SEP disputes – the willing licensee takes on a new look – German perspectives (Part 1/3)

A key determinant in patent infringement disputes relating to standard essential patents (SEPs) is the assessment of whether the user of a standard has been willing to take a licence from the SEP owner.

Understanding the tests applied by the courts is key to ensuring minimal standards are met throughout negotiations.

In a three-part series of posts, we will examine how the courts in Germany, the Netherlands and the UK have dealt with the 'willing licensee' requirement.

The so-called fair, reasonable and non-discriminatory (FRAND) defence to a patent infringement claim brought by the owner of an SEP is a defence strategy relied on by a standard user arguing that an SEP holder has sought unjustifiably high licence fees. In its decision Huawei v ZTE, the European Court of Justice (CJEU) imposed multi-step obligations for negotiations (often referred to as the 'patent dance') on both the SEP holder and the standard user. A party’s success on FRAND-related proceedings is, in some jurisdictions, closely linked to the courts being satisfied that each of those steps have been fulfilled – separate from the technical issues arising out of patent validity and infringement issues.

What has been the German courts’ position to date?

In Germany, the courts of first instance have interpreted the CJEU’s test as a series of mutual obligations building on one another: each obligation only arises once the other party has (fully) fulfilled its own preceding obligation. The German courts of first instance have previously held that the initial obligation falls on the patent proprietor – an injunction will be ruled out from the get-go if the patentee failed to comply with its obligations such as pointing out the details of infringement and offering a FRAND-compliant licence. This placed the primary responsibility for complying with Huawei on the patentee.

A significant shift – the German Supreme Court’s decision in Sisvel/Haier 

The German Federal Court of Justice (the German Supreme Court) handed down its first decision in Sisvel/Haier on 5 May 2020, and its detailed reasoning was made available on 8 July 2020. This decision marks a significant shift in the German approach to the concept of 'willing licensee'.

The German Supreme Court has now ruled that a licensee can only be considered willing if it has seriously and purposefully participated in the negotiation with the SEP owner. The court shifted the focus from the patent holder to the implementer because of growing concerns that standard users were using negotiations as delaying tactics, often up until the time the relevant patent had expired.

In light of these concerns, the Federal Court of Justice considered that the obligation of the patent proprietor to inform the infringer of the infringement and put forward a licence proposal only makes sense if the infringer clearly and unambiguously declares its willingness to conclude a licence agreement on FRAND terms and purposefully collaborates in negotiations aimed at concluding the licence agreement. The Federal Court of Justice quoted Birss J’s UK High Court judgment, according to which the standard user willing to license must be someone who is willing to agree to a FRAND licence on FRAND terms (whatever those terms may be).

This decision means that a standard user will likely get little sympathy from German courts if its only defence to an SEP infringement action is that the patent proprietor has not fulfilled its FRAND obligations. Implementers therefore need to consider carefully how they respond to a FRAND licensing approach, even if the patentee has not fully complied with its Huawei obligations. The Federal Court of Justice indicates that German courts will no longer consider the patentee’s conduct in a vacuum – they will look at the patentee's duty of conduct in conjunction with the standard user's efforts to actually conclude a licence.

In light of this, what effort is sufficient effort, as far as the implementer is concerned? 

Of course, the answer will depend on the individual facts. In the Sisvel/Haier decision, the Federal Court of Justice reviewed documents, adopting an unusual level of granularity, examining statements made by the parties as well as words used by the user of the standard. Those statements were interpreted according to the recipient's (ie the patent holder’s) understanding. The Federal Court of Justice made clear that Haier simply expressing a hope to enter into licence negotiations, while enquiring about potential discounts, was not enough to make them 'willing'.

Interestingly, the Supreme Court found that a declaration of willingness expressed as being conditional upon the determination of the legal validity and infringement of the patent in suit, did not meet the requirements either (although the court pointed out that this did not mean that after the conclusion of the licence agreement, an examination of the validity and use of the licensed patents could not be carried out).

Finally, the Federal Court of Justice held that the implementer’s conduct over time was relevant – did the parties come any closer to agreement in the course of negotiations? Or did the standard user maintain its original position throughout? The Federal Court of Justice has warned that insisting on a detailed explanation of the patent infringement prior to any further steps could be seen as a delaying tactic on the standard user’s part. The court also confirmed that the SEP owner’s obligation does not go beyond what one party is fairly required to disclose in contractual negotiations for a portfolio licence – detailed technical or legal explanations on the use of a patent are not necessary. However, if it is unclear whether the infringement allegation is justified, then the parties can be expected to enter into a discussion on that.

Practical steps

In light of the Federal Court’s decision, we’ve summarised below some baseline practical steps that implementers should take when confronted with licence claims from SEP holders:

• The implementers must unconditionally declare that they are prepared to agree to a license on FRAND terms.
• In the further course of the negotiations, the standard user should always pursue a solution-oriented and goal-oriented negotiation strategy to drive negotiations forward – the dispute should concentrate on the core contentious points. The standard user should not halt the negotiations simply because it considers that the patent proprietor has fallen short of fulfilling its own duties.
• An unambiguous signal of willingness to license is the deposit of a security for the patent owner's licence claims. The Federal Court of Justice does not comment on this point, but the court referred to its 'Orange Book Standard' case law, which confirms this point. Therefore implementers may also consider making a financial deposit to demonstrate the extent of their 'willingness', especially if the patent owner is challenging this point.

Frank-Erich Hufnagel, head of our patent litigation group in Dusseldorf and Munich, contributed to an expert panel discussion on the Sivel/Haier case – the recording is available (in German) here.