Monday, February 22, 2021

Sisvel v. Haier II: no patent ambush defense against acquirer of standard-essential patent, Germany's Federal Court of Justice holds

The bad news is already in the headline: if you get sued in Germany over a standard-essential patent (SEP) and the original patent holder engaged in patent ambush (thereby defrauding the standard-setting process), but the party asserting the patent against you now acquired the patent subsequently to standardization, you don't have a patent ambush-based defense in Germany.

The good news--for me personally--is that the Federal Court of Justice of Germany has published a decision that validates something I wrote about two years ago.

In March 2019, Judge Dr. Thomas Kuehnen ("K├╝hnen" in German) of the Dusseldorf Higher Regional Court ruled on appeal brought by Huawei in the German part of its dispute with Unwired Planet, further to a hearing in which he had already lashed out the practice of privateering (operating companies assigning patents to trolls). In that March 2019 ruling, the Dusseldorf appeals court held that the ND (non-discrimination) part of FRAND precluded the acquirer of a patent from seeking royalties at a rate inconsistent with the licensing practices of a previous owner of that patent. In my commentary, I welcomed the result, but crticized the derivation very harshly as "legislat[ing] from the bench as if patent law were a parallel universe." I said so because Judge Kuehnen's theory involved the notion that the FRAND promise and all that goes with it attached itself to a patent just like "in rem" rights in connection real estate, where a right of way may allow neighbors to lay telephone lines on your property--as opposed to an inter partes agreement, which wouldn't give a future acquirer any rights.

Fast forward by almost two years, and the Federal Court of Justice--which is the highest court in Germany to hear patent infringement and related antitrust cases (unless someone raises a constitutional issue that the Federal Constitutional Court would hear)--has just published a decision it already made on November 24, 2020 in a Sisvel v. Haier case. The first Sisvel v. Haier ruling came down in May 2020, so this is now Sisvel v. Haier II.

Some of the new Sisvel v. Haier II holdings restate, reinforce, and clarify Sisvel v. Haier I. For example the court explains that both parties--SEP holder and implementer--have an obligation to contribute in good faith to the conclusion of a license agreement on FRAND terms, and that they have to do so "in a manner commensurate with the situation."

But there's also a new aspect that gets addressed in Sisvel v. Haier II:

"(c) Outside of the scope of the protection of successors in interest in accordance with Art. 15(3) Patent Act, affirmative defenses that the implementer of an invention was entitled to bring against a prior owner of the patent-in-suit cannot be raised against the patentee's successor. This particularly applies to the affirmative defense of a 'patent ambush.'"

Art. 15(3) Patent Act simply ensures that a licensee remains licensed even if the patent holder transfers the patent.

Statutory law doesn't say that a former patent holder's unclean hands--here, due to ambush tactics during development of the standard--can give rise to an equitable defense against a subsequent owner.

Judge Kuehnen's April 2019 decision wasn't about patent ambush. But it was based on the general notion--which I sharply disagreed with though I liked the case-specific outcome--that certain rights and obligations (beyond just an already-granted license) attach themselves to a patent and survive any number of patent transfers.

The Federal Court of Justice has now clarified that, other than Art. 15(3) Patent Act on licenses surviving patent transfers, the acquirer of a patent is not responsible in any way for what a prior owner of that patent did.

If a given SEP was previously licensed at a lower rate than the one an acquirer is demanding now, that may very well be taken into consideration by a court. The terms of comparable license agreements matter, and if a license deal involves the same patent and a similarly-situated licensee, it may be particularly comparable and, therefore, a court may afford it a lot of weight in the FRAND analysis. Nevertheless, an acquirer of a patent doesn't engage in discriminatory treatment of licensees only because an inconsistency between the terms it is seeking now and the ones on which a prior owner of the same patent granted someone a license.

If an implementer of a standard has a patent ambush defense, it may just have to bring that one as an antitrust damages claim against the original patent owner who participated in the standard-setting process. And if a prior holder of the patent contented itself with substantially lower royalties than its acquirer, that may inform the FRAND analysis, but does not all by itself constitute discrimination.

It's disappointing that the situation described in this post incentivizes privateering. A patent holder may formally "sell" the patent to an acquirer, though actually retaining most of the revenues, and implementers will find it harder to defend themselves against the acquirer than they could have defended themselves against the original owner. That's suboptimal to say the least. Maybe an EU SEP directive or some other piece of legislation could do something about it and could make privateering less profitable. But under the statutory framework as it stands, I can't disagree with the Federal Court of Justice on the availability of a patent ambush defense.

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