Recent developments in FRAND issues at the Unified Patent Court

With the Unified Patent Court (UPC) having issued its first two substantive decisions on FRAND (fair, reasonable and non-discriminatory) matters, the complex landscape of standard essential patents (SEPs) continues to evolve. Following the European Commission’s (EC) amicus curiae brief in the proceedings VoiceAge EVS v HMD before the Munich Regional Court, which criticises the German courts’ implementation of the FRAND defence as set out in the CJEU decision Huawei v ZTE, the decisions of the UPC’s Local Divisions (LD) Mannheim (Panasonic v Oppo – published here in German) and Munich (Huawei v Netgear – published here in German) were eagerly awaited to provide the first insights into how the UPC is likely to approach FRAND matters. 

Both LDs have broadly adopted the German courts’ approach regarding the antitrust law-based FRAND defence developed following the Huawei v ZTE decision, as opposed to the English courts’ approach of focusing on the determination of a FRAND rate. Both UPC decisions also refer to the EC’s amicus curiae brief, although the courts’ clearly stated view partially differs from the EC’s view. In this context, both LDs emphasized that they are not bound by the EC’s view due to the independence of the courts. 

Reasoning of the UPC decisions regarding the FRAND defence 

In both cases, the UPC found Oppo, respectively Netgear, to be unwilling licensees for not having behaved properly, meaning that the implementers did not comply with their obligations necessary to be able to rely on a FRAND licence. Therefore, the courts dismissed the FRAND defence and granted the injunction sought by the claimants. 

The UPC did not determine a FRAND licence rate itself, holding that it is not required to do so. This very much reflects the German national approach to FRAND and is distinct from the English courts’ approach, which is grounded in the parties’ contractual obligations under the relevant SDO’s IPR policy and what licence rate would be FRAND, as opposed to whether an injunction would violate antitrust principles. 

UPC v EC regarding the FRAND programme requirements?

The UPC’s approach shows a clear distinction from the EC’s approach presented in its amicus curiae brief in some respects, in particular with regard to the sequencing requirement of the steps of the test laid down in the Huawei v ZTE decision.

• SEP holder’s infringement notice (step 1): Contrary to the EC's view that the SEP holder’s infringement notice to the implementer must contain the express allegation of patent infringement, identify the patents concerned by their numbers and indicate the manner of infringement in the letter with the infringement notice itself, the LDs have stated that this would be too formalistic. However, the courts found that a reference to a generic website without easily accessible information on the specific patent in suit would also be insufficient. The specific assessment should be left to the competent courts.
   
• Implementer’s declaration of willingness to take FRAND licence (step 2): The EC emphasised that the implementer’s willingness to take a licence was only a formal step which should be assessed solely based on the circumstances and the content of the implementer’s response to the infringement notice. Both LDs have opposed this view, adopting the German approach, which considers particularly the conduct during negotiations to assess willingness. Although, the LDs agreed with the EC that the declaration of willingness forms the beginning of the licensing negotiations, they stressed that the sincerity of the declaration could only be assessed based on an overall view, including the subsequent conduct of the parties in the negotiations. 
   
• FRAND (counter)offer(s) (step 3 & 4): The EC repeatedly highlighted the sequencing of the single steps of the FRAND test in Huawei v ZTE, meaning that the SEP holder’s offer must fulfil the FRAND requirements before the implementer is expected to provide a FRAND counteroffer. It is generally agreed that “FRAND is a range”, meaning that there is more than one possibility for a FRAND (counter) offer. In deviation from that, the LD Munich pointed out that in the case of several offers, only the SEP holder’s last offer must meet the FRAND requirements.  

Seemingly in contrast to the CJEU’s Huawei v ZTE decision, the  LDs considered it sufficient for the SEP holder to initially provide general licensing terms, rather than a specific, ready-to-sign written licence offer if key economic issues are not already sorted out. They emphasised that this would be too formalistic considering that what can be expected largely depended on the other party’s behaviour.

Key takeaways 

The first substantive FRAND decisions of the LDs Mannheim and Munich provide first insights into how the UPC is likely to approach FRAND matters. Based on the court’s reasonings, diligent implementers should be aware of the following key takeaways for future FRAND negotiations and the presentation of arguments in court.

• Dominant market position: The implementer must conclusively establish the dominant market position of the patent holder with regard to the patent in suit in the court proceedings.
   
• Pool licence offer: If an SEP holder provides both a bilateral and a pool licence for the relevant technology, the implementer must prove in court that neither licence is FRAND. The SEP holder may also only offer a pool licence and is not obliged to offer a bilateral one. However, the pool licence itself must be FRAND to constitute a relevant offer.
   
• Infringement notice: Deficiencies in the SEP holder’s infringement notice must be addressed during pre-trial negotiations. If the implementer delays raising these issues for tactical reasons, the court may consider this behaviour as belated. A truly cooperative implementer interested in obtaining a FRAND licence would not act in such a manner.
   
• Objections to the licence offer: The implementer must address any substantive objections to the licence offer already during the pre-trial licensing negotiations, so that the SEP owner can adjust its offer if necessary. Holding back such objections to present them only in court to prove the offer was not FRAND, is insufficient. 
   
• Sales figures: When the SEP holder requests sales figures for its licence offer, the implementer must provide its own sales figures, not estimates provided by a third party. The SEP holder needs actual figures to make a licence offer and assess whether the provided security deposit covers the implementer’s potential insolvency risk.
   
• FRAND counterclaim: The UPC is competent not only to decide on an implementer’s FRAND defence, but also on a FRAND counterclaim, seeking a licence on FRAND terms. For a successful counterclaim, the implementer must, however, comply with the Huawei v ZTE requirements and, in particular, behave like a willing licensee. Additionally, the FRAND counterclaim must request a worldwide licence, not be limited to certain countries.

Outlook

While the approach that LDs outside Germany will take on FRAND issues will add more flavour to the landscape of FRAND at the UPC, the question remains how the UPC Court of Appeal with its multinational panels of judges will rule on these matters. Since Netgear took a licence to Sisvel’s pool including Huawei’s patent portfolio shortly after the LD’s decision, the judgment presumably will not be appealed. 

Similarly, if the rumours about the settlement between Panasonic and Oppo are true, the decision of the LD Mannheim will likely not be appealed either. Therefore, it may take some time until the Court of Appeal decides its first FRAND case.