Netherlands: Dutch Court Rejects Preliminary Injunction On Balancing Of Interests In FRAND Licensing Dispute

Last Updated: 30 September 2019
Article by Ruud Van Der Velden

The Provisions Judge of the District Court of The Hague has refused to grant a preliminary injunction against Chinese mobile phone manufacturer Xiaomi based on two alleged Standard Essential Patents (SEPs) of Sisvel. The Judge ruled that Sisvel's claims lacked sufficient urgency, taking into account the pending proceedings on the merits between the parties in the UK and the complexity of the underlying issues relating to FRAND license negotiations.

Background

Sisvel is the owner of a large patent portfolio relating to various wireless communications technologies. It is a member of the European Telecommunications Standards Institute (ETSI), and some of its patents are considered to be SEPs. The ETSI IPR Policy requires Sisvel, as a SEP holder, to be willing to grant a license to third parties under its SEPs on fair, reasonable and non-discriminatory (FRAND) terms. In October 2013, Sisvel notified Xiaomi that certain Xiaomi products fell within the scope of protection of certain Sisvel SEPs. Sisvel invited Xiaomi to enter into a license agreement, but so far no license agreement has been concluded.

In April 2019, Sisvel initiated proceedings against Xiaomi in the UK, requesting the UK High Court to rule on a global FRAND royalty rate between the parties. Sisvel then initiated preliminary injunction ("PI") proceedings in the Netherlands on 29 May 2019, requesting a preliminary injunction against Xiaomi with respect to two of its SEPs.

Assessment by the Court

Xiaomi argued that this case is unsuitable for PI proceedings, due to the complexity of the case and the balancing of (urgent) interests. The Judge accepted this argument on the basis of the following facts and circumstances.

The nature of the dispute

The Judge considered that the need for the parties to enter into a FRAND license agreement is at the heart of this dispute. This means that the patentee's damages do not concern an involuntary loss of monopoly – which is normally the case in an IP dispute and which is normally irreparable and thus urgent – but the absence of the conclusion of a FRAND license agreement between the parties and the related payment of royalties by the SEP user. According to the Judge, this dispute would be more comparable to a claim related to unpaid royalties than to a continuous infringement of an IP monopoly. Disputes regarding monetary claims are only considered urgent in exceptional cases. The Judge considered that he realizes that this case is not actually a monetary payment case and that under circumstances an SEP holder may be entitled to an injunction. However, the background of the present case does mean that the threshold for urgency is higher than in regular IP infringement cases.

International context of the dispute

The Judge acknowledged that Xiaomi only entered the Dutch market recently. This in itself however does not mean that a balancing of the (urgent) interests would lead to a decision in Sisvel's favour. Sisvel had indicated at the hearing that it would be insufficient for Xiaomi to pay a FRAND royalty fee for mobile phones to be traded in the Netherlands. Sisvel explained that the ETSI IPR Policy requires Sisvel to grant a global FRAND licence with a willing licensee, but not to simply accept any country-by-country approaches as an SEP user sees fit. The Judge noted that this is a double-edged sword: the urgency requirement should then also be assessed in an international context. The Judge recognized that Sisvel may be tired of waiting for an agreement to be concluded, but on the flip-side noted that the six year period since the start of the discussions is a clear contraindication of an urgent interest.

The Judge then pointed out that back in April 2019 Sisvel had already raised the issue of what would be a FRAND royalty rate with the UK High Court and that Sisvel had indicated that it would respect the upcoming decision. The Dutch Judge indicated that he was reluctant to consider that same point in advance of the UK High Court's decision, as this could lead to diverging decisions on what would be a FRAND royalty rate and thus to legal uncertainty.

The Judge acknowledged that SEP users should not apply a hold-out strategy, with the risk that the user would no longer be able to pay any royalties in the end. Such risk can however largely be removed or limited by proceedings on the merits, such as those in the UK. Sisvel did not substantiate that there would be any risk that Xiaomi would become unable to pay pending the proceedings on the merits. The Judge held that the PI proceedings "seem to be primarily a way to force Xiaomi to the negotiating table and maybe even force on it a royalty rate that won't necessarily be FRAND".

Complexity of the dispute

The Judge added that the present dispute would require the Judge to deal with very complex subject-matter in a very short time-frame. The Judge noted that Sisvel has a large patent portfolio and that it could invoke further patents if the two patents at issue are considered invalid or not infringed. Determining a FRAND-rate is equally not a simple exercise, as a significant amount of evidence is involved and various confidentiality restrictions would be required. Taking into account that it remained unclear why Sisvel would require a decision in advance of a decision in proceedings on the merits, the interests of Xiaomi in a proper determination of the issue in proceedings on the merits, outweigh Sisvel's interests in a preliminary injunction.

Comment       

This decision suggests that, when it comes to the urgency requirement and the balancing of interests, there is a higher threshold for SEP holders to obtain a preliminary injunction than for 'regular' patentees. In this case, the PI Judge was not prepared to issue a preliminary injunction in a dispute relating to SEPs, while proceedings on the merits on a global FRAND royalty rate in the UK were pending. The decision appears to make it more difficult for SEP holders to obtain a preliminary injunction in the Netherlands.

The decision has been appealed before the Court of Appeal of The Hague.

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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