Conversations with FRANDs: top courts in UK, DE and NL to decide key issues relating to SEP's

Sally Rooney's Conversations with Friends tells a thoroughly enjoyable tale of friendship, love and envy. As Frances, the novel's protagonist, comes of age her ties to the other three main characters become more difficult to navigate. Having learned that there are no easy solutions or black and white situations, she ultimately embraces the complexity of life with others.

Europe's patent courts may find themselves in a similar predicament, minus the romantic conundrums. After the recent decision by the German constitutional court and the UK government's announcement on their respective countries' participation in the UPC [here and here], a harmonized European patent law seems farther away than ever. In its absence, European courts have long tried to informally align through judicial dialogue. But dialogue has its limits, and jurisdictions also vie to increase their attraction to potential litigants, making national differences unavoidable.

Litigation over Standard-Essential Patents (SEPs), which must be licensed on Fair, Reasonable and Non-Discriminatory (FRAND) terms, has raised many open questions in the years since the Court of Justice of the European Union (CJEU) laid down a general framework in its landmark decision C-170/13 Huawei/ZTE - a case about the role of competition law in SEP disputes and the granting of relief.

Just like Frances, this area of the law must now come of age. Europe’s fractured patent law landscape makes this task even more complex. The top courts of the UK, Germany and the Netherlands are about to address several of the open questions on SEP-litigation and their decisions will provide an important step forward in the development of a European FRAND-doctrine. This post is intended to outline the cases and the issues at stake: more detailed analysis will follow once the decisions become available.

The cases

The UK: Unwired Planet/Huawei and Conversant/ZTE

In the UK, Unwired Planet filed suit for infringement of five SEP's against Huawei. Two of these (previously owned by Ericsson) were found valid, infringed and essential to the relevant standard. Birss J ultimately granted Unwired Planet a UK injunction against Huawei until such time as it entered into a global license agreement on the terms set by the court [decision here; Katposts here, here and here].

Huawei appealed on three grounds:

1. It challenged the UK courts' authority to demand that parties enter into a global, as opposed to a national, license;
   
   
2. It challenged the rates set by the first instance court, claiming the non-discrimination limb of FRAND entitles it to the same rates offered to Samsung, another licensee to Unwired Planet's patent portfolio; 
   
   
3. It challenged Unwired Planet's entitlement to an injunction under Huawei/ZTE, because it had filed suit without giving any notice of which SEP's were infringed and without a license offer. 

The Court of Appeal dismissed Huawei's appeal [decision here, Katposts here and here].

Huawei was also sued (together with ZTE) in the UK by Conversant, which likewise requested a global license. In these proceedings, Huawei additionally argued that the English courts had to decline jurisdiction on forum non conveniens grounds. This argument was dismissed by Carr J [decision here, Katpost here]. The dismissal was upheld by the Court of Appeal [decision here, Katpost here].

In both cases, Huawei (and in the case of Conversant, ZTE) appealed to the UK Supreme Court [Katposts here and here]. It jointly heard the cases in October 2019 [here]. The appeal concerns all three issues raised in the Unwired Planet appeal and the forum non conveniens ground advanced by Huawei and ZTE in the Conversant proceedings. The UK Supreme Court's decision is expected at the end of July.

Germany: Sisvel/Haier

In Germany, Sisvel filed suit for infringement of two SEP's (previously owned by Nokia) against Haier. In first instance, the Düsseldorf regional court issued an injunction against Haier after finding that Haier had not fulfilled its duties under the Huawei-framework [decisions here and here; English summaries, courtesy of 4iP Council, here and here].

The grant of the injunction was reversed on appeal [decision here; English summary here; Katpost here]. According to the Düsseldorf Higher Regional Court (Oberlandesgericht), Sisvel violated the Huawei-framework by discriminating against Haier: it charged significantly higher royalty fees as compared to licenses with competitors.

Sisvel appealed to the German Federal Supreme Court, which in turn reversed the decision by the Higher Regional Court on 5 May 2020 [Katpost here]. Although a written decision is not available yet, the Court ruled that Haier had not shown itself to be a willing licensee, effectively affirming the outcome of the first instance court. The German Federal Supreme Court's decision is expected any moment.

The Netherlands: Philips/Asus and Wiko

In the Netherlands, Philips filed suit for infringement of three SEP's against Asus and Wiko. In first instance, Philips' patents were invalidated and its claims dismissed, but the Court of Appeal upheld two of Philips' patents and issued injunctions against both Asus and Wiko [Dutch decisions here, here (EP 511), here and here (EP 525); Katposts here (including English translation) and here].

Asus and Wiko appealed to the Dutch Supreme Court against all three decisions and Philips filed a cross-appeal on certain issues. Thus, the Supreme Court's decision will deal with issues relating to patent validity, in addition to the FRAND-questions raised.

Whereas the Unwired Planet, Conversant and Sisvel/Haier cases were fully argued already and decisions can be expected shortly, in the Netherlands parties must still brief the case before the Supreme Court. Then, the Advocate-General of the Dutch Supreme Court assigned to the case will issue an opinion. Much like proceedings before the CJEU, the opinion is not binding on the Supreme Court, which will decide on the matter independently after taking note of the Advocate-General's opinion and parties' responses to it. Its decision is therefore not to be expected until 2021.

These two seem to think that SEPs stands for Super Endearing Pets

The issues

These decisions show that national courts have diverged in their interpretation of Huawei/ZTE. The Düsseldorf Higher Regional Court's decision in Sisvel/Haier, in particular, was notorious for its approach that in various important respects differed from the approach of the Dutch and English courts, so far. The reversal by the German Federal Supreme Court is likely to bring more unity in the European law of FRAND, but the details are crucially important and they will not be known until the decisions are handed down.

The following is a list of issues to look out for in the decisions.

Jurisdiction

Following their apparent willingness to impose global FRAND-licenses on implementers, commentators were quick to predict a rush to the English courts. Indeed, this development is not uncontroversial [see e.g. this paper by Professor Jorge Contreras]. At the same time, the observation by Birss J that realistically, parties would always enter into a global license has an undeniable, common-sensical appeal.

This issue is only before the UK Supreme Court. An affirmation of the decision by the Supreme Court will likely attract SEP-holders to the UK, but also embolden other European courts to follow suit and set global FRAND-licenses to become competitive with the English courts.

"Non-discriminatory" in FRAND

An important point of contention is how FRAND's obligation not to discriminate must be understood. The Higher Regional Court Düsseldorf took the view that non-minor variations in license terms between similarly situated licensees must be objectively justified. The English and Dutch Courts of Appeals, on the other hand, have seemingly rejected this strict approach – dubbed "hard-edged" by Birss J – in favour of a more general standard.

Reports from the oral hearing before Germany's Federal Supreme Court, such as this one, suggest that the reversal of the Higher Regional Court on this point may be due to the specific circumstances of the Sisvel/Haier case, not because the Federal Supreme Court fundamentally disagrees with the 'hard-edged' approach.

Thus, it is possible that divergence may remain on this point. From a practical perspective, another important issue here will be the extent to which SEP-holders will be obligated to submit benchmark licenses in proceedings to substantiate the non-discriminatory nature of their offer.

Show of willingness

Both the Court of Appeal in the Hague and the German Federal Supreme Court ultimately decided the cases before them on the ground that the implementers had not shown a (timely) willingness to take a license.

The Hague Court quite explicitly requires good-faith engagement by the implementer with the SEP-holder, not just sitting through meetings. The first instance court in Düsseldorf was even stricter and required an immediate counter-offer, with accounts of infringing sales and a security for potential royalties. Although the Federal Court of Justice confirmed that in that case, Haier had not been a willing licensee, it remains to be seen how high it will set the bar for implementers.

Interface with competition law

Ever since Huawei/ZTE, permissible enforcement of SEP's has, in the EU at least, come within the scope of competition law. Some commentators, including this Kat, consider this unfortunate: it places core issue of patent law outside the scope of patent law. This means the requirements of Article 102 Treaty on the Functioning of the EU, which forbids abuse of a dominant market position, must be given a specific interpretation in the context of SEP enforcement, which leads to unclarity and fragmentation of the case law under this article Arguably, it would have been preferable to establish a legal procedure for SEP's under the general European framework for intellectual property remedies: Directive 2004/48, the Enforcement Directive.

However, that is water under the bridge now. It is worth noting that, in the UK proceedings, Huawei has not relied heavily on competition law doctrine to defend itself against Unwired Planet's claims. Perhaps this was done for strategic reasons, given that Huawei is one of the leading patent holders in the realm of 5G [Katpost here]. This potentially limits the UK Supreme Court's freedom to clarify pertinent issues of competition law and their interface with patent remedies. For instance, "non-discrimination" and "willingness" may mean quite different things depending on whether one takes competition or patent law as a starting point.

Other topics

Naturally, the above are but three of the many issues at stake in FRAND/SEP litigation and in the decisions on appeal. It is likely that the decisions will clarifies these and other aspects of the law of FRAND also in other respects, thereby hopefully providing more guidance to future litigants [although JUVE Patent reports that the German Federal Supreme Court's ruling can be expected to be narrow and "unlikely to provide concrete instructions on how SEP holders and infringers must behave”. We will see.]

Will differences remain? You bet: that's the name of the game in European pate nt law. So even after these decisions it will probably be best to keep the conversations with our European friends going…