New German FRAND Decision

A copy of the judgment in the original German is here, and an English translation of the FRAND portions (provided by Cordula Tellmann-Schumacher of Arnold-Ruess) is here.  (Thank you to Ms. Tellmann-Schumacher for providing this to me, and to Norman Siebrasse for alerting me to the judgment which I understand was discussed at the Fordham IP Law Conference last Friday.)   I understand that the patent owner is St. Lawrence (an NPE that was also the plaintiff in another German FRAND-related proceeding against Deutsche Telekom, see discussion here and here).  I'll want to reread this material more carefully, but here are the highlights I've gleaned from a quick reading this morning.

The Landgericht Düsseldorf grants an injunction, holding that the plaintiff's initial offer was FRAND and that the defendant did not respond in a timely fashion as required under Huawei v. ZTE.  In particular, the court holds:

1.  That the notice given by the plaintiff was timely (see pp. 5-10 of the English-language version).

2.  "Defendant did not declare in good time that it intends to take a FRAND license to the patent in suit," having waited five months to respond (pp. 10-12).

3.  Plaintiff made a FRAND-compliant offer, which the court infers largely by way of comparison with comparable licenses (pp. 12-21).   The fact that it was an offer for a global portfolio license is consistent with the comparables. The court states:

Hence, comparable licensing agreements represent an important indicator of the adequacy of the license terms offered, provided it is not found that these have been concluded only under the pressure of a claim for injunctive relief. . . .   

The same applies to the scope of the license: If the patentee has already granted licenses to the SEP offered or the SEP portfolio offered for similar products, this suggests that this collection of protective rights is equitable and therefore also to be accepted by patent users (Kühnen, op. cit., margin no. E.328). For the question of whether a – possibly global – portfolio license complies with FRAND requirements,the industry practice is particularly relevant. . . .   

Moreover, the terms of the license offered were FRAND:  

Plaintiff is offering Defendant and Intervenor each a license to its entire AMR-WB patent portfolio, which provides for a quota license fee of USD 0.26 per mobile phone that implements the AMR-WB standard and is manufactured or sold in a country where a licensed patent is in force. . . .    

According to its unchallenged submission, the license offers of Plaintiff (including to Intervenor) are based on standard royalty rates of Plaintiff and its parent company available on the Internet (Exhibit A-K62), where the specific royalty rates being offered are even slightly lower than the standard rates specified. The latter were in turn based on royalty rates that were demanded by [Y] in the licensing of the portfolio containing the patent in suit before it was transferred to Plaintiff (cf. Exhibit A-K63 for the royalties demanded by [Y]).    Plaintiff has submitted an anonymized list of licensees (Exhibit A-K65) and offered to submit the complete anonymized license agreements as well upon judicial notice.

The list contains a total of 12 licensees, which is a relatively high number that gives rise to a correspondingly strong indication as to the adequacy of the license terms. Six of the licensees are software or service providers and/or hardware manufacturers. According to the table, these should all pay the standard royalties according to the table of Plaintiff (Exhibit A-K62). These license agreements have a comparatively lower indicative value, as it is unclear whether royalties were (also) paid here for mobile phones.

The remaining six licensees are mobile phone manufacturers, which pay between USD 0.20 and USD 0.40 per piece (manufactured mobile phone), partly in the form of a lump sum, partly as ongoing royalties. The licensees of the patent in suit indisputably include the companies [B], [I], [G], [D], [C] und [E]. Furthermore, the company [GG] possessed a license via the SIPRO pool. This is not precluded by the fact that [BB (O)] is currently taking action against [GG] under the parallel protective rights to the present patent in suit, as pointed out by Defendant in the disallowed pleading of 4 February 2016. This does not allow the conclusion that a license did not exist in the past; rather, it seems plausible that a previous license agreement has now ended – such as due to the passage of time or termination.

Circling back to the question of whether these licenses were negotiated under the threat of an injunction, the court says no; further, "Defendant and Intervenor have not presented sufficient facts that would allow the expert evidence offered for the fact that 'the license fee offered by Plaintiff in the amount of USD 0.26 per mobile phone cannot be viewed as FRAND' to be taken."  The court rejects the argument that the offered rate was not FRAND because it was higher than the SIPRO pool rate, and it concludes that reference to the comparables and pool rates provided a sufficient basis for calculating a FRAND royalty here.

4. The defendant didn't make a FRAND counteroffer (pp. 21-22).  The court therefore leaves open the difficult question of exactly what happens when a FRAND counteroffer is made (p.22):

Since no FRAND-compliant counteroffer of Defendant has been submitted, no decision is necessary as to whether the antitrust compulsory license objection can be successfully raised if Plaintiff has made an identifiably FRAND-compliant offer for licensing the relevant SEP. If this is the case, it could be argued that an abuse of a dominant position is ruled out and the proprietor of the SEP has already fulfilled its antitrust obligations by offering FRAND-compliant licensing. However, under para. 54 of the CJEU judgment, "pursuant to Art. 102 TFEU the proprietor of the patent is obliged only to grant a license on FRAND terms." It is therefore questionable whether there is an obligation to negotiate with the patent users within a range of possible FRAND licensing terms. On the other hand, in the operative provisions and in para. 65, the CJEU clearly presumes the possibility of a counteroffer after the proprietor of the SEP has first made a (FRAND) offer (thus also Kühnen, op. cit., margin no. E.304). Ultimately, this question, as already mentioned, may remain open here.

5. The court also rejects arguments that the offer made to the Intervenor was not FRAND, and that the Intervenor's counteroffer was FRAND (pp. 23-33).  

Update:  I should note that the defendant in the case is a provider of mobile telephone services that sells phones made by the intervenor.  See the full text German judgment pp.11-12, as well as the English-language version p.33.