The procedure established by the ECJ around one and a half years ago for the notification of infringement and the offer and counter-offer of licenses on FRAND terms (discussed in detail in the Preu Bohlig & Partner October 2015 newsletter) is being implemented by the German courts in pending patent infringement proceedings. Since the decision, the courts have been engaged in clarifying individual questions based on the guidelines established by the ECJ. Some initial district court rulings were unbalanced to the detriment of patent users: while patent holders were given the opportunity to fulfil certain conditions for FRAND terms subsequently, patent users were not afforded this opportunity. The Dusseldorf Court of Appeal rectified this situation in two January 2016 rulings (Case Nos. I-15 U 65/15 and I-15 U 66/15) to ensure a balanced distribution of obligations between patent holders and users (cf. the Preu Bohlig & Partner April 2016 newsletter).
In their recent decisions, the Courts of Appeal in Dusseldorf and Karlsruhe address the question of when and to what extent the SEP holder (the plaintiff) and the patent user (the defendant) are required to meet their obligations under the ECJ’s decision in Huawei vs. ZTE. The rulings by the courts in Dusseldorf (Orders of 9 May 2016, Case Nos. 35/16 and I-15 U 36/16) and Karlsruhe (Orders of 31 May 2016, Case No. 6 U 55/16 and of 29 August 2016, Case No. 6 U 57/16) deal with injunction motions in “transitional cases,” i.e. cases that were pending at the time of the ECJ’s ruling. Although these decisions were made in summary proceedings, the level of detail in the grounds to these rulings is indicative of the importance which courts presently attach to the FRAND issue. However, the fundamental considerations cited by the courts suggest that they will proceed along the lines indicated below in future patent infringement proceedings. The position taken by the courts will certainly have a great impact on the course of action taken by SEP holders in the future prior to taking legal action:
– While the ECJ’s ruling states that notification (“alert”) of the patent infringement should be given to the patent user before filing the action, it may be sufficient to notify the patent user by filing the patent infringement action itself. Although such a “premature” legal action represents a violation of antitrust law on the part of the plaintiff, measures can be taken in the course of the proceedings which can, in principle, eliminate the risks to the licensing market arising from such violation of the law. Moreover, if there is no way to remedy the violation, the consequence would be for the plaintiff to withdraw the complaint and refile, so that the patent user would not gain anything in that regard.
– According to the ECJ, the SEP holder’s offer to enter into a license agreement must also be made before an action is filed so that the contractual negotiations can be conducted without the immediate pressure of litigation. However, the Courts of Appeal endorse the view that the SEP holder may offer a license even while litigation is pending. As a reason they point out e.g. that, if the situation were reversed, an order to cease and desist can hardly be issued against the defendant if the latter were to accept the license offer or issue a counter-offer on FRAND terms while the proceedings are pending. In view of the fact that the proceedings tend to take a long time, with approximately one year elapsing between the filing of the complaint and issuance of the judgment, the courts found that there is enough time for the defendant to comply with its obligations. However, the 7th Civil Division of the Mannheim District Court has a different view on this matter, adhering more closely to the standards established by the ECJ. In its opinion, further negotiations should take place in the period between withdrawal of the complaint and the filing of a new complaint with the object of concluding a license agreement, unencumbered by the pressure of pending litigation (Judgment of 1 July 2016, Case No. 7 O 209/15).
– Nevertheless, SEP holders and patent users are sometimes held to unequal standards. While SEP holders can comply with their obligations at any time after the complaint is filed, patent users are required to make their counter-offers “immediately” in order to eliminate delaying tactics. Specifically, the Dusseldorf Court of Appeal ruled that a response time of 5 months was too long for the defendant, despite the fact that the latter was compelled to deal with the pending infringement action at the same time. As a result, the defendant may be under double pressure dealing with the license negotiations and patent litigation simultaneously.
– Finally, the extent of the claim to render accounts is also a topic of debate. In his handbook, Dr. Kühnen (Presiding Judge in the Dusseldorf Court of Appeal) expressed the view that SEP holders who fail to meet their obligations to conclude a license agreement conforming to the FRAND terms are entitled only to a damage claim in the amount of the FRAND license. Accordingly, the associated claim to render accounts is also limited to the information which is necessary for calculating such FRAND license fee. However, while the Karlsruhe Court of Appeal is sympathetic to this view, it now rejects any substantive restrictions on the claim to render accounts. It argues that no such restriction can be derived from the law and that one cannot rule out the possibility that other disclosures (e.g. supply and demand prices) will also be necessary for the determination of a FRAND royalty. It is conceivable that patent users facing an infringement action who argue that damages must be limited accordingly will not succeed until the proceedings to determine the amount of the damages.
As a different topic, the Mannheim and Karlsruhe courts are currently engaged in a substantive discussion as to whether the SEP holder’s license offer is subject to full judicial review with regard to its conformance to FRAND terms. In the past, district courts in particular have avoided entering into the commercial aspects of the dispute between the SEP holder and the patent user. These courts have routinely limited themselves to checking for manifest errors, i.e. examining whether the SEP holder’s offer represents a clear violation of antitrust laws. The Karlsruhe Court of Appeal turns this practice on its head, as its Order of 8 September 2016 (Case No. 6 U 58/16) confirms the view which was expressed in its Order of 31 May 2016 (Case No. 6 U 55/16) to the effect that the court adjudicating the infringement case is required to subject the license offer to a full substantive review with regard to its compliance with the FRAND criteria. However, the Karlsruhe Court of Appel grants the SEP holder a certain (in some cases generous) amount of discretion when it comes to assessing the FRAND criteria. The result of this approach seems to be that the courts would not examine the specific terms of the offer for compliance with FRAND terms after all. Rather, they would (only) conduct a review as to whether the offer crosses the line with regard to antitrust law.
