Competition / Antitrust
“Connected Car patent wars” – CJEU is given the opportunity to clarify the FRAND negotiation scheme set forth in Huawei v ZTE, also with respect to multi-tier supply chains
In the much noticed SEP/FRAND dispute between Nokia Technologies Oy and Daimler AG concerning the “connected car”, the Düsseldorf District Court has confirmed its outstanding reputation as the “go to” court in patent matters:
In an order issued today (still subject to appeal), the Court: (i) referred to the Court of Justice of the European Union (CJEU) the questions listed below regarding the licensing of standard essential patents within multi-tier supply chains (docket number 4c O 17/19), and (ii) stayed the infringement action concerning European patent EP 2 087 629 B1 (the “Patent”) pending the outcome of the CJEU proceedings.
The following is a convenience translation of the questions referred to the CJEU (please find the German press release from the Landgericht Düsseldorf here):
A. Is there an obligation to give priority to suppliers when issuing licences?
1. Can a company active on a downstream market faced with an action for injunctive relief for patent infringement by the owner of a patent that is essential for a standard set by a standardisation organisation (SEP) who has irrevocably undertaken vis-à-vis said organisation to grant all third parties a licence on FRAND-conditions raise the objection of abuse of a dominant position within the meaning of Article 102 TFEU if the standard for which the patent in suit is essential, or parts of it, is already implemented in a component procured by the party accused of infringement and the patent holder refuses to grant unrestricted licences on FRAND-terms covering all types of use relevant under patent law for standard-implementing components to suppliers of such components who are willing to take such a licence?
a) Does this in particular apply where it is common practice in the relevant industry sector in which the seller of the end product operates that the IP rights situation as regards the patents implemented in the components is settled by the component suppliers by way of obtaining a licence?
b) Is there an obligation to give priority to granting a licence to the suppliers on every tier of the supply chain, or only to that specific component supplier active immediately upstream of the seller of the end-product at the end of the value chain? Is common business practice decisive also in this respect?
2. Does the prohibition of abuse of dominance under competition law dictate that the component supplier be granted an unrestricted licence of its own on FRAND-terms covering all types of use relevant under patent law for the standard-implementing components in the sense that the sellers of end-products (and, as the case may be, purchasers of the standard-implementing components upstream of the end-seller) for their part no longer need a separate licence of their own from the SEP holder in order to avoid a patent infringement in the case of the use of the component in question for the purpose for which it was intended.
3. If the answer to question 1 is “no”: Does Article 102 TFEU impose any special qualitative, quantitative and/or other requirements in terms of the criteria to be applied by the holder of a standard essential patent when deciding against which potential patent infringers on different levels of the same production and value chain an injunction claim for patent infringement shall be brought?
B. Further specification of the requirements from the European Court of Justice’s decision in Huawei v ZTE (judgment of 16 July 2015, C-170/13):
1. Is it possible, despite the fact that the obligations to be fulfilled reciprocally by the SEP holder and the SEP user (infringement notice, licensing request, FRAND-licence offer; licence offer to the suppliers to be licensed first) must be fulfilled prior to litigation, to remedy any failure to comply with such conduct-related duties in the pre-litigation phase by fulfilling them in the course of pending court proceedings?
2. Can it be assumed that the patent implementer has made a sufficient licensing request only if, on the basis of a comprehensive assessment of all relevant circumstances of the case, the intention and willingness of the SEP implementer to conclude a licence agreement with the SEP holder on FRAND-terms are clearly and unambiguously apparent, whatever these FRAND-terms (which, at this point in time, are not foreseeable as no formulated licence offer has yet been submitted) may be?
a) Does an infringer’s failure to respond to the infringement notice for several months, as a rule, give to understand that he is not interested in obtaining a licence, so that a licensing request is deemed not to have been made despite there having been a verbal one, with the result that the injunction claim brought by the SEP holder must be granted?
b) Can the lack of a licensing request be inferred from licensing terms offered by the SEP implementer in a counteroffer, with the result that an injunction claim brought by the SEP holder must be granted without the need to determine first whether the SEP holder’s own licence offer (which preceded the counteroffer by the SEP implementer) is in line with FRAND-conditions at all?
c) Must such a conclusion be ruled out in any case, if the licensing terms of the counteroffer, from which the absence of a licensing request is to be inferred, are conditions for which it is neither obvious nor has been clarified by the highest courts that these are not compatible with FRAND-conditions?
To recap: Nokia is suing Daimler AG for alleged infringement of several SEPs in three German district courts. While Nokia is of the opinion that owners of SEPs are free to decide on which tier of the supply chain to grant licences despite their promise to grant licences on FRAND-terms, Daimler’s argument is that SEP owners have to stick to their promise and grant FRAND-licences to all standard-implementers willing to take a licence.
While the district courts in Mannheim and Munich, following the ruling of the German Federal Court of Justice (“FCJ”) of May 5, 2020 in the case Sisvel vs. Haier (KZR 36/17), issued decisions with a stark tendency in favor of SEP holders, the Düsseldorf district court displays a more balanced approach. The questions in Section B of its order for reference appear to challenge some of the considerations in the FCJ ruling and the subsequent decisions handed down by the Mannheim and Munich courts. Unlike the Mannheim and the Munich courts, the Düsseldorf court seems to also take the view that the ETSI FRAND-declaration obliges SEP-holders to grant licences to all willing licensees.
The CJEU’s ruling will provide urgently required clarifications of the scope of the obligations of SEP holders under EU competition law and of the obligations of patent owners and potential licensees under the CJEU’s Huawei v ZTE judgment. These matters are of paramount importance not only for the automotive industry, but for all IoT-related industries.
Given the rapidly evolving, inconsistent German case law in the field of SEP/FRAND disputes, it is indispensable for implementers of technical standards to carefully consider their strategic options and obtain sound legal advice with respect to SEP licensing.