An extract from The Intellectual Property and Antitrust Review, 6th Edition
As mentioned above, in the recent past, the application of IP-related competition law in Germany has remained dominated by the German courts' implementation and concretisation of the decision of the CJEU in the Huawei v. ZTE case on the question of the circumstances under which the assertion of SEPs constitutes an abuse of a market dominant position in the sense of Article 102 of the TFEU, and of the safeguards under which such an assertion constitutes the legitimate use of a granted exclusionary right.24i Dominance
The question of dominance linked to owning SEPs was not the subject matter of the questions referred to the CJEU by the Regional Court of Düsseldorf. Nevertheless, Advocate General Wathelet briefly commented on the issue by stressing that owning a SEP does 'not necessarily' mean that the patent owner holds a dominant position. The Advocate General went on to argue in a way that might be understood as him favouring a rebuttable presumption for market dominance as a result of owning a SEP; in any case, he stressed the importance for the national court to determine market dominance on a case-by-case basis.25 The CJEU did not deal with market dominance and confined its assessment explicitly to the criterion of an abuse in the sense of Article 102 of the TFEU.
German courts have not yet relied on a presumption of market dominance. In its decision of 26 March 2015 (i.e., prior to the CJEU's decision in Huawei v. ZTE of July 2015), the Regional Court of Düsseldorf 26 rejected the alleged infringers' antitrust objection, or 'FRAND defence', because it concluded that the plaintiff and patent owner could not be considered to hold a dominant market position. The Court stressed that there is no legal presumption linking SEP ownership and market dominance;27 rather, the existence of market dominance should be assessed on basis of the scope of the patent in suit and its actual significance in the relevant product markets. The Court specified that a SEP leads to market dominance where the use of the patent is mandatory to enter the relevant downstream product market or where it is at least necessary to compete effectively in the market. Accordingly, the Higher Regional Court of Düsseldorf stated in its decision of 3 March 2017 that a dominant market position of the patent owner has to be determined by the court, with the defendant having to bear the burden of evidence.28 Following this decision practice, the Regional Court of Düsseldorf recognised a patent holder who jointly licenses its patents with other patent holders via a patent pool administrative entity to be market dominant.29 This prevailing case law was finally also confirmed by the Federal Supreme Court. In its decisions of 5 May 202030 and 24 November 2020,31 it stated that a dominant position exists if a patent is standard-essential and its technical teaching cannot be substituted by another technical design of the product. Furthermore, the Court clarified that the dominant position ends with the expiry of the term of protection of the respective patent.
In cases where the CJEU's criteria are considered to be fulfilled (i.e., where an abuse by the plaintiff and patent owner is denied), there is a tendency not to address the patent owner's market position and leave it open as to whether the patent owner actually is market dominant.32ii Injunctions
The question of whether or not a SEP holder acts abusively within the meaning of Section 19 of the ARC and Article 102 of the TFEU by bringing an action of injunction against an alleged infringer has been dealt with by German courts for years. This case law has most importantly been framed by the Federal Supreme Court's decision of 2009 in the Orange-Book-Standard 33 case and a large number of subsequent cases of the instance courts.
Differing significantly from this German case law, the CJEU34 set forth specific requirements under which claiming for injunctive relie (or recall or destruction) is not abusive under Article 102 of the TFEU, which are detailed below.
First, prior to bringing an action, the SEP holder must alert the alleged infringer of the infringement complained about by designating the SEP and specifying the way in which it has been infringed.
Second, the SEP holder is obliged to provide an offer for a licence on FRAND terms after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms. This offer must also be submitted to the alleged infringer prior to bringing an action.35 It has to be stressed that the CJEU corrected the wording of the reasoning after it adopted the judgment, because of different interpretations on this point.
If the infringer does not accept the offer, he or she is obliged to make, promptly and in writing, a specific counter-offer that corresponds to FRAND terms and, if the counter-offer is rejected, from that point on to provide appropriate security, in accordance with recognised commercial practices.
Finally, 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'.
After the Huawei v. ZTE judgment was handed down, the German case law was initially focused on the question of whether some sort of 'transitional law' had to be applied to cases that were pending prior to the CJEU's judgment. In its judgment in May 2016, the Regional Court of Mannheim36 argued in favour of such a 'transitional law', and considered the plaintiff and patent owner in this case not to have acted abusively even though he did not entirely fulfil the CJEU's criteria as to the pretrial obligations; namely, the obligation to alert the standard user about the infringement by designating the SEP and specifying the way in which it has been infringed. The Regional Court of Mannheim mainly stressed that the patent owner, by bringing the action, had acted in good faith by applying the then existing German case law. The Court also interpreted the Huawei v. ZTE judgment as allowing the national courts to consider some of the CJEU's requirements not to be relevant, and based this interpretation, inter alia, on Paragraph 70 of the CJEU's decision, according to which 'it is for the referring court to determine whether the above-mentioned criteria are satisfied in the present case, in so far as they are relevant, in the circumstances, for the purpose of resolving the dispute in the main proceedings'. Nevertheless, in a later corresponding enforcement protection proceeding, the Higher Regional Court of Karlsruhe37 handed down a decision that criticised the first instance approach as such, but indicated that it is necessary to differentiate between a potential abuse in bringing action on the one hand and asserting the patent abusively up until the end of court proceedings on the other hand.
Comparable to the approach of the Regional Court of Mannheim, the Regional Court of Düsseldorf38 also decided in favour of a 'transitional period' in cases where the pretrial obligations set in the Huawei v. ZTE decision were fulfilled after bringing the action.
In a later decision, the Higher Regional Court of Düsseldorf even stressed the possibility to fulfil the pretrial obligations after bringing the action also in cases filed after the CJEU decision. In this regard, the Higher Regional Court of Düsseldorf (and also the Regional Court of Düsseldorf)39 generally accepts that the patent owner can still make a FRAND offer after proceedings have begun, if German procedural rules on delay are not violated.40
On the other hand, the Regional Court of Mannheim, which in the past has excluded the possibility of fulfilling pretrial obligations after bringing an action, explicitly considered changing its decision practice and allowing the patent owner to fulfil its FRAND obligations; in particular, revealing the calculation of the licence fee, after bringing an action.41 However, the Court stressed that this should not be seen as complete relativisation of the pretrial obligations and that certain conditions have to be met. In particular, in the Court's view, a patent owner who seeks to fulfil its pretrial obligations after bringing an action is obliged to re-establish a pressure-free negotiation situation (i.e., by suspending the proceeding temporarily) (according to Section 251 of the German Code of Civil Procedure) for the purpose of (settlement) negotiations. Against this background, the Regional Court of Mannheim42 dealt with the question, under which conditions a pressure-free negotiation situation is given, in a later decision. It decided that a pressure-free negotiation situation is granted only if a reasonable time period to assess the plaintiff's licence offer as FRAND was granted to the alleged patent infringer before continuing the trial. Subsequently, the Higher Regional Court of Karlsruhe issued a decision that reflected the view of the Regional Court, in terms of the possibility for the patent owner to fulfil the FRAND obligations after bringing action, and it provided the definition of a pressure-free negotiation situation.43 However, this question will now be answered by the CJEU by way of preliminary ruling proceedings following the decision of the Regional Court of Düsseldorf of 26 November 2020.44 More specifically, the Court poses the question of whether it is possible to legally enforce obligations of conduct (infringement alert, licensing request, FRAND-offer, etc.) in the course of court proceedings. This is intended to concretise the requirements set out by the CJEU in the Huawei v. ZTE decision, under which a claim for injunctive relief is not abusive.
One other major issue is the question of whether the Huawei v. ZTE criteria must be fulfilled 'step by step' or whether a more general approach, weighing each party's activities, is appropriate. Both, the Regional Court of Düsseldorf45 and the Regional Court of Mannheim46 initially applied a more flexible approach. They did not assess the FRAND character of the plaintiff's and patent owner's licence offer in each and every detail. Following a more general assessment, the courts finally left it open whether the plaintiff's licence offer actually was FRAND and considered the relevant defendants not to have acted diligently by failing to swiftly provide a FRAND counter-offer. The competent Higher Regional Courts of Düsseldorf47 and Karlsruhe48 respectively overturned this approach (in enforcement protection proceedings) and ruled in favour of a step-by-step approach, according to which a plaintiff's and patent owner's licence offer has to be scrutinised in detail as to whether it is FRAND; only upon such a FRAND offer are standard users and defendants then obliged to make a FRAND counter-offer.49 However, in its decision of 24 November 2020,50 the Federal Supreme Court is against a strict application of the Huawei v. ZTE steps and in this respect against the decision of the Higher Regional Court of Düsseldorf. According to the Federal Supreme Court, Huawei v. ZTE offers a negotiation programme that, if followed, excludes abusive conduct by the patent owner (safe harbour). In other cases, special circumstances may also justify stricter or less stringent conduct obligations to meaningfully balance the interests of the parties.
In its decision of 8 January 2019, the Regional Court of Düsseldorf51 also dealt with the question of whether the patent holder is obliged to provide a licence offer in cases where information about the patent holder's licence agreements or standard licence agreements are publicly available (e.g., on the patent holder's website). The patent holder and plaintiff argued that an obligation to provide a licence offer does not exist in the case of public availability of existing licence agreements or standard licence agreements. The plaintiff, thereby, referred to the Orange-Book-Standard decision of the Federal Supreme Court, which, in the plaintiff's opinion, continued to apply. In particular, the plaintiff held that the requirements set by the CJEU in its Huawei v. ZTE judgment should only apply in cases of information asymmetries between the patent holder and the alleged patent infringer in relation to closed licence agreements and applied licence fees. Nevertheless, the Regional Court of Düsseldorf refused to apply the criteria set in the Orange-Book-Standard case, confirming the infringer's obligation to provide a licence offer under FRAND terms regardless of the existence of publicly available information related to existing licence agreements. In this regard, the Court stressed that the Orange-Book-Standard decision took place long before the CJEU's Huawei v. ZTE judgment in which generally applicable criteria were set, and that there was no indication in the CJEU's judgment that the set criteria shall only apply in cases of information asymmetries between patent holder and alleged infringer. Furthermore, in the Regional Court's view, the patent holder's obligation to provide a FRAND offer, as set in the CJEU's decision, follows from the fact that holders of SEPs have committed themselves to license every willing licensee under FRAND conditions.
In a further decision,52 the Higher Regional Court of Karlsruhe discussed the issue of disclosure requirements by the patent owner of licence agreements with third parties. It stated that if a SEP holder's licence offer corresponds to a standard licence programme for the relevant patent and the standard licence programme is uniformly used by the SEP holder for the purpose of licensing the patent, then the SEP holder is only obligated to refer to the conformity of the licence offer with the standard licence programme. Conversely, if a SEP holder has entered into licence agreements with third parties with diverging terms and conditions, then the SEP holder is obliged to disclose and explain the major content of these agreements in a reliable manner to allow licensees to discern if and where it is applicable, and why different terms and conditions are being offered to them. Furthermore, if legitimate interests are shown to be affected by this kind of disclosure, a confidentiality agreement between the parties can be agreed to in order to allow necessary disclosures by the SEP holder. However, the Court stresses that a complete disclosure of third-party licence agreements is not necessary and therefore not required.
With regard to the SEP holder's obligation to alert the alleged infringer of a patent infringement, the Regional Court of Düsseldorf53 decided that the infringement alert does not require a detailed (technical or legal) explanation of the infringement. In the Regional Court's view and, in particular, in contrast to the decision practice of the Regional Court of Mannheim,54 the patent holder and plaintiff shall not be required to point out the patent's standard essentiality or to provide a claim chart to the alleged infringer. In the same decision, the Regional Court of Düsseldorf also stated that the requirement of an infringement alert is even fulfilled if it comes from another group entity; in particular, from the patent holder's parent company. Consequently, the obligation is also fulfilled in cases in which the infringement alert is sent to the alleged infringer's parent company. Furthermore, the Regional Court pointed out that the infringement alert may also be sent to the alleged patent infringer or its respective parent entity simultaneously with the licence offer. In this context, the Court also stated that the infringement alert must not necessarily be transmitted before any claim is filed (e.g., damage claims) but, in any case, must be brought before bringing an action for injunction. This case law of the instance courts was also confirmed by the Federal Supreme Court in its decision of 5 May 2020,55 in which it considered the infringement alert of the patent owner to be sufficient if the patent, the infringing act (e.g., by submitting claim charts) and the challenged embodiment are designated. It was precisely not necessary to provide detailed technical or legal explanations – the alleged patent infringer only had to be put in a position to be able to verify the allegation of infringement, if necessary, with external advice.
In its decision of 5 May 2020, the Federal Supreme Court also interpreted and applied for the first time the requirements defined by the CJEU in its Huawei v. ZTE decision, in particular with regard to the infringer's willingness to license, and confirmed its decisions made there once again in its subsequent judgment on 24 November 2020. In doing so, the Court placed high demands on the willingness to license and clarified (contrary to the previous case law of the instance courts) that it is not precisely sufficient if the infringer only shows willingness to consider concluding a licence agreement or to enter into negotiations about it. Rather, the Court requires a clear and unambiguous declaration of willingness to conclude a licence agreement on reasonable terms and must subsequently participate in the negotiations in a targeted manner. In this context, it refers to the High Court of England and Wales (J Birss), who, in the eyes of the Court, aptly expressed: 'a willing licensee must be one willing to take a FRAND licence on whatever terms are in fact FRAND'. Against this background, the Federal Supreme Court denied that the defendant was willing to take a licence in the case at hand, because the relevant letters merely expressed the hope that the defendant would enter into a formal negotiation ('We hope to have a formal negotiation with you') and asked for information about a prospective discount ('You mentioned that there will be a discount if we sign the licence timely. Please let me know the information such as specific discount amount and the current licence royalty arrangement . . .'). Rather, the patent owner could only conclude from this and from further letters from the defendant that the defendant was using delaying tactics.
However, the CJEU will finally assess the requirements to be placed on the characteristic of 'willingness to license' after the order for reference by the Regional Court of Düsseldorf of 26 November 2020. Specifically, the Court has asked the CJEU whether a willingness to license can only be assumed if a comprehensive assessment of all the circumstances clearly and unambiguously shows the patent user's intention to enter into a licence agreement with the patent owner on FRAND-terms, whatever these may be.
In another fundamental decision of 12 December 2019 on a FRAND-related cross-border dispute, a German higher court – the Higher Regional Court of Munich – upheld an interim injunction against an 'anti-suit-injunction' under US law56 for the first time, confirming the previous first-instance decision of 30 August 2019 of the Regional Court of Munich.57 The Regional court had issued an interim injunction upon submission of a patent holding company to prevent a US subsidiary of a patent infringing company filing an 'anti-suit injunction' against the patent holder in the United States. By way of such an 'anti-suit injunction', the patent holder should be prohibited from bringing suits outside the United States before a final decision of the US court regarding a worldwide FRAND-licence sought by the patent infringer. The Regional Court as well as the Higher Regional Court found that an 'anti-suit injunction' filed under US law, to prevent a patent holder from claiming for injunctive relief to protect its patent rights, constitutes an illegal attack on the patent holder's property-like legal position related to its patent. A patent holder must therefore be free to defend its property interest by suing a potential patent infringer, whereas the latter has the possibility to defend its patent usage by way of claiming a FRAND-objection within an infringement process.iii Licensing under FRAND terms
A major issue in the field of SEPs is the question of defining FRAND terms and conditions. Although a large number of German court cases have dealt with the FRAND defence to date, the exact determination of FRAND criteria remains open to discussion.58 One important aspect in considering the FRAND character of an offer is the established licensing practice of the licensor or of other market participants.59 Accordingly, the Higher Regional Court of Düsseldorf defined the term 'non-discriminatory' to the effect that the patent owner has to offer the willing licensee a licence on conditions similar to those offered to other licensees or that the patent owner comprehensibly shows reasonable grounds for an unequal treatment. In this regard, the Regional Court of Düsseldorf considered a patent holder's licence offer as not being FRAND (i.e., being discriminatory from the outset due to the fact that the patent holder enforced its patent rights selectively). In particular, the Court objected to legal action being brought against the alleged patent infringer when no legal action was brought against the defendant's competitors that used the disputed patent without the respective licence. The Court considered this conduct as de facto granting of free licences to some competitors while demanding remunerated licences from others.
Concerning the fairness of the offered conditions, the Court also pointed out that a FRAND offer must, in any case, cover all relevant (legal) business activities of the licence seeker. Carving certain business activities out of the licence offer would be exploitative and, therefore, would not comply with the established FRAND criteria from the Court's point of view.60
The Higher Regional Court of Düsseldorf 61 stated further that a judicial finding regarding a 'non-discriminatory' offer requires – especially with regard to the amount of the licence fees – specific submission of facts by the patent owner with respect to licence agreements with third licensees. In the Court's opinion, this would include specific statements to conditions agreed with other licensees as well as their importance on the relevant markets. Thus, the patent owner may not assert that a non-disclosure agreement with third licensees excludes a specific submission of facts.62 Furthermore, the Higher Regional Court of Düsseldorf stated in its judgment of 30 March 2017 that the higher the discount the patent owner grants to the licensee is, the higher the requirements to justify an unequal treatment of different licensees are.63 The Court considered several factors as relevant for determining the amount of the licence fee, such as quick acceptance of the licence and whether the licensee is the 'first mover'. However, in its decision of 17 November 2018, the Higher Regional Court of Düsseldorf stressed that there is no requirement for a mathematically precise derivation of FRAND-compliant licensing fees. Rather, what is required is an approximate decision reliant on estimates and valuations. Thus, the Court confirmed that comparable licensing agreements can constitute an important indicator for the reasonability of the proposed licensing terms and conditions.64 In an obiter dictum of its landmark ruling from May 2020, the Federal Supreme Court also stressed that the question of reasonable and non-discriminatory terms of a licence agreement regularly depends on a variety of circumstances of the individual case. However, the patent owner is not fundamentally obliged to grant licences in the manner of a 'uniform tariff' that grants all users the same conditions. In this context, the Court also stated that, in principle, the infringer bears the burden of proof for unequal treatment and obstruction by the patent proprietor; the patent proprietor bears the burden of proof for the justification of unequal treatment (i.e., the presentation of an objective reason). However, the patent owner has a kind of secondary burden of proof insofar as he or she must substantiate his or her licence claim to enable the licensee to verify the claim.
In its decision of 22 March 2019,65 the Higher Regional Court of Düsseldorf also dealt with the question of how FRAND terms and conditions must be defined in cases where patents previously included in a (split) patent pool have been transferred to different acquirers and, in particular, to what extent a patent acquirer is bound to the disposing patent holder's FRAND commitment made to the standardisation body. In doing so, the court also had to clarify the preliminary question on whether the patent was transferred to the plaintiff's patent acquirer at all. In this respect, the defendant and patent infringer claimed the invalidity of the patent transfer because the underlying transfer agreement did not provide the obligation for the patent acquiring party to take over the disposing patent holder's FRAND declaration; that is, the obligation to offer the patent licences only under FRAND conditions to willing licensees. The defendant considered this to be an abuse of a dominant market position because, in its view, the lack of such an obligation was intended to enable the patent acquirer to demand higher royalties than would have been possible under FRAND conditions. In this regard, however, the Court dismissed the defendant's objection of invalidity, arguing that once a FRAND commitment is declared by a patent holder, it is not then possible to transfer the patent independently so that the FRAND commitment is connected to the patent as a quasi 'right in rem'. Furthermore, the Court found that patent acquirers are not only bound by their predecessor's FRAND commitment 'on the merits', but are also bound to the extent that, as it concerns the future FRAND licensing of the acquired patent, they have to also consider the terms and conditions of all of their predecessor's existing licences, into which patent acquirers, in any case, enter automatically under German patent law (Section 15, Paragraph 3 Patent Act). According to the Court, the future licensing of the patent acquirer must, therefore, be in line with the patent disposer's previous licensing practice. The acquirer, in particular, may not rely on difficulties related to the previous disposing and splitting of the patent pool, which may complicate the calculation of a non-discriminatory licence. In this regard, there is already an obligation of the disposing patent holder, resulting out of his or her FRAND commitment, to provide the patent acquirer with the necessary information to ensure a non-discriminatory licensing. Furthermore, the Court stated that, in determining a non-discriminatory licence fee, the proportionate licence fee of the predecessor's entire portfolio attributable to the acquired part of the portfolio had to be taken into account.