Context: Earlier this year, the European Commission (EC) intervened in an appeal before the Munich Higher Regional Court (VoiceAge EVS v. HMD) and declared itself in disagreement with the lower Munich court’s application of the Huawei v. ZTE case law of the European Court of Justice (ECJ) that governs standard-essential patent (SEP) cases across the 27-member bloc (March 26, 2024 ip fray article).
What’s new: This may be the worst day in the history of German patent jurisprudence. In an utter embarrassment for the country’s Bundesgerichtshof (Federal Court of Justice) and the retired presiding judge of one of its divisions, the Europan Commission — the Guardian of the [EU] Treaties — has published its amicus curiae brief in VoiceAge EVS v. HMD. The court filing says in the clearest terms that the four steps of the FRAND negotiation process outlined in Huawei v. ZTE must be applied sequentially and an implementer’s conduct after an initial declaration of a willingness to take a license on FRAND terms must not be imported into the analysis of step two, the declaration of a principal willingness to take a license. That holding is 100% the opposite of the intellectually dishonest and economically irresponsible Sisvel v. Haier doctrine by the Federal Court of Justice.
Direct impact: The amicus brief explicitly does not side with HMD or VoiceAge EVS. It is purely about the proper legal standard, a standard that the Munich appeals court surprisingly still does not appear to properly apply (given that it rejected Lenovo’s motion to stay the enforcement of InterDigital’s injunction (July 17, 2024 ip fray article)). The EC mentions, as one procedural possibility, that a preliminary reference to the ECJ could result in further clarification. The amicus brief compares the Mannheim and Munich decisions in that dispute, both of which resulted in the grant of an injunction, but on different bases, which suggests that VoiceAge EVS is probably entitled to an injunction either way. Still, the German judiciary must alter course now. Sisvel v. Haier belongs on the dustbin of German patent law.
Wider ramifications: Instead of passing a deeply flawed EU SEP Regulation into law, the solution may be that German courts distance themselves from the aberration that was Sisvel v. Haier (and certain decisions before and after it). The EU SEP Regulation was proposed only because of the broken state of Germany’s SEP case law (March 1, 2024 ip fray article), so if German courts finally came to reason now, the proposal could simply be jettisoned. The EU Commission’s amicus brief shows a way forward, though VoiceAge EVS v. HMD appears to be the wrong vehicle. There are other cases, such as InterDigital v. OPPO and Interdigital v. Lenovo, where German appeals courts should now lift any wrongly-ordered injunctions as soon as possible. SEP holders must tread carefully now: regardless of whether some German courts continue to disregard EU law, the European Commission has the authority to fine them (to the amount of up to 10% of worldwide revenues) if they wrongfully enforce SEP injunctions that issued on a Sisvel v. Haier basis.
The EC’s amicus curiae brief in VoiceAge EVS v. HMD is the first one the EU’s executive government has submitted in an Art. 102 TFEU matter since 2020 and only the sixth in about a decade (EC amicus brief list). With the Munich appeals court’s permission, the EC published a redacted version (PDF (in German)).
For the avoidance of doubt, the EC does not make law and it does not act as an appeals court. The EC has the right of initiative for new legislation, it has competition enforcement authority, and as the Guardian of the Treaties it can take action if EU law is flagrantly violated by member states. But it’s not easy to ignore this particular amicus brief, which shows the German judiciary the error of its ways.
If the question of whether Sisvel v. Haier conforms to EU law is put before the ECJ, the answer will almost certainly be a resounding NO. The EC can’t force the German courts to do anything, not even to make a preliminary reference to the ECJ. But it can, for example, impose hefty antitrust fines on SEP abusers taking advantage of a miscarriage of justice. In that case, there would likely be an appeal of a Commission decision to the EU General Court, and the final appeal would be lodged with the ECJ.
Put differently, when a court is as terribly and clearly wrong as the Federal Court of Justice was in Sisvel v. Haier, the EC has some powerful levers to restore sanity and ensure honesty.
The EC’s amicus brief does not mention the Federal Court of Justice and Sisvel v. Haier. But it completely rejects the doctrine, and there cannot be the slightest doubt about that. If the EC is right, as ip fray believes it is, German courts have wrongfully enjoined various implementers of standards in recent years, causing enormous damage also to consumers, as brands like OPPO, OnePlus and vivo left the German market.
The keyword to look for in the amicus brief is “Reihenfolge” (sequence). It occurs ten times. The amicus brief says in the clearest of terms that the sequence of the four steps of the FRAND negotiation framework laid out in Huawei v. ZTE is mandatory. Otherwise, it says, the balancing that the ECJ intended will not be achieved.
One doesn’t even have to read up to that point to see that the EC rejects Sisvel v. Haier, but if there was any residual doubt nonetheless, it would be removed by the following subhead on page 24:
“b) Keine Berücksichtigung des nachfolgenden Verhaltens des Patentnutzers”
unofficial translation:
“b) No regard to implementer’s subsequent conduct“
The EC then explains that the only thing an implementer is required to do in response to an infringement notice is to unequivocally declare itself willing to take a license on FRAND terms. Whatever it may do thereafter, such as whether or not it responds swiftly enough, does not matter at that stage of the analysis.
Does. Not. Matter. Take that, Federal Court of Justice!
This means German courts have for years failed to properly apply EU law because they did not perform a sufficient analysis of whether a SEP holder’s royalty demand was FRAND-compliant.
The EC says it again and again in the amicus brief: the sequence of the steps is binding. It’s not optional. It can’t be vitiated by importing other considerations into the analysis of whether the implementer really meant to take a license on FRAND terms.
It is key to distinguish between the fact pattern in the case at hand and the question of what is the proper legal standard.
The amicus brief compares the Mannheim and Munich decisions. Interestingly, an injunction issued either way. But the EC has a way bigger problem with the Munich decision because it allowed the plaintiff to make up for alleged shortcomings of the infringement notice through the complaint that sought the injunction at issue, and because it clearly imported the implementer’s subsequent conduct into step 2 of the analysis (declaration of willingness).
The EC doesn’t say that Mannheim necessarily got everything right, but it finds fault with the Munich ruling. Now, to be not just fair but fairer than the EC, the Munich court applied Sisvel v. Haier. If Sisvel v. Haier was good law, the Munich ruling would be defensible.
Given that HMD lost in Mannheim as well as in Munich (in fact, it lost everywhere), this case appears to be the wrong vehicle. The Munich Higher Regional Court, which scheduled its hearing in this case for Halloween (July 31, 2024 ip fray article), could issue a “right for the wrong reasons” decision and find that the lower court correctly enjoined HMD. There is more than one way to arrive at the conclusion that HMD is an unwilling licensee and that VoiceAge EVS discharged its FRAND obligations.
ip fray is not privy to the confidential negotiations between the parties, but based on information that is in the public domain, the most logical effects of the EC’s amicus brief would be the following ones:
- German courts should immediately dump Sisvel v. Haier and lift some other injunctions that are wrongfully in force;
- the Unified Patent Court (UPC) should not adopt Sisvel v. Haier in the first place (no UPC SEP case with a FRAND defense has come to trial yet);
- SEP holders should not rely on Sisvel v. Haier when enforcing injunctions;
- if sanity is restored in German SEP case law, the EC should declare victory and drop the ill-conceived SEP Regulation (which would not tackle the real problem, which is the application of Huawei v. ZTE, but which would raise a host of other issues); and
- there presumably are still very strong reasons for upholding the Munich I Regional Court’s VoiceAge EVS v. HMD judgment, but on non-Sisvel v. Haier grounds.
ip fray commends the EC for the legal standard its amicus brief advocates, which is simply a correct application of Huawei v. ZTE, but does not consider VoiceAge EVS v. HMD the proper vehicle. Sure, HMD is based in an EU member state (Finland), but the real victims as Chinese companies like OPPO and Lenovo.