The Court of Appeal of The Hague has again given guidance on the interpretation of the CJEU decision in Huawei v ZTE and the standards for assessing FRAND defences under Dutch law. In its decision of 2 July 2019, less than two months after its Philips v Asus decision of 7 May 2019 (read our newsflash here), the Court of Appeal awarded Philips another injunction, this time against Wiko. Although it was not in dispute that Philips was entitled to initiate the proceedings because Wiko had initially not acted as a ‘willing licensee’, Wiko also failed to show that it had subsequently become a ‘willing licensee’ and that Philips had abused its powers by not negotiating in good faith during the proceedings.
The Court of Appeal reiterated its opinion in Philips v Asus that the CJEU in Huawei did not issue a strict set of rules: if the SEP holder has not precisely and fully complied with any of the steps, this does not immediately and necessarily imply that enforcing its SEP would constitute an abuse of a dominant position. The CJEU rather provided guidelines for good faith negotiations between the parties about a license.
Wiko did not dispute that it had not acted as a ‘willing licensee’ in the period leading up to the infringement proceedings, as Wiko had not responded to Philips’ notification and standard license offer. The Court of Appeal held that under those circumstances Philips was not even required to make a license offer and that Philips was free to initiate the proceedings.
Wiko finally made a counteroffer ten months later. Wiko then alleged in the proceedings that Philips’ initial offer was not FRAND, that Wiko had become a ‘willing licensee’ and that Philips had abused its position by not making a FRAND offer and by refusing to negotiate with Wiko on the basis of Wiko’s counteroffer during the proceedings.
The Court of Appeal considered that making a counteroffer during the proceedings could at most lead to the SEP holder having to negotiate in good faith with the SEP user, but this cannot lead to the conclusion that the initiation of the proceedings would – in retrospect – constitute an abuse or that the SEP holder would have to suspend such proceedings. This would open the door to delaying tactics by the SEP user.
The Court of Appeal further held that Wiko did not factually prove that Philips’ offer was not FRAND, as it hadn’t responded to an expert report that Philips submitted. The fact that the three patents invoked in the Netherlands were revoked by the District Court also did not mean that Philips’ initial offer was not FRAND, as those first instance decisions were not yet final and the patent issue was upheld by the Court of Appeal as well as by courts in the UK and Germany. Wiko’s objections to the duration of the proposed agreement, the coupling of the UMTS and LTE portfolios, the fixed license fee and the application of a non-compliance rate were also rejected, as Wiko failed to show that these conditions were unusual and Philips was willing to negotiate about these.
The Court of Appeal further considered that the sole fact that Philips agreed upon a different license structure with certain licensees does not imply (a presumption) that the offer to Wiko was discriminatory. The prohibition of discrimination does not mean that exactly the same license structure and conditions should be used for every licensee. Circumstances that are specific to a certain licensee can lead to other suitable conditions being agreed upon.
Wiko pointed out that it could not prove that Philips offer was not FRAND because it did not have access to the actual license agreements that Philips had concluded with other parties. The Court of Appeal rejected this argument, as Wiko could have at least submitted information regarding the license agreements that Wiko had concluded for UMTS and LTE patent portfolios of other SEP holders. The Court of Appeal therefore saw no reason to shift the burden of proof to Philips.
The Court of Appeal also considered that Wiko’s counteroffer was not FRAND. Wiko’s offer was only based on the number of Philips patents and not on the technical and economic value thereof, which the parties agreed was decisive. Wiko compared the number of Philips SEPs to the total number of UMTS/LTE SEPs, whereas it would have been more appropriate to make a comparison to only those SEPs that pertained to mobile phones. Wiko’s statement that certain Philips patents would likely be invalid or not essential was considered to be irrelevant, as this would equally apply to the patent portfolios of other parties so that the relative value of Philips’ SEPs would remain the same.
The Court of Appeal concluded that Philips had not abused its position. The question whether Philips indeed had a dominant position did not need answering. The Court of Appeal issued:
- an immediately enforceable injunction against Wiko,
- an account of profits,
- a recall and destruction,
- damages (to be determined in follow-up proceedings) and payment of full legal costs.
The decision is open to appeal before the Supreme Court.