Based on two decisions of the Court of Appeal which were recently handed down in two patent cases brought by Philips, it can be concluded that the Dutch jurisdiction has become more friendly towards holders of Standard Essential Patents (SEPs). In these two important decisions, the Court of Appeal dismissed the ‘fair, reasonable and non-discriminatory’ (FRAND) defense of the defendants (respectively Asus and Wiko) and granted injunctions claimed by Philips. Under the assumption that these decisions have been served, the defendants are currently not allowed to sell their UMTS (3G) and LTE (4G) compliant products in the Netherlands.
The 2015 CJEU decision in Huawei v ZTE (case C-170/13) provided a procedural roadmap that sets out what the SEP holder and SEP user have to do at what point in time in negotiating a FRAND license, before the SEP holder can claim an injunction without breaching its FRAND obligations. The Court of Appeal summarized this roadmap as follows:
- The first step is that the SEP holder must inform the SEP user of the infringement, specifying the manner in which the SEP is infringed. This is also referred to as the notification obligation.
- The second step is that the SEP user then has to indicate that it is willing to conclude a license agreement under FRAND conditions: it must show itself to be a willing licensee.
- If these two steps have been completed, the SEP holder must make a license offer. The CJEU considered that the SEP holder should specify in particular the royalty and the method of its calculation when making its license offer.
- After that, the ball is in the court of the SEP user. It must follow up on this offer in good faith and in accordance with the customs of the trade with all due speed. If the SEP user does not accept the offer made to it, it can only claim that a claim for an injunction constitutes an abuse if it makes a concrete counteroffer to the SEP holder within a short period of time meeting the FRAND requirements.
The Court of Appel is of the opinion that Huawei v ZTE did not seek to establish strict rules, in the sense that if the SEP holder had not complied with any of the steps precisely and fully, this would directly and necessarily imply that enforcing its SEP would constitute an abuse of a dominant position, regardless of the further circumstances of the case. In those circumstances the SEP holder’s conduct may still not be abusive. Huawei v ZTE should be considered as providing guidelines setting out standard of behavior against which both parties’ behavior can be measured to decide in all the circumstances if an abuse has taken place.
On the one hand, the SEP holder can be expected to inform the SEP user of its SEPs, to be the first to make a license offer and to enter into negotiations about this in good faith before instituting an injunction action. On the other hand, the SEP user has to be willing and in particular not to apply any delaying tactics, which means, among other things, that it has to submit a written counterproposal swiftly if it does not want to accept the SEP holder’s license offer.
While Philips had complied with its notification obligation (step 1), based on the circumstances of the case, the Dutch Court of Appeal did not consider Asus and Wiko as willing licensees (step 2). As regards Asus, the Court of Appeal held that it did not adopt a constructive attitude in the discussions with Philips and that the requests for technical explanations apparently had the objective of avoiding a substantive discussion on the licensing terms and of causing as much delay as possible. This behavior is also referred to as ‘hold-out’ and was designated in Huawei v ZTE as ‘delaying tactics’. Wiko did not challenge Philips’ statement that it was an unwilling licensee. This means that Philips was not obliged to make a licensing proposal (step 3) and was free to initiate injunction proceedings.
Although Philips was not obliged to do so in the FRAND framework according to the Court of Appeal, it had made license proposals (step 3) and showed a willingness to negotiate a counterproposal. According to the defendants, Philips’ license proposal would not meet the conditions of Huawei v ZTE because Philips would not have specified that and why this proposal would be FRAND. Firstly, the Court of Appeal considered that the SEP holder does not have to prove that its offer is FRAND; the burden of proof is on the SEP user. Here, the Court of Appeal takes a different view than for example the German Courts (Mannheim Regional Court), which have taken the view that Huawei v ZTE does prescribe this obligation of substantiation for the SEP holder. Secondly, the Court of Appeal considered that, in this case, the SEP holder was not obliged to explain to the SEP user that its offer was FRAND, because Philips was not obliged to make a FRAND offer in the first place in view of the SEP user’s bad faith behavior.
Further, the Court of Appeal considered that showing a willingness to enter into negotiations on a license agreement, only after the injunction action has been brought, cannot ‘repair’ the prior unwillingness of the SEP user. A counteroffer made in this connection can at most lead to the SEP holder negotiating this in good faith with the SEP user (in parallel with the legal action), but cannot lead to the procedure already brought being regarded – in retrospect – as an abuse of a dominant position. This would open the door to delaying tactics on the part of the SEP user, which should be avoided.
As the Court of Appeal held the patent (EP 1 623 511) also valid and essential for the relevant standards, an injunction was ordered against the defendants.
In addition to this, the Court of Appeal answered the question whether a SEP holder is obliged to disclose a patent essential for the standard prior to the approval of the relevant part of the standard (the patent in suit was disclosed only three years thereafter). The Court of Appeal ruled that the patentee was not obliged to disclose its application prior to approval of the standard, and considered that terms as regards the timing of the disclosure obligation in the European Telecommunications Standards Institute (ETSI) IPR Policy (“in a timely fashion”) and ETSI Guide (“as soon as feasible”) are not defined. According to the Court of Appeal, a reasonable explanation is that this happens after the standard has been adopted and it is clear which technology is included in it. The Court of Appeal also considered that ETSI’s objective is more to achieve technically optimal solutions rather than to achieve an open standard free of patent rights.
These decisions show once again that the Netherlands is an attractive forum for SEP holders who want to enforce their SEPs in Europe.