Unwired vs. Huawei in GER: No FRAND conformity in Licensing

Huawei is not only in focus because of the lack of Google support for the new Mate model, but also for the 5G network. In its ruling between Unwired Planet and Huawei, the Düsseldorf Court of Appeal set a new framework for FRAND conformity and the licensing of transferred SEP.

Licensing of SEPS according to FRAND conformity

The process focuses on so-called standard essential patents (SEP), i.e. essential standard patents, especially in the field of telecommunications and network technology as well as in technical standards. According to antitrust law and a landmark ruling of the European Court of Justice in Huawei/ZTE in 2015 (EU:C:2015:477), patent holders of essential standard patents are obliged to offer adequate and fair licensing conditions to competitors.

This ruling of the ECJ is also known for the so-called “Pingpong” procedure proposed therein, according to which a SEP holder can only sue for an injunction if he has previously offered the patent infringer a license under FRAND conditions. According to ECJ, high offers made during negotiation are not an abuse so long as they don’t prejudice the negotiation. However, the ECJ did not provide a framework for how high the specific license fee in this offer may be – and the national courts have judged this question differently.

Unwired vs. Huawei: the facts of the case

In the present case, the Unwired case began against Huawei in 2014, when Unwired Planet acquired six patents from Ericsson, essential for the GSM, UMTS and LTE mobile communications standards. The patent in dispute had been transferred from Ericsson to Unwired Planet with the aim of achieving higher licensing revenues.
As one step in this procedure, Unwired accused the mobile phone companies of infringing transferred patents. Samsung, Google and Huawei were attacked by Unwired in the UK, HTC, LG and Huawei in Germany.
Samsung, Google and LG then reached a settlement with Unwired Planet. Huawei and HTC decided to go to court.

In Germany, Huawei had been found guilty of infringing the patent EP: 08 87 0057.0 and appealed this judgment to the Court of Appeal in Düsseldorf. However, the Düsseldorf Court of Appeal did not question the infringement of Huawei. But with its judgment (2 U 31/16), the Düsseldorf Court of Appeal also set a new frame for the licensing standards for SEPS and the so-called FRAND standards in Germany. This judgement is now available in writing.

Düsseldorf Court of Appeal: original licensing agreements are binding

The Düsseldorf Court of Appeal ruled that the obligation arising from the FRAND declaration of the original SEP holder in the event of a transfer of the SEP is binding even without an explicit or tacit FRAND declaration by the assignee. The new patent holder can only deviate from the previous licensing practice if he effectively terminates all previous licensing agreements with third parties or changes their terms.

But even the higher licence fees must still be “fair” and “reasonable”. The court thus pleaded for clear FRAND rules to ensure that licensees are not discriminated against by the transfer of SEPs. The new SEP holder also bears the burden of proof if there are objective reasons to justify the different license levels, the court stated.

The Düsseldorf court also confirmed the application of the principles of the Huawei v. ZTE ruling of the ECJ with changing obligations – “Pingpong” – of the SEP holder and the willing licensee in the FRAND licence negotiations.

High Court in the UK: conformity with FRAND rules

Already last year the High Court in Great Britain had decided between Unwired Planet and Huawei. The licence offered by the patent licensee Unwired to the mobile phone manufacturer Huawei for the use of its patents complies with the FRAND rules, the English Court of Appeal of the High Court (A3/2017/1784) had ruled in a much-heeded judgment and dismissed Huawei’s appeal. The Court also determined the terms of the licence and thus the amount of the licence fees in this case. In the UK, a licence agreement established and administered by the court is therefore a conceivable course of action if the patent holder and the licensee cannot agree on a licence.

Düsseldorf Court of Appeal: FRAND conformity was not proven

This determination of the licence condition in UK was not considered binding by the Düsseldorf Court of Appeal as it did not correspond to the SEP holder’s free entrepreneurial decision-making and licensing practice.

In addition, the Düsseldorf court stated that the SEP holder is obliged to disclose the content of all licence agreements concluded by the current SEP holder and the previous SEP holder. Possible confidentiality interests and business secrets could be protected by measures in the procedure, for example by excluding the public from the confidential parts of the procedure and by a non-disclosure agreement.

However, since Unwired Planet had not provided all third party licences, in particular Ericcson’s licences, the Court found that Unwired Planet had not sufficiently explained the reason why its licence offer to the defendant was to be considered non-discriminatory and therefore FRAND-compliant. This is a provisional judgment, appeal is possible for both parties.

Update and supplement of 16 May 2020:

At the end of April 2020, Unwired and Huawei reached a settlement that ends their litigation in both the United States and Germany. The Federal Supreme Court (BGH) confirmed that the parties have withdrawn the pending FRAND case (Akz.: 10 ZR 33/19). This is ultimately a pity in terms of legal certainty. For Germany, it had been hoped in the case Unwired vs. Huawei that a BGH ruling could unify the FRAND case law of the German patent courts.

Also in April 2020, the OLG Düsseldorf (Akz.: I-2 U 31/16) held that Huawei had infringed the patent of Unwired Planet. At the same time, however, the court demanded clear FRAND rules to ensure that the transfer of SEPs did not discriminate against licensees.