UPC Issues First FRAND Decision | McDermott Will & Emery
In a landmark decision, Unified Patent Court (UPC) Local Division Mannheim established standards for enforcing Standard Essential Patents (SEPs), and for negotiating fair and reasonable licenses for SEPs. The judgment outlines the obligations of parties in FRAND negotiation in line with the framework established by the Court of Justice of the European Union in Huawei Technologies Co. Ltd. v. ZTE Corp. Panasonic Holdings Corp. v. Guangdong OPPO Mobile Telecommunications Corp. Ltd., OROPE Germany GmbH Case No. UPC_CFI_210/2023; ACT_545551/2023 (Local Division Mannheim Nov. 22, 2024) (Tochtermann, J.; Botter, J.; Brinkman, J.; Loibner, TJ. This case is part a larger global dispute involving Panasonic Technology Germany GmbH, OPPO and Xiaomi Technology Germany GmbH. The dispute involves patents that are alleged to be essential for the 3G and 4G standards of mobile communication. Panasonic, OPPO and OROPE all agreed that the patent in question is essential to 4G. Panasonic filed a lawsuit for infringement seeking an injunction. In response, OPPO asserted a counterclaim for revocation of the patent in suit, alleging invalidity, and FRAND-related counterclaims.
While the Local Division Mannheim’s competence over the counterclaim for revocation was uncontested, the Court expressly confirmed its jurisdiction to hear the FRAND counterclaims under Article 32(1)(a) of the Agreement on a Unified Patent Court (UPCA). The Court explained that this claim was about the right to assert a counterclaim based on competition laws in order to defend against a Patent. Since the task assigned to the UPC is the same as that of national courts when dealing with SEP disputes, and since the UPC fully applies and respects the primacy of Union law (Article 20 of the UPCA) and bases its decisions thereon (Article 24(1)(a) of the UPCA), the Court reasoned that this includes the mandatory application of EU competition law as relevant for SEP enforcement, particularly Article 102 of the Treaty on a Functioning of the European Union.
Another argument the Local Division Mannheim considered is the need to apply both patent and competition law, which becomes apparent when considering the UPC’s exclusive jurisdiction over SEPs that are European patents with unitary effect (or European bundle patents that cannot be opted out after the expiry of the transitional period under Article 83 of the UPCA).
In Depth
LEGAL ISSUES ON INJUNCTIVE RELIEF AND FRAND CONDUCT
Unlike the position taken by the UK Court of Appeal in Panasonic Holdings Corp. v. Xiaomi Technology Germany GmbH (
EWCA Civ 1143), the Local Division Mannheim emphasized that remedies in SEP cases are not limited to financial damages. Rather, regarding the Directive on the Enforcement of Intellectual Property Rights (2004/48/EC, Enforcement Directive) and the Charter of Fundamental Rights of the European Union (particularly Articles 17(2) and 47), the Court affirmed that SEP owners may also exercise their right to an exclusionary injunction provided they have acted in accordance with FRAND principles.
In this case, the Local Division Mannheim found the FRAND counterclaim to be admissible but rejected it as unfounded.[2024]EUROPEAN LEGAL FRAMEWORK: ORIENTATION TOWARD HUAWEI v. ZTE
In accordance with Union law (Article 24(1)(a) of the UPCA), the Local Division Mannheim interpreted the CJEU’s decision in Huawei v. ZTE and considered it binding pursuant to Article 21 of the UPCA.
A SEP Owner’s Duty to Notify the Alleged Infringer
According to the principles set forth in Huawei v. ZTE, the SEP owner must first notify the alleged infringer before filing suit for an injunction. The SEP owner must notify the alleged infringer before filing suit for an injunction. This is based on the principles set forth in Huawei v. ZTE. The requirements for notification depend on the specific circumstances of each case. However, the Local Division Mannheim noted that any objections or misunderstandings should have been raised by OPPO in its reply to the notification letter. The Court noted that any objections or misunderstandings should have been promptly raised by OPPO in its reply to the notification letter.
Contrary to the European Commission’s (EC) recent opinion, which it expressed in an amicus curiae brief filed in national infringement proceedings between other parties before the Munich Higher Regional Court (See Amicus Curiae Brief of April 15, 2024, 020078-24 MLO/DF), the Local Division Mannheim rejected a strictly formalistic step-by-step approach when considering whether the parties acted FRAND-compliant.
While the Local Division Mannheim held that Panasonic must plausibly explain why its offer is FRAND-compliant, including the relevant mathematical factors for royalty calculation, the Court clarified that a formal offer in the sense of a draft agreement is not necessarily required, especially at the beginning of negotiations.
The Criterion of the Willing Licensee
After being notified of the alleged infringement, the implementer must express its willingness to conclude a license agreement on FRAND terms. According to the Local Division Mannheim – and in alignment with the German Federal Court of Justice’s case law (See FCJ, judgment of May 5, 2020 – KZR 36/17, GRUR 2020, 961, paragraph 83) and the High Court of Justice in England and Wales (See Unwired Planet v. Huawei, EWHC 711 (Pat) paragraph 708) – OPPO must express its willingness to take a license “on whatever terms are in fact FRAND.” In this regard, the case’s circumstances must be duly taken into account.
The Local Division Mannheim agreed with the EC’s position that the initial declaration of willingness to license is the prelude to further negotiations.
Further FRAND Negotiations
Subsequent negotiations between the parties should also be assessed based on FRAND criteria. The conduct of the parties cannot be viewed in isolation, but rather in the context of their interaction. In view of the fundamental objective of the “negotiation programme” developed by the CJEU, it is crucial to assess whether the parties are working toward the conclusion of a FRAND-compliant license agreement in a timely manner.
Depending on the stage of the negotiations, in the event of an impasse, the court must assess what actions a reasonable party genuinely interested in achieving a mutually satisfactory conclusion to the negotiations would take in the specific circumstances of each case.
The stage of the negotiations also plays an important role in determining the extent of the patentee’s obligation to clarify the FRAND compliance of its offer and its information obligations in general. According to the Local Division Mannheim it is not necessary that the patent owner discloses third-party licensing agreements, especially at the beginning. The Court stated that it was “not always” necessary to disclose names of licensees and terms of agreements, particularly if the implementer had not provided enough information during FRAND negotiations. The implementer cannot demand more disclosure from the SEP owner than it is willing to disclose itself.
Further, the Local Division Mannheim emphasized that FRAND is a “corridor” that gives SEP owners some leeway and there is a range of different types of agreements, all of which can be FRAND. SEP owners are not obligated under competition law to make the cheapest offer that is still within this corridor.
OPPO’S CASE
Applying the above principles, the Local Division Mannheim concluded that Panasonic’s offer was FRAND-compliant while OPPO lacked willingness to negotiate in good faith.
Although key parts of the judgment regarding the license terms are redacted (e.g., Panasonic’s pricing), the unredacted portions show that the Local Division Mannheim placed significant emphasis on OPPO’s unwillingness to negotiate in good faith. OPPO, for example, raised objections to Panasonic’s offers during litigation and not during the negotiation process. The Court based its finding of “unwillingness” on the delays during negotiations and OPPO’s failure to provide sufficient information about its products and sales of infringing articles while also making an offer limited to Europe, the United States, and Japan (rather than for a worldwide license).
PRACTICE NOTES
With its decision, the UPC strengthens the European-Union-wide harmonization of SEP jurisprudence. The Local Division Mannheim combined principles developed by CJEU and national approaches, particularly with the German Federal Court of Justice case law. The Local Division Mannheim clarified, in line with German caselaw, that an implementer has to provide adequate security if their counteroffer is refused. The Local Division Mannheim explained that while a freestanding FRAND decision may not be possible, the UPC has the competence to hear FRAND counterclaims. There is no reason to not consider them counterclaims under Article 32(1)(a), of the UPCA. Local Division Mannheim acted in a more patentee friendly manner than the UK Court of Appeal when it came to notification to the implementation. The Court criticized, in particular, the EC’s step-by-step strategy advocated in its amicus curiae. According to the amicus curiae, the activities of the parties in FRAND negotiation would be assessed sequentially. This means that a party will only be able to fulfill its next obligations if the previous stage in the negotiation process has been completed. In this regard, the Court’s ruling was in line the German national approach. The Court declined to set FRAND conditions, which was not required given that it found OPPO as an unwilling licensee. Rather, because of OPPO’s classification as an unwilling licensee, the Court issued an injunction for Germany, France, Italy, the Netherlands, and Sweden against OPPO in favor of Panasonic.
The decision came as a surprise to many as Panasonic and OPPO had already agreed in principle to settle their global patent dispute in October 2024. The Local Division Mannheim was able to make a decision on the matter, but only after a two-week delay in the announcement of its decision. This was because a final agreement hadn’t been reached. The Local Division Mannheim determined that OPPO raised its objections to Panasonic’s notification letter only during litigation, and that it was therefore too late.
