• Referral to the CJEU regarding the requirements of the FRAND defense against injunctions based on standard related patents (“SEPs”) -

The Düsseldorf Regional Court („Landgericht Düsseldorf“) decided on 21 March 2013 to stay proceedings between China’s two largest telecommunications hardware manufacturers Huawei and ZTE and to refer five questions to the European Court of Justice (ECJ) for a preliminary ruling concerning the availability of remedies (primarily, but not only injunctive relief) to holders of FRAND-pledged SEPs prevailing in patent infringement actions (docket number 4b O 104/12).

In the case at hand, the defendant raised the “FRAND defense”, under which the patent proprietor would be required to license his patent under fair, reasonable and non-discriminatory terms, in order not to violate antitrust law (abuse a dominant position on the market). The particular requirements of this defense, i.e. which offer of a defendant may be considered FRAND, so that it can not reasonably be rejected by the patent proprietor, are in Germany currently governed by the approach taken by the Federal Supreme Court in its Orange-Book-Standard decision (cf. BGH, GRUR 2009, 694 – Orange-Book-Standard). According to this approach, the requirements that the defendant has to comply with are very strict. Recently, on December 21, 2012, the EU Commission published a press release in the Samsung v. Apple case, from which it may be inferred that it does not apply such a strict approach. The Düsseldorf Court in the case at hand thus had to decide if it would keep applying the Orange-Book-Standard approach, or refer the case to the ECJ for clarification, to determine if this approach is in line with EU Law, or if a different approach should be followed.

The “Orange Book Standard” decision of the German Federal Supreme Court

According to German Federal Supreme Court’s landmark decision “Orange-Book Standard” (GRUR 2009, 694 – Orange-Book-Standard), a defendant in a patent infringement case may successfully raise an anti-trust defense against the issue of an injunction where the asserted patent is standard-essential and the defendant has tried to obtain a license to the patent under fair and reasonable conditions. According to this approach, an offer of the Defendant for closing a license contract must meet the following requirements, for it to be considered as a proper defense in infringement proceedings and to have the effect that not accepting this offer by the patent proprietor may be considered a violation of antitrust law:

  • The offer for a license has to be unconditional and binding - i.e. it can not be based on a court actually finding infringement of the patent(s) or a competent body confirming validity.
  • The offer must include a calculated FRAND royalty – which is, of course, difficult to determine in most standard cases, which may have thousands of essential patents.
  • In further, if use of the patent has been made before the patent proprietor has agreed to the license offer of the defendant, the defendant has to act as if it´s proposed license offer were already accepted, i.e. has to act like a licensee in good standing. Accordingly, a defendant has to: (i) provide regular accounting and (ii) transparently calculate royalties and (iii) regularly transfer royalty payments to an escrow account to which the patent proprietor has access without further (i.e. can accept the offer at any time).

The European Commission’s view: Is willingness to negotiate sufficient?

In contrast to the German Federal Supreme Court’s approach, the European Commission expressed a less strict approach in a recent press release dated 21 December 2012 concerning potential patent abuses in the mobile communications market (cf. http://europa.eu/rapid/press-release_IP-12-1448_en.htm). The European Commission expresses its preliminary view that seeking injunctions on the basis of SEPs amounts to an abuse of a dominant position if the defendant is merely willing to negotiate a license on fair, reasonable and non-discriminatory terms. In such case, enforcing an injunction harms competition because the potential licensee is excluded from market access without justification. The preliminary view of the Commission in its press release did, however, not determine any criteria under which such a willingness to negotiate a license may practically be assumed.

The five questions referred

While in the present case, when applying the criteria of the decision “Orange-Book Standard” ZTE’s objection would not have been successful, Huawei’s action would have had to be dismissed when applying the Commission’s view because ZTE was willing to negotiate a license.

Although the Düsseldorf Regional Court had no obligation to make a reference under Art. 267 para 3 of the Treaty, it nevertheless exercised its discretion according to Art 267 para 2 of the Treaty because of the significant relevance of this question, given the large number of patent infringement litigation concerning SEPs throughout Europe.

These are the five questions the Düsseldorf Regional Court referred to the EJC to answer:

  1. Does an SEP owner who declared himself willing, vis-à-vis a standard-setting organization, to grant a license to all comers on FRAND terms, abuse his dominant market position if he seeks injunctive relief from a court of law against a patent infringer despite the infringer having declared himself willing to negotiate such a license


is it a requirement for the presumption of abusive conduct that the infringer has made a binding offer to the SEP owner on terms that the SEP owner cannot refuse without treating the infringer unfairly or discriminatorily and [furthermore requires that] the infringer, in anticipation of the license he is seeking, already complies with his contractual obligations with respect to past acts of infringement?

  1. In the event that a presumption of abuse of a dominant market position may already result from the infringer's willingness to negotiate:

Does Art. 102 TFEU involve specific requirements for said willingness to negotiate in substantive and/or chronological terms? Can such a presumption be based merely on the infringer's (oral) declaration in broad and general terms of his willingness to enter into negotiations or does such a presumption require that the infringer has indeed entered into negotiations, such as by, for example, communicating terms and conditions under which he is prepared to conclude a license agreement?

  1. In the event that the [infringer's] submission of a binding offer to conclude a license agreement is a requirement for an abuse of a dominant market position:

Does Art. 102 TFEU involve specific substantive and/or chronological requirements with respect to such an offer? Does the offer have to set forth all of the commercial terms that in accordance with relevant industry practice are usually set forth in such license agreements? Can the offer be conditioned upon actual use and/or validity of the SEP-in-suit?

  1. In the event that the infringer's [precontractual] fulfillment of obligations arising from the requested license is a requirement for an abuse of a dominant market position:

Does Art. 102 TFEU involve particular requirements with respect to such acts of fulfillment? Is the infringer required, in particular, to make disclosures relating to past acts of infringement and/or to pay [precontractual] royalties? Can an obligation to pay [precontractual] royalties also be fulfilled by giving security?

  1. Do the requirements for the presumption of abuse of a dominant market position by an SEP holder also apply to other remedies for patent infringement (disclosures relating to past infringement, recall [of infringing products from distribution channels], damages)?

The opinion of the 4b Chamber of the Düsseldorf Regional Court

The Düsseldorf Regional Court also expressed its own view on a potential answer to the referred questions:

It should not be sufficient for a FRAND defense if the infringer only demonstrates its willingness to negotiate. The Düsseldorf Regional Court underlines the significant contribution of patents to new technological developments. Furthermore, Europe-wide and public available (industry) standards are necessary to ensure compatibility, interoperability and facilitate access to the market, which is beneficial to competition. Therefore, even if the patent was contributed to the standard, to protect his legal position, the holder of an SEP must be able to seek an injunction in principle. As a general rule, there is no abuse of a dominant market position by the mere exercise of legal rights, except if particular circumstances render injunctive relief an abuse of law.

On the one hand, due to possibility of enforcing injunctive relief, the holder of an SEP has a dominant position when negotiating a license, in particular with a view to royalty fees. He must not abuse this dominant position by demanding a license that does not meet the FRAND requirements. On the other hand a patent infringer shall not be placed in a better position than a rightful licensee who pays the appropriate royalties – otherwise patent infringing behavior would even be rewarded.

According to the opinion of the Düsseldorf Regional Court, the criterion of willingness to negotiate leaves a – too – broad scope of different interpretations. It must be ensured that the infringer does not simply create the impression of being willing to negotiate for tactical reasons only without actually having the serious intention to do so. Rather, specific requirements as to quality and timing are necessary to determine whether the infringer is indeed acting fair. In this regard, it might be required that the infringer indeed entered into negotiations by submitting an offer to the patentee under which he is willing to conclude a license agreement.

While the referral of the Düsseldorf Regional Court seems to indicate a general preference for the approach taken by the Federal Supreme Court in “Orange Book Standard”, when asking for a specific license offer of the infringer, there are significant differences compared to the strict requirements established in “Orange Book Standard”. Most prominently, the Düsseldorf Regional Court indicates that conditional license offers covering only products which actually infringe and offers reserving the right to contest the patent’s validity, might be sufficient to establish a FRAND defense.

Comments by TaylorWessing

The referral is of significant importance for the any standardised industry where SEPs are enforced, in particular the telecommunication and electronics industry. At present, no information on the timeline of the CJEU is available. Based on the experience in other referral cases, it can be expected that the Opinion of the Advocate General might only become available in around year and the decision of the CJEU will follow some months thereafter.

In the meantime, it will have to be taken into account that – at least before the Düsseldorf Court – cases of SEPs, in which a motion for an injunction is asserted and the Defendant has declared a serious willingness to discuss a license, will likely be stayed. In how far also other German (and perhaps also other European) courts – in particular the Mannheim and Munich courts – will accordingly stay similar cases, is presently not clear. Interestingly, the Mannheim Court, which pronounced a decision between the same parties also with a view to an SEP just a week before the referral, still followed the Orange Book approach. To avoid a stay and any potential conflicts with antitrust law, it can presently be an option for a patent proprietor of an SEP with a potential Defendant willing to discuss a license, to abstain from asserting a motion for an injunction until the referral questions have been answered.