Germany: Higher Regional Court Karlsruhe Rules On The Enforcement Of An Injunction Against A Potential Infringer Of A Standard Essential Patent

In a summary review decision issued on 23 April 2015, the Higher Regional Court Karlsruhe ("Court") stayed the execution of a ruling by the Regional Court Mannheim which had granted injunctive relief against a vendor of mobile phones that potentially infringe a Standard Essential Patent ("SEP").

The claimant in the underlying case is Saint Lawrence ("Claimant"), a patent licensing company that had acquired from the patent applicant a European Patent concerning the technique and fixture for adaptive bandwidth pitch search for the coding of broadband signals which is used for the manufacturing of mobile phones ("the Patent"). The Claimant alleges that devices which are compliant with the European Standard AMR-WB 3GPP TS 26.190V11.0.0 ("Standard") make use of the Patent. The defendant in the underlying case, the incumbent German telecommunications company Deutsche Telekom ("Defendant"), sells telecommunications services and mobile phones that comply with the standard and thus incorporate the technology that includes the subject matter of the invention at the basis of the Patent. Deutsche Telekom purchases the mobile phones using the standard from manufacturers, some of which are acting as interveners in the proceedings (HTC, Huawei Technologies and Sony Mobile Communications).

At the time of the patent application, the patent applicant had offered to grant licenses to use its patent on fair, reasonable and non-discriminatory ("FRAND") terms. However, that offer had been directed by the Claimant to Deutsche Telekom and not the mobile phone manufacturers. Since Deutsche Telekom did not agree to enter into a license agreement to use the Patent, the Claimant sought an injunction against Deutsche Telekom to prohibit it from offering, placing on the market, using, importing and owning mobile phones that are manufactured according to the standard using the Patent.

In its defence, Deutsche Telekom emphasised the manufacturers' willingness to enter into a FRAND license agreement. It referred to the opinion of the Advocate General in case C-170/13 (Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH, currently pending before the Court of Justice of the European Union, see VBB on Competition Law, Volume 2014, No. 11, available at www.vbb.com) and stated that a SEP holder which has given a commitment to a standardisation body to grant third parties a licence on FRAND terms, must alert the infringer at issue in writing before seeking an injunction. Also, the SEP holder has to present a written offer for a licence on FRAND terms to the alleged infringer. If these requirements are not met, the enforcement of an injunction will constitute an abuse of dominance provided the infringer was generally willing to obtain a license.

In a judgment issued on 10 March 2015, the Regional Court of Mannheim held that the Claimant could prevent Deutsche Telekom from selling phones because it had not obtained a license of the patent. The Regional Court stated that the Claimant may seek action against any party in the patent-violating chain and therefore could seek an injunction against Deutsche Telekom as well. The Regional Court concluded that the danger of recurrence, i.e., the danger of Deutsche Telekom continuing to sell phones that infringe the patent, can only be avoided if an injunction is granted or if Deutsche Telekom enters into a license agreement. It is important to note that the claim had not been directed against the manufacturers, in which case they could have claimed that they had not received a written offer of a licence on FRAND terms. According to the Regional Court, Deutsche Telekom itself could not invoke a FRAND defence since it had been offered a license by the Claimant. Furthermore, the patent right was not exhausted because neither the patent holder nor an authorised third party had placed a good on the market which made use of the patent.

The judgment of the Regional Court of Mannheim was appealed and the appeal is currently pending.

On the issue of enforcement, the Court decided to stay the execution of the injunction against Deutsche Telekom in return for a security deposit of € 5 million because it held that, pursuant to a summary review, it is probable that the judgment of the Regional Court of Mannheim will be overruled on appeal.

According to the Court, it has not yet been fully determined under which conditions the enforcement of a SEP constitutes an abuse of dominance within the meaning of Article 102 TFEU if a patent owner made FRAND commitments. It based its decision on the opinion of the Advocate General in case C-170/13 and referred to the obligation of the SEP holder to treat licensees equally. The Court held that the right of the patent holder to sue each of the infringers in the patent-violating chain has to be separated from the competition law assessment. According to the Court, the central question under competition law is whether the enforcement of an injunction by the patent owner constitutes the use of means which deviate from normal competition.

According to the Court, a SEP owner that has declared a FRAND commitment usually concludes license agreements with manufacturers. Unless the manufacturer is not willing or does not have the financial capacity to enter into a license agreement, there is no objective reason for the patent owner to turn only to the sales partner of the manufacturer. To enforce an injunction against the sales partner of the manufacturer instead of the manufacturer could distort competition as it may interfere in the client relationships of the manufacturer and increase the pressure on him to accept license terms which are more favourable to the patent holder.

The Court therefore found that, contrary to the ruling of the Regional Court, a possible abuse of dominance on the part of the patent holder cannot be ruled out merely because Deutsche Telekom is not willing to enter into a license agreement with the Claimant. It also has to be assessed whether the manufacturers of mobile phones are prepared to enter into such an agreement. Since the Regional Court had failed to assess the willingness of the manufacturers to obtain a license as well as examine the other conditions of Article 102 TFEU and the equivalent German legislation, the Court stayed the execution.

When weighing the interests of the parties concerned, the Court also considered that an enforcement of the injunction would result in Deutsche Telekom being liable for damages, although it could no longer offer its telecommunications services with the devices without a patent license whereas its competitors would be free to continue selling identical unlicensed devices. In contrast, the Court was of the opinion that the Claimant, which does not manufacture mobile phones itself, does not need the enforcement of the injunction to protect its market position. If, on appeal, the judgment of the Regional Court is confirmed then the Claimant may still ask for damages resulting from the continued supply of unlicensed mobile phones and is protected by the security deposit of € 5 million which the Defendant was ordered to pay.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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