FRAND litigation at the UPC: Disclosure of SEP licences – what do we know so far?

Comparable licence analysis is one of the main techniques used by courts to determine FRAND royalty rates for SEPs since negotiated licence agreements, once adjusted for comparability, are one of the most direct indications of the market value of the patented technology. However, licence agreements often contain material in which confidentiality is claimed by one of the parties to a dispute or by third parties. The disclosure of comparable licences has therefore become an important procedural issue in FRAND disputes. This article discusses two judgments that provide an early insight into the approach to licence disclosure in UPC FRAND disputes.

Panasonic v Xiaomi¹

This judgment relates to an application in which the applicant (Panasonic) sought an order for production directed against itself. In particular, the applicant sought an order requiring it to produce two licence agreements that it was unable to produce of its own volition without a court order, due to confidentiality clauses contained in the agreements. The court ordered production of the licence agreements, but permitted redaction of passages that were not referred to in the applicant's factual assertions or legal arguments.

Legal basis for production orders

As a general comment in the judgment, the court explained that the relevant UPC legal framework for the FRAND defence is European antitrust law, particularly Articles 101 and 102 TFEU, which have been further developed in the case law of the European Court of Justice (CJEU) in Huawei v ZTE². The judgment emphasises that the UPC must respect the fundamental primacy of EU law and must take this into account when interpreting its procedural law and considering how to apply it (see Panasonic v OROPE below).

The judge-rapporteur, Dr Tochtermann considered the procedural basis for the order requested and concluded that under Article 43 UPCA the court was under an obligation to actively promote proceedings and had wide-ranging case management powers, which are set out in the Rules of Procedure. For example, according to R. 103 of the Rules of Procedure, the judge-rapporteur can request that the parties clarify certain points (R. 103(a)), answer specific questions (R. 103(b)), submit evidence (R. 103(c)) or submit specific documents (R. 103(d)). The court can therefore make orders, including production orders for comparable licences, if there are no legal reasons to the contrary.

It is worth noting that the applicant applied for the production order on the basis of either R.172.2 or R.190, R. 191 of the Rules of Procedure, which the judge-rapporteur did not consider relevant. He explained that R. 172.2 is not a suitable basis for a production order for comparable licences since it relates to the production of evidence that is in the control of a party and is referred to in its statement of fact. The factual content of the comparable licence agreements is unknown before production and the dispute normally relates to the legal conclusions drawn from the facts set out in the comparable licences, rather than the facts themselves. R. 190.1 is also not directly applicable since it also relates to evidence required to prove disputed facts. Its purpose is to assist a party that needs evidence to support a factual submission when the evidence lies in the control of the opposing party or a third party. By contrast, the applicant was seeking a production order against itself.

Timing of the production order

Dr Tochtermann also commented on the timing of FRAND production orders, opining that before issuing an order, the court should consider whether an obligation to provide the requested information would be proportionate given the stage of the proceedings. He noted that there are conflicting factors that should be taken into account. On one hand the FRAND defence only becomes relevant if the patent in suit is valid and infringed, however this legal determination often only takes place after the oral hearing (or, if applicable, after the panel has held an interim hearing at which the issues could be examined in sufficient depth). On the other hand, if comparable licences are disclosed late in proceedings, it could necessitate the submission of further written pleadings, which would result in considerable delay. He further noted that transparency early in disputes can also improve the likelihood of the parties reaching a settlement.

As a consequence of the above factors, the court concluded that before an order for disclosure of comparable licences is issued, it will generally be necessary to reach a procedural stage in which both sides have positioned themselves on the antitrust aspects in the main pleadings – this is usually at latest with the reply to the infringement action. Up to this stage of the proceedings, both sides can request consent from their respective licence agreement partners to submit any relevant licences, so that they can make a substantiated submission before the UPC.

Based on this judgment, it is clear that SEP holders or implementers can ask the UPC to order the disclosure of specific comparable licence agreements in SEP cases and the court can use its wide-ranging powers to order the production of these agreements. Given that the UPC Rules of Procedure do not provide for the production of comparable licences as a part of standard disclosure, parties should ensure that they apply for a production order at an appropriate stage in proceedings.

Panasonic v OROPE³

In pre-litigation negotiations prior to the Panasonic v OROPE litigation, the claimant referred to two settlement licence agreements, which it then submitted in the proceedings. The defendants also used two agreements as their reference point and voluntarily produced these. The defendants subsequently submitted applications requesting the production of a number of further licence agreements including all agreements concluded by the claimant, as well as those to be concluded in the future regarding 3G and/or 4G SEPs and the agreements concluded by third parties in their possession. These applications were rejected by the court.

Antitrust obligations and the scope of production

In its judgment, the court applied the framework from the CJEU decision in Huawei v ZTE in the context of confidentiality protection. It noted that if an infringer has expressed its intention to conclude a licence on FRAND terms, the SEP owner is required to submit a specific written licence offer on FRAND terms, and in particular, to indicate the licence fee and the manner in which this was calculated. The court described the consequences of this obligation on the scope of any production order for comparable licences. It concluded that an order could be inappropriate if the alleged infringer were to be assessed as unwilling to take a licence from the outset. If this is the case, there would be no justification for granting it access to the SEP holder's licensing practice in response to a request for production.

The court also concluded that the scope of any production order should be decided against the background of the SEP holder's duty of transparency in the negotiations, established by the CJEU: the SEP holder must make transparent why it believes that the offer it submits to the alleged infringer complies with FRAND conditions. The necessary justification can be provided, for example, by referring to a licensing practice already established in the market in the form of a standard licensing programme. If no such programme exists, specific individual licence agreements can be used as a benchmark if it is explained why the SEP holder is of the opinion that these can be used as a suitable reference point in comparison with the alleged infringer.

In this case, the court described the defendants' requests as "too vague and too broad as a mere request for information". The defendants had not argued with sufficient substance in the proceedings that there was at least a sufficiently concrete presumption that the claimant had in fact concluded further contracts with third parties that were suitable reference points. The claimant had also not referred to other agreements that it considered suitable as a basis for comparison, but had only made statements of a general nature regarding the market share it covered in the pre-trial negotiations.

The court in Panasonic v OROPE did not consider it necessary at the stage of the proceedings reached, in which no decision had yet been made on the question of the defendants' fundamental willingness to license, to order the further submission of all unnamed licence agreements of the claimant covering the 3G and/or 4G portfolio against the background of the transparency obligation derived from EU antitrust law. In reaching its conclusion, the court also took the principle of proportionality and interests of third parties (contracting parties to the licences) into account (see below).

Proportionality and third parties

The court stated that the principle of proportionality and the respective interests of third parties should be taken into account when weighing up whether to order the production of documents. In this case, the Local Division Mannheim considered the licence agreements and expert opinions already submitted in the proceedings to be sufficient. The court considered this decision to be in line with the “recognized commercial practices” in the relevant area, which the CJEU has placed at the core of its guidance for negotiating FRAND-compliant licenses. The CJEU's view is that in a results-oriented negotiation on a FRAND-compliant licence, willing negotiating partners on both sides would also limit themselves to a manageable number of settlement licence agreements and discuss these in the course of the negotiations. Otherwise, the negotiations would be overloaded with an unmanageable amount of facts, which would not allow the business negotiations to progress in a timely manner.

A key takeaway from this order is therefore that parties engaged in UPC FRAND disputes should ensure that any applications to bring comparable licences into a case are precise and adequately explain why the licences requested would be a suitable basis for settlement.

Guidance on comparable licence disclosure so far

Although there have been no UPC decisions on a FRAND defence yet, the orders discussed in this article that have been issued by the LD Mannheim indicate that the UPC judges are prepared to make use of their discretionary power under Article 43 UPCA to order parties to disclose comparable licence agreements provided that the requests are targeted and submitted at an appropriate stage of the proceedings, however it is still early days and since powers are discretionary, some differences between divisions may emerge over the coming months.

^{1 See the Order dated 30 April 2024 by the Local Division Mannheim in Panasonic v Xiaomi, APP_14035/2024, UPC_CFI_218/2023} 

^{2 Huawei v ZTE (ECLI:EU:C:2015:477)}

^{3 See the order dated 16 May 2024 by the Local Division Mannheim in APP_4391/2024, UPC_CFI_216/2023}