Monday, July 11, 2016

The New German FRAND Case

As I mentioned last week, on the Kluwer Patent Blog Hetti Hilge recently published  a post titled German FRAND Update (available here) discussing the district court decisions to date; the January 13, 2016 decision of the Oberlandesgericht Düsseldorf (which I blogged about here); and a more recent decision that I hadn't previously come across, the May 31, 2016 judgment of the Oberlandesgericht Karlsruhe, 6 U 55/16, which agreed with the Oberlandesgericht Düsseldorf.  Now that I've had a chance to read this latest decision, I can state that I agree with Ms. Hilge that the new decision follows the Oberlandesgericht Düsseldorf.  The basic facts are as follows.  The plaintiff, owner of a FRAND-committed SEP, sued the defendant for infringement in the Mannheim District Court.  The defendant argued that the plaintiff's request for injunctive relief amounted to an abuse of dominant position under the CJEU's Huawei v. ZTE  decision.  As I have noted previously, in July 2015 the CJEU held as follows:
[60]  . . . 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.

[61]  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. . . .

[63]  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. . . . 

[64]  As the Advocate General has observed in point 86 of his Opinion, where the proprietor of an SEP has given an undertaking to the standardisation body to grant licences on FRAND terms, it can be expected that it will make such an offer. Furthermore, in the absence of a public standard licensing agreement, and where licensing agreements already concluded with other competitors are not made public, the proprietor of the SEP is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer.

[65]  . . . [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.

[66]  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.

[67]  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.

[68]  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.
As in the case before the Oberlandesgericht Düsseldorf earlier this year, the question presented in the new case was whether the district court must ascertain whether, under Huawei v. ZTE, the plaintiff's offer was FRAND or whether instead the competition-law defense is inapplicable when the defendant does not fulfill its responsibility of responding to the plaintiff's offer in a timely fashion, etc.  As in the Düsseldorf matter, the appellate court here (reversing the district court) holds that the district court must first determine whether the plaintiff's offer was FRAND.  Here, the district court didn't do so, stating only that the competition law defense is not available unless it appears on summary examination that the offer was evidently non-FRAND (and that the offer doesn't have to be exactly FRAND, but perhaps can be a bit above).  That isn't good enough, according to the appellate court, even though determining a FRAND rate can be tough; and so the matter now returns to Mannheim for further proceedings. The one bright spot for SEP owners is that the German courts are not strictly requiring that the FRAND offer be made prior to initiating litigation, at least for cases that were filed prior to Huawei v. ZTE.

For further discussion of the German FRAND decisions to date on this blog, see, e.g., here.

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