Tuesday, January 11, 2022

2022's most interesting patent enforcement question: how to raise a successful FRAND defense in Munich and Mannheim under Sisvel v. Haier (short of § 315)

Standard-essential patent (SEP) litigation will be an even bigger topic in 2022 than in recent years, and a major reason is a wide discrepancy between the "ask" and the "bid" prices for 5G licenses. Of course, agreements do silently fall into place here and there (be they license or arbitration agreements), but some 5G litigation is already underway and storms are brewing elsewhere. Let's not forget about WiFi 6 either--or the problem that one video codec pool (Access Advance) makes exorbitant demands. Bluetooth may be the only Sea of Tranquility in the digital standards space.

Munich and Mannheim will remain the world's primary SEP injuntion hotspots. London is also key, but let's talk about that one on a different occasion.

Vintage year 2021 and 2022 SEP cases in Munich and Mannheim will raise important new questions and have the potential to lead to more nuanced outcomes. That is so because cases that have been decided so far in the Sisvel v. Haier era--starting with the two Sisvel v. Haier cases themselves--presented fact patterns characterized either by implementers' reliance on a strictly sequential application of the ECJ's Huawei v. ZTE guidance or by defiance, ignorance, sometimes maybe terrible advice. Now we're going to see what happens when reasonably sophisticated defendants who benefit from realistic advice go out of their way to comply with German SEP case law during the entire course of negotiations. That wasn't the case before as far as I can tell.

Global players typically have significant exposure to patent assertions in Germany. That was already the case when the Munich I Regional Court issued its SEP guidelines about two years ago. Those guidelines did not even come as a surprise. For example, Presiding Judge Dr. Matthias Zigann of the court's Seventh Civil Chamber even went to an ETSI meeting to explain his plans beforehand. He listened to a lot of input, but then he and his colleagues decided. At that point, the prudent thing for implementers of FRAND-pledged SEPs to do would have been to heed that guidance in everyday licensing negotiations. It appears, however, that many parties were hoping that they wouldn't be slapped with a Munich SEP injunction before the appeals court would overturn those SEP Local Rules. Wishful thinking.

Shortly thereafter, the Mannheim Regional Court's Second Civil Chamber under Presiding Judge Dr. Holger Kircher adopted pretty much the same stance. But even after Sisvel v. Haier, a May 2020 decision by the Bundesgerichtshof (Federal Court of Justice), many implementers still didn't care to read the writing on the wall. Like it or not, German courts now take an amalgamated position on whether someone was initially a willing licensee: it's not just about making a declaration but a holistic assessment of a defendant's conduct throughout the process.

Many (though by far not all) implementers' licensing behavior did finally start to change in 2021. Not only was there Sisvel v. Haier II, which clarified and reinforced Sisvel v. Haier I, but some decisions reached in the last third of 2020 (applying Sisvel v. Haier to negotiating conduct that predated that ruling) gave licensees pause. Also, despite some organizations' spin-doctoring, the failure of the German patent injunction "reform" effort became perfectly clear. The Nokia-Daimler settlement had various implications, one of which is that a preliminary reference to the ECJ (from a Nokia v. Daimler case in Dusseldorf) that partly meant to challenge Sisvel v. Haier ceased to be.

Defendants Haier and Daimler exhibited extreme behavior:

  • If even half of how the Federal Court of Justice portrayed Haier's conduct before and during litigation is true (and it's far more likely that it is 100% correct), that would have been a textbook example of hold-out. It was all about stalling until the patent-in-suit expires. It was as reckless as it was egregious. Whether one believes the Federal Court of Justice should have phrased its Sisvel v. Haier decision differently so as to avoid that it would open the floodgates is another question. But one cannot blame the court for the outcome it delivered.

  • Daimler's approach to SEP assertions had two distinct aspects:

    • One was Daimler's insistence that patentees should talk--and grant an exhaustive license--to its suppliers. Indeed, component-level deals happen, but Daimler itself ended up taking one car-level license after the other (Sharp => Conversant => Nokia => Avanci). That battle is over.

    • Knowing that the courts weren't necessarily going to buy its supply-chain licensing arguments, Daimler also made car-level offers to SEP holders. Just based on what was discussed in open court and what I read in certain court rulings, I can't help but conclude that Daimler was being only gradually more constructive than Haier. That, again, doesn't mean that I like the rationale underlying certain decisions. For instance, while Daimler's licensing offer to Conversant was indeed insanely low (the worst I had seen since the courtroom comedy in Huawei v. ZTE with a 50-euro royalty check being delivered to Huawei's counsel by hand), I don't think the patentee's royalty demand per se constitutes a point of reference. The outcome can still be justified with Sisvel v. Haier, and with common sense: Daimler was possibly spending as much on lawyers just on the day of the trial as they were offering to pay Conversant for a multi-year license.

Some cases in 2022 will present rather different fact patterns from those Haier and Daimler cases. It's too early to tell which ones. That's because the U.S. is the only jurisdiction where one can find out about the facts prior to a court hearing. But licensees aren't stupid. Maybe some of them are, but most of them aren't. Some may have miscalculated. Some were too slow to adopt. Some were dreamers. And some probably thought they would shield themselves from internal criticism simply by overspending on lawyers (which in at least one case didn't work out). Now the parameters are clear. Reality has set in.

There will still be some cases that have been recently brought, or will be brought soon, after multi-year litigations that yielded no result. In such "lag-behind" cases involving plaintiffs with a saintly patience, some of the implementers' negotiating conduct, such as response times to infringement notices and licensing offers, may still have been a mistake in light of Sisvel v. Haier. However, if agreements expired just recently or are expiring now, it's a safe assumption that at least some defendants have done their best to be deemed willing licensees in the post-Sisvel v. Haier era.

In that case, the question is then going to be what was the key question for several years: whether the patentee's royalty demand is FRAND.

It would be bewildering if throughout the course of 2022, the Munich and Mannheim courts deemed every single implementer an unwilling licensee, or if § 315 (effectively relegating the determination of a FRAND rate to subsequent proceedings) was the only safe harbor. The § 315 defense has a long legal tradition in Germany. It's an instrument that is used to resolve a number of issues in many fields of law without having to immediately agree on all the terms. It was a safe harbor under Orange-Book-Standard, a German landmark ruling that preceded Huawei v. ZTE. Presiding Judge Andreas Voss ("Voß" in German) of the Karlsruhe Higher Regional Court is very much in favor of § 315 representing a safe harbor, and even Retired Presiding Judge Peter Meier-Beck of the Federal Court of Justice suggested this much at a conference. But is the answer to the Sisvel v. Haier question really that all royalty determinations should get relegated to a subsequent § 315 rate-setting case? It would result in ever more protracted litigation--during which patenteees will likely get decisive leverage in some other jurisdiction, such as a UK global FRAND deal under Unwired Planet or a U.S. import ban from the ITC, and German courts couldn't do anything about that (anti-antisuit injunctions won't solve that problem).

The fact that the Unified Patent Court is soon going to commence its operation renders this question even more important. It is a safe assumption that at least the UPC judges in Munich and Mannheim will interpret Huawei v. ZTE within the amalgamated Sisvel v. Haier framework. And it is fairly possible that the UPC will agree with them, and that the ECJ will never reverse it (it may not even get such a case). The UPC presents a new situation because it is an international court. SEP holders will, however, file major cases with the UPC (though they can and probably will litigate in national courts in parallel).

While I don't expect a proportionality defense to succeed in any German patent case involving digital technologies where a non-absurd licensing offer is on the table, I do believe that we will see reasonably nuanced decisions on SEP injunction requests, provided that defendants made an unmistakable good-faith effort during negotiations. Everything appears impossible until it happens for the first time. Sisvel v. Haier has scope for a lot more than "§ 315 or injunction." There will be some more Daimlers and Haiers on the receiving end, but there may also be laudable exceptions.

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