The decision of February 6, 2020 by the case management judge of the Paris High Court (Tribunal Judiciaire) is of great importance in terms of both the legal qualification of the undertaking of the owner of patents essential to the implementation of standards to grant to anyone a fair, reasonable and non-discriminatory (FRAND) license, and the importance of Paris as a future venue for so-called FRAND disputes.
Article 6 of the IPR Policy of European Telecommunications Standards Institute (ETSI), the European standards organization for the telecommunications sector, stipulates: "When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory ("FRAND") terms and conditions under such IPR."
The legal definition of "FRAND undertaking" has been disputed for many years. The ETSI rules are governed by French law, but this question has never been referred to the French courts, while legal analysis of the meaning in the UK and Germany has reached divergent conclusions.
This case gives the Paris High Court the opportunity to qualify the meaning of the "FRAND undertaking." And at this stage, the case management judge considers that this would amount to a stipulation pour autrui (third-party beneficiary clause) within the meaning of Article 1205 of the French Civil Code.
The dispute concerns standard essential patents relating to the 3G/UMTS and 4G/LTE standards owned by Philips companies ("Philips"). These patents have been declared to ETSI.
In early 2015, Philips approached the TCL group companies (TCL) to invite them ("in accordance with its undertakings to ETSI") to join its patent licensing program relating to these standards but no agreement was reached.
In 2018, Philips sued TCL for infringement of the UK part of its patents before the High Court of Justice of England and Wales, including claims seeking an injunction prohibiting the infringement and the recall of the allegedly infringing products.
In February 2019, TCL filed a lawsuit before the Paris High Court, seeking, inter alia, to enjoin Philips to grant a license on FRAND terms, which the court had jurisdiction to determine, and to enjoin ETSI to assist with the granting of the license, including through its exclusion from the standards, as provided for in ETSI's rules.
In July 2019, Philips filed a motion before the case management judge for a lack of jurisdiction of the Paris court to hear the claims brought against Philips, based on Article 8.1 of Regulation (EU) No. 1215/2012said Brussels I bis,1 in favor of the UK High Court. Philips filed an auxiliary motion for lis pendens and related actions under Articles 29 and 30 of the Regulation.
In order to ascertain whether there was a close link between the claims brought by TCL against Philips, on the one hand, and against ETSI, on the other, most of the debates related to qualifying the scope of Philips' undertakings, which flowed from Philips' declaration of the essential nature of its patents to ETSI, to negotiate and grant a FRAND license to one of ETSI's members, TCL.
TCL and ETSI argued that the FRAND undertaking amounted to a stipulation pour autrui, which was the result of an exchange of consent between a promisor (the owner of standard essential patents, Philips) and a stipulator (ETSI) where the promisor irrevocably undertook to grant irrevocable FRAND licenses to one or more beneficiaries (in this case, TCL).
By contrast, Philips argued that it was only bound by an undertaking to negotiate in good faith, without being bound contractually.
The Paris judge dismissed all motions brought by Philips and acknowledged the jurisdiction of the Paris court. The court determined that claims brought by TCL against Philips and ETSI fell within the same factual and legal bases, and therefore had to be heard together.
The judge considered that, "if the legal basis of the claims directed against ETSI and against Philips are different (the first one being based on the membership agreement which governs the relationships between ETSI and its members and the second one on the third-party beneficiary clause according to which Philips have undertaken to consent licenses on FRAND terms as arising out of the IPR Policy)," an identical legal basis arose by application of CJEU case law.2 Further, the judge underlined that both the FRAND undertaking (stipulation pour autrui) and the ETSI membership agreement are governed by French law.
The judge concluded that there would be a risk of irreconcilable decisions if the question of Philips' alleged breach of its FRAND undertaking were referred to the UK High Court while the question of ETSI's obligation to ensure its members comply with its IPR Policy and membership agreement was still to be heard by the Paris High Court.
This decision recalls, first, the principles of the stipulation pour autrui between an essential patent owner, ETSI and the ETSI member using the patent, as recognized by the decisions in Unwired Planet v. Huawei (UK) and TCL v. Ericsson (U.S.), both 2017. In this respect, Professor Laurent Aynès, acting as an expert in InterDigital v. Huawei and ZTE,3 declared that the FRAND undertaking amounts to a stipulation pour autrui, within the meaning of Article 1205 of the French Civil Code.
This decision should enable the Paris High Court, in the coming months, to decide on the merits of the legal qualification of the FRAND undertaking and to provide guidelines to determine what is meant by FRAND terms and conditions, including, notably, with respect to the number of standard essential patents and the territory covered by the FRAND license.
Hence, this decision should provide some clarification, which has been eagerly awaited by the industry, and put an end to the divergent analysis of the FRAND undertaking – with, on the one hand, the UK considering it as having a contractual nature similar to a stipulation pour autrui and, on the other, Germany denying its contractual nature. France's voice should bring the countries together in harmony.
In its analysis on the merits of the case, the Paris High Court will need to pay attention to paragraph 2 of Article 6 of the IPR Policy, which states: "The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate." What are the consequences of this reciprocity in the legal qualification of the FRAND undertaking? To be continued!
1. Regulation (EU) No 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
2. Aff. C-145/10, Eva-Maria Painer v. Standard Verlags GmbH (December 1, 2011).
3. C.A. Delaware No. 1:13-cv-00008-RGA document 41, paragraphs 19-22.
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