EU-driven game changer ahead for German SEP litigation?

With the much-contested EU Regulation on SEPs and FRAND licensing in the pipeline, the European Commission has demonstrated that it considers SEPs a matter of priority and made waves by entering into German SEP litigation by submitting "observations" in appeal proceedings before the Higher Regional Court (OLG) Munich. 

This move could signal a major turning point in German SEP case law that tech companies who market connected devices or devices that make use of other technological standards in Germany, but also all owners of SEPs, should be alert to.

Technology standards, SEPs and FRAND

Countless technological devices in our modern world rely on the implementation of communications and other technology standards such as 4G/LTE, 5G, Wi-Fi or USB which are set by standardisation bodies like the European Telecommunications Standards Institute (ETSI). 

The underlying technology is usually protected by various patents that are essential, i.e. indispensable for a product’s compatibility with the standard, hence the name standard-essential patents (SEPs). As a quid pro quo for the inclusion into a standard and the technological lock-in effect this creates as all users of the standard will necessarily need to use the patent, SEP holders are usually required to make an irrevocable commitment that they will licence their SEPs to any interested party on fair, reasonable and non-discriminatory (“FRAND”) terms.

Commission reprimands German courts for contravening EU law

The determination of FRAND licensing terms and the process for companies to negotiate them has been a highly contentious issue and kept courts around the globe quite busy. 

The landmark EU judgment in Huawei v. ZTE established a framework of steps and obligations for FRAND negotiations. In a nutshell, before parties enter into negotiations:

• the SEP-holder must first give the implementer a notice of infringement, 
• the implementer must express its willingness to conclude a licence. 

German courts have struggled to implement this framework in the wake of the Federal Court of Justice’s (FCJ) judgments in Sisvel v. Haier  (read more) but there has been much debate over whether German courts’ approach is consistent with the Huawei/ZTE framework. 

Broadly speaking, the German courts assess the implementer’s willingness on a case-by-case basis, including its behaviour over the entire FRAND negotiation process and, in most cases, deem the implementer unwilling to conclude a licence.

This approach has come under scrutiny by the Commission submitting amicus curiae observations to the OLG Munich in VoiceAge EVS v. HMD, an appellate proceeding revolving around speech-coding technology and the Enhanced Voice Services Standard. To date, the Commission has rarely made use of this instrument, which is also not customary at all in Germany, with the current observations being the first in four years and only the second ever in Germany. In its observations the Commission emphasises that: 

• the Huawei/ZTE framework should be assessed step by step in the exact order as set out by the CJEU; 
• it views the first two steps (notice of infringement and declaration of willingness to obtain a licence) as formal stages in preparation of the negotiations and formulates stricter requirements for the notice of infringement, in stark contrast to the German courts’ holistic approach; 
• the different steps must not be mixed up with one another and that the declaration of willingness to obtain a licence must not be assessed against the implementer’s subsequent behaviour; 
• the notice of infringement cannot be “cured” at a later stage, meaning the injunction should be denied if the SEP-holder gives no or an insufficient notice of infringement.

Against this backdrop, it seems fair to say that the Commission’s observations constitute somewhat of an antipode to the German courts’ approach. They also indicate quite clearly that the Commission believes the German courts’ practice to contravene EU law by not adhering properly to the Huawei/ZTE framework. 

To round off its reprimand, the Commission “encourages” the OLG Munich several times to stay the appellate proceedings and refer any remaining “uncertainties” to the CJEU under Art. 267 TFEU. In addition to its written observations, the Commission appeared in the oral hearing before the OLG Munich. According to first reports, the OLG may be inclined to deviate from German case law and require a security by the implementer before moving to a FRAND determination by the court. 

However, it seems reluctant to initiate a referral to the CJEU by itself although it indicated it would allow another appeal to the FCJ in its judgment. In theory, the FCJ would then be obligated to refer the case to the CJEU for a preliminary ruling according to Art. 267(3) TFEU.

Looking ahead: game changer on the horizon?

The involvement of competition authorities in SEP and FRAND contexts is not unprecedented. 

• A decade ago, it was the Commission’s Decisions against Motorola and Samsung that ultimately triggered the referral leading to the CJEU’s preliminary ruling in Huawei v. ZTE. In that case the Commission found that the two SEP-holders had abused their dominant market position by seeking injunctions against willing licensees.
   
• In 2020, during the “Automotive Patent Wars”, the German Federal Cartel Office submitted an opinion to the Regional Court (LG) Mannheim in Nokia v. Daimler (read more), recommending that the court stay its proceedings for a referral to the CJEU. The LG Düsseldorf later did exactly that in a parallel proceeding (see here), but before the CJEU could hand down its ruling, the parties settled the case.

It remains to be seen whether there is a game changer in store for the German SEP litigation landscape, either through a new approach by the OLG or a potential new referral by either the OLG or the FCJ. 

A new preliminary ruling by the CJEU is likely to be as influential as Huawei/ZTE and has the potential to overturn the precedent in German SEP litigation created by the Sisvel decision. This would mean a paradigm shift for SEPs in Europe towards a more implementer-friendly approach even before the planned SEP Regulation comes into force. 

No matter the outcome, these are exciting times for SEP/FRAND disputes and tech companies should keep an eye on German SEP developments in the near future!