30 December 2020

SEP holder’s obligation to grant FRAND license in multi-level supply chains – Dusseldorf District Court requests CJEU ruling

Briefing

In a series of lawsuits before German courts in Dusseldorf, Munich and Mannheim, Nokia and other UMTS/LTE SEP holders sue Stuttgart based car manufacturer Daimler for patent infringement. Daimler obtains the attacked embodiments (various connectivity modules) from its suppliers in a multi-level supply chain, who, according to customary practice, obtain relevant licenses and provide freedom to operate for OEMs. While other patentees offer licenses to suppliers, Nokia refuses to do so and, instead, offers licenses only to car manufacturers. This raises the question whether Nokia complies with its FRAND obligations or whether Nokia’s refusal to grant a license to Daimler alone justifies Daimler’s FRAND defence.

Although the German Federal Cartel Office had already suggested a referral to the CJEU by German infringement courts in accordance with Art. 267 TFEU, the District Courts in Munich and Mannheim have granted injunctions against Daimler under similar circumstances without such a referral. However, on 26 November 2020, the District Court of Dusseldorf stayed the case in parallel proceedings (case reference: 4c O 17/19) and requested the CJEU to give a ruling on the question.

In its order, the Dusseldorf court requests a ruling on the following questions:

Does an obligation exist to give precedence to suppliers when granting licenses?

May a company from a downstream economic stage plead abuse of a dominant market position within the meaning of Art. 102 TFEU as a defence against the patent infringement action seeking a prohibitory injunction, brought by the proprietor of a patent which is essential to a standard defined by a standardisation organisation (SEP), who made an irrevocable commitment to that organisation to grant every third party a license on FRAND terms, if the standard for which the patent in suit is essential or any part thereof is already being implemented in an upstream product obtained from the defendant of the infringement action, whose suppliers willing to take a license have been refused a separate unrestricted license by the patent proprietor for all relevant types of exploitation under patent law on FRAND terms for products implementing the standard?
- Does this apply especially where it conforms to the practices in the industry of the distributor of the final products that the IP rights situation for the patents used by the supplier part is determined by way of the suppliers taking out licenses?
- Does a licensing privilege of the suppliers exist at every stage of the supply chain, or only for the particular supplier immediately upstream of the distributor of the final product at the end of the exploitation chain? Are the trade practices decisive in this context as well?
Does the prohibition of abusive practices dictate that the supplier must be granted a separate, unrestricted license on FRAND terms for all relevant types of exploitation under patent law for products implementing the standard, to the effect that the distributors at the end of the chain (and possibly the upstream buyers) in turn do no longer require their own, separate licenses from the SEP proprietor in order to avoid patent infringement when the supplier part in question is used in accordance with its intended purpose?
If question no. 1 is answered in the negative: Does Art. 102 TFEU define any special qualitative, quantitative and/or other requirements for the criteria by which the proprietor of a standard essential patent decides which potential patent infringers at different levels of the same manufacturing and exploitation chain he will challenge with a patent infringement action seeking a prohibitory injunction?

Specifying the requirements from the CJEU decision in Huawei v. ZTE (judgment of 16 July 2015, C-170/13):

Regardless of the fact that the obligations incumbent on either the SEP proprietor or the SEP user (infringement alert, requesting a license, offering a FRAND license; submitting an offer for a license to the supplier to be given precedence) must be fulfilled prior to any legal proceedings, is it possible to fulfil any obligations of conduct that were neglected at the pre-trial stage, later in the course of legal proceedings with right-preserving effect?
Can it be assumed that the patent user has made a significant licensing request only if an overall assessment of all relevant circumstances clearly and unambiguously shows the intent and willingness of the SEP user to conclude a licensing agreement on FRAND terms with the SEP proprietor, regardless of the exact nature of these FRAND terms (which are not yet foreseeable for lack of a written offer for a license at that time)?
- Does an infringer, who fails to respond to the infringement alert over several months, typically indicate by his silence that he is not interested in taking a license, to the effect that – despite a verbally formulated licensing request - there exists no such licensing request, with the result that the court must uphold the SEP proprietor’s action for a prohibitory injunction?
- Do licensing terms, submitted by the SEP user in a counteroffer, permit to conclude that there is no proper request to take a license, with the result that the court thereupon upholds the SEP proprietor’s action for a prohibitory injunction without first examining the SEP proprietor’s own offer for a license (which preceded the SEP user’s counteroffer) for compliance with FRAND requirements?
- Is such a conclusion precluded at least where the particular licensing terms from the counteroffer, which are relied upon to conclude that there is no proper request to take a license, are terms for which it is not obvious or has not been determined at the highest judicial level that they are incompatible with FRAND terms?

Following the referral, the case is expected to remain stayed for at least two years. Therefore, Nokia is now challenging the referral before the Dusseldorf Court of Appeal and has already withdrawn similar cases pending in Dusseldorf, redirecting them to Munich. It will be interesting to see whether the Munich District Court maintains its approach of deciding based on its own legal interpretation, or also stays these cases, waiting for the CJEU’s guidance.

So far, many details of the parties’ obligations in a FRAND dance within the Huawei v ZTE regime are unresolved. The CJEU will now have to specify the FRAND requirements more clearly not only with regard to the obligation to grant licenses to every willing licensee within a multi-level supply chain. Due to the Dusseldorf District Court’s request to answer a comprehensive set of questions, the CJEU will also have to shed light on various questions regarding the timing of the parties’ contributions in FRAND negotiations.

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