IP Quick Tip: SEP litigation in Germany

Show notes

Traditionally, standard-essential patents were particularly litigated in the sector of telecommunications. However, that has changed. The focus shifted in the last couple of years towards the automotive industry – I want to give you the buzzword connected cars – and is now shifting even further to the Internet of Things – IoT.

German Courts have focused, in the last couple of years, very much on the issue of the willingness to take a license on the side of the license seeker. And they have applied quite strict standards which led to many injunctions issued against implementers.

However, there is still an ongoing dispute between the German lower instance courts. Munich and Mannheim on the one hand, Düsseldorf on the other hand. When it comes to the FRAND defense, the Munich and Mannheim courts don’t look at the FRAND dance that was established by the European Court of Justice in a consecutive step-by-step assessment, but rather look at the overall behavior of the parties to form an opinion whether or not the FRAND defense is going to succeed. In contrast, the Düsseldorf courts strictly apply the FRAND dance stepwise, i. e. first, there has to be the infringement notification by the patent owner, then there has to be an what the Düsseldorf courts call “abstract” declaration of a willingness to take a license, then the patent owner must provide a FRAND offer, and only then – if that offer of the patent owner is FRAND - the implementer has to provide the FRAND counteroffer, render accounts, and provide the security. In contrast, the Munich and Mannheim courts only analyze the offer of the patent owner under the standard whether or not it is evidently un-FRAND. And if it is not evidently un-FRAND, they look at the behavior of the implementer and discuss whether or not the implementer has furthered the negotiations by reacting in an expedient manner thereto, in particular by, for example, providing a counteroffer.

Meanwhile, the German Federal Court of Justice has clarified the matter and voted for looking at the overall behavior of the parties throughout the whole negotiation process. In particular, both parties must constructively engage in the negotiations and further the negotiations in an expedient manner. So the focus continues to be on whether or not both parties are able to negotiate in a constructive manner in good faith. Having said that, still, in the last couple of years, there was only one successful FRAND defense that happened in the Düsseldorf court based on a very specific set of facts. So that means that still – and likely also going forward – German courts are prepared to grant injunctions on standard-essential patents. That will become even more important now when it comes to Internet of Things. There, we do not yet have established FRAND royalties. So, the typical problems will exist: What is the right FRAND royalty? Is there either hold-up or hold-out, or both, on the side of the patent owner and the implementer?

German courts traditionally are quite reluctant to determine the FRAND royalty themselves. However, there has been a bit of movement recently, in particular in cases where comparable licenses were involved. In those cases, some German lower instance courts were prepared to inform the parties of what they think a FRAND royalty would be in the context of sealed courtroom settlement negotiations.

What will the future bring? It will bring many more SEP cases in Germany; it will bring many SEP cases on the Unified Patent Court level; and we will have to see whether the Unified Patent Court will take over the German approach, might also look at the UK approach – where UK courts were prepared to determine FRAND rates – and it will be interesting to see how German courts as well as the Unified Patent Court are looking at FRAND rate determination proceedings in other countries. So, an area which is still very much in flux, which is practically highly relevant, and which will bring us a lot more case law going forward.

So, going forward, it will be very interesting to watch what is going to happen not only in Germany, but also at the Unified Patent Court level. We will have to see whether the German courts as well as the Unified Patent Court will be prepared to determine the amount of a FRAND royalty as that is currently done in the UK by the English courts.

So, stay tuned and watch with us what is going to happen in terms of hold-up, hold-out, at the national level in Germany – maybe in other jurisdictions – as well as the Unified Patent Court.