Monday, May 31, 2021

Race to the bottom continues in standard-essential patent enforcement: Dusseldorf court hits new low by holding refusal of pool license against implementer

Access to injunctive relief is the primary reason for which 50% of the respondents to a survey published by IAM consider it the most attractive jurisdiction in the world to bring patent infringement complaints (I pointed to that story in my previous post, in which I also discussed the state of affairs in the German patent reform process, which may have hit an impasse shortly before the end of the legislative term).

The three major German patent litigation venues--from north to south--are Dusseldorf, Mannheim, and Munich. The 4b Civil Chamber of the Dusseldorf Regional Court (Presiding Judge: Dr. Daniel Voss ("Voß" in German)) has now handed down its decisions in three parallel standard-essential patent (SEP) infringement cases. There's a lot in there that will likely appeal to SEP holders to a greater extent than anything else that has come out of that court in several years.

The decision hasn't been published yet, but this summary by two Bardehle Pagenberg attorneys is highly informative. It explains how the Dusseldorf court's 4b Civil Chamber applies the guidance the Federal Court of Justice provided in its two Sisvel v. Haier rulings. The major German patent litigation venues used to interpret the ECJ's Huawei v. ZTE

The part I'd like to comment on here is that the court deemed the defendant an unwilling licensee because, inter alia, it declined to take a license to an entire patent pool covering the standard in question and instead insisted on a bilateral licensing offer. The court reportedly believes that an implementer's willingness to take a license is belied by the refusal of a pool license unless the implementer can make a showing that, in a simplified and only slightly exaggerated form, the terms of the pool license in question would more or less force it out of business. The standard is indeed so exacting that a defendant would have to demonstrate very serious competitive harm.

This is part of the willingness analysis, and in the post-Sisvel v. Haier world, the FRAND compliance of the SEP holder's royalty demands is typically not reached anymore: the result is typically that the implementer is an unwilling licensee and, therefore, unable to prevail on a FRAND defense. Injunctions can't possibly be much more automatic.

The 4b Civil Chamber denied a motion to stay the case pending the decision of the European Court of Justice on a preliminary reference from another division of the Dusseldorf court in Nokia v. Daimler. It remains to be seen whether the Dusseldorf Higher Regional Court--to which these decisions can be appealed--will uphold this "pool pressure" and whether there will be similar FRAND rulings in Mannheim and Munich. The relevant question comes up only when a SEP can be licensed through a pool and the SEP holder declines to enter into bilateral licensing negotiations. Sharp apparently took a similar position at some stage of its dispute with Daimler, pointing to an Avanci licensing offer as opposed to making its own.

With two charts I'd like to show how German FRAND case law has spiraled out of control since Huawei v. ZTE, an ECJ decision that actually appeared and was presumably intended to strike a balance between the German Orange-Book-Standard SEP injunction case law and a European Commission press release that was interpreted by some (though not by all) as shielding implementers from SEP injunctions for as long as they'd declare themselves willing to negotiate.

Prior to Huawei v. ZTE, at least the Mannheim Regional Court required implementers only to license the particular SEP-in-suit and only with respect to the German market. I still believe that is most reasonable, given that one simply cannot know whether the other declared-essential patents are actually valid and infringed. While I understand that SEP holders complain about "holdout" tactics by implementers, disputes sooner or later reach the point at which the parties have enough guidance from the courts to work out a portfolio license.

After Huawei v. ZTE, a SEP holder prevailing on a single patent in just one jurisdiction (Germany) can demand that the implementer take a global portfolio license (all patents belonging to that company and declared essential to the standard in question). The following chart shows the discrepancy between the extent to which the SEP holder has actually proven the infringement of valid and truly essential patents on the one hand and the scope of the license on the other hand (click on the image to enlarge):

The filled red rectangle represents one patent: it's the intersection of a patent family with a single country. The much larger rectangular frame encompasses this patent holder's SEP portfolio.

There could be any number of rows and columns, and in practice those matrices aren't perfect rectangles as some patents may be registered in more jurisdictions than others, or the applications may be granted in one place but rejected in another. In this context, it's just about the discrepancy between the infringement established and the license imposed.

With the new Dusseldorf "pool pressure" standard, that discrepancy goes through the roof (click on the image to enlarge):

Each of the connected rectangles represents one company's portfolio. In the chart, the pool would consist of the portfolios of nine companies, and they would be equally large. In reality, there are obviously huge differences.

Still, the chart does not show the worst case for the aforementioned discrepancy. Imagine what would happen if the "pool pressure" standard coerced a car maker into an Avanci license. Avanci has about three dozen contributors, and covers many times more patents than shown in the above chart...

Can't wait to see this one reversed.

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