Expert Talk FRAND and SEPs in Germany (2020)

Contact Johannes Heselberger: https://www.bardehle.com/team/detail/heselberger-johannes.html

Contact Peter Chrocziel: https://www.bardehle.com/team/detail/chrocziel-peter.html
In certain industries, like the telecommunications industry – and many more will follow soon – certain technologies have to be standardized in order to be compatible, in order to be usable in real life. And that means inventions, or sometimes only definitions, which are patented have to be used by a market player if they want to play on the market.

00:01:08 The standards that are set by the organizations, there, I have to give a commitment, because I invented something that reads on the standard, it is made part of the standard, so everyone has to use it. So, I have to give a license commitment.

Yes, that’s the FRAND commitment, as many term it. That does not exist with de-facto standards, obviously. Now, our courts, in 2009, I believe, started dealing with such essential patents – defined standard, or de-facto standard-essential, patents – and the landmark decision, in those days, was the so-called Orange Book standard decision of our highest court, the Bundesgerichtshof, the Federal Court of Justice. Under that Orange Book scheme, a user of a standard had to apply with the patentee for a license. He had to make him a more or less fully formulated license offer, he had to deposit money for past use and had to regularly account for future use.

00:02:20 But then, the court in Duesseldorf, the Landgericht, first-instance court, referred a case – ZTE/Huawei – to the European Court of Justice to understand whether Orange Book is really the right way to deal with it. And what happened then?

They essentially turned the whole scheme around. It was now, and is now, the patentee, the owner of an SEP who has to take the first steps. Then, there is a ping-pong, some also call it a dance, which has to be followed by the parties. The ping-pong starts with the patent holder informing the user of his patents and of his allegation that the user is using his patents when implemented in a standard. The user then has to come back with a clear sign of being a willing licensee and then, the next step is that the patent owner offers a license. There can be one further step, namely the user may make a counteroffer; if both offers, of the patentee and the user, are FRAND, then no injunction can be issued. If only the patentee’s offer is FRAND and the counteroffer is not, an injunction can be issued.

00:03:51 But that sounds easy for litigation: I start the case, I say: “Here’s the standard. You make use of it, it’s your burden to prove that you don’t, and here’s a license agreement.” So, the court only has to look into the license agreement and determine whether it’s FRAND or not.

So, FRAND is the question of whether the royalties and the terms that are asked for, is that really standard, is it non-discriminatory, is it fair on the parties? But, having negotiated many license agreements, we know that there is no easy answer if we don’t have a standard end-user license agreement for software, for example, where you just have to take it or you don’t take it. So, the courts have to do quite something to come to a conclusion.

00:04:39 The courts are, indeed, in a very challenging situation. Our courts have accepted the endeavor to deal with all questions around FRAND in litigation which are brought to their desks. It is certainly due to our procedural law that one has to go through those issues step by step. For example, how comparable license agreements are disclosed, what the requirements for NDAs are in that context, and so forth. So, many hurdles to overcome, before one really gets to the core of the issue, namely, what’s the right price and what are the right conditions?

But, compared to US courts, or courts in the UK that have plenty of time to get their arms around those issues, isn’t it a challenge for German courts to deal with all of that?

That is certainly a challenge. Now, on the other hand, our courts are developing the rules step by step which leaves the parties more room to maneuver. They do not have to set a certain price as to what they consider FRAND. And that’s an upside for the German courts.

00:05:55 But it sounds like parties should consider alternatives like mediation or arbitration, where you try to find an alternative way to resolve the dispute and maybe even ask the court to stay the procedure. Is that happening?

We don’t know, yet, for sure. What we do see is that parties think about mediation, also think about arbitration. There are many points to be resolved, not the least, who can properly mediate and arbitrate in such proceedings? But that should be an alternative for willing parties to find a way out of their conflict.

Видео Expert Talk FRAND and SEPs in Germany (2020) канала BARDEHLE PAGENBERG Partnerschaft mbB