Friday, July 10, 2020

A couple of thoughts on Sisvel v. Haier

I don't have very much to add, at this point, to Peter Picht and Erik Habich's excellent analysis of the German Federal Supreme Court's decision in Sisvel v. Haier, which I recommend (see previous post here).  I'll note just two things that I thought were of particular interest.

First, as Picht and Haber point out, the decision puts a great deal of emphasis on whether, at step two of the Huawei v. ZTE framework, the implementer has adequately expressed its willingness to conclude a license on FRAND terms--to the extent of actually disagreeing, at one point, with the lower court's analysis of the evidence (see decision para. 95).  Presumably, then, in future cases much will depend on how well (or how poorly) the implementer can document its efforts to negotiate in good faith.  See, e.g., para. 83 (stating, in the Arnold Ruess translation of the decision, that "the infringer . . . must clearly and unequivocally declare his willingness to conclude a licence agreement with the patent proprietor on reasonable and non-discriminatory terms and must also subsequently participate in the licence agreement negotiations in a target oriented manner"). 

Second, although the court notes the difficulty, in the SEP/FRAND context, faced by implementers in discovering and clearing all relevant patents in advance of launching a product--and cites this as one reason for the competition-law defense to make it more difficult for patent owners to obtain injunctions than in other types of patent cases (see para. 74 of the decision)--the court doesn't see this difficulty as a reason for departing from the traditional German rule that allows courts to award damages based on the assumption that a defendant who launches a product without clearing the relevant patent rights first is, in general, negligent (see para. 109).  The court therefore clears the way for owners of FRAND-committed SEPs to recover damages against infringers under any of the three methods available in Germany (lost profits, reasonable royalty, or defendant's profits), though it notes that if the defendant's competition-law counterclaim succeeds, the damages would be to some extent offset and the plaintiff would only recover the value of a FRAND royalty (paras. 110-12).  I'm not sure this rule is economically sound, particularly in the FRAND context, where the nature of the commitment is such that the plaintiff should expect to recover only a FRAND royalty.  I realize, of course, that if the reason the competition-law defense doesn't apply is that the implementer has been negotiating in bad faith, some remedy above the value of the FRAND royalty may be necessary for deterrence purposes (and enhanced damages, as such, are not an option in Germany); though one would think the injunction itself would have much the same function, as Dan Burk has pointed out (though maybe not in a case like Sisvel v. Haier, where the patent in suit expired before the appeals had all run their course).  I also recall that one of the Supreme Court judges on the Sisvel panel, Dr. Meier-Beck, has previously written that in his view the damages awarded under any of the three methods should, in principle, converge (a point with which I disagree); see previous discussion here

For discussion elsewhere of the damages courts may award in FRAND cases, see this chapter from Patent Remedies for Complex Products.          

4 comments:

  1. Hi Mr. Cotter (or Co-tair for you Welcome Back fans),

    Thank you for your continued posts on FRAND/Antitrust issues. I do have a question on your comment, "the nature of the commitment is such that the plaintiff should expect to recover only a FRAND royalty."

    I am curious about this sentiment as I think this is a generalization and sometimes not correct. For example, if you consider the FRAND assurance for both ETSI and ITU, the statement made by the declarant is, inter alia, "prepared to grant licenses under FRAND terms and conditions." If we look to contract law, doesn't a preparation require an affirmative action by the other party, c.f. invitation to treat or advertisement? Doesn't the other party have to acknowledge it is prepared to receive the grant of a license under FRAND terms and conditions? Or put another way, the efforts of the implementer to negotiate in good faith is direct evidence to its preparation to receive. If the implementer fails to provide evidence that it is negotiating in good faith, aka it is an "unwilling licensee", does it still then deserve a license under FRAND terms and conditions? Or has it failed a necessary step of the original offer? Which then begs the question, whether a "plaintiff should expect to recover only a FRAND royalty" or something different/more?

    Your thoughts on this issue are greatly appreciated.

    ReplyDelete
  2. U.S. law generally views the FRAND commitment as a contract for the benefit of third parties (implementers). I think French law is consistent with this, but commentators on German law have proposed, if I remember correctly, a view similar to yours. Either way, though, I've never quite understood why there should be a difference between a FRAND royalty and a reasonable royalty. If a FRAND royalty is lower than a reasonable royalty, what does that mean? What would be the criteria for determining what a FRAND royalty is? In addition, disgorgement of the infringer's profit attributable to use of the patent is likely to be considerably higher than what a negotiated royalty would be. That said, if the implementer has acted in bad faith, there does need to be some additional sanction to deter such behavior. An injunction should do the trick, though, or in the U.S. and other common law countries, where appropriate, enhanced damages. Overdoing it, however, does not (in my view) serve consumers, who are the ultimate intended beneficiary of the patent system.

    ReplyDelete
    Replies
    1. I appreciate the view, however, I have a couple of points.

      First, the TPB is the implementer, that is true, however there is no contractual burden on the implementer to seek a license before it implements, but rather what is more common is that the TPB implements and rolls the dice on whether a patent holder will approach it for a license under FRAND terms and conditions. Many patent holders will not as they declare SEPs for defensive purposes, but there are a few who do seek a license.

      And Second, both IPR Policies state, "FRAND terms and conditions." For some reason everyone seems to (incorrectly) interpret that as RATES. "Terms and conditions" can be so much more, where rates are a subset. Who's to say that a JV or Zero-Dollar cross license or covenant not to sue is sufficient to qualify as a "FRAND terms and conditions"?

      That being said, if a patent holder seeks a zero-dollar cross license or successfully enters into a JV with an implementer, have they satisfied "FRAND terms and conditions" prong? Do other similarly situated implementers deserve the same? And then what if an implementer doesn't choose the above, but then asks for rate and the patent holder doesn't do "rates" but rather JV's to satisfy the "FRAND term and condition", has that patent holder then breached it's commitment to be "prepared to grans licenses on FRAND terms and conditions?"

      Curious to know your thoughts.

      Delete
    2. I don't know for sure. I would, tentatively, guess that if it were possible to translate the value of the cross-license or joint venture into monetary terms, the FRAND license rate would need to be approximately of the same value. Of course, this also raises the question of exactly what "nondiscriminatory" means. Are the two implementers similarly situated, or are they different in some material respect? Lots of unanswered questions.

      Delete