On 30 March 2017, the Düsseldorf Court of Appeal ruled on two SEPs in proceedings between Sisvel and the Chinese smartphone manufacturer Haier (docket no. I-15 U 65/15 and I-15 U 66/15). These are the first decisions on the merits of a German Higher Regional Court on FRAND issues since Huawei v. ZTE.
The case related to proceedings initiated by Sisvel asserting two European patents, which had been declared essential for GPRS and UMTS. Haier raised the FRAND defence with regard to the motions for injunction, recall and destruction and argued that Sisvel had not complied with the obligations set forth by the Court of Justice of the EU (CJEU) in Huawei v. ZTE. In the first instance the patents were held valid and infringed and Sisvel also succeeded on the motions for injunction, recall and destruction. In this regard the Regional Court held that since Haier’s counter offer was late, there was no need to review Sisvel’s initial license offer at all. On appeal the Court of Appeal granted Haier a preliminary suspension of enforcement of the first instance decisions as far as the rulings for injunction, recall and destruction were concerned. Now, the Court of Appeal found that Sisvel did not comply with the ECJ’s requirements to be FRAND and, therefore, rejected claims for injunction, recall and destruction in the final appeal judgment.
Although reasons of the Court of Appeal’s decisions announced on 30 March 2017 are not yet published, the general concepts of the Court of Appeal were already apparent from a detailed guidance order issued on 17 November 2016 and remarks at the public announcement.
SEP owner has to provide comparable agreements
One of the most important aspects of the decision is that the SEP owner has to provide comparable license agreements with other licensees to show that its offer to the defendant is not discriminatory. In the underlying cases, it is understood that Sisvel provided other licence agreements but the Court of Appeal came to the conclusion that these prior license agreements did not contain equivalent terms compared to the terms offered to Haier and Sisvel could not sufficiently justify the differences. Therefore the Court of Appeal found that Sisvel’s offer was discriminatory and Sisvel’s motions for injunction, recall and destruction were abuse of a market dominant position under Art. 102 TFEU and had to be dismissed. The Court of Appeal dismissed the action as “presently unfounded”. Sisvel could make a new licence offer Haier on terms that are FRAND, and start an action if Haier refuses to take a license on FRAND terms.
Further matters from the guidance order of the Court dated 17 November 2016
Further aspects of the Court of Appeal’s approach to the FRAND assessment can be taken from the Court of Appeal’s guidance order dated 17 November 2017 in the same proceedings.
Though the CJEU guidance was that the SEP owner should provide its FRAND compliant licence offer before initiating court proceedings, the Court of Appeal was of the opinion that a failure to comply with this provision can be solved if the SEP owner provides its FRAND compliant licence offer during the proceedings. In any case, the license offer has to be in writing. The explanation of the royalty calculation, which is required according to the CJEU decision, can be provided in a separate letter.
To overcome the defendant’s objection that the license offer is not FRAND, the SEP owner has to provide comparable licence agreements for the same patent portfolio concluded with relevant competitors of the defendant. These comparable licences should also comprise agreements that were concluded by previous owners of the offered patent portfolio. This is highly relevant for patent assertion entities who acquire a patent portfolio, which had already widely been licensed in the industry by the previous owner.
Furthermore, it could be discriminatory if the SEP owner enforces its portfolio only selectively and cannot explain why certain competitors are exempted from enforcement.
As the Court of Appeal’s decision is the first decision of a Higher Regional Court in Germany after Huawei v ZTE, the Court of Appeal allowed a further legal appeal to the Federal Court of Justice. It remains to be seen whether Sisvel now continues to pursue its motions for injunction, recall and destruction at this level and thus whether the Federal Court of Justice has an opportunity to clarify the open issues in this case.