Germany: Mannheim Regional Court Rejects FRAND Defence In Its First Ruling On The Issue Following The CJEU Ruling In Huawei v ZTE

Last Updated: 16 June 2016
Article by Taylor Wessing

On 27 November 2015, the Mannheim Regional Court (case 2 O 106/14) granted an injunction against Deutsche Telekom based on European patent EP 1 125 284, which was found to be essential for the AMR-WB standard relevant for wideband audio coding used in HD-Voice transmission. The patentee was Saint Lawrence Communications GmbH ("SLC"), a European subsidiary of Acacia Research Group LLC.

Deutsche Telekom raised a FRAND defence, based on a licence offer made by its supplier HTC that was (discussed below) dismissed.

The facts of this case are interesting for two reasons. Firstly, even though the CJEU's judgment in Huawei requires SEP holders to put alleged infringers on notice prior to bringing an action (para. 61), SLC first filed the action and then put Deutsche Telekom on notice. A copy of the already filed action was attached to the notice of infringement, which arrived at Deutsche Telekom before the action was formally served. HTC was put on notice indirectly via its counsel for Deutsche Telekom shortly thereafter. Therefore, when Deutsche Telekom and HTC were first made aware of the infringement, they were effectively already under pressure due to the filed court action. Secondly, the FRAND offer was not made by Deutsche Telekom as defendant, but by HTC as supplier of the accused devices. As a mere distributor of the accused devices, Deutsche Telekom refused to take a license itself.

The Mannheim Court found the late notice by the plaintiff irrelevant. Deutsche Telekom was unwilling to take a licence and HTC waited over three months to indicate its willingness to take a licence. According to the court, three months would have been sufficient notice of infringement. Therefore Deutsche Telekom and HTC had had enough time and could not make the argument that notice of infringement was too late. As SLC had presented an initial licence offer, it was now up to the defendant to accept it or provide a counter-offer. Whether it was open to Deutsche Telekom to refuse to take a licence itself, and instead point to its suppliers as the usual licensees in the industry, was left undecided by the court. In a parallel case the Karlsruhe Court of Appeal (case 6 U 44/15 of 23 April 2015) had indicated that the suppliers' willingness to take a licence might be sufficient to avoid an injunction being granted against the downstream distributor.

HTC did not accept SLC's offer either, but made a counter-offer which was found to be insufficient by the court. When assessing whether the mutual offers by SLC and HTC were FRAND, the court reversed the order of the assessment. According to the Mannheim Regional Court, the defendant has to make a counter-offer which is FRAND, even if the patentee's initial offer was not FRAND. The court was satisfied that the initial offer was sufficiently specific so that it enabled HTC to make a counter-offer.

HTC's counter-offer was decided not to be FRAND and therefore the FRAND defence was bound to fail. Consequently, the initial offer by plaintiff SLC was not reviewed for FRAND compliance by the court. With the approach of reviewing the counter-offer first, the burden of FRAND compliance effectively shifts to the defendant. The patentee can only be sanctioned for demanding unfair, unreasonable or discriminatory licence terms if the defendant's counter-offer passes the FRAND test.

The court criticised HTC for not specifying the royalty rate in the counter-offer, even though it referred to a determination of the royalty in separate proceedings before the High Court of England and Wales. According to the court, this was not a "specific" counter-offer as required by the CJEU (C-170/13 para. 66). Moreover, a counter-offer without defined royalty rates does not allow the determination of the defendant's security (C-170/13 para. 67). For this reason alone, HTC's counter-offer failed.

SLC requested a worldwide licence to its entire portfolio whereas HTC only offered a licence for Germany. Even though this was not relevant in this case, the court said that a worldwide portfolio licence may seem reasonable. The court also left open whether a licence can be requested not only from the defendant in the German case, but as a group licence also from the defendant's affiliates regarding other countries. The court even accepted that the licensed patents may not be owned by the plaintiff, but a group of companies holding different counterparts of the licensed patent families in different countries. This latter issue arose because the plaintiff SLC did not hold worldwide rights, but appeared to be a subsidiary specifically for the enforcement of the European patents in the portfolio.

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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