IP Report
Patent Law

FRAND objection: German Federal Court of Justice, judgment dated
May 5, 2020 – docket no. KZR 36/17
Reported by Dr. Jan Bösing and Prof. Dr. iur. Tilman Müller-Stoy

By its recently published judgment
dated May 5, 2020, docket no. KZR
36/17, the German Federal Court ofJustice for the first time interpreted
and applied the requirements thatwere defined by the ECJ in its “ZTE vs.
Huawei” decision (C-170/13, hereinafter ECJ decision). Contrary tothe case law of the courts of lower
instances to date, the German FederalCourt of Justice imposes high requirements with regard to the alleged
patent infringer’s willingness to takea license. As regards other aspects, incontrast, it confirms the position of
the courts of lower instances.
I. Facts and circumstances
The Plaintiff is the proprietor of an extensive portfolio of standard-essential patents.
This also includes the present patent-in-suit,
which has been declared essential for theGPRS mobile phone standard and for which
the Plaintiff has made a licensing commitment on fair, reasonable and non-discriminatory (FRAND) terms towards the ETSI
standard setting organization.
In three letters in December 2012 and in2013, the Plaintiff indicated infringement of
the patent-in-suit to the Defendant’s parent
company and offered a license on FRAND
terms to it. The Defendant’s parent company
only responded to this in December 2013,expressing the hope that one might enter into
negotiations, and requesting information
about a discount. Subsequently, negotiations

on a license took place and several licenseoffers were exchanged. However, after theconclusion of an agreement had failed, thePlaintiff asserted its rights in court.
II. Lower Courts
The Regional Court of Düsseldorf entirely
found for the Plaintiff in response to its
complaint for injunctive relief, recall anddestruction, information and rendering ofaccounts as well as determination of theobligation to pay damages (judgment dated
November 3, 2015 – 4a O 93/14). In doing so,
the Regional Court of Düsseldorf dismissed
the Defendant’s defense of compulsory
license under antitrust law, since, contrary to
its obligations arising from the ECJ decision,it had not rendered accounts of its previous
acts of use and did not provide a security forthis. In view of this, the Regional Court ofDüsseldorf did not determine whether thePlaintiff, in turn, had fulfilled its obligations
arising from the CJEU decision.
Upon the Defendant’s request, the Higher
Regional Court of Düsseldorf stayed theenforcement of the first-instance judgment (order dated January 13, 2016 –I-15 U 66/15). In the opinion of the Higher
Regional Court of Düsseldorf, it was not permissible for the Regional Court of Düsseldorf
not to determine whether the Plaintiff had
met its requirements arising from the CJEU
decision, particularly its obligation to makea FRAND license offer, before reviewing theDefendant’s obligations regarding accounting
and a provision of security.

Prof. Dr. iur. Tilman
Müller-Stoy
Attorney-at-Law(Rechtsanwalt),
Certified IP lawyer,
Commercial Mediator(MuCDR), Partner

Dr. Jan Bösing
Attorney-at-Law(Rechtsanwalt), Partner

BARDEHLE PAGENBERG
Partnerschaft mbB
Patentanwälte Rechtsanwälte
Prinzregentenplatz 781675 München
T +49.(0)89.928 05-0
F +49.(0)89.928 05-444
info@bardehle.dewww.bardehle.com
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In the appellate proceedings, the Higher
Regional Court of Düsseldorf confirmed
infringement of the patent-in-suit, but partially dismissed the complaint as currently
unfounded due to the Defendant’s defenseof compulsory license under antitrust law(judgment of March 30, 2017 – I-15 U 66/15).
The Higher Regional Court of Düsseldorf
arrived at the conclusion that the Defendant
had sufficiently declared its willingness
to take a license, but that the Plaintiff had
subsequently not made a license offer on
FRAND terms since the Plaintiff’s licenseoffer discriminated against the Defendantcompared to a third-party licensee.
III. The Decision of the German
Federal Court of Justice
The German Federal Court of Justice confirmed infringement of the patent-in-suit,
but dismissed the Defendant’s defense ofcompulsory license under antitrust law andthus reversed the judgment of the Higher
Regional Court of Düsseldorf to the extent
to which its finding was to the Plaintiff’sdisadvantage.
As the reason for dismissing the defense ofcompulsory license under antitrust law, theGerman Federal Court of Justice stated thatthe Defendant had not declared its willingness to conclude a license agreement on
FRAND terms. For this, the German Federal
Court of Justice requires the infringer toclearly and unambiguously declare its willingness to conclude a license agreement on
reasonable and non-discriminatory terms to
the patent proprietor and to cooperate in thelicense agreement negotiations in a purposeful manner. The Defendant failed to doso, by not reacting to the Plaintiff’s indication of infringement at all at first and later

declaring its willingness to take out a license
merely in a non-committal or conditionalmanner.
Finally, the German Federal Court of Justicealso found, in an obiter dictum, that thePlaintiff’s license offer may possibly havebeen non-discriminatory according to thefindings of the courts of lower instances,since the unequal treatment compared to thethird-party licensee may be justified.
IV. Analysis
In its decision, the Federal Court of Justiceaddresses a number of questions which haveso far been disputed between the different
courts of lower instances, specifying theobligations of the parties in the context of adispute about standard-essential patents.
1. Dominant market position
The Federal Court of Justice first confirms
the established case law according to whicha dominant market position is given if apatent is standard-essential and its technicalteaching furthermore cannot be substituted
by a different technical design of the product(marg. 58). In the view of the Federal Courtof Justice, this is the case for the patentin-suit, which is essential for the GPRS
standard. In particular, the GPRS standard
cannot be substituted by predecessor or
successor standards (marg. 59).
The Federal Court of Justice furthermore
rejects the Plaintiff’s argument that a dominant market position cannot be present
because the infringer can use the teachingof the patent, and thus access the market,
even without a license. The Federal Court ofJustice finds that the market entry barrier is2

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already provided by the fact that it is unreasonable for a company to be active on themarket without a license (marg. 63).
Finally, the Federal Court of Justice clarifies
that the dominant market position ends upon
the expiration of the patent (marg. 65).
2. Abuse of the dominant market
position
The Federal Court of Justice first confirms its
decision “Orange-Book-Standard”, according
to which an abuse of a dominant market
position is given if the infringer has made an
unconditional license offer under terms andconditions which the patent holder cannot
reject without violating the prohibitionof abuse or discrimination (marg. 71 withreference to BGHZ 180, 312, marg. 27, 29 Orange-Book-Standard).
With reference to the decision by the European Court of Justice in the case “ZTE vs.
Huawei” (C-170/13), the Federal Court ofJustice then introduces another situation
where the assertion of a SEP can be abusive,
namely if the infringer is not yet ready toconclude a license agreement, but the patent
proprietor itself has not made sufficient
efforts to enable the willing infringer theconclusion of a license agreement on FRAND
terms (marg. 72).
On this basis, the Federal Court of Justicecomments on several obligations set by theEuropean Court of Justice and specifies themas follows:a. Notification of infringement by thepatent holder
Concerning the infringement notification,
the Federal Court of Justice mainly confirms
the current case law of the courts of lower
instances:- It is sufficient for the infringement notification to describe the infringement action
and the attacked embodiment (marg. 85).
- Detailed technical or legal explanations
are not necessary. The infringer must
only be put in the position to evaluate
the infringement accusation itself, or byexternal advice (mar. 85).
- The presentation of the infringement
allegation by “claim charts” is generally
sufficient, but not mandatory (marg. 85).
- The patent holder can expect the infringer
to respond within a short time frame if
the provided information is not sufficientto evaluate the infringement accusation(marg. 87).
- It can be sufficient to provide the notification to the parent company of theinfringer (marg. 89).
b. Willingness to take a license by theinfringer
Contrary to the previous case law of thecourt of lower instances, the Federal Courtof Justice sets significantly stricter requirements to the infringer’s declaration of willingness to take a license. Mere “lip service” isnot sufficient in this regard:
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IP Report
Patent Law- The infringer must clearly and unambiguously declare its willingness to conclude
a license agreement under reasonable andnon-discriminatory terms and must subsequently contribute to the negotiations withdetermination (marg. 83).
- The mere consideration of concluding alicense agreement or enter into negotiations about it is not sufficient (marg. 83).
- In other words: “a willing licensee
must be one willing to take a FRAND
license on whatever terms are in fact
FRAND” (marg. 83 with reference toEWHC, decision dated April 5, 2017,[2017] EWHC 711 (Pat), marg. 708 Unwired Planet v Huawei).
- While the infringer can reserve the rightto challenge the alleged infringement andthe validity of the patent-in-suit, it cannot
make the willingness to take a license
conditional to this (marg. 96).
c. FRAND license offer by the patent
holderEven though the decision of the Federal Courtof Justice did not depend on the Plaintiff’s
license offer, the Federal Court of Justicealso made several general comments in thisregard:- The infringer has the burden of presentation and proof for obstruction or discrimination by the patent holder. The patent
holder has the burden of presentation andproof for the justification of a non-equal
treatment (marg. 76).
- The patent proprietor may be required to
substantiate its license request, to enable

the infringer the verification of the license
request (marg. 76).
- A portfolio license offer is harmless, as longas it does not include non-standard-essential patents and the royalties are calculated
in a way that does not discriminate a userthat only wants to develop a product in a
restricted geographic area (marg. 78).
- Negotiations about a worldwide portfolio
licenses are common practice and also
benefit the user from an efficiency standpoint (marg. 78).
- If the patent proprietor provides a portfolio license offer, the patent proprietor
must provide the same information for theportfolio as in the infringement notification for the patent-in-suit, i.e., the patents,
the infringement action and the attacked
embodiments, but not any further technical or legal details (marg.98).
- The scope, level of detail and timing of theinformation depends on the individual
circum-stances and in particular on thereaction of the infringer (marg. 79).
- The patent proprietor is not generally
required to grant licenses to all uses on
equal terms. Reasonable terms are generally not objectively defined but are theresult of a negotiated market processes.
Thus, the serious and determined contribution of the infringer in the negotiations
is crucially important (marg. 81).
- The lack of legal enforceability of patents
and threatened personal or economical
disadvantages can justify the licensing ofa portfolio under more beneficial terms(marg. 102).

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3. Legal consequences of the defenseof compulsory license
Also as an obiter dictum, the Federal Courtof Justice finally establishes that the patent
holder’s claim for damages is not limited
to the result of a determination under thelicense analogy measurement (marg. 110).

By this, the Federal Court of Justice rejects
the previous case law practice of the Düsseldorf court of lower instances, according
to which the defense of compulsory license
could also be asserted against the claims for
information and accounting if the Plaintiff requested information about costs andprofits.

Summary and outlook

The decision of the German Federal Courtof Justice is welcome, since it provides legal
certainty with regard to key questions on
the requirements of the defense of compulsory license under antitrust law.
It is particularly to be emphasized that theGerman Federal Court of Justice creates
an appropriate balance between hold-up
and hold-out by clearly rejecting passive
behavior of the parties or dilatory tactics,
which have occurred rather frequently due
to the first-instance case law. The German
Federal Court of Justice rightly uses realistic negotiations as a basis, specificallyones in which parties that are seriouslyinterested in a license agreement being
concluded converge sensibly and do not act
in an inherently obstructing manner.
By this, the German Federal Court ofJustice moves considerably closer to thecase law of the patent dispute courts of theUnited Kingdom, as is apparent not leastfrom the specific reference to a decision of
the High Court of England and Wales(J. Birss).

Nonetheless, the decision of the German
Federal Court of Justice is to be read withcaution, specifically with two reservations:
On the one hand, the German Federal Courtof Justice decided on an individual case,the specific circumstances of which in thecontext of an overall consideration of theparties’ behavior were decisive for the dismissal of the defense of compulsory licenseunder antitrust law.
On the other hand, while the German Federal Court of Justice did specify the parties’
obligations in more detail in part, as wasestablished above, it has become apparent
in the past that any court decision on therequirements of the defense of compulsory license under antitrust law raises newquestions. Thus, while the present decision
is an important start, the end of the path tohandling the defense of compulsory licenseunder antitrust law in a manner that provides certainty of the law has by no means
been reached.

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