Higher Regional Court precises that FRAND negotiations can be made up for by defendant in course of pending infringement complaint

Written on 15 Jan 2020

On 30 October 2019, the Higher Regional Court Karlsruhe further specified the duties of the pro-prietor of a standard essential patent (SEP) and the conflicting obligations of the patent user in a legal dispute between Philips and Wiko (docket 6 U 183/16).

Subject matter of the dispute was European patent EP 1 815 647, concerning a procedure and a device for queuing and assembling of packets in mobile communication, so-called “multiplexing”, for example in mobile radio networks.

Background

In the leading decision Huawei vs. ZTE C-170/13, the ECJ had established the fundamental duties of the SEP proprietor under antitrust law and the corresponding obligations of the patent user in a role as “willing licensee”. As known, claims for injunctive relief against patent infringement are not be qualified as being abusive if the SEP proprietor informs the patent infringer of the alleged infringement and, after a request for licensing by the patent user, submits a licensing offer to the patent user to meet on fair, reasonable and non-discriminatory terms (i.e. FRAND terms) as well as fulfils his information obligations. So far, so good.

In the case decided by the Higher Regional Court, the plaintiff Philips turned to Wiko with a notice of infringement. Absent any reaction from defendant, plaintiff Philips again pointed out the alleged patent violation and offered to negotiate a license agreement with a draft attached. There was still no response from defendant. After having sent further technical information without reaction, Philips filed the infringement complaint. Only following the filing of the complaint, plaintiff received a letter in which defendant stated his willingness to enter into license negotiations.

The decision of the Higher Regional Court

The Higher Regional Court first stated that the proprietor of the SEP generally satisfies his negotiating duties if he approaches the corporate subsidiary responsible for license negotiations and licensing in the corporate group to which the patent user belongs.

The infringement notice initially to be sent by the SEP proprietor is sufficiently concrete in terms of content if it enables the patent user to form an impression of the quality of the alleged infringement (if necessary with expert assistance or by obtaining legal advice) and to gain clarity about the interest in a license. A conclusive assessment of the infringement allegation, which the infringer can have reviewed by the court both with regard to the question of the essential character of the patent for the standard and with regard to the actual use of the standard, does not have to be made possible by the notice of infringement. Following the notice of infringement, the patent user is to be granted an examination and recital period of usually two months to submit a request for licensing.

However, according to the Higher Regional Court’s decision, both the SEP proprietor’s negotiation obligations and the obligations of the patent user can still be “made up for” during a pending infringement litigation. The patent user’s request for licensing can therefore be made after the action has been brought. This does not give rise to a risk of delay, since the patent user bears the risk of delayed fulfilment of his obligations. On the other hand, the previous instance had still denied the possibility of catching up.

The SEP proprietor can only prevent the resulting non-fulfilment of previously suspended negotiation duties after the infringer’s obligations have been fulfilled in the meantime, if he creates a situation that enables license negotiations free of immediate pressure from the pending court proceedings. This usually means requesting the suspension of the infringement proceedings or an amicable suspension.

However, in the opinion of the Higher Regional Court, the plaintiff had already failed to comply with his duty to provide information in the present legal dispute. Among other things, the SEP proprietor must explain the objective circumstances as to why the submitted offer meets FRAND criteria. If license agreements have already been concluded with third companies under different conditions, the SEP proprietor must therefore explain the content of the essential license agreement conditions of these agreements in such a way that the patent user can recognize whether, to what extent and for what substantive reasons he may be subject to economically unequal conditions.

The patent user’s claim to the submission of license agreements concluded with third parties was, on the other hand, rejected.

Practical comment

The decision may be perceived as helpful clarification for defendants in patent infringement cases dealing with standard essential patents. While earlier cases may have suggested an “all or nothing principle”, the Higher Regional Court confimed now that albeit infringement litigation already started, defendant may still recourse to the so called FRAND defense provided he shows his willingness to licence-in the standard essential patents in question. The patentee may avoid this scenario by taking out pressure from the proceedings. In particular this will mostly end in a mutually agreed stay of the pending action for a further settlement period. The decision shows that German courts overall are much in favour of settlements in FRAND cases despite the unchanged general reputation as patentee friendly forum. The result seems nonetheless balanced since delayed reaction on defendant’s side may be dealt with in the overall cost decision of the lawsuit. It seems at least fair that in such cases defendant finally has to carry the legal costs of the infringement action which are of course neglectable as compared to injunctive relief in the alternative.