Germany: Düsseldorf Regional Court Sharpens Its Notion Of The FRAND-Obligations Of SEP-Proprietor And SEP-User

Last Updated: 21 June 2016
Article by Taylor Wessing

In a judgment dated 31 March 2016 the Düsseldorf Regional Court (docket number 4a O 73/14), granted Saint Lawrence Communications ("SLC") an injunction against Vodafone to restrain the offering/selling of smartphones. European Patent EP 1 125 276 was found to be a SEP for the Adaptive Multi-Rate-Wideband Standard (AMR-WB-Standard). Five further parallel decisions were rendered the same day (docket numbers 4a O 126/14, 4a O 127/14, 4a O 128/14, 4a O 129/14 and 4a O 130/14). HTC, because of its delivery of smartphones to Vodafone, was third party intervener participating in the proceedings. The court considered SLC's initial offer to be FRAND and dismissed Vodafone and HTC's FRAND defence.

The court stated that the paragraph 61 requirement of Huawei v ZTE requiring notification of the defendant prior to lodging the action can in principle either be satisfied by notification prior to lodging or, alternatively, by lodging the action and subsequently delaying the advance payment of court fees (which is required under German law for the service of the action) in order to render the notification in the meantime. In this case, neither had been done. However, since the action was started in 2014, prior the CJEU judgment in Huawei v ZTE, the court considered, in such "transitional cases", notification can be made good by way of service of the complaint

The court held the claimant's offer to be FRAND, being in line with established licensing practice.

The claimant had presented to the court the (anonymised) licensing agreements of six mobile telecommunication companies with a comparable royalty. In the Court's view, there was no sufficient indication that the royalty sought was not in line with the commercial practice in the mobile communication sector. Also a comparison with the (per patent) royalty of the SIPRO-pool also offering SEPs to the AMR-WB-standard did not convince the court that the claimed royalty was not FRAND.

The court further held that offering of a worldwide portfolio licence is in principle appropriate. Licensing agreements are usually concluded on a worldwide basis, cover whole portfolios of patents and are concluded between groups of companies.

In terms of the specifying the way the royalty is calculated, as required under Huawei v ZTE (para. 63), the court held that this requirement should not be interpreted too strictly. In particular, the SEP-proprietor does not have to present a mathematical calculation of the royalty rate. It is, therefore, in principle sufficient to disclose the basic considerations that led to the amount of the claimed royalty. SLC was held to have fulfilled this obligation by referring to a standard licensing royalty and its acceptance in the market.

Vodafone itself neither presented a counter-offer nor provided security. As SLC's initial licensing offer was held to be FRAND, the Court left open the question as to whether the defendant also has to respond with a counter-offer, if it cannot be determined that the SEP-proprietor's initial offer was actually FRAND (see below for discussion of the earlier decisions of the Mannheim Regional Court on this subject).

The Court then dealt with the counter-offer provided by the intervening third party HTC. The Court held the SEP-proprietor is not required to send a notification prior to bringing the action. However, the SEP-proprietor has to make a licensing offer if a request is made by a supplier, which was done here. Further, the court held SLC's initial licensing offer to HTC to be FRAND and pointed out that the offer did provide that the royalty could be made subject to a separate court's review after conclusion of the licensing agreement. If such a stipulation was present, it is unlikely that the initial offer would be considered not to be FRAND.

The Court found HTC's three counter-offers in several respects not to be FRAND, the first two on the ground of lack of substance and geographical limitation to Germany. The third counter-offer was late and was also again criticized on the ground of geographical limitation to Germany. In addition, the court criticised HTC's security as being both late and too low, since it covered only Germany. As SLC could seek a worldwide licence, it was said that the security had to match this geographical scope.

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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