On May 5, 2020, Germany’s highest court, the Federal Court of Justice (GFCJ), made a provisional (tentative) ruling at the hearing in Sisvel’s SEP case against Haier, determining that Sisvel had not abused a dominant market position and Haier – as the implementer – had failed to comply with its FRAND obligations in the way that it handled licensing negotiations with SEP-owner Sisvel.
The GFCJ not not yet issued its final written decision, so we’ve done our best to summarize key points from various accounts of the May 5 hearing. So consider this post more as issue spotting with proper skepticism and understanding that the final decision may be different from what was said at the hearing. We encourage readers to keep an eye out for the Court’s final ruling, and we will provide an update once we receive an English version of the final decision (we will give a shout-out to the first person to send us an English version of the final decision).
Following the May 5 ruling, Sisvel on May 15 filed patent infringement suits against Tesla, Dell, Honeywell, HMD Global, TCL, BLU Products, CradlePoint, OnePlus, Tinno Mobile, Sun Cupid Technology, Verifone, and Xirgo in the District of Delaware, asserting patents previously assigned to Nokia, BlackBerry, LG, and Thomson Licensing and declared essential to 3G and 4G/LTE wireless standards. Sisvel had filed cases against BLU, Dell, Honeywell, Tesla and Xirgo last June.
In 2014, Sisvel sued Haier German and Haier Europe Trading (Haier) in Dusseldorf Regional Court, alleging Haier infringed two European patents essential to GPRS and UMTS standards and seeking damages and injunctive relief. The asserted SEPs are part of Sisvel’s Wireless Program, which the company holds out as available for license along with its Mobile Communication Program that covers 2G, 3G, 4G SEPs owned by Airbus, DS, KPN, Mitsubishi Electric, Orange, Sisvel, and 3G Licensing. The regional court sided with Sisvel in December 2015, finding Haier infringed Sisvel’s SEPs and that an injunction was warranted. The court did not examine whether licensing offers made by Sisvel during negotiations complied with FRAND, but determined that Haier had failed to respond to Sisvel with counter offers in a timely manner.
On appeal in April 2017, the Higher Regional Court of Dusseldorf confirmed that Haier infringed the two Sisvel SEPs, but determined that Sisvel had violated its FRAND obligations by granting discounts to an existing licensee – Hisense – that were not offered to Haier and that such discriminatory pricing constituted an abuse of dominant position in the patent licensing market. The appellate court determined Sisvel was owed past damages, but that an injunction was not warranted.
Sisvel appealed the FRAND decision to the German Federal Court of Justice (GFCJ) and Haier lodged a separate appeal on infringement after the Federal Patent Court and Federal Court of Justice reviewed the patent.
The case was heard by the GFCJ on May 5, 2020. At the hearing, the GFCJ announced a provisional judgment, confirming that the Sisvel patents at issue were essential to the pertinent GPRS/UMTS standards and infringed by Haier. With respect to FRAND, the GFCJ made a number of findings that will likely impact the analysis of FRAND licensing terms and commitments in SEP disputes moving forward.
With regard to SEP licensing, the GFCJ first indicated that FRAND law focuses on tempering an SEP holder’s dominant market position. The GFCJ noted that Sisvel held a dominant position, but did not abuse it in discussions with Haier.
The GFCJ then addressed FRAND negotiation procedures in light of the Court of Justice of the European Union (CJEU) decision in Huawei v. ZTE (see our July 16, 2015 post summarizing that decision). The court noted that the steps mentioned in that decision shouldn’t lead to a strict formula when assessing FRAND licensing discussions and that it is not important which side – licensee or licensor – formulates the FRAND-compliant terms, only that both sides are willing to identify those terms and are actively working towards that goal.
Specifically, the court noted that an SEP owner may violate its FRAND obligations by not accepting an implementer’s FRAND offer or by failing to provide information to the potential licensee that would allow that licensee to (1) assess whether the SEP owner’s offer complies with FRAND or (2) determine what terms would yield a FRAND-compliant counteroffer. The court noted this information would include information regarding existing licenses, including the terms included in those licenses and factors that would help the parties assess how much weight those license should be given during negotiations.
Addressing FRAND obligations of licensees, the GFCJ noted that implementers may violate their FRAND obligations by not negotiating in good faith, delaying negotiations, or rejecting FRAND-compliant offers. The court stated that implementers have an obligation to work with the SEP holder and must clearly and explicitly declare that it is willing to take a FRAND license, even if FRAND rates turn out to be expensive. Here, the court expressly cited Judge Birss of UK High Court in Unwired Planet v. Huawei: “a willing licensee must be one willing to take a FRAND license on whatever terms are in fact FRAND.”
Applying those principles to the case at hand, the GCFJ found Haier did not express a willingness to enter into a license agreement under any condition that turned out to be FRAND, thus breaching its obligations. The court also found that Haier had delayed action in constructively negotiating terms of the potential license. Addressing the license granted by Sisvel to Hisense, the court found that Hisense, as a Chinese state-owned entity, was able to exert excess leverage in licensing talks to secure terms more favorable to Hisense than would have resulted from arms-length negotiations and that agreements executed under pressure of a foreign government do not set the standard for FRAND.
Again, the foregoing is from second-hand accounts of what was said at the hearing in the absence of a final written decision, so view it with proper skepticism as we await the actual decision, which also may differ from what was said at the hearing.