Germany: Düsseldorf Regional Court Guidance Regarding Standard-Essential Patents ("SEPs") And Splitting Of The Portfolio Of SEPs

Last Updated: 14 June 2016
Article by Taylor Wessing

In three Düsseldorf Regional Court decisions in Unwired Planet v. Samsung dated 19 January 2016 (docket number 4b O 120/14, 4b O 122/14 and 4b O 123/14) the Court found that the German parts of Unwired Planet's European patents EP 1 230 818, EP 2 485 514 and EP 2 119 287 (the Patents) were essential for GSM and LTE standards and were infringed by Samsung. The Court ordered Samsung to provide information and to render an account of past sales in Germany.

The judgments are of particular interest, as they address "portfolio splitting" in the context of SEPs and a FRAND determination. Portfolio splitting refers to the assignment of some of the patents in a portfolio, so that they are held by different licensors who can negotiate licensing agreements separately. This point arises as the Patents, which were SEPs, had been assigned to Unwired Planet and were only some of the portfolio of SEPs of the assignor (who joined the proceedings as a third party intervener).

The agreements governing the assignment of the Patents to Unwired Planet set out that the assignor's FRAND obligations had to be adopted by the new proprietor. Unwired Planet, therefore, issued a separate FRAND declaration to ETSI. Samsung argued that the assignments were in breach of European competition law Articles 101 and 102 of the Treaty on the Functioning of the European Union ("TFEU") which relate to agreements between undertakings and abuse of dominant position, respectively. Moreover, Samsung argued that splitting ownership of the SEPs and licensing the portfolios separately was to increase the total royalties recovered under the SEPs and that this would be in breach of FRAND obligations. The Court rejected Samsung's arguments and held that the assignment to Unwired Planet was not invalid under Art 101 or 102 TFEU. The Court in particular rejected that the object of the assignment was to establish excessive pricing in the market, in particular pricing that exceeds the FRAND benchmark. The Court also rejected that it was illegitimate for a SEP proprietor to seek to acquire a better position in the negotiation process by splitting up its SEP portfolio. Although assignment of some SEPs to a non-practising entity (such as Unwired Planet) eliminates cross-licensing negotiations on those SEPs, the Court rejected the argument that this lead to an imbalance of the FRAND negotiation process.

Moreover, the SEP proprietor is not obliged to continue a certain licensing practice that the former SEP proprietor had implemented prior to the assignment. Therefore, as long as the overall royalty rate payable for the use of the standard(s) is fair and reasonable, the splitting of a SEP portfolio is legitimate, even if licensees of the new SEP proprietor have to pay higher royalties than licensees of the previous SEP proprietor.

With this recent decision, the Düsseldorf Regional Court has rejected arguments that "portfolio splitting" is, by its nature, anticompetitive. It has also rejected arguments that assignment of only some SEPs in a portfolio is in breach of FRAND obligations, even if the assignment is made in order to acquire a better negotiating position and generate an increased royalty rate, so long as there is no clear indication that the claimed overall royalties exceed what is FRAND.

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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