Sisvel v Haier, is the first post-Huawei/ZTE ruling in Germany which tackles the issue of Standard Essential Patent (“SEP”) and fair, reasonable, and non-discriminatory (“FRAND”) terms. We have covered the basics of SEP here.
Sisvel is a proprietor of a German SEP dealing with data transmission technology (“patent in suit”) included in the GPRS standard. Haier is a Chinese implementer which produces and distributes phones and tablets that support the said GPRS standard. On 10 April 2013, Sisvel committed to the European Telecommunications Standards Institute (“ETSI”) that it would license the patent in suit on FRAND terms. The negotiations ensued amongst the parties, although they were not able to reach an agreement. Haier argued that the license fees were excessive and that it was not willing to enter into a global license. Sisvel filed an action against Haier, alleging that the latter had infringed its rights under the patent in suit by offering the aforementioned products. As such, Sisvel sought an injunction, provision of information, rendering of accounts, destruction, and recall of goods and damages before the Dusseldorf District Court (“District Court”).
The District Court ruled in favor of Sisvel, finding that Haier had not provided a FRAND counter-offer in a timely and diligent manner. The District Court deemed it unnecessary to examine whether the offer made by Sisvel had been FRAND-compliant because once Haier received a specific written offer, FRAND or not, it was under an obligation to respond with a counter-offer.
On appeal, the Dusseldorf Higher Regional Court (“Higher Regional Court”) agreed with the District Court’s finding that Haier infringed the patent in suit when it used the technical teaching of the asserted patent claim, contrary to Section 9 of the German Patent Act. Nevertheless, it rejected the District Court’s approach, and held that only a FRAND offer from the SEP-holder Sisvel triggered the obligation on the part of Haier to respond with a counter-offer, applying the Huawei/ZTE criteria in sequence.
The Higher Regional Court acknowledged that Sisvel complied with its obligation of alerting Haier of the fact of its infringement, in light of the Huawei/ZTE criteria. However, it found that Sisvel committed an abuse of its dominant position by bringing the infringement action because it had not made a FRAND offer to Haier despite the latter’s declared willingness to take a license. The Higher Regional Court found it irrelevant that Haier had expressed its willingness only a year after being informed of the infringement. It also did not lend much significance to the issue of whether the counter-offer by Haier was FRAND-compliant or not because Sisvel never made a FRAND offer in the first place. As such, the Higher Regional Court ruled in favor of Haier and only ordered it to render accounts and pay compensation to Sisvel. It did not decide on the relief of injunction as this was deemed settled by both parties considering that the patent’s term of protection had already expired during the course of the appeal.
In the non-discrimination limb of its FRAND commitment, the Higher Regional Court concluded that Sisvel treated its licensees unequally without any objective reasons. In this regard, the Court found evident discrimination when Sisvel offered a discount to one of its licensees, Hisensee, a state-owned Chinese company, while Haier had to pay a higher amount of license fees. Neither sector specificity nor the influence of Chinese authorities could justify such differences.
Sisvel appealed this decision to the German Federal Court of Justice (FCJ).
The FCJ affirmed that Sisvel occupied a dominant position during the suit patent’s term of protection. However, it set aside and revoked the Higher Regional Court’s decision in respect of a finding of abuse of dominant position on Sisvel’s part. It rejected Haier’s FRAND defense and found that Haier was an unwilling license seeker that infringed Sisvel’s patent.
The FCJ elucidated that an infringement action brought by a dominant SEP-holder such as Sisvel could amount to an abuse of dominant position in a number of circumstances – among others, if this action has the effect of hindering maintenance of free competition by preventing standard-compliant products from entering or remaining available in the market. It also mentioned the Orange Book Standard, which specifies that an abuse arises if the action is brought even though the infringer made an unconditional offer to have a license on “conditions which the patent holder may not refuse without violating the prohibition of abuse or discrimination”.
This is not to say that an SEP-holder cannot enforce its patent through court action – because while the SEP-holder provides consent for the use of technical teaching, there is a concomitant obligation on the part of the implementer to be prepared to take a license on FRAND terms. Depending on whether there was compliance with the respective obligations.
Notice of Infringement
In this regard, the FCJ delved into the Huawei/ZTE criteria and cited first and foremost that an infringement action can be abusive if the SEP-holder did notalert the infringer of its infringement. The obligation to notify the infringer is met if the SEP-holder notifies the parent company of the implementer. The purpose of this notification is to give the infringer the “opportunity to assert and conclude a license agreement on FRAND terms and avert the injunctive relief”. The FCJ reiterated the rationale stated in Huawei/ZTE which clearly places an obligation on the part of SEP-holder because it is presumed to be in a better position to do so. Meanwhile, though the infringer has to ensure that the products it offers does not infringe any patents, it is rather difficult for the infringer to conduct due diligence of all relevant industrial property rights in the context of a large number of patents.
The FCJ has built on the type of information that an SEP-holder needs to provide to notify the infringer. In Huawei/ZTE, it was stated that said information should comprise the designation of the SEP and specification of how such was infringed. The FCJ affirmed this and stated that it suffices if the information provided includes designation of the SEP, indication of the specific infringing act and the challenged embodiments. It went on to say that neither technical nor legal explanations of the infringement claim is required. Nevertheless, if the infringer believes that the information is not sufficient to identify the infringement claim, it may notify the SEP-holder within only a short time frame. The infringer is not entitled to ask for information which is obtainable by its own efforts. Thus, once sufficient information is provided, the infringer must make its own assessments, and only seek expert or outside counsel support if necessary. It also cannot ask for disclosure of further information if it does not show its willingness to enter into a FRAND commitment with the SEP-holder. Taking these into consideration, the FCJ found that Sisvel properly and sufficiently informed Haier through its parent company.
The FCJ expounded that an SEP-holder can choose to provide claim charts but has no obligation to do so. Thus, when Haier made excessive requests by insisting on the provision of such charts for all the patents in Sisvel’s patent portfolio, the FCJ observed that Haier could have just been using hold-out strategies to delay the infringement claim until the patent expired and that it was not in all actuality serious about concluding a license agreement with Sisvel.
Willingness to Conclude a License Agreement
The FCJ gave an interpretation as to the notion of an infringer’s willingness to enter into a license agreement on FRAND terms with an SEP-holder. The Huawei/ZTE case provided that “after the infringer expresses its willingness to conclude a licensing agreement, the SEP-holder has to present an offer for license on FRAND terms”. To be clear, the FCJ qualified that both parties should show a clear willingness to conclude a license agreement on FRAND terms. On the part of the infringer, after being informed of the fact of infringement, it must indicate a clear and unequivocal declaration of willingness to conclude an agreement with FRAND terms and must engage with the SEP-holder in a serious and target-oriented way. Furthermore, it must engage in a timely and diligent manner. A conditional offer or a mere willingness to consider entering into agreements does not suffice a compliance with this criteria. It must be noted nevertheless that in spite of the strict requirement, the infringer may still reserve the right to question the validity of the relevant patent.
In this case, Haier was found to be an unwilling licensee. Contrary to the Higher Regional Court’s findings, Haier did not agree to conclude a license agreement on FRAND terms. The fact that Haier remained silent for a year before indicating any intention to enter into a licensing agreement signified Haier’s unwillingness. The FCJ further noted from Haier’s statements that, it merely expressed willingness to consider FRAND negotiations, which is insufficient.
The FCJ did not address the issue of whether a declaration of willingness by an infringer after an acceptable reaction period, but before the action was filed, could still create an obligation for the SEP-holder to negotiate FRAND terms. Furthermore, it did not decide on the impact that a declaration of willingness has on the assessment of an SEP-holder’s conduct under EU Competition Law if such declaration was made after a lower court conviction of infringement.
The FCJ said that only after an infringer expresses its willingness to obtain a license will the SEP-holder be obligated to make a FRAND offer and explain how such terms were calculated. For this aspect of the Huawei/ZTE criteria, FCJ quoted J. Birss in its decision of Unwired Planet v. Huawei, thus: “a willing licensee must be one willing to take a FRAND license on whatever terms are in fact FRAND”.
The FCJ moved its focus to what can be regarded as a FRAND offer. It clarified that non-discriminatory terms do not require a uniform tariff granted for each licensee, as long as there is compliance with Article 102 para 2 lit. c of the TFEU and with Section 19 para 2 no. 3 of the German GWB (Act against Unfair Competition).
In this regard, the license-seeker must prove unequal treatment and the SEP-holder must give objective reasons for such treatment. This obligation on the part of the SEP-holder acknowledges that it is better placed to check its compliance with FRAND terms vis-à-vis other licensees of the relevant patent. This holds true if a portfolio license is offered by the SEP-holder instead of a single license. In any case, the FCJ declared that a portfolio license offer can still be FRAND compliant.
A FRAND offer can only be ascertained on a case-to-case basis and it depends on a variety of circumstances that come into play. As the FCJ noted, “appropriate conditions cannot be objectively determined except by a result of negotiated market process”. Thus, to objectively justify offering different prices, the interests of both parties involved – in this case, Sisvel and Haier – must be weighed.
It must further be recalled that Sisvel was licensing as well to a state-owned Chinese enterprise, Hisense. Acknowledging that the economic and business realities play a significant role, the FCJ ruled that state pressure suffices to justify giving differing treatment to an SEP-holder’s various licensees. The FCJ noted that there will be times where an SEP-holder will have to accept an offer that could be the best that it can achieve, although inadequate on its own, in order to avoid suffering economic disadvantages. As in this case, acts of state may constitute an objective reason.
The judgment of the District Court was restored to the extent of the requests pursued by plaintiff.
The FCJ decision elucidated the position of the German courts when interpreting the Huawei/ZTE criteria in respect of FRAND licensing and SEP enforcement. In its decision, it built on the Huawei/ZTE criteria and provided clear guidance on such matters by recognizing the presence of hold-out strategies; delineating the notice of infringement given to an infringer; defining what it means to be a willing license-seeker; explaining when the respective obligations of the SEP-holder and infringer arises; and, acknowledging that business realities can objectively justify differences in licensing terms.
Moving forward, there are several other issues that are yet to be tackled in respect of FRAND licensing in an IoT context. For instance, the FCJ did not address the question of how to determine FRAND royalty rates. The FCJ also failed to address the issue of whether a declaration of willingness by an infringer is still acceptable depending on different reckoning points of time, as already mentioned. However, the FCJ’s decision in this case following the Huawei/ZTE criteria, has given further guidelines that SEP-holders and implementers should take into account when pursuing a FRAND negotiation.
 BGH, 05 May 2020 – KZR 36/17, para 71.
 BGH, 05 May 2020 – KZR 36/17, para 74.
 Unwired Planet International Ltd & Anor v Huawei Technologies Co Ltd & Anor (Rev1)  EWCA Civ 2344
 BGH, 05 May 2020 – KZR 36/17, para 81