Background

Under Art 102 TFEU the proprietor is required to license its standard essential patent (SEP) on FRAND (fair, reasonable, non-discriminatory)-terms (at least if the respective SEP provides for a dominant position in the market). Under the decision Huawei v. ZTE of the CJEU (C-170/13) it is now clear that the SEP-proprietor has to provide a license offer in line with FRAND-requirements to a SEP-user (potential defendant) before initiating proceedings for an injunction.

In this context, the Düsseldorf Court of Appeal now expects the SEP-proprietor as claimant to provide evidence that the license offer is in fact FRAND-compliant and specifically not discriminatory. This is a substantial change compared to the German case law prior to the CJEU-decision Huawei v. ZTE. In decisions prior to Huawei v. ZTE, the SEP-user had the full burden of proof to show that the SEP-proprietor’s license offer was discriminatory. However, this proof was very difficult for the SEP-user without access to the SEP-proprietor’s prior license agreements and the German Courts usually did not require the SEP-proprietor to disclose such prior license agreements.

The disclosure of prior license agreements by the SEP-proprietor as a means of evidence raises concerns in terms of confidentiality. Apart from the SEP-proprietor’s own confidentiality interests, third party interests are likely to be affected by the obligation to disclose concluded licensing agreements.

In two orders dated 14 December 2016 and 17 January 2017 (docket number I-2 U 31/16) the Düsseldorf Court of Appeal gave important guidance on how to balance the SEP-proprietor’s interest in confidentiality and the SEP-user’s interest in understanding the terms of other licenses.

Order dated 14 December 2016

In the order dated 14 December 2016 the Court of Appeal denied the SEP-proprietor’s motion to exclude (by way of Court order) the defendant from taking notice of certain pleadings of the SEP-proprietor in the proceedings. According to the SEP-proprietor’s motion only the attorneys of the defendant would be entitled to access the respective pleadings.

The Court of Appeal held that the current German law does not provide for such an order excluding the defendant from crucial information filed with the Court. The defendant has a right to be heard and this includes access to all pleadings and information filed in the litigation. In the absence of a waiver of this right by the defendant (which the defendant refused to give), the Court therefore cannot enjoin the defendant to take notice of the pleadings brought forward by the claimant.

The Court of Appeal then referred to the possibility that SEP-proprietor and defendant could conclude a confidentiality agreement stipulating that the (to be) disclosed information is only used for the purpose of the SEP-litigation and must not be disclosed to a third party. The Court emphasised in this regard that also the defendant is obliged to support the FRAND-negotiations. As a result, according to the Court, the defendant is obliged to enter into an NDA with the SEP-proprietor because otherwise the SEP-proprietor is not in a position to produce material e.g. prior license agreements, if those agreements contain confidential information.

The Court gave the parties the possibility to respond to the Court within a timeframe of three weeks and in particular requested the SEP-proprietor to specify which information should be made subject to confidentiality.

Order dated 17 January 2017

With order dated 17 January 2017 the Court of Appeal in turn rendered an order that inter alia defined the scope of the confidentiality agreement to be concluded between SEP-proprietor and defendant.

The Court made clear that a refusal to conclude the confidentiality agreement would be taken into account when judging the FRAND-defence. Should the SEP-proprietor refuse to sign a reasonable confidentiality agreement, the SEP-proprietor’s prior license agreements would likely not become part of the evidence in the proceedings and in consequence the absence of discrimination in the license offer to the defendant could not be reviewed. Should the defendant as SEP-user refuse to sign the confidentiality agreement, this would impact the assessment whether the SEP-user is in fact a “willing licensee” entitled to the FRAND-defence under the Huawei v. ZTE decision.

The Court of Appeal identified the respective documents, as well as the corresponding text passages in the SEP-proprietor’s briefs, that it considered needed to be covered by the confidentiality agreement. The Court of Appeal further set out that these documents/text passages were to be disclosed only to four employees of the defendant that have to be explicitly named by the defendant with exact name and function within the defendant’s company. The defendant should only be allowed to convey the confidential information to experts who will support the defendant in the litigation. The names and addresses of these experts would also have to be disclosed to the SEP-proprietor.

The defendant also has to ensure in the confidentiality agreement that the employees and the experts to whom the confidential information is communicated are also bound by obligations of confidentiality. With regard to employees, this confidentiality obligation is to survive the termination/expiry of the employment contract. The defendant is to be held liable for breach of the confidentiality agreement by its employees as well as its experts to the same extent as for its own breach.

The Court order further sets out that the confidentiality agreement should foresee that for every violation of confidentiality a considerable contractual penalty of 1 million EUR should be due. This is a sizeable sum that was obviously intended to deter the defendant from breaching its confidentiality obligations. It can however be questioned whether such a high amount is appropriate in every case.

The Court of Appeal also set out several exceptions from confidentiality (knowledge of the confidential information already prior to communication by the other party; communication of the confidential information by a third party and/or by publicly available sources after conclusion of the confidentiality agreement) and further brought forward that, amongst other things, the burden of proof regarding these exceptions should rest with the defendant.