject to a preliminary rate and the UK court subsequently determines a lower rate, that would render enforcement of the injunction by Sisvel partially unlawful. According to the District Court, this would cause serious legal uncertainty.

Furthermore, the District Court considered that the issues in dispute were very complex and would have to be pleaded and decided in the short timeframe of PI proceedings: setting a FRAND-rate is complicated and involves expert evidence with various confidentiality restrictions. Remarkably, the District Court added that Sisvel holds a portfolio of around 50 patent families and that it could start proceedings on the basis of its other SEP's if its claims were denied on the substance. This may be true, but it is novel for the District Court to take this circumstance into account when deciding on the specific case before it.

While I sympathize with the District Court's conclusion that these difficulties heighten the burden on Sisvel to obtain relief ahead of the UK merits proceedings, I don't find this part of the decision so persuasive. It is true that parallel litigation in global FRAND-disputes can get messy: incidentally, I wrote about this problem last week [here] and suggested that it might be resolved by staying remedies until final resolution of the FRAND-dispute. In merits proceedings, that seems a prudent course of action under the Brussels I Regulation and perhaps even mandatory: it will be interesting to see whether it will be an issue in further Dutch proceedings between SIsvel and Xiaomi.

But parties normally retain an interest in preliminary relief pending merits proceedings, and under the Brussels I Regulation courts are entitled to grant it, also if another court has jurisdiction on the merits [see Article 35]. And, as the District Court notes, a FRAND-commitment is not a waiver of the right to an injunction. I would thus not want to categorically rule out the possibility to obtain a preliminary injunction in SEP-cases, even if proceedings for setting a global FRAND-rate are pending before another court.

Indeed, if there are clear signs of hold-out and an implementer has recently entered the market, that could be a scenario where injunctive relief should arguably be available. If a PI is granted, it could be made subject to payment of a preliminary FRAND-rate.

It may be true that calculating this rate is complex but the calculation is, after all, preliminary and over- or underpayments can be compensated once the definitive FRAND-rate is set in merits proceedings. In that sense, I don't quite see why the risk of legal uncertainty is bigger in FRAND-cases than in any other situation where the decision on the merits might turn out different. All in all it will be interesting to see how case-law on this issue develops.