The Landgericht München I (Munich I Regional Court) has just released its Standard-Essential Patent (SEP) Local Rules (PDF, in German)--formally, just "guidance," but in practical terms, those will be the rules for litigants to follow. This set of guidelines had been in the works for many months.
Here's my quick unofficial translation:
Guidance on the application of the antitrust-based compulsory-license affirmative defense under Huawei v. ZTE in connection with the Patent Local Rules of the Munich I Regional Court
(Version: February 2020)
These guidelines set out the Munich I Regional Court's two patent divisions' application of the antitrust-based compulsory-license affirmative defense according to the principles laid out by the Court of Justice of the Euoprean Union in Huawei v. ZTE (case no. C-170/13). These guidelines are in effect until the Patent Local Rules (which also apply to disputes under the Utility Model Act and the Semiconductor Protection Act) are updated.
I. Scope of applicability
The CJEU's [Huawei v. ZTE] ruling and these guidelines relate exclusively to actions seeking a prohibitive injunction, recall, and destruction [of infringing goods] over standard-essential patents to the extent that such patents bestow market dominance on their owner and to the extent that the owner or its predecessor in title made a FRAND pledge to a standard-setting organization. Transfer of a patent does not annul a FRAND [licensing] commitment. Other case patterns are governed by the principles of the decisions of the Court of Justice of the European Union in IMS/Health (case no. C-418/01) or, respectively, the Federal Court of Justice [of Germany] in Standard-Spundfass (case no. KZR 40/02) and Orange Book (case no. KZR 39/06).
II. Overview of the contract-negotiation procedure to be followed prior to bringing suit
As per the principles of the CJEU decision in Huawei v. ZTE and their interpretation by the two patent litigation divisions of the Munich I Regional Court, the patent holder and the implementer of the patented teaching must, in principle, go through the following stages prior to the filing of the complaint:
1) Notice of infringement, covering at a minimum the future patent-in-suit, provided by the patent holder to the implementer
2) Communication of the desire to take a license by the implementer to the patent holder, covering at a minimum the future patent-in-suit, whereas the implementer may reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed
3) Comunication of a draft FRAND license agremeent by the patent holder to the implementer, covering at a minimum the future patent-in-suit
4) In the event of non-acceptance: communication of an alternative draft FRAND license agreement by the patent implementer to the patent holder, covering at a minimum the future patnet-in-suit, whereas the implementer may (once again) reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed
5) In the event non-acceptance: accounting and provision of security by the implementer
6) optional and voluntary determination of the license terms by a third party [such as an arbitration tribunal]
With respect to item 3, the patent holder has the obligation to explain its licensing approach and to specify whether and on what terms it has already concluded license agreements that are comparable with respect to duration and fact pattern, and, furthermore, why -- if applicable -- it has included in its licensing offer any patents beyond the ones with respect to which the implementer requested a license. Should the implementer enter into a reasonable non-disclosure agreement, the patent holder has the obligation to additionally provide confidential details relating to agreements previously concluded, to the extent that the patent holder is formally able to do so within the framework of previously-entered non-disclosure obligations. Should such provision of information not be possible in the absence of a court order, the infringement plaintiff must seek such order at the earliest opportunity. Reference is made to the guidelines on the processing of motions for protective orders, brought during or outside of oral proceedings in patent cases before the Munich I Regional Court.
III. Possibility of rectifying [an omission] until the end of oral proceedings
Whether the [above] steps have been properly taken will be determined at the end of oral proceedings (Art. 136 para. 4 Code of Civil Procedure). Under the Court's Patent Local Rules, that moment is the end of the trial. Some shortcomings can, therefore, be rectified during the pendency of the case in compliance with statutory or judicial deadlines. Within the framework of the Court's Patent Local Rules, this opportunity exists particualrly during the period between the early first hearing and the trial, provided that the rectification of specific shortcomings was announced no later than during the course of the early first hearing. The two patent infringement divisions will -- to the best of their ability -- already discuss the antitrust-based compulsory-license affirmative defense in particular cases in the early first hearing so as to give the parties the opportunity to address specific deficiencies. If multiple complaints by the same patent holder are pending before the same division of the Court and have provoked a uniform compulsory-license affirmative defense, this shall occur in a joint early first (non-technical) hearing. Should multiple complaints with a uniform compulsory-license affirmative defense be pending before both divisions of the Court, the divisions will strive to coordinate closely.
IV. Overview of the procedures:
1. Prerequisites for a substantive discussion of the antitrust-based compulsory-license affirmative defense:
a) The defendant has raised an antitrust-based compulsory-license affirmative defense.
b) The complaint seeks a prohibitive injunction and/or recall and/or destruction [of infringing goods].
c) The defendant has -- in the event that at least one offer relating to at least the future patent-in-suit had been made and not accepted -- made at least one counteroffer relating to at least the future patent-in-suit and, further to its rejection by the plaintiff, has provided an accounting as well as security.
d) Should the defendant previously have licensed the patent-in-suit, but terminated it or otherwise contributed to its termination, such as by defaulting on royalty payments, it can no longer raise the compulsory-license affirmative defense.
e) Should the defendant have been offered a license covering the patent-in-suit, but failed to include this in its counteroffer, it can no longer raise the compulsory-license affirmative defense.
Regarding (a), the defendant has to raise the compulsory-license affirmative defense at the earliest opportunity, which is typically the answer to the complaint.
Regarding (c), the patentee's final binding offer must not be downright unacceptable (Art. 242 Civil Code). This also applies to the implementer's counteroffer. The counteroffer may be of a lesser scope or shorter term, but must, at a minimum, cover the (future) patent-in-suit. The defendant can reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed. In the alternative to specifying the license fees, the defendant may also offer a determination of those fees by the patentee subject to [judicial review for reasonableness under] Article 315 Civil Code. The [defendant's] accounting and provision of security must, at a minimum, take into account the counteroffer, with respect to the period from the initial implementation to the estimated time of a provisionally-enforceable decision by the Court, as well as common commercial practice. In the event of a non-quantified counteroffer, accounting and security must take the offer into account. In the event of a worldwide offer or worldwide counteroffer, accounting and security can be limited to the German market; they may also be estimated. 110% of the relevant amount must be given as security.
Regarding (d), the said situation can, for instance, arise if the parties concluded a license agreement that provides an opt-out clause to the implementer's benefit with respect to particular patents. Implementers exercising their opt-out right cannot raise an antitrust-based compulsory-license affirmative defense as they had already been licensed.
Regarding (e), the same applies to the event that the defendant did not include the patent-in-suit in its counteroffer, considering that it could therefore have obtained a license.
2. Prerequisites for a substnative discussion of the antitrust-based compulsory-license affirmative defense in an early first hearing:
a) (precautionary) argument by the plaintiff in the complaint
b) affirmative defense raised by defendant in the answer to the complaint
Regarding (a), if the plaintiff seeks a substantive discussion of the antitrust-based compulsory-license affirmative defense in the early first hearing, the complaint shall already contain (precautionary) argument relating to the defendant's expected antitrust-based compulsory-license affirmative defense--not only if the complaint seeks a prohibitive injunction, recall and destruction from the outset but also if this is reserved for an amended complaint (based on the Court's outline of its prelimianry views in the early first hearing or between the two hearing dates if announced in the early first hearing). In exceptional cases, such as in the event of an unforeseeable compulsory-license affirmative defense, the plaintiff may be granted leave, further to a motion for leave, to file a further pleading.
Regarding (b), the answer to the complaint should, even if only for the event of a reserved or possible amended complaint, already contain (precautionary) argument relating to the antitrust-based compulsory-license affirmative defense if the defendant, for it spart, already seeks a substantive discussion of the antitrust-based compulsory-license affirmative defense in the early first hearing.
3. Prerequisites for amending a complaint by adding prayers for prohitive injunction, recall, and destruction:
a) The intent to amend the complaint later shall already be stated in the complaint. The amendment is to be made no later than in the early first hearing or, at least, should be announced in the early first hearing for the period between the two hearings.
b) If the amendment necessitates an increase of the advance payment of court fees and/or the security provided for the other party's recoverable litigation expenses, such increase shall be processed and paid swiftly.
c) Bringing a complaint seeking information, an accounting and determination of damages serves a substitute for an infringement notice in accordance with step (1). Any outstanding steps in the negotiation further to Huawei v. ZTE must, at the latest, be taken during the period between the two hearings. The division hearing the case will allow time based on the circumstances of each case. The required time can be shortened by already providing in the complaint any (precautionary) argument related to the foreseeable compulsory-license affirmative defense. If the defendant has already argued on a precautionary basis its foreseeable compulsory-license affirmative defense in its answer to the complaint, the division may already outline a preliminary assessment in the early first hearing.
4. Particular pleading requirements:
a) The plaintiff has to raise, in particular, the compulsory-license affirmative defense and to plead and prove that its factual requirements are met, particularly that and on what grounds the plaintiff's final binding offer failed to comply with antitrust law (FRAND).
b) If the defendant failed to make a counteroffer, it has to plead and prove that the patentee's final binding offer was downright unacceptable from an antitrust point of view or that the plaintiff would have been required to grant a license to the defendant's suppliers. However, said "derivative" compulsory-license affirmative defense is ineligible if the defendant itself would have had the option to enter into a license agreement taking account--reasonably, sufficiently, and retroactively--of the implications of patent exhaustion or license grants elsewhere in the value chain and esnuring that any pertinent information may also be communicated to other parties in the defendant's supply chain. It must furthermore be ensured that double payment of license fees to the patentee cannot be achieved through the collection of damages.
c) The plaintiff has to meet a secondary burden of pleading with respect to its licensing approach and whether--and, if so, on what terms--license agreements comparable in term and scope have previously been concluded, to the extent that such information is not publicly available or already in the defendant's possession. With respect to previously-concluded agreements, this also applies to portfolios that have been transferred. Should a multiplicity of portfolio transfers and/or portfolio recompositions have created a confusing ("patchwork") situation, the division hearing the case will define the pleading requirements in a given case.
d) If the defendant criticizing the amount of the offered license fee has been offered a license agremeent with a reasonable, sufficient and retroactive most-favored-nation clause, which is particularly appropriate in the event of a first-time license, the defendant has to plead and prove that the offered license fee is nevertheless excessive. If the defendant argues that previously-concluded license agreements resulted from circumstances of pressure, it has to specifically plead and potentially prove what other and lower license rate or what other licensee-friendleir terms the parties to those other agreements would have agreed upon but for said circumstances of pressure.
e) If the defendant, after reserving this right (cf. steps 2 and 4) raises, in an infringement dispute, a nullity and/or non-infringement and/or exhaustion and/or licensing defense (collectively referfed to as "defenses") of particular patents in the portfolio that have been offered but are not presently asserted in litigation, it must plead with specificity and potentially prove that and why the defenses relating to particular portfolio patents offered have more than non-negligible impact on the amount of the license fee offered. If the offered portfolio is dynamic, this possibility exists only with respect to licensed patents and patent applications already granted or, respectively, published by the end of the oral proceedings. In this case, the plaintiff has to meet a secondary burden of pleading to the extent that it has to plead why those patents were included in the offered portfolio and whether and, if so, in which way the asserted defenses relating to particular portfolio patents affect the amount of the license fee offered. The defendant may not raise, in the infringement dispute, these defenses relating to particular portfolio patents if the plaintiff offered the defendant a license agreement that comes with a reasonable, sufficient and retroactive adjustment formula taking account of the subsequent raising of these defenses with respect to particular portfolio patents in a separate proceeding or within the framework of other contractual mechanisms.
f) If the defendant has raised the nullity, non-infringement, exhaustion and/or license-based defenses of these portfolio patents in a separate proceeding and/or -- to the extent permissible -- in countersuits, the burden of pleading and proof will be determined by the applicable general principles.
V. Consideration of motions for protective orders during and outside oral proceedings
Reference is made to the separate guidelines for the consideration of motions for protective orders during and outside oral proceedings in patent infringement disputes before the Munich I Regional Court.
VI. Period between the two hearings
The period between the two hearings of a Munich patent infringement case may be used by the parties for further negotiations, attempts at mediation before a judicial mediator, or for other alternative dispute resolution mechanisms.
VII. Contract terms
Against the background of the principle of contractual freedom and the autonomy of market actors, the Court's two [patent infringement] divisions refrain from specifying the particular content of the contractual terms. However, the wordins chosen [by the parties] must meet the requirements of a given case and strike a fair balance between the parties' opposing interests. It may be an option to rely on contract language provided and communicated by third parties for the same purpose.
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