Netherlands: SEPs and FRAND – litigation, policy and latest developments

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This is an insight article whose content has not been written by the IAM editorial team, but which has been proofed and edited to run in accordance with the IAM style guide.

Legal and policy framework

General framework

The legal basis for the FRAND defence has not been explicitly discussed in case law. So far, Dutch courts have dealt with FRAND defences within the CJEU’s Huawei v ZTE’s framework of abuse of dominant position ex article 102 of the TFEU. However, a contractual basis for FRAND obligations (eg, based on an SDO’s IPR policy) has not been rejected as a matter of principle.

Although the courts recognise the significance of Huawei v ZTE, the court of appeal has ruled that the steps set out therein are not to be seen as strict rules, but rather serve as guidelines for good-faith negotiations between the parties on a FRAND licence. The specific circumstances of the case have to be taken into account when assessing whether certain behaviour amounts to an abuse of a dominant position under the Huawei v ZTE framework.[1] This means, on the one hand, that the SEP holder is expected to inform the implementer of its SEPs, be the first to make a licence offer and negotiate it in good faith before bringing an action for injunctive relief, so that the negotiations can be conducted without pressure from an impending injunction. On the other hand, the implementer should act willingly and, in particular, not use delaying tactics, including making a written counterproposal at short notice if it does not want to accept the SEP holder’s licence offer. It is imperative that an implementer shows itself to be willing to take a FRAND licence at all times and avoids giving the impression that use is being made of delaying tactics. Failure to do so will lead to forfeiture of a FRAND defence.

Requirements prior to litigation

The current state of affairs is that failure to comply with the Huawei v ZTE framework cannot be made up for after litigation has started. Fulfilment of the Huawei v ZTE requirements after litigation has been initiated does not make the initiation of litigation abusive in retrospect. Also, late fulfilment of requirements does not preclude the further pursuit of a non-abusively initiated action; that is, an SEP holder does not have to suspend an infringement action if an implementer becomes willing after being sued. According to the court of appeal, that would open the door for delaying tactics on the side of the implementer. At most, a counter-offer that is made during the proceedings leads to an obligation for the SEP holder to negotiate in good faith – parallel to the proceedings.

Burden of proof

The implementer bears the burden of proof that the SEP holder has a dominant position and it is a willing licensee by complying with the Huawei v ZTE steps (willingness, counter-offer and security). If the implementer believes the SEP holder has not (properly) notified the implementer prior to initiating proceedings, the implementer bears the burden of proof for this as well.

According to the court of appeal, in principle, the implementer bears the burden of proof that the SEP holder’s licence offer is not FRAND. However, it has not been ruled out that under certain circumstances the SEP holder may have a strengthened obligation to furnish facts or there could be a reversal of the burden of proof. The fact that the SEP holder has not disclosed the licence agreements it has concluded with other parties regarding the same portfolio does not count in a circumstance where the implementer itself has concluded licence agreements with third parties, as it could use those to argue the non-FRANDness of the SEP holder’s offer and the FRANDness of its own offer. Also, the district court’s practice to order disclosure hints at a different division of the burden of proof (discussed below).

Disclosure and confidentiality

It is the current practice of the district court to order limited disclosure from both the SEP holder and the implementer in FRAND cases.[2] Typically, the disclosure order concerns the licence agreements the SEP holder has already concluded for the invoked patent and all licence agreements the implementer has already concluded for the standard the invoked patent is essential for. Side letters, amendments, supplement agreements and similar documents will also have to be disclosed. In the district court’s assessment, these documents could be of importance for the assessment of: (i) the offer of the SEP holder; (ii) the counter-offer of the implementer; and (iii) the willingness of the implementer.

The order is given based on an ex officio competence of the court, typically at the instigation of (one or more of) the parties. A party can decide not to follow the order. However, the court can ‘draw adverse inferences as it considers appropriate’ from the refusal.

Access to the disclosed documents will be limited to confidentiality club members, consisting of the Dutch attorneys, a restricted number of employees of the parties and the parties’ economic experts. Employees that hold a commercial position, such as licensing decision-makers, are generally not allowed in the confidentiality club. The use of the disclosed documents will be limited to the Dutch proceedings, and breach of confidentiality subject to forfeiture of a significant penalty sum.

Briefs and exhibits (such as experts reports) that refer to the disclosed confidential information will have to be redacted before circulation to persons outside of the confidentiality club. Procedural documents in Dutch civil proceedings are not part of the public record, thus third parties do not have a right of access. Third parties are allowed to attend the oral hearing, however. To maintain confidentiality, part of the oral hearing can be conducted ‘behind closed doors’, with only confidentiality club members present. Likewise, confidential parts of the judgement will be redacted before publication on the Dutch judiciary website.

What qualifies as FRAND?

As mentioned above, the courts have dealt with the FRAND principle under the Huawei v ZTE framework. Currently, there is rather limited case law guidance on what is required under each Huawei v ZTE step.[3]

There is no guidance in case with respect to the notification that goes beyond Huawei v ZTE.

As for willingness, the court of appeal held that this requires more than a mere statement. Implementers must actually and continuously show willingness by means of their actions, for instance through expeditious and meaningful communications, attendance of meetings by the people with the proper technical knowledge or decision-making power, proper follow-ups, etc. Only if the implementer continuously shows itself to be a willing licensee, the SEP holder is obliged to make a licence offer. Based on Huawei v ZTE, the SEP holder must specify in its licence offer the royalty and the way it is calculated. According to the court of appeal, however, only the way in which the royalty rate is to be calculated must be disclosed; for example, on the basis of the entire product or only part thereof, percentages, purchase and selling prices, costs, increments, etc. Therefore, the obligation to specify is limited to information relevant in the determination of how much the implementer must pay for the licence, rather than how the SEP holder has determined the royalty rate.

The court of appeal does not require that the SEP holder substantiates why its offer is FRAND. Furthermore, the court of appeal has explicitly held that no obligation follows from Huawei v ZTE for the SEP holder to disclose comparable licence agreements. However, as discussed above, lower case law has regularly ordered disclosure of comparable licence agreements for purposes of FRAND litigation. Regarding the non-discrimination requirement, the court of appeal has held that non-discrimination does not mean that exactly the same licence structure and identical conditions have to be applied for each implementer. Specific facts applying to a specific implementer can lead to other, appropriate conditions. The sole fact that the SEP holder has agreed to a different licence structure with another individual licensee does not lead to a presumption of discrimination.

The counter-offer of the implementer must meet the same requirements as the SEP holder’s licence offer. It therefore must include the royalty rate and the way in which the royalty is to be calculated (thereby applying the same standard for calculation as for the SEP holder). If the counter-offer is rejected, the implementer will have to provide adequate security based on the number of the past acts of use of the SEP and must be able to render accounts in respect of acts of use (cf Huawei v ZTE). This ‘adequate security’ requirement has not been discussed further in proceedings on the merits yet.

Remedies

If a FRAND defence succeeds, injunctive relief as well as a recall claim will be rejected. Based on Huawei v ZTE, a successful FRAND defence will not lead to a rejection of other types of claims.

Requests for a preliminary injunction based on an SEP is unlikely to succeed: the court of appeal has attached considerable weight to the fact that an SEP holder’s damage as a result of infringement of an SEP is purely monetary (unpaid FRAND royalties), which can be assessed and compensated with relative ease later on, while the interests of an implementer in staying on the market with its product are very significant. Accordingly, in Sisvel v Xiaomi,[4] the court of appeal denied a request for a PI based on a balancing of interests only, without any assessment on the merits. In that case, it also helped Xiaomi that it had met Sisvel’s interests by putting up security for its Dutch sales until the expiry of the patent based on Sisvel’s royalty rate for the entire patent pool to which the invoked patent belonged. Although a balancing of interests is of course case specific, the various circumstances deemed relevant by the court of appeal seem to apply to virtually all SEP cases.[5]

In the Netherlands, the questions of liability for damages and the determination of those damages itself are usually dealt with in two separate proceedings. The latter proceedings have not yet taken place with regard to SEP infringement. In general, Dutch civil law limits damages to those actually suffered (ie, no punitive element or treble damages). In that context, a damages award should not exceed the FRAND licence fee that would have been due when a FRAND licence would have been concluded. Damages can be calculated both on actual loss and loss of profits by the SEP holder, or surrender of profits made by the infringer. The court of appeal did award damages (to be calculated in damages proceedings) based on surrender of profits in a FRAND dispute, which therefore may exceed the FRAND licence fee.[6]

Strategic considerations in SEP infringement proceedings

All patent infringement and nullity cases, including SEP cases, are exclusively dealt with by a specialised patent chamber of the District Court, The Hague and the Court of Appeal, The Hague.

An SEP holder contemplating starting infringement proceedings in the Netherlands with the aim of obtaining an injunction must take into consideration that it is unlikely it will be able to get an injunction awarded in preliminary relief proceedings. Based on current case law, a preliminary injunction request based on an SEP will very likely be rejected solely based on a balancing of interests. Of course, the option of initiating merits proceedings remains available to the SEP holder. Merits proceedings take approximately two years from service of the writ of summons to a decision. The alleged infringer can counterclaim for nullity.

The technical and FRAND parts of the proceedings will be conducted in parallel, but will likely be heard in separate hearings. It is noteworthy that Dutch procedural rules allow for the parties to jointly request a deviating manner of conducting the proceedings. This request must be made ultimately on the first docket date.[7] It may be worth trying to reach an agreement with the counterparty on a proposal that could save resources in case the patent is found invalid or not infringed. The court has a discretionary power to grant or deny the request, so there is no guarantee that the alternative proposal will be followed.

Offensive FRAND actions

The Netherlands is a possible venue for implementer-initiated or offensive FRAND actions. The district court has assumed jurisdiction against foreign defendants in both FRAND determination and anti-anti-suit injunction (AASI) proceedings and has not ruled out that a pre-emptive AASI can be awarded.  

Jurisdiction in FRAND determination or anti-anti-suit injunction proceedings

In FRAND determination proceedings Vestel v Access Advance,[8] the district court assumed jurisdiction against all foreign defendants. Given the district court’s jurisdiction ruling, the case will continue on the merits, and it may become the first case in which the Dutch court sets a FRAND rate. In AASI preliminary relief proceedings Ericsson v Apple,[9] the preliminary relief judge likewise assumed (limited) jurisdiction against the foreign defendants. In both cases, jurisdiction was based on a provision of Dutch procedural law, which allows for jurisdiction in case of connectivity of the claims against a foreign defendant with the claims against a Dutch anchor defendant (article 7(1) of the DCCP). This Dutch provision applies to foreign defendants located outside of the EU, as the Brussels I (Recast) Regulation in that event does not apply. While Dutch jurisdiction provisions are in principle modelled after the provisions of the predecessors of the Brussels I (Recast) Regulation, the district court and preliminary relief judge reasoned that the Dutch legislator has intended to formulate a somewhat different, broader rule with article 7(1) of the DCCP. The broader scope of article 7(1) can be inferred from the text of the provision, which speaks of ‘connection’ and ‘effectiveness’ instead of ‘so closely connected’ and ‘risk of irreconcilable judgments’ (article 8 of the Brussels I (Recast) Regulation).

Although The Hague court does not have exclusive competence with respect to all patent related disputes, including FRAND disputes or AASI claims, it held it had territorial jurisdiction in both Ericsson v Apple and Vestel v Access Advance. Also, in these types of actions a party can litigate before the specialised The Hague court.

Possibility of obtaining an AASI

In Ericsson v Apple, the district court ruled that it was willing, as a matter of principle, to grant an AASI. While Ericsson’s request for such an AASI was denied on the merits (Ericsson could not show a tangible threat that Apple would actually file for an ASI), the district court did accept that a request for an ASI covering the Netherlands or Belgium can constitute an unlawful act under certain circumstances, meaning that an AASI can be awarded. This case also showcased the Dutch court’s ability to act swiftly in particularly urgent cases: Ericsson initially requested an ex parte AASI, which was granted (in limited form) as a provisional measure by the preliminary relief judge.[10] A first hearing on this provisional measure took place four days later, and 10 days after the hearing, the PI judge denied Ericsson’s request and lifted the provisional measure, because the threat of Apple initiating an ASI was insufficiently articulated.[11]

Notes

[1] Court of Appeal, The Hague 7 May 2019, ECLI:NL:GHDHA:2019:1065 (Philips v Asus); Court of Appeal, The Hague 2 July 2019, ECLI:NL:GHDHA:2019:3613 (Philips v Wiko); Court of Appeal, The Hague 24 December 2019, ECLI:NL:GHDHA:2019:3535 (Philips v Asus). Court of Appeal, The Hague 24 December 2019, ECLI:NL:GHDHA:2019:3537 (Philips v Wiko).

[2] District Court, The Hague 14 July 2021, ECLI:NL:RBDHA:2021:15304 (Philips v Xiaomi); District Court, The Hague 5 February 2020 (Sisvel v Xiaomi); unpublished, but the disclosure decision is mentioned in the interim judgment: District Court, The Hague 4 November 2020, ECLI:NL:RBDHA:2020:11108; District Court, The Hague 15 January 2020 (Sisvel v OPPO); unpublished, but the disclosure decision is mentioned in the interim judgment: District Court, The Hague 27 May 2020, ECLI:NL:RBDHA:2020:4632.

[3] The Philips v Wiko and Philips v Asus case law referenced in footnote 1. Wiko lodged supreme appeal, which was rejected based on non-substantive grounds (Supreme Court 25 February 2022, ECLI:NL:HR:2022:296 and Supreme Court 25 February 2022, ECLI:NL:HR:2022:294). Therefore, there is currently no further guidance from the Supreme Court on the assessment of FRAND.

[4] Court of Appeal, The Hague 13 March 2020, ECLI:NL:GHDHA:2020:711 (Sisvel v Xiaomi).

[5] The PI judge even took one step further in Ericsson v Apple by rejecting an injunction based on a non-SEP for lack of urgent interest for similar reasons. The PI judge assessed that Ericsson solely aimed to generate licence income with the invoked non-SEP and was not on the market itself with a product that incorporated the patented technology. See District Court, The Hague 9 May 2022, IEF 20703 (Ericsson v Apple).

[6] Court of Appeal, The Hague 7 May 2019, ECLI:NL:GHDHA:2019:1065 (Philips v Asus); Court of Appeal, The Hague 2 July 2019, ECLI:NL:GHDHA:2019:3613 (Philips v Wiko); Court of Appeal, The Hague 24 December 2019, ECLI:NL:GHDHA:2019:3535 (Philips v Asus); Court of Appeal, The Hague 24 December 2019, ECLI:NL:GHDHA:2019:3537 (Philips v Wiko).

[7] Article 1(6) of the National Rules of Procedure.

[8] District Court, The Hague 15 December 2021, ECLI:NL:RBDHA:2021:14372 (Vestel v Access Advance).

[9] District Court, The Hague 16 December 2021, ECLI:NL:RBDHA:2021:13881 (Ericsson v Apple).

[10] District Court, The Hague 4 October 2021, ECLI:NL:RBDHA:2021:15544 (Ericsson v Apple).

[11] District Court, The Hague 18 October 2021, ECLI:NL:RBDHA:2021:11312 (Ericsson v Apple).

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