On May 5, 2020, the Federal Court of Justice (“FCJ”)[1] granted Sisvel International S.A (“Sisvel”) an injunction against the Chinese mobile phone manufacturer Haier Group Corporation (“Haier”) to stop infringing one of Sisvel’s standard essential patents (“SEP”).  In its first application of the Court of Justice of the European Union (“CJEU”) Huawei/ZTE judgment,[2] the FCJ clarified the requirement of the patent user’s willingness to license.

SEP owners may be obliged under competition law to grant licenses.  In its Huawei/ZTE judgment, the CJEU detailed that such an obligation prevents a patent holder from obtaining an injunction against users of the patent (i) that are willing to license, unless (ii) the patent holder has made a fair-reasonable and non-discriminatory (“FRAND”) offer and the patent user (iii) has failed to diligently respond to the offer.[3]  In patent injunction proceedings, the defendant can invoke non-compliance with these steps as so-called FRAND defense.

Sisvel owned a SEP for a mobile telecommunication standard (“the Patent”).  Haier offered mobile phones and tablets in Germany using technology protected by the Patent.  Sisvel contacted Haier about the Patent at the end of 2012, but Haier indicated its willingness to negotiate a license only at the end of 2013.  Following fruitless negotiations, Sisvel sued Haier for infringing the Patent.  The companies continued to negotiate in parallel to the proceedings.  Notably, Sisvel made a few offers to which Haier made counteroffers subject to the condition that the Patent would be found valid and infringed in a court decision.

The Düsseldorf Regional Court found Haier liable for infringing the Patent.[4]  On appeal, the Düsseldorf Court of Appeal (“DCA”) largely reversed the decision.[5]  It found that Sisvel had abused its dominant position on the market for the licensing of the Patent by not complying with the Huawei/ZTE process.  The DCA considered that, while there were some delays, Haier had demonstrated its willingness to license before the initiation of the court proceedings.  Sisvel would therefore have been obliged to make a licensing offer on FRAND terms before suing Haier.  Further, Sisvel had offered Haier’s competitor, Hisense Group (“Hisense”), significantly better licensing terms which led the DCA to conclude that Sisvel’s offers to Haier were not FRAND.

On Sisvel’s appeal, the FCJ reversed the DCA’s judgment and reinstated the decision of the Düsseldorf Regional Court.  The FCJ considered that Haier was not a willing licensee.  According to the FCJ, a potential licensee has to clearly and unambiguously declare his unconditional willingness to conclude a license agreement on FRAND terms and contribute to the negotiation process.  While the FCJ expressly left open whether Haier could even be seen as a willing licensee in view of the response time of nearly one year, the FCJ held that Haier’s response and counteroffers were not sufficient, particularly since Haier initially had only indicated an intention to conduct negotiations and later made its counteroffers dependent on the Patent being found valid and infringed in a court decision.  While not decisive for the case, the FCJ also stated that the DCA had not sufficiently established that Sisvel’s offer was not FRAND.  The licensing terms for Hisense were not a suitable indicator, since the terms likely resulted from pressure of the Chinese government to provide beneficial terms to Hisense and were not necessarily indicative of a fair price.

[1]              FRAND-Einwand (KZR 36/17), FCJ judgment of May 5, 2020, available in German here; an English convenience translation is available here.  For a detailed commentary on the decision, please see Cleary Gottlieb’s alert memorandum of July 23, 2020, available here.

[2]              Huawei/ZTE (C-170/13), CJEU judgment of July 16, 2015, available in English here.

[3]              A more detailed description of the process can be found in Cleary Gottlieb’s alert memorandum of July 23, 2020, p. 2, available here.

[4]              Düsseldorf Regional Court judgment (4a O 93/14) of November 3, 2015, only available in German here.

[5]              DCA judgment (I-15 U 66/15) of March 30, 2017, only available in German here.