The IPKat is delighted to receive this guest report on the latest development in the ongoing FRAND wars, this time from Germany and concerning the requirements for a FRAND offer. Rien Broekstra and Gaëlle Béquet of Brinkhof (Amsterdam), who represent Wiko in the parallel Dutch litigation, are the authors.

On 30 October, the higher regional court (“OLG”) of Karlsruhe handed down its first decision on the merits on FRAND (case number 6 U 183/16) since the landmark CJEU ruling in Huawei v. ZTE. It confirms that holders of Standard Essential Patents (“SEPs”) must comply with certain (information) duties vis-à-vis willing licensees in order to avoid contravening Article 102 TFEU, and that the date of filing of a complaint is not a cut-off date for fulfilling duties under the Huawei framework.

The facts of the case

Plaintiff and SEP holder Philips notified defendant and implementer Wiko on 28 July 2015, that Wiko’s sale mobile phones allegedly infringed Philips’ SEPs. The notification contained partial mappings of claim features of the patent in suit to the UMTS and LTE standards implemented in Wiko’s phones, and a license offer. Wiko’s reply, wherein it indicated that it was willing to negotiate a license, was received by Philips on 21 October 2015. Two days earlier, Philips had filed infringement lawsuits against Wiko. During the proceedings, Wiko made a counteroffer backed up with a matching escrow. Negotiations took place during the proceedings, but parties did not reach agreement on a FRAND license.

The decision

Regarding FRAND, the decision revolves around the nature and extent of the obligations for SEP holder and implementer that flow from Huawei, and around the question whether these obligations must be fulfilled before a lawsuit is filed.

Nature: non-compliance with Huawei duties will, as a rule, lead to a finding of abuse

The OLG reiterates the criteria set out by the CJEU, which – if followed by the SEP holder – exclude abuse of a dominant position. The court characterizes these criteria as formal and material duties (“Pflichten”) on the SEP holder. Among the duties of the SEP holder is the provision of a written license offer on FRAND terms, as well as the provision of information with regard to the royalty. The duties, however, only exist vis-à-vis an implementer that shows itself to be a willing licensee by meeting certain obligations (“Obliegenheiten”).

The OLG is of the opinion that, if the SEP holder does not follow these duties, the pursuit of an injunction claim will, as a rule, amount to abuse of dominance. If, however, the implementer does not meet its obligations or is employing delaying tactics, the duties of the SEP holder will be suspended, and the pursuit of an injunction can be justified.

Timing: complaint filing date is not a cut-off date

The OLG does not set stringent demands on the first Huawei duty: the SEP holders infringement alert. The alert must put the implementer in a position to assess whether the infringement allegation is prima facie without merit. For that purpose, claim charts are not necessarily required. The time allowed to the implementer for making such assessment is relatively short. The almost three months that had passed between Philips’ alert and Wiko’s reaction was deemed too long.

However, the OLG is of the opinion that both SEP holder and implementer can make up failures in meeting their obligations after a lawsuit was filed. The OLG held that it is not contrary to the CJEU’s decision to qualify the pursuit of an injunction as abusive only after the (initially non-abusive) filing of a lawsuit, for example, when the implementer complies with its obligations only after being sued. The OLG is of the opinion that the obligation to grant a license on FRAND terms, as well as the negotiation obligations set out in Huawei, exist regardless of the existence of lawsuits.

The OLG goes on to explain that, in view of the principle of proportionality, it is not necessary to curtail the rights of a SEP holder by denying him the possibility to make up compliance failures after filing suit, as the SEP holder can always avoid undue pressure on the implementer e.g. by suspending the proceedings. Likewise, the OLG does not think it necessary to curtail the implementer’s right to a FRAND license by denying the implementer similar make up possibilities. The OLG notes that this does not give the implementer the possibility to delay the proceedings, since the risk associated with late compliance remains with the implementer. E.g. if due to late compliance of the implementer, there is insufficient time within the proceedings for the SEP holder to comply with subsequent duties, the pursuit of an injunction will not constitute abuse.

Extent: SEP-holder must substantiate FRANDness of license offer

According to the OLG, the information duty following from Huawei § 63 requires that the SEP holder present the implementer with information on objective circumstances that allow the implementer to determine whether the license offer from the SEP holder is FRAND. While the duty does not generally require disclosure of the full content of all license agreements concluded with others, it does require that the implementer is put in a position to assess if and why he is treated differently from existing licensees. Absent such information, the implementer cannot meaningfully assess the SEP holder’s license offer.

In the case in point, there was at least one lump sum license concluded with another party with conditions different from the license on offer. Philips was therefore obliged to disclose and explain at least the essential conditions of that license. Since it did not offer any explanation, Philips was held not to have complied with its information duty.

The OLG does not find relevant, and does therefore not assess, whether Philips’ license offer was in fact FRAND. By not fulfilling its information duties, Philips undermined expedient negotiations for a FRAND license. Therefore, the pursuit of injunction, recall and destruction claims constitute an abuse of a dominant position. These claims are therefore denied.


Comment

The decision strengthens the German body of appellate level FRAND case law on the Huawei obligations [see e.g. here]. However, it is becoming increasingly apparent that there are serious divergences in the application of supposedly uniformed European law in various member states – in particular in Germany, the United Kingdom and the Netherlands.

On the nature of the obligations, the Karlsruhe appeals courts appears to be stricter than its British and Dutch counterparts. These have so far viewed the steps in Huawei as guidelines for good faith negotiations. When fulfilled, the SEP holder is in a safe harbor, and starting injunction proceedings will not amount to an abuse of dominance. If a SEP holder steps outside of these bounds, it does not necessarily contravene Article 102 TFEU. Rather, the court then needs to assess based on the circumstances of the case whether or not there is abuse of dominance.

The OLG acknowledges that abuse is to be assessed based on all circumstances of the case. Nevertheless, the decision firmly indicates that in that assessment, the correct fulfillment of duties by the SEP holder carries considerable weight – in particular the information duty. The pursuit of an injunction while failing to comply with a duty will, as a rule, constitute abuse (unless the implementer is being non-compliant).

On timing, the German decision is largely in line with the UK courts – there, the CoA held that its approach on timing was indeed consistent with the flexible approach taken earlier by the German courts. It is, however, fundamentally different from the approach of the Dutch CoA, which is of the opinion that, at least within the context of Huawei, the moment of bringing the action is decisive.
On the extent of the obligations for the SEP holder, in particular on the substantiation requirements of the FRAND offer, the approaches of the German and Dutch courts are diametrically opposed.

The OLG is clear that there is a separate duty on the SEP holder to explain and substantiate why its offer is FRAND. Non-fulfilment of this duty alone makes the pursuit of an injunction abusive. Moreover, the OLG suggests that in legal proceedings, the burden of proof of FRANDness of the offer may well be on the SEP holder, not the other way around.

In contrast, the Dutch court ruled earlier in the parallel Dutch case (on essentially the same facts) that Huawei does not impose an obligation on the SEP holder to explain, substantiate or prove the FRANDness of the offer. The burden of proof of FRANDness was held to be on the implementer – and the SEP holder was not obliged to provide any information, even when it was clear that different licenses had been concluded.

The OLG realizes that the interpretation of the obligations under Huawei, in particular on timing and extent of obligations, needs further clarification. It therefore allowed a further appeal to the Federal Court of Justice. The Dutch cases referenced above are in the stage of Supreme Court appeal already. It will be interesting to see whether the highest instances will provide alignment on these issues, or whether they will decide to refer the matter to the CJEU.

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via Defense News

An interesting case has been decided by the German BGH on 12 May 2010. A private individual left his home WiFi router unsecured (on factory default settings). Someone downloaded a copyright protected piece of music using the unsecured WiFi spot. The owner could show that he was, at the time of the download, on vacation and could therefore not have been the one downloading. The owner of the copyright in the song sued for copyright infringement, asking for an injunction and financial damages.

The first instance court both issued an injunction and found the owner of the WiFi spot liable to pay damages. The second instance court reversed and dismissed the claim of the copyright holder.

The German Supreme Court (BGH) distinguished between the injunction and the financial damages: the owner of the WiFi spot could be enjoined, but was not liable for financial damages. He was not required to use the latest, state of the art security technology to secure his WiFi router, but at the time of the installation common precautions against the use of the WiFi spot by unknown third parties had to be taken (this means using the WEP encryption option, I guess). The defendant could be forced to take the necessary precautions and has to bear the legal costs for the lawyer's letter by the copyright owner (Abmahnkosten). He was a "Störer", but not a "Täter", i.e. not personally committing the infringement. He also was not an abetter to copyright infringement, because he lacked the necessary intent to support the infringement. Therefore, he could not be held liable for financial damages.

Whether you should leave your WiFi home network open is hotly debated (it could also be against the terms of use of your ISP). Some advocate that the openness of the Internet and the sharing culture speak for leaving WiFi networks unsecured. Others warn against the dangers this might expose your computer to. In Germany, there is now another reason for switching on the encryption.