On 8 February 2017, the Dutch district court in The Hague ruled for the first time in the Netherlands since the Huawei decision on standard-essential patents (SEPs) and Fair Reasonable and Non-Discriminatory (FRAND) issues.
The case related to proceedings launched by Archos in response to infringement cases brought in the same court by Philips against Archos on the Dutch parts of three Philips European patents that it had declared essential to the UMTS (3G) standard for mobile communication. Archos raised a FRAND defence to infringement on the basis that Philips had not complied with its obligations under the Huawei decision to offer a licence on FRAND terms. The Archos arguments were rejected by the Court and we examine possible reasons.
Before the start of the infringement proceedings the parties had engaged in negotiations about a license agreement for Archos for the entire Philips patent portfolio relating to the UMTS (3G) and LTE (4G) standards. Philips has given FRAND declarations to the relevant standards body ETSI, entailing that any user of the standard (and thus the declared Philips patents) could obtain a license from Philips on FRAND terms. Since the judgment of the CJEU in the Huawei case, holders of SEPs should comply with a specific regime before launching infringement proceedings (see discussion above). In the case of non-compliance, the SEP holder may be found to have abused its dominant position in breach of article 102 TFEU.
Philips made a license offer to Archos in July 2015, after which several meetings took place between Philips and Archos in which a license was discussed. In the final meeting, Archos indicated that it would only take a license if it would not cost more than “a couple of thousand euros”, otherwise Philips had to take Archos to court. After Philips initiated the infringement proceedings, Archos made a counter-offer. In addition to its defence in the patent infringement proceedings, it sought declarations from the Court that:
- Specific licence amounts/percentages as calculated by Archos were in fact FRAND (license fee of € 0.007 for each device sold that incorporated the UMTS standard and € 0.020 for each device that incorporated both UMTS and LTE and alternatively that a percentage of 0.071% over the net turnover would constitute a FRAND royalty rate).
The court was specifically asked to give a ruling on the “FRANDness” of the license proposals of both parties.
Decision of the Court in The Hague
The Court noted (at para 4.2 of its decision) that Archos, as the claimant that had brought declaratory proceedings, it carried the burden of proof. The Court noted that Archos had not argued the burden should shift to Philips because of the special position of Philips as a SEP-holder, who possesses the information to determine how FRAND its offer really is. This was despite mention in Advocate-General Wathelet’s opinion preceding the Court of Justice of the EU decision in Huawei v ZTE that such a shift of the burden of proof may exist in a SEP context. In fact, Archos apparently claimed it could prove Philips’ offer was not FRAND on the basis of public information.
The Court indicated inter alia that FRAND is a range (para 4.4). Both the offer of the SEP-holder and the counteroffer of the SEP-user must be FRAND, but that does not mean they must be exactly the same.
The Court noted that a large part of the negotiation history took place before the Huawei judgment. The Court noted that before Huawei, the jurisprudence (Philips / SK Kasseten in Holland and Orange Book in Germany) required the SEP-user to take the initiative of making a FRAND license offer, rather than the SEP-holder. According to the Court this meant the Huawei judgment justified a “moment for new negotiations” between Philips and Archos.
The Court decision analyses thoroughly Archos submission regarding the Philips FRAND offer and Philips’ rebuttal. However, in the Court finding against Archos it is noted that it could have raised points during the course of the negotiations. Both parties submitted expert reports, but the Archos report did not convince the Court.