German Federal Court of Justice Hearing on FRAND

On 5 May 2020, a day long-awaited by the international patent community, the German Federal Court of Justice heard the patent infringement case of Sisvel v Haier (case reference KZR 36/17).

Following Haier’s successful FRAND defence before the Dusseldorf Court of Appeal, in this case, the Federal Court of Justice finally had a chance to take a stand on the manifold FRAND issues raised by diverging decisions in lower instance courts over the past years. It is the first FRAND case before the Federal Court of Justice since the “Orange Book” decision, which gave rise to the European Court of Justice’s decision Huawei v ZTE. After the hearing, the Court handed down its ruling and denied the FRAND defence. The reasons for the decision are not yet available, but the Presiding Judge’s remarks during the hearing already provide useful insights.

Rather surprisingly, the Presiding Judge left most of the fiercely debated FRAND issues, like the royalty calculation or the burden of proof, untouched when presenting the Court’s preliminary view. In the Court’s view, the Court of Appeal wrongfully assumed Haier’s willingness to take a FRAND license by applying a low legal standard in its assessment. The Federal Court of Justice indicated that instead a high standard should be applied, arguing that the alleged infringer might be required to

clearly and unambiguously convey the willingness to take a license on FRAND terms, even if this means to accept painful and expensive conditions, as long as these conditions are in fact FRAND.

In this regard, the Presiding Judge made reference to Justice Birss’ remark in the UK High Court case Huawei v Unwired Planet by explaining that an alleged infringer must be ready to take a license on whatever terms are in fact FRAND.

Being of the preliminary opinion that both content and timing of Haier’s response did not live up to this standard, the Court presumably denied the FRAND defence due to lack of compliance with this second step of the negotiation regime laid down in Huawei v ZTE. Consequently, during the hearing the Court did not provide any views on other issues, such as the requirements to the plaintiff’s FRAND offer and the calculation of the FRAND royalty, the requirements to the security provided by the defendant and the possibility to remedy non-compliance with the Huawei v ZTE regime during pending infringement proceedings.

Following vigorous objections by Haier’s attorney and critical comments by the Federal Cartel Office’s representative, the Presiding Judge added some clarifying remarks. Accordingly, it was not the Court’s preliminary view that a first reaction to the patentee’s notice of infringement is the only decisive factor for the defendant’s willingness to take a FRAND license, but rather that the defendant’s entire conduct must be considered. However, in the Court’s preliminary view Haier’s entire conduct did not live up to the appropriate high standard. While this overall consideration of the defendant’s conduct suggests also taking into account statements and offers made during pending proceedings, the Court apparently concluded that Haier’s conduct during the proceedings did not justify a decision in Haier’s favour.

It will be interesting to see how the fact that license negotiations between the parties did nonetheless take place and offers were in fact exchanged is dealt with in the Court’s written reasons. After all, it was Haier’s firm position during the hearing that irrespective of the words chosen in their response the history of the licensing negotiations proves Haier’s willingness to take a FRAND license, and that even Sisvel must have understood Haier’s response in such a way.

In this context, Haier argued that it had made a counter-offer to Sisvel, which it regards as FRAND and stressed that a party who makes a FRAND counter-offer cannot be considered an unwilling licensee. Since the Court of Appeal left open whether Haier’s counter-offer was FRAND, Haier made the interesting procedural argument that the Federal Court of Justice will either have to remit the case to the Court of Appeal to review Haier’s offer for FRAND compliance or, in case the Court issues a final decision, decide on the basis of the assumption that Haier’s offer was in fact FRAND.

The patent community now awaits the written decision in this landmark case. It remains to be seen how much guidance and, hence, harmonization the German Federal Court of Justice will eventually provide. Based on the Court’s remarks in the oral hearing, it appears that the requirements for defendants, who want to rely on a FRAND defence, may become stricter in Germany in the future. Defendants are well advised to respond to licensing requests from SEP holders in a timely manner and communicate their willingness to take a FRAND license without too many conditions or limitations. In any event, both parties to FRAND negotiations will certainly have to align their strategy with a view to German infringement proceedings – and might have to do so now, if such negotiations are pending.