HOW A RECENT JUDGMENT BY THE COURT OF DÜSSELDORF AFFECTS FULFILLING THE DUTIES UNDER THE “HUAWEI ETIQUETTE”
When is a license offering in line with the FRAND-requirements? This is the question the Higher Regional Court of Düsseldorf intended to address with its decision dated March 30, 2017 (docket No. I-15 U66/15). Thanks to Christopher Weber’s contribution on the (IPKat) we have details about this doubly interesting judgment. On one hand, it provides a kind of handbook to SEP litigation under the Huawei/ZTE case (Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH - Case C-170/13) that can be useful also for Italian practitioners, while on the other, it presents some points of contact with the Italian preliminary decisions issued by the Court of Turin in the Sisvel v. ZTE case (dated 18 January, 2016, docket No. 30308/2015 and 4 March, 2016, docket No- 2695/2016).
First of all, as a general principle, the Court of Düsseldorf found the “Huawei etiquette” (Case C-170/13) to be applicable also to negotiations that took place prior to the issuing of the Huawei decision. Unsurprisingly, this is in line with the position expressed by the Court of Turin in the Sisvel v. ZTE cases that refer to negotiations started in 2012 and unsuccessfully ended in December 2015, shortly after the issuing of the Huawei judgment.
Adding content to the “Huawei etiquette”, the Court of Düsseldorf affirmed that a SEP owner informing the defendant’s holding company of the alleged patent infringement—e.g. by identifying the number of the patent and the allegedly infringing acts—may just be enough to meet its information obligations. In other words, patent owners must put the allegedly infringing parties in the position to inform themselves and their parent companies about the notified violation.
This approach differs from the one adopted by the Court of Turin in the Sisvel v. ZTE cases. In the latter, and contrary to the above, the Judge stressed that the plaintiff only entered into licensing negotiations with, and addressed all licensing offers to the defendant’s holding company (and not to the defendant as well); as a result, it did not comply with its Huawei obligations vis-à-vis the defendant. That is to say that according to Italian case precedent, notifying the holding company alone does not provide sufficient grounds to invoke the “Huawei etiquette”. Indeed, the Court of Düsseldorf drew such conclusions from the fact that a similar notification does not imply that all parent companies are automatically informed about the allegedly infringing activity.
The “Huawei etiquette” requires that the alleged infringer proves his willingness to reach a FRAND license agreement, meaning that it must react to the infringing notice received by the patent holder within a reasonable time. This would prove the lack of delaying behavior. Interestingly enough, according to the Court of Düsseldorf the reasonable nature of such a period of time must be evaluated on a case by case basis and it is inversely proportional to the degree of details given by the patent owner in the infringing notice: the less detailed the latter is, the longer the patent owner will be expected to wait for the adverse party’s counteroffer. The German Court then added that a period of three to five months is too long and is therefore not reasonable. In any case, the defendant can always prove its willingness to license until the submission of a lawsuit.
Although there is no Italian case law on this specific point so far, I would be surprised to learn that an Italian Judge stated that a period of three to five months is unreasonable in the light of the “Huawei etiquette”. On the contrary, what we can expect to be validated by Italian Judges, is the case by case approach that links the reasonable nature of the reaction period granted to the alleged patent infringer to the level of detail of the infringing notice.
Another interesting point that the Court of Düsseldorf has dealt with, that has not yet been specifically approached by Italian courts is the one related to the reciprocity of the duties established by the Huawei decision. In essence, the Court of Düsseldorf affirmed that if the patent holder does not offer a FRAND-conform license to the alleged infringer, the latter does not have to prove his willingness to license with a counteroffer in line with FRAND principles. This is true also with reference to the non-discriminatory nature of a FRAND license: if the patent owner offers a license that is discriminatory compared to the licenses he already granted to third parties over the same patent, the alleged patent infringer is under no obligation to prove his willingness to reach a FRAND license.
According to the German Court’s reasoning, a license is discriminatory whenever: (i) royalties are unreasonably higher than the ones included in comparable licenses with third parties; and (ii) the alleged infringer is not granted any discounts that are standard discounts usually granted to third parties. The Court also added that arguments such as first mover advantage, very short negotiations of the agreement and license by down payment, are groundless for justification purposes.
As mentioned, the judgment given by the Court of Düsseldorf might represent a guideline of sorts for the enforcement of the “Huawei etiquette”. As such, Italian practitioners may also want to look into it—bearing in mind that they shall read the indications given by the German court in the light of previous Italian case law. A comparative analysis of the different case law is essential in order to adjust the strategy of the parties involved in different jurisdictions, both in the phase of negotiations of a FRAND license as well as in the litigation phase.