Context: This is the sixth day of a SEPtacular seven-day period (October 30, 2024 ip fray article) that saw various settlements of standard-essential patent (SEP) cases, a new dispute and a litigation-free IoT license that will be discussed in another article, but which also includes two major court hearings.
What’s new: Today the UPC’s Munich Local Division (LD) heard Huawei v. Netgear. Simply put, this is the first SEP hearing in the UPC that is likely to make a difference. A first SEP injunction has come down in another case, but there was no FRAND (fair, reasonable and non-discriminatory licensing) defense there (September 13, 2024 ip fray article). Earlier this month, Panasonic met Xiaomi and OPPO in the Mannheim LD, but those disputes were settled before a decision (October 25, 2024 ip fray article). In Huawei v. Netgear it appears rather likely that the court will reach the FRAND defense, which are actually two defenses: one based in antitrust and another in contract law.
Direct impact: The panel did not indicate an inclination. Netgear’s “throw in the kitchen sink” litigation strategy may require a lengthy ruling, but there is no “single “killer” argument in sight that would be very likely to defeat the complaint and avert an injunction. Huawei’s track record in licensing (mostly without, and sometimes during the course of, infringement litigation) presumably makes it a willing licensor, while some of Netgear’s arguments are so spurious that they reflect unfavorably on its case as a whole (because someone who has strong points to make would not waste time on them in the first place), and Netgear’s strategy, above all its politically-charged U.S. counterstrike (June 20, 2024 ip fray article), bears little resemblance to what courts in major jurisdictions typically expect of willing licensees.
Wider ramifications: This case presents an opportunity for the UPC to provide some interesting and valuable guidance on FRAND without having to tackle some of the trickiest issues right now. For instance, comparable license agreements with WiFi 6 implementers including some of Netgear’s competitors may obviate the need to choose a sequential or non-sequential approach to Huawei v. ZTE (August 4, 2024 ip fray article). One defense that is too weak to be likely to dispose of the case, but which is of transcendental interest, is Netgear’s contract law theory. As this is a WiFi 6 case, it raises not only the general question of whether the UPC may resolve FRAND as a contractual question (rather than focusing on an alleged abuse of market power), but also shows what a mess the relevant standardization body, the vaunted IEEE, created with its flip-flopping on the substance of FRAND pledges to be submitted by contributors to its WiFi standard.
Huawei has multiple cases pending against Netgear in the UPC and Germany (August 21, 2024 ip fray article). The question is not whether Netgear needs a license, but on which terms. The case that the UPC’s Munich LD heard today appears capable of bringing about a settlement on terms that implementers similarly situated as Netgear have already accepted. That outcome would encourage SEP holders facing hold-out to file their cases in the UPC without necessarily raising a policy concern over an extremist Sisvel v. Haier-style stance that makes mockery of FRAND.
Today’s patent-in-suit, EP3611989 (“Method and apparatus for transmitting wireless local area network information”), appears to be likely standard-essential (though, again, the panel did not lay out its preliminary perspective on the case). There is essentially just one technical non-infringement argument.
On the validity side, this patent also appears to be in a strong position. It could be a “teflon” type of resilient patent that will either be upheld as granted or can otherwise be amended in ways that address potential validity concerns, yet would presumably continue to read on the standard.
In addition to making an infringement argument based on mapping the patent-in-suit to the standard. which in such jurisdictions as Germany creates a rebuttable presumption of infringement by products advertised to be compliant with the relevant standard, Huawei also performed some experiments and intercepted data traffic. It appears that they have covered their bases.
While ip fray is unconvinced of those Netgear defenses that could dispose of the whole case, there is an affirmative defense that appears more interesting than the rest of Netgear’s arguments combined: they make an exhaustion argument based on a component (probably a WiFi chipset or network access module) that Huawei has allegedly licensed and that is built into some (though by far not all) of the accused products. This is now probably the first major exhaustion argument for the UPC to resolve.
ip fray believes that method claims should be capable of giving rise to an exhaustion defense in the UPC like they do under U.S. precedent (Quanta, LifeScan etc.). Here, Netgear argues that this is the case even more so because the method claims-in-suit are being asserted alongside two device claims. But the terms of a contract between Huawei and one of Netgear’s suppliers were not discussed in public. Therefore, it is impossible to form a definitive opinion on whether Netgear has an exhaustion defense. But, at minimum, ip fray agrees with Netgear that its exhaustion defense can’t just be dismissed on the basis that method claims are involved.
For Netgear, Freshfields Bruckhaus Deringer’s Dr. Frank-Erich Hufnagel also made a convincing policy argument distinguishing patent from trademark exhaustion (for the latter, there is a body of case law by the European Court of Justice). He reasonably argued that even a patent owner may, at least hypothetically (though he couldn’t conceive of an example), have legitimate reasons to oppose the incorporation of its licensed component into a complex multifunctional product, but this would require some rather egregious circumstances, while trademark owners may more easily come up with reasons why their brand reputation is at stake if the components they licensed are used in certain ways.
Again, this does not mean that the patent-in-suit is absolutely positively exhausted, but at least there is an exhaustion defense that deserves further analysis based on the contract in question and taking other considerations into account. There are jurisdictions in Europe that analyze exhaustion at the merits stage (such as the Netherlands, from which one panel member, Judge Edger Brinkman, hails), and others (such as Germany) where this question is related to the enforcement stage. Here, again, Netgear makes a reasonable argument (on the basis of statutory interpretation and policy) that the court should provide clarity in order to facilitate compliance with a potential injunction.
But just like Netgear doesn’t appear to be in great shape with respect to the technical merits, its contract-based FRAND defense appears so weak that one must wonder why they try it at all. They may want to move the goal posts for FRAND in the UPC. If the UPC entertained both a contract-based and an antitrust-based FRAND defense, with Netgear arguing that the contract-based one (at least with respect to the WiFi standard) is defendant-friendlier, implementers might very often get away with infringement. But if one looks at the overall circumstances, which include the fact that Huawei, by virtue of being a major implementer itself, does not have a reputation for supra-FRAND royalty demands, the long-shot contract-based defense may be a Hail Mary pass by a company knowing it probably can’t defend its conduct under Huawei v. ZTE.
The Institute of Electrical and Electronics Engineers (IEEE) is merely the facilitator of IEEE 802.11 (WiFi) standard setting. Decisions are made by participants. For a long time, the IEEE’s FRAND policy was pretty much in the mainstream, meaning that it laid out a general FRAND licensing requirement without trying to define more specifically what FRAND means with a view to patent infringement remedies. Standard development organizations typically can’t build a consensus among their members beyond the lowest common denominator, which boils down to “let’s say FRAND and leave the rest to the courts.”
There was, however, a period from 2015 until 2023 when the IEEE had a recommended FRAND pledge in place that was the least favorable one to SEP holders among the FRANd policies of any major standard-setting organization. It didn’t preclude the pursuit of injunctions against unwilling licensees, but it contained various rules and wordings that were designed to complicate enforcement. That caused serious problems, which is why they came back into the general FRAND fold in 2023.
The IEEE’s problems included, but were not limited to,
- various major contributors (among them Huawei, but also various U.S. companies) providing negative letters of assurance (LoAs) refusing to license their IP under the 2015 policy;
- the IEEE then making the new policy optional, which is why the likes of Huawei made FRAND promises under the earlier (2007) policy until the 2023 edition came out;
- the Antitrust Division (ATR) of the United States Department of Justice (DOJ) modifying an old business review letter and putting pressure on IEEE to rejoin the mainstream (September 10, 2020 DOJ press release); and
- the American National Standards Institute (ANSI) doubting its ability that it could certify WiFi (IEEE 802.11) as an ANSI standard, given those licensing issues (not least, the legal uncertainty created by IEEE).
It was a hot mess. Now it’s no longer hot, but a mess it is. Netgear is now trying to take advantage of that 2015-2023 period and told the UPC that it should hold Huawei to the 2025 LoA, despite the fact that Huawei explicitly rejected it and formally declined to pledge any IP under those terms. Netgear is apparently unable to show that there is anything that imposes an obligation to Huawei to be bound to an updated IEEE policy (though the organization obviously has the right to define new policies) that it never subscribed to (and, much less, to one it even explicitly refused to apply to its own IP).
The only reasonable position that Netgear took in this contract law context is that they rejected a strawman argument according to which they were referring to Huawei’s LoAs as license agreements. They credibly clarified that they just meant it to be a contractual obligation to grant a license (which others have called “an agreement to agree”). That is indeed the way U.S. courts have generally categorized FRAND pledges, and the reason why any claims of FRAND violations typically came down to breaches of the duty of good faith and fair dealing. But that just means Netgear’s argument was not unreasonable with respect to the nature of a FRAND pledge. It still doesn’t mean that its case-specific arguments here, trying to capitalize on the IEEE’s temporary aberrations, are availing.
It could be that Netgear doesn’t seriously expects its contract-based defense to succeed anyway, but that it plans to obtain a U.S. antisuit injunction. If the UPC decides the contract part against Netgear (which would be the least surprising outcome), Netgear may then argue to a U.S. court that this “frustrates U.S. policy” in this field. The standard for U.S. antisuit injunctions in SEP disputes is currently in flux due to Lenovo’s appeal of the denial of an antisuit injunction against Ericsson (October 24, 2024 ip fray article).
It looks like Netgear has a multitude of weak defense, with only one affirmative defense (that would, at best, address part of the problem) being somewhat interesting (exhaustion). But the court has a lot of work to do now. When Judge Dr. Zigann referred to a paragraph number nort of 200 from one of the pleadings submitted by the parties, patent attorney Dr. Friedrich Emmerling, Huawei’s lead patent counsel in this case, joked that it was actually one of the shorter documents on this particular docket.
While the pleadings were all submitted in German, apparently along with non-binding English translations, the trial was held in English.
Panel: Presiding Judge Dr. Matthias Zigann, Judge Tobias Pichlmaier, Judge Edger Brinkman (The Hague) and Technically Qualified Judge Patrice Vidon.
Huawei’s legal team for the technical part was led by Clifford Chance’s Dr. Tobias Hessel (his English pronunciation was the clearest of all the lawyers who spoke today, and the way he modulated his voice made it particularly easy to follow) and patent attorney Dr. Friedrich Emmerling of Braun-Dullaeus Pannen Emmerling. For the non-technical part in the afternoon, Bird & Bird’s German IP practice group chair Christian Harmsen and his team took the lead. Mr. Harmsen has already won various SEP cases for Huawei as well as Nokia.
Netgear’s lead counsel is Freshfields Bruckhaus Deringer’s Dr. Stephan Dorn, with Dr. Frank-Erich Hufnagel (one of Germany’s leading patent litigators and Apple’s first choice) not being first-chair trial counsel this time, but moving up for part of the non-technical discussion. Netgear’s patent attorneys for the purposes of this litigation are from Samson & Partner, with Dr. Cletus von Pichler being the lead patent attorney.
Both parties also dispatched in-house counsel from China and the United States, respectively, to attend the trial in person, underscoring the importance of the case.