Sisvel claims ‘landmark’ FRAND victory at German Supreme Court

Sisvel is claiming victory over  Haier after a final German Federal Court of Justice ruling, which the patent pool operator said is a win for standard-essential patent (SEP) owners against “efficient infringement” strategies.

But a member of Haier’s legal team said the court’s decision was “surprising” and a departure from Court of Justice of the European Union (CJEU) precedent.

On Tuesday, May 5 the Federal Court of Justice, Germany’s Supreme Court, reversed a costs finding of the Düsseldorf Appeal Court, which had previously ruled in favour of Haier on its so-called ‘FRAND defence’.

The ruling is the latest of three Supreme Court rulings in favour of Sisvel on different issues in the case, and is the final verdict in a six-year litigation.

Speaking to WIPR, Sisvel President Mattia Fogliacco said the Supreme Court’s ruling had the potential to be a “landmark decision that will have an impact on the whole licensing industry” with respect to so-called ‘efficient infringement’.

This refers to a strategy pursued by companies which use patented technology while delaying licensing negotiations.

While the Supreme Court has not yet issued an explanation of its ruling, the case dealt with a licensing disagreement between Sisvel and Chinese telecoms equipment company Haier.

Sisvel accused Haier of selling smartphones which used patented technology covered by Sisvel’s portfolio of wireless mobile communications SEPs.

The Luxembourg-based patent pool operator sued in 2014, after what Fogliacco described as “long and protracted” negotiations which displayed a “clear unwillingness by Haier to agree a licence”.

Sisvel won its initial infringement action at the Düsseldorf district court, but this was subject to an appeal by Haier.

On appeal, Haier was successful in raising the ‘FRAND defence’, accusing Sisvel of failing to offer a licence on fair, reasonable, and non-discriminatory (FRAND) terms.

In this week’s decision, the Supreme Court reversed the appeal court’s ruling in Haier’s favour associated with the FRAND defence claims.

Willing licensee

While the court has yet to explain its grounds for the ruling, Sisvel had argued that Haier could not raise the FRAND defence since it was not a willing licensee due to its ‘hold-out’ behaviour and delaying tactics during negotiations.

Wolfgang Straub, partner at  Klaka, was part of Haier’s legal team. Straub told WIPR that, in his opinion, it was “strange” that the Supreme Court had concluded that Haier was not a willing licensee.

“It was clear that the parties had at least three times exchanged licence agreement drafts, including counter-proposals from Haier,” Straub said.

In his view, the decision raises the bar for a party to prove it is a willing licensee too high. He said it was also departure by the German court from the Court of Justice of the European Union’s (CJEU) precedent in 2015’s Huawei v ZTE ruling.

Fogliacco said he was hopeful that the Supreme Court’s eventual justification for the decision will provide a precedent for implementers to be more proactive in seeking a licence to SEPs.

“We have been witnessing for a long time way too much free-riding, ‘hold out’ behaviour, and ‘efficient infringement’ strategies in licensing negotiations,” the Sisvel CEO said.

He added: “We have always advocated for this to stop, but there needed to be a clear court decision for this to happen.”

David Muus, Sisvel’s program manager for the patent portfolio at issue in the dispute, said he had seen more of these delaying tactics since the CJEU’s 2015 ruling in favour of ZTE over Huawei.

During that case, ZTE was successful in raising a FRAND defence against Huawei’s SEP infringement claims.

According to Muus, after this ruling companies implementing technology covered by SEPs felt empowered to be “less proactive” in seeking a licence to the IP. Muus continued: “Implementers were wrong to think they could bend the rules of the Huawei/ZTE protocol to delay settlements indefinitely. The CJEU clearly prescribed that the licensing process is a two-way street.”

But Straub said that, under Huawei v ZTE, the definition of a willing licensee had to be “practicable” in reality, and the German Supreme Court had raised this threshold too high.

Florian Cordes, who led Sisvel’s legal team, told WIPR that the Supreme Court’s explanation of the grounds for its decision could be between four to eight weeks away.

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