Federal Court of Justice: „FRAND Defence II“

After the Federal Court of Justice (FCJ) handed down its landmark “FRAND defence” judgement in Sisvel v. Haier last summer, a new decision by Germany’s highest court for patent litigation in a parallel Sisvel v. Haier case has just been published: “FRAND Defence II” (“FRAND-Einwand II” in German, judgement of 24 November 2020, KZR 35/17).

Although the judgement had already been announced in late November 2020, the FCJ still had to publish its full reasoning. Once again dismissing Haier’s FRAND defence, the Court further explains its interpretation of the “Huawei/ZTE” criteria developed by the Court of Justice of the European Union (CJEU) and responds to some of the criticism against its previous decision. For a convenience translation of the relevant passages into English, click here.

I. Parties’ overall behaviour more relevant than whether initial offer is FRAND

The FCJ first confirms its previous Sisvel v. Haier case law regarding the parties’ obligations under the “Huawei/ZTE” steps developed by the CJEU. Specifically the willingness to take a FRAND licence, which is required of the infringer, is explained not as a static point during the negotiations where the potential licensee may declare its willingness and be done with it, but rather as a continuing obligation to further the conclusion of a FRAND licence.

However, the FCJ expects both parties to work constructively towards a FRAND licence. An infringer’s “willingness” thus depends on what can be expected of each party during each step of the negotiations. Therefore, the infringer cannot simply rely on the argument that the SEP holder’s offer was un-FRAND. As long as the initial offer is not “obviously” un-FRAND (which would be a de facto refusal to grant a licence), the infringer is still expected to provide a counteroffer and work towards an agreement.

II.  CJEU’s “Huawei/ZTE” criteria provide safe harbour

Dismissing a strict understanding of the “Huawei/ZTE” steps, the FCJ explains that each case must be assessed in light of its specific circumstances. In the Court’s view, “Huawei/ZTE” simply provides a “negotiation programme” which, if followed, precludes abusive behaviour by the SEP holder (“safe harbour”). But other cases may require stricter or less strict obligations on both parties’ sides, depending on the specifics of the case, to balance both sides’ interests.

By adopting a “safe harbour” understanding of the “Huawei/ZTE” criteria the FCJ sides with other European courts. Particularly English and Dutch courts had considered the CJEU’s decision as a general guideline, whereas German lower instance courts had generally applied it as a strict test.

III. License to all?

In explaining both parties’ obligations in SEP licensing negotiations, the FCJ seems to suggest that any willing licensee has “a claim against the patent owner to contractually permit use of the protected technology under FRAND conditions”.

Particularly in SEP litigation connected to complex supply chains the question of whether the SEP holder must provide a licence to any supplier who requests one (“license to all”) or whether granting access to the technology via another way (such as have-made clauses in third-part licences) is sufficient (“access to all”), remains hotly debated.

Although this was not an issue to be decided in the case before the FCJ, the wording of the decision could potentially be interpreted in such a way that the FCJ confirms a license to all approach. It remains to be seen how the lower courts will interpret the decision in this respect.

IV. Conclusion

In “FRAND Defence II”, the FCJ provides further guidance of what it requires of the parties during FRAND-related negotiation and litigation. The Court supports a balanced approach, allowing lower instance courts to review each party’s overall behaviour when applying the CJEU’s “Huawei/ZTE” criteria.

by Benjamin Rätz

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