VoiceAge has won an antitrust appeal against phone maker HMD, with Germany's highest court rejecting calls by HMD and the European Commission for a referral to the EU's top judges for clarification on how standard essential patent licenses must be negotiated.
VoiceAge won an appeal against HMD in Germany’s highest court on Tuesday, denying the phone maker and EU officials’ long-standing pleas to refer questions on technology patents negotiation rules to the EU’s top judges. The decision (see here) maintains the German court's legacy of favoring patent holders and requiring clear proof that patent users are genuinely willing to take a license to use the technology.
At a hearing before the German Federal Court of Justice in Karlsruhe, the focus was whether national judges must strictly follow the sequence of steps laid out by the EU’s top court a decade ago for how to negotiate licensing agreements between companies that own standard essential patents, like VoiceAge, and those who use them, like HMD.
The European Commission, which was also represented before the court, has twice intervened in national proceedings, backing HMD and requesting the court to send clarification to the EU Court of Justice (see here).
During the hearing, judge Stefanie Roloff said the panel “had doubts” about whether questions needed to be referred to the EU’s highest court, given that HMD was slow in responding to VoiceAge’s license offers and did not sufficiently indicate they were willing to negotiate in good faith.
HMD argued that the offers VoiceAge made did not meet fair, reasonable and non-discriminatory, or FRAND, conditions.
The company sought to overturn the Munich Higher Regional Court decision which rejected the phone maker’s licensing-based defense without examining the substance of VoiceAge’s offer (see here).
FRAND licensing terms are required by SEP holders to ensure they do not unfairly monopolize the market over technology standards required, often by phone makers like HMD.
Reiner Hall, lawyer for HMD before the federal court, was “surprised” by the federal court judges’ initial assessment and said it was “not a right interpretation” given the EU top court’s steps laid out in the 2015 Huawei v ZTE decision set exact steps to ensure a “fair balance of interests” for SEP holders and users.
The Huawei framework requires SEP holders and users to follow a sequence of steps — including infringement notice and license offers from holders and counter offers from users and, if talks fail, for the SEP user to make a security payment — before injunctions can be sought without holders abusing market dominance.
HMD’s argument centered on the fact that VoiceAge’s offers were “outrageous” and did not meet FRAND standards, not considering, as Hall outlined, that HMD’s phones were a tenth of the price of Apple phones. He added that the EU court focuses on the SEP holder’s initiative, and then the SEP user’s duty to react.
The German judges, Hall said, are “reversing the distribution of duties by saying the SEP holder does not need to make a FRAND offer, just any offer.”
“There is no duty for the SEP holder, as long as the infringer shows they are willing,” Hall said. If the holder’s offer is not FRAND, “why should the user have a duty to react in a specific way and provide a security [calculated by] the holder,” he told the judges.
“It cannot be that national courts reason opposite to the wording of the EU Court of Justice,” he said, asking the judges to send questions to the top court for clarification.
VoiceAge, represented by Christian Rohnke, said that HMD’s argument hinged on too literal of an interpretation – or a “theological approach” – of the Huawei steps.
The SEP holder argued that the Munich court’s decision was correct in assessing HMD as an unwilling licensee without taking a literal interpretation of the EU legal framework.
The EU’s top court “does not offer a complete solution,” Rohnke said. The Huawei framework only states “who needs to make the offer first.”
It is “fundamentally wrong” to expect the SEP user to get a FRAND offer right on first try, the VoiceAge lawyer said. The initial offer must be a start to negotiations, given every party has its own interests, he said.
The European Commission, represented by Moritz Jakobs, disagreed with the earlier Munich ruling, which rejected HMD’s defense without examining the substance of VoiceAge’s offer.
The court had “ignored the SEP holder’s duty,” Jakobs said, adding that the Munich judges had “overly favored the SEP holder.”
The German cartel office told the judges that given time pressures, companies may seek to “expedite” the process set down by the Huawei framework.
The EU framework should “allow for variation and flexibility,” Jörg Nothdurft said on behalf of the cartel regulator.
EU judges may be consulted to ask if the steps need to be interpreted literally, Nothdurft said, but that would mean that for future cases, the EU court would “impose certain behaviors on SEP holders.”
“Is that their job though?” Nothdurft said. “Requirements on how to behave should be reserved to legal acts. Judges need to see what is appropriate for a specific case."
HMD admitted that both parties did not live up to their obligations.
HMD was “hesitant” and “did not react as quickly as it should have,” according to Hall, even though VoiceAge allegedly “did not provide a single FRAND offer, then still got an injunction.”
“Both parties did not behave properly and according to their duties and obligations,” Hall said.
HMD sought to send questions over how the Huawei framework must be applied as a strict, step-by-step sequence, or whether courts may instead rely on an overall assessment of the parties’ conduct.
The phone maker also sought clarity on the role of the security deposit, and whether courts can sidestep assessing a patent holder’s offer by finding a user unwilling to license.
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