HMD aligns itself with European Commission’s stance on FRAND in opening brief filed with top German court: VoiceAge EVS v. HMD

Please note that we are not endorsing (nor are we contradicting) any of HMD’s arguments. Below we are just summarizing what they say.

Telegraphic version of HMD’s priorities

• all Huawei v. ZTE steps to be taken prior to litigation
• provision of security must not be prerequisite to FRAND analysis of SEP holder’s offer
• FRAND analysis of SEP holder’s offer (Huawei v. ZTE step 3) is indispensable if the first two steps have been assessed and delivered a positive outcome
• no obligation on implementer’s part to accept even a FRAND-compliant offer
• implementer’s counteroffer to undergo FRAND scrutiny as well
• security becomes relevant only if both parties make FRAND offers, and both parties can be required to enter into a third-party royalty determination
• security amount not to be determined unilaterally by SEP holder (through its demands) but to be based on, at most, implementer’s counteroffer
• no further obligations on implementer’s part such as contractually binding declaration to accept SEP holder’s offer if found FRAND by court; no interest payments

More elaborate summary of HMD’s arguments

• The order in which the procedural steps are examined under the Huawei framework is mandatory. Only if the examination shows that the first step has been completed properly is the second step to be examined, and so on. The question of whether the respective procedural step has been fulfilled may only be assessed on the basis of the requirements relevant to that procedural step. Since these procedural steps are arranged in a sequential order and build on each other, mixing the procedural steps is not an option.

• All of these steps must be taken out of court, or more precisely, prior to court proceedings. As the European Commission specified in the oral hearing before the Munich Higher Regional Court, this applies not only to the infringement notification, but to all procedural steps. This is because the Huawei framework is based throughout on the rationale that SEP holders and patent users should be able to conclude a license on FRAND terms in an environment free of pressure. The European Commission (in agreement with the defendant) further clarified in the oral hearing before the Munich Higher Regional Court that the patent user must be given reasonable opportunity prior to court proceedings to complete all procedural steps.

• The pre-litigation infringement notification (step 1) itself must contain all the necessary elements (see ECJ, Huawei judgment, para. 61). Unlike in the proceedings giving rise to the Huawei judgment, and as the European Commission generally maintains, at least in the present case the infringement notification could not be replaced by an action for rendering of accounts.

• The patent user’s declaration of willingness to take a license (step 2) is a purely formal step at the start of negotiations and is not inadmissible as “conditional” insofar as the patent user merely expresses its intention to challenge the SEPs as not legally valid or essential to the standard, or reserves this right. Compliance with this procedural step must be assessed solely on the basis of the declaration of willingness to grant a license as such. The subsequent conduct of the patent user, on the other hand, must not be taken into account when assessing the willingness to grant a license.  There is no overarching criterion for “willingness to take a license”.

• The license offer then to be submitted by the SEP holder (step 3) must be examined to ensure that it complies with FRAND (see ECJ, Huawei judgment, margin no. 63), whereby a mere “negative evidence check” is not sufficient. This cannot be circumvented by a broad interpretation of the declaration of willingness to license in the sense of a “willingness to license”, nor may an advance examination of the subsequent procedural steps be carried out. According to the opinion of the European Commission, which was specified in the hearing before the Court of Appeal, the offer relevant for judicial review is the last pre-litigation license offer made by the SEP holder, as all procedural steps must in principle be taken before legal action is brought. If this license offer by the SEP holder is un-FRAND, the FRAND affirmative defense is dispositive, regardless of whether the subsequent steps have been completed or not.

• The patent user’s response to a FRAND license offer (step 4), which is only to be examined at that stage, must be made in accordance with the commercial practices recognised in the field (to be determined beforehand) and in good faith (ECJ, Huawei judgment, para. 65), whereby the patent user cannot be solely responsible for any delay. Only after the license offer has been rejected does the patent user have to submit a counteroffer. When assessing the counteroffer for FRAND conformity, the same standard must be applied as for the SEP holder’s license offer, so that, in particular, there must be no “anchoring” based on the SEP holder’s license offer (which may even be unchecked).

• Only if all previous procedural steps have been completed must the patent user provide adequate security (step 5) after its counteroffer has been rejected. A judicial review of this must therefore only take place if the previous judicial review has established that all previous procedural steps have been completed in accordance with the requirements of the Huawei framework. This security primarily serves to protect the SEP holder for past use of the patent in suit by the patent user, as the pre-litigation mandatory licensing negotiations under the Huawei framework may delay the SEP holder’s enforcement of its rights. In any case, the security is therefore “reasonable” if it is measured on the basis of the patent user’s FRAND counteroffer. The European Commission also confirmed this in the hearing before the Court of Appeal, in line with the ECJ, Huawei judgment, para. 67.

• It follows from this that even a FRAND-compliant license offer by the SEP holder does not preclude the FRAND objection. Rather, the patent user must be given a reasonable opportunity to submit a FRAND counteroffer. This is because there is a “range” of FRAND solutions. The FRAND objection remains valid even if the SEP holder rejects this FRAND-compliant counteroffer and the patent user then provides adequate security. The parties must then either agree on a compromise solution or arrange for a third-party determination (if necessary, after expiry of a period to be determined by the court). If one party refuses to accept the third-party determination, the FRAND objection stands or falls to its disadvantage.

Court and counsel

The case has been assigned to the court’s antitrust-specialized panel under Presiding Judge Prof. Wolfgang Kirchhoff.

HMD has been represented so far by a Hoyng Rokh Monegier team led by Lars Baum as well as a Hogan Lovells team led by Dr. Andreas von Falck (who also regularly defends Apple in Germany). In Federal Court of Justice proceedings (except for appeals of right of Federal Patent Court decisions), parties must appoint counsel with a special Federal Court of Justice bar admission, playing a role similar to UK barristers who get instructed by solicitors. In this case, the Federal Court of Justice counsel is Hall & Quast’s Dr. Reiner Hall.

VoiceAge EVS has been represented so far by a Wildanger team led by Peter-Michael Weisse and Jasper Meyer zu Riemsloh.