How Sisvel v Haier transformed the German FRAND landscape

The framework for SEP litigation in Germany has been fundamentally shaped by two landmark rulings issued by the German Federal Court of Justice: Sisvel v Haier I and Sisvel v Haier II. In this first of a two-part series, the cases are analysed for the circumstances under which the FRAND defence is generally available in litigation before German courts.

Background

In both cases, Sisvel filed lawsuits against Haier Group companies for alleged patent infringement. The defendants sold mobile phones and tablets in Germany and implemented patents that had been declared essential for the GPRS and the UMTS standards, respectively.

Sisvel notified Haier of the alleged infringements of its patents and initiated licensing negotiations, although no agreement was reached. Sisvel thus sued the Haier companies in Düsseldorf courts up to the Federal Court of Justice as the final instance. The defendants invoked, among other things, the FRAND defence; they stated that asserting infringement of the patents in suit was anticompetitive.

The Federal Court of Justice’s stance

Dominant market position

As the FRAND defence only applies in cases of an abuse of a dominant market position, it was necessary to determine whether the plaintiff was dominant on the licence market. The court found that it was and provided some guidance on the issue.

It held that the mere patent title on its own does not establish a dominant market position. Market dominance requires that patents must be standard essential.

The use of the patented teaching is indispensable for the implementation of a standard (standardised by a standardisation organisation or enforced on the market), so that it is usually technically impossible to circumvent the invention without losing important functions for the product market.

In addition:

A prerequisite for an independent licence market is that the technical teaching corresponding to the patent and the standard cannot be substituted by a different technical design of the product.

However, according to the court, the use of patented teaching does not have to be technically unavoidable in order to qualify as standard essential. Even if the teaching were only optionally in the technical standard, it would still be considered standard essential if (as the court found) such realisation of the standard without this option “no longer played a role in practice”, making the use of the patent “factually unavoidable”. Thus, the court applied a practical and economic approach instead of a review of strict technical necessity. In other words, patents that are relevant only for optional parts of a technical standard can still trigger the FRAND defence.

In practice, a patent for mandatory functions of the GPRS standard qualifies as an SEP. While it is technically possible to design phones, which only make use of the GSM and/or the UMTS/LTE standard, such limitation would be practically and economically unviable. GSM does not provide for competitive transfer rates and UMTS/LTE do not provide for the same broad network coverage as GPRS.

So far, the court has not decided on the question of market dominance where the SEP is not mandatory or, at least, factually unavoidable.

Based on the court’s reasoning, patents covering optional functions without relevant practical importance (eg, providing interoperability with older, no longer used standards or outdated security features), may be considered avoidable and would thus not qualify as SEPs.

Whether a plaintiff is dominant on the market may also depend on the specific circumstances where patented teaching is used. For example, the use of cellular standards for communication between different machines in factories may not be unavoidable if the machines can also communicate with each other in other ways and the standards could thus be easily circumvented. Here, SEPs for the cellular standards would compete with other technologies on the licensing market and may not result in a market dominant position of the respective patent holder.

Limited scope of the FRAND defence

The Federal Court of Justice confirmed that an SEP holder is not necessarily prohibited from enforcing its SEP per se. Referring to the Court of Justice of the European Union’s Huawei v ZTE judgment, the German court emphasised that the FRAND defence is only available where SEP enforcement would effectively exclude products from the market (even though the defendant is willing to take a licence on FRAND terms). As a result, the FRAND defence only applies to motions for:

• injunctive relief;
• recall;
• definitive removal of products from the channels of commerce; and
• destruction.

In contrast, claims for damages for past infringements and an order to render accounts do not prevent products from entering or remaining on the market. Hence, the FRAND defence generally does not apply to these claims.

When the FRAND defence is generally available, the patent holder and the implementer must perform the so-called ‘FRAND dance’. The second part of this two-part series will outline the rules for – and consequences of – this dance since the judgments were issued.