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Article: April 2016: EU Litigation Update

April 01, 2016
Business Litigation Reports

Asserting Standard Essential Patents (SEP) in Europe After the European Court of Justice’s Huawei v. ZTE Decision. In its Huawei v. ZTE decision (C-170/13) of July 16, 2015, the European Court of Justice (ECJ) set out a new framework under which the owner of a standard essential patent (SEP) can seek injunctive relief against an infringer without abusing a dominant position under Art. 102 TFEU. To balance the parties’ interests, the ECJ established a six-step approach:

1. The patentee must first notify the defendant of the alleged infringement;
2. The defendant then must show its willingness to license on FRAND terms;
3. The patentee must make a specific, written offer for a license on FRAND terms;
4. The defendant must diligently respond to that offer in accordance with recognized commercial practices in the field and without delaying tactics;
5. If the defendant rejects the patentee’s offer, it must make a counter-offer on FRAND terms; and
6. If the patentee rejects the counter-offer, the defendant must provide appropriate security (including for past use) and be able to render an account of its acts of use.

By setting out these six steps, the ECJ brought much needed clarification for the assertion of SEPs and also the defense against such assertions after the Commission had indicated in earlier statements that it would not follow the approach the German courts had practiced after the German Supreme Court’s Orange Book decision in 2009. Half a year after the ECJ’s judgment, the first decisions of the German courts implementing the new rules have been handed down.

In its judgment, the ECJ had already indicated that the aforementioned rules would not apply to claims for damages. This view was shared by the District Court Mannheim in a recent case, in which the plaintiff sought a declaratory judgment confirming the defendant’s liability for damages (District Court Mannheim, judgment of February 26, 2016, case no. 7 O 38/14).

In Sisvel v. Haier, the District Court Düsseldorf (judgments of November 3, 2015, case nos. 4a O 93/14 and 4a O 144/14) rejected the defendants’ FRAND defense and granted an injunction because it found that the defendants had not met their obligations as set forth by the ECJ. In detail, the defendants had rejected the patentee’s license offer for allegedly not meeting the FRAND requirements. The defendants made several counter-offers that were all rejected by the patentee for various reasons, for example because it wanted to license the parent company including all subsidiaries and not just one of the subsidiaries (step 5). The Düsseldorf court did not find it relevant whether or not the initial offer made by the patentee was on FRAND terms (step 3). Instead, the court held that a defendant must make a counter offer on FRAND terms in any event, i.e. even if it was entitled to reject the patentee’s offer for not being FRAND. Additionally, the court held that the defendant would have to comply with the requirements of step 6 from the time the plaintiff rejects its counteroffers.

On appeal, the Düsseldorf Court of Appeals stayed the enforcement of the injunction because it found that the District Court’s decision was not in line with the principles set out by the ECJ. According to the Court of Appeals, the steps laid out in Huawei v. ZTE are strictly sequential. The alleged infringer is only called on to satisfy the conditions imposed on it once the SEP owner has first satisfied its own obligations. The District Court’s failure to consider the question of whether the SEP-owner’s first license offer was compliant with FRAND principles meant that it had applied the ruling of the ECJ in Huawei v. ZTE incorrectly.

A few weeks after the decision of the District Court Düsseldorf, the District Court Mannheim also issued an injunction in favor of an SEP owner rejecting the defendant’s FRAND defense because it did not show its willingness to take a license on FRAND terms (Saint Lawrence Communications (SLC) v. Deutsche Telekom, judgments of November 27, 2015, case nos. 2 O 106/14, 2 O 107/14, 2 O 108/14). The court found it to be irrelevant that the plaintiff only informed the defendant of the alleged infringement (step 1) after the complaint had already been filed but not yet served. It held that in any event the defendant could have shown its willingness to license during the proceedings, but failed to do so and therefore did not meet the requirements set out by the ECJ. More specifically, the defendant could not just refer to the willingness of its suppliers to take a license but had to show that it itself was willing to take a license, especially if there is doubt as to whether the suppliers conform to the ECJ’s requirements for a willing licensee. Indicating the willingness to take a license three months after notification of the infringement was deemed too late. In addition, the Mannheim Court agreed with the Düsseldorf District Court that it did not matter whether the patentees first offer was, in fact, a FRAND offer. The appeal is pending.

The decisions so far show that the German courts have not yet found a consistent approach in applying the principles established by the ECJ in Huawei v. ZTE. It is not settled whether or not the six steps established by the ECJ are strictly sequential, such that an obligation for a party to take a certain step only arises once the other party has complied with its duties as sequentially set out in the six step approach. Different from the German Supreme Court’s approach under the Orange Book regime, the ECJ has burdened both parties equally.

Thus, it is not only critical for the owner of an SEP to develop a strategy in order to show compliance with the ECJ’s requirements, but also for the defendant.