Will the new ruling of Germany’s highest court harmonise FRAND case law in Germany and beyond?

In a landmark case concerning standard essential patents (SEPs), the German Federal Court of Justice (FCJ) gave its decision in the case of Sisvel v Haier (KZR 36/17). The decision is important as it is the first FRAND case heard by the FCJ since the ‘Orange Book’ decision, which gave rise to the Court of Justice of the European Union’s (CJEU) decision in Huawei v ZTE (C-170/13).

The Orange Book decision had imposed a heavy duty on infringers of SEPs seeking a FRAND licence. This decision was later overturned by the CJEU, which held that SEP holders and implementers are both responsible for negotiating FRAND licences.

Following a number of divergent and disparate decisions from the patent courts in Düsseldorf, Mannheim, Munich and elsewhere, which had interpreted the CJEU’s decisions on FRAND differently, the FCJ’s decision helps harmonise SEP and FRAND law in Germany. It will no doubt also influence the European landscape.

Background to the dispute

These proceedings concern SEPs owned by the Sisvel Group. Sisvel had sued the Chinese consumer electronics manufacturer, Haier, for infringement of its SEPs for the 2G/GPRS mobile telecommunication standard, even though Haier had made Sisvel a licence offer. In 2015, the Regional Court of Düsseldorf held that Haier had infringed two of Sisvel’s SEPs. The Düsseldorf court also found that the SEPs were essential for the 2G/GPRS mobile telecommunication standard.

The Appeal Court found that SEP holder Sisvel violated its FRAND obligations by granting significant benefits (exorbitant discounts) to its existing licensee Hisense, while not offering equivalent benefits to Haier. The Appeal Court also found that Sisvel had no sufficient justification for treating Haier differently from Hisense. Through this discrimination, it was said that Sisvel abused its dominant position in the licensing market as a SEP holder.

The German Federal Court of Justice

Upon a further appeal to the FCJ, an oral hearing took place on May 5th 2020. At the conclusion of the hearing, the presiding judge, Judge Peter Meier-Beck, overturned the appeal court decision and effectively reinstated the first instance decision, i.e. Haier had infringed the SEP and acted as an unwilling licensee in the FRAND negotiations, and so had not fulfilled the requirements for a compulsory licence.

The full reasoning behind the FCJ’s decision is not entirely clear, as the written judgment has yet to be published.  However, it is reported that the judge made a number of observations during the hearing concerning the negotiation of licences on FRAND terms following the CJEU’s landmark ruling in Huawei v ZTE. Reportedly, the judge put great emphasis on an obligation in the CJEU’s decision as to the importance of the willingness to enter into a licence, and this was of greater significance than the judge’s observations below.

The judge’s observations include:

SEP holders

• SEP holders may violate their FRAND obligations if they do not provide implementers with necessary and sufficient information required for an implementer to make a FRAND offer, or for an implementer to consider if it is compliant with an offer made by a SEP holder; and
• The information that SEP holders must provide includes details of any existing licences and any information pertaining to why it may treat the implementer differently to other existing licence holders.

Implementers

• Implementers may violate their obligations by not negotiating in good faith or by employing delaying tactics. In delivering his decision, Judge Meier-Beck quoted from the English decision of Mr. Justice Birss in Unwired Planet v Huawei when he said “a willing licensee must be one willing to take a FRAND licence on whatever terms are in fact FRAND;” and
• Implementers must do more than simply declaring that they are willing to take a licence, and must make a concrete licence offer.

Finally, the FCJ also considered whether Sisvel was justified in offering less favourable terms to Haier than it had to Hisense. Interestingly, the FCJ noted that Sisvel was under some pressure from a foreign government to offer favourable terms to Hisense. In such circumstances, the FCJ stated that Sisvel may have a basis for treating Haier differently, as the terms offered to Hisense were not the result of pure inter partes negotiations, and were impacted by other factors, and so may not have set the FRAND standard.

Comment

This is an important decision in the context of the FRAND landscape in Germany and Europe, and shows a willingness to look to the English courts for assistance on these questions. The FCJ’s decision comes at a time when the patent community is awaiting the UK’s Supreme Court ruling in Unwired Planet v Huawei, a case in which the Supreme Court will decide whether a UK court may order a global licence and set a global licence rate for multinational patent portfolios.  What is clearer is the need for an assessment of the willingness of parties to enter into a licence, so where, as here, Haier were found not to have been fully and clearly willing to enter into a licence, this counted against them.  It is illustrative to consider the written grounds of the second instance judgment, where the IP director of Haier’s holding company recorded:

“… Re the licensing issues of the Wireless Patent … we hope to have a formal negotiation with you … You mentioned that there will be a discount if we sign the license [in a] timely [manner]. Please let me know the information such as the specific discount amount and the current license royalty arrangement …”

Whilst this shows interest in the licence, the FCJ concluded it only showed a willingness to negotiate, not a willingness to take a licence on whatever terms were/are FRAND. So a failure to be more explicit that the licence, if FRAND, would be accepted, let Haier down.  Accordingly, parties need to be unambiguous and express in their intentions.