Wednesday, January 6, 2016

Will the German Courts Ever Tell Us What a FRAND Rate Is?

As mentioned previously on this blog (see here and here), district courts in Düsseldorf and in Mannheim recently have issued injunctions in favor of the owners of FRAND-encumbered SEPs.  Interestingly, in both cases the entity asserting the patents was a nonpracticing entity.  The courts left many questions open but both applied what is arguably a fairly narrow reading of the CJEU's 2015 judgment in Huawei v. ZTE.

The Huawei decision (which also left several issues open, as I have noted here and as others have discussed in papers I've mentioned or will soon mentioning here) nevertheless lists several conditions that must be met before the SEP's owner seeking of an injunction constitutes an abuse of dominant position in violation of European competition law.  Specifically:
Accordingly, the proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without infringing Article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged infringer without notice or prior consultation with the alleged infringer, even if the SEP has already been used by the alleged infringer.
Prior to such proceedings, it is thus for the proprietor of the SEP in question, first, to alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed. . . .
Secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated. . . .
. . . [I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.
Should the alleged infringer not accept the offer made to it, it may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.
Furthermore, where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter-offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit. The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.
In addition, where no agreement is reached on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.
One might think, from reading the above, that courts would now be busy determining, among other things, whether an SEP owner's offer was FRAND and whether the alleged infringer's offer was FRAND; and that this would provide some insight into the methodology German courts think is appropriate for determining FRAND royalties (akin to the decisions in U.S. in Microsoft v. Motorola, Innovatio, Ericsson, and CSIRO, the Japanese judgment in Apple v. Samsung, and the Chinese judgment in Huawei v. InterDigital, all of which will be discussed in a short book chapter Norman Siebrasse and I are working on). So far, though, in the two German cases, Sisvel (see here and here) and Deutche Telekom (see here), the courts have been able to avoid doing so by deciding these cases on other grounds:  in Sisvel, that the defendant failed to provide security for its alleged past infringement when its counteroffer was rejected, and in Deutsche Telekom that the defendant didn't provide a specific enough counteroffer (it instead offered to base the royalty on the royalty that was to be determined in a proceeding in the U.K.) and also that it failed to provide the necessary security when its counteroffer was rejected.  For further discussion, see the write-ups (some of which I have previously linked to) on Sisvel here, here, and here, on Deutsche Telekom here.  Also of interest is this article by Nadine Herrmann and Catherine Manley in Global Competition Review's European Antitrust Review 2016 discussing, among other matters, an earlier proceeding involving St. Lawrence and Deutsche Telekom and a presentation made by German Judges Kühnen and Maimann in January 2015 that does suggest some guidelines on determining a FRAND range (perhaps this deserves its own blog post in the near future).  


  1. Thanks for your post. I believe you've fallen in to the common misconception that FRAND = rate. It doesn't. FRAND = terms, of which rate is a component. With that understanding, you can see why courts are not telling us what FRAND rates are, but are rather determining whether the terms are FRAND.

    Another clarification, I am not a fan of the phrase "FRAND encumbered SEPs" as in my mind it minimizes and diminishes their importance. FRAND is not an encumbrance, i.e., it is not a burden or impediment, rather it is an assurance that the patent holder will license its standards essential patents on terms that are fair, reasonable, and non-discriminatory. That said, I enjoy your writings on FRAND-assured Essential Patents.

  2. Thanks for your comment. You're right, the rate is only a component of FRAND terms. What I meant to convey, not very artfully I now see, was that we still don't know yet what methodology the German courts would use to determine FRAND terms. Would they apply the same considerations used to determine reasonable royalties in non-FRAND cases, would they consider some of the apportionment techniques that the courts in the U.S. and Japan have used in recent FRAND cases, would they think it good or bad for the patent owner to obtain some portion of the value of the standard, and so on. It will be interesting to find out. The article by Herrmann and Manley discusses some thoughts on these matters as expressed by two prominent German judges last year in a presentation, so maybe that gives us a clue where matters will go.

    I hadn't thought about the term "FRAND encumbered" as possibly having a negative connotation . . . maybe we do need a better or at least more neutral term. Will have to think about that.