Context: At a Halloween hearing (October 31, 2024 ip fray article), it became known that the Oberlandesgericht München (Munich Higher Regional Court) took issue with the fact not a single implementer of standard-essential patents (SEPs) has prevailed on a FRAND (fair, reasonable and non-discriminatory licensing) defense in the court below, the Landgericht München I (Munich I Regional Court). ip fray has also commented on the fact that FRAND defenses almost always fail in Germany (and, so far, 100% of the time in Munich) (August 5, 2024 ip fray article). The European Commission (EC) intervened in this case as an amicus curiae and proposed a strictly sequential approach to the application of Huawei v. ZTE (August 4, 2024 ip fray article). The appellate ruling was originally scheduled for February 6, then postponed to February 20, and finally pushed back to today (February 20, 2025 ip fray article).
What’s new: This morning, the regional appeals court announced its decision. HMD declined to provide security, thus the appeals court formally laid out its new security-centric doctrine and, on that basis, declined to conduct any elaborate FRAND analysis or to refer the matter to the European Court of Justice (ECJ). As a result, HMD has lost the appeal, but the appeals court has granted leave to appeal this matter on to what is practically the top German court for patent infringement actions, the Bundesgerichtshof (BGH) (Federal Court of Justice). If the Federal Court of Justice disagrees with the EC, it will actually have an obligation to refer the matter to the ECJ. The ECJ has just recently indicated again that the courts of final appeal of the member states can decline to make a preliminary reference only if such a request is, in other words, facially pointless.
Direct impact: For the dispute between VoiceAge EVS and HMD, this does not matter. No settlement is in sight there. HMD obviously declined to make a deposit based on VoiceAge EVS’s royalty demand because it wants to move the FRAND goalposts by means of a further appeal, which is certain to come.
Wider ramifications: The decision does not help implementers with respect to the overall German situation, but it may now have the effect of complicating SEP enforcement in Munich. Defendants who are prepared to provide collateral will be entitled to a full analysis of whether the final offer made by the SEP holder was FRAND-compliant. In the aftermath of the appellate hearing, the lower Munich court already revisited some of its SEP positions (December 9, 2024 ip fray article). In practice, any SEP holder who wins a Munich SEP injunction now faces the risk that the implementer will simply offer a bond or deposit and request a full judicial FRAND analysis, and the appeals court might then stay enforcement unless it believes the lower court conducted a full FRAND analysis. Some SEP holders may now prioritize other jurisdictions, particularly the Unified Patent Court (UPC), and other German venues, such as the Dusseldorf, Mannheim and Hamburg Regional Courts. It will take a couple of years before the ECJ will decide this matter. The Federal Court of Justice will presumably do so only after a hearing, which is almost certainly going to be held in 2026. Then it will take about a year until the ECJ hearing, and then roughly another year until a decision. The ECJ ruling will be binding on the UPC and the national courts of all EU member states.
Some of the arguments raised by both parties and the EC at the Halloween hearing were very persuasive. ip fray consistently supports the view that SEP holders need actual and recognizable (from an accounting perspective) revenues, not deposits or interim license fee payments (March 11, 2025 ip fray article), and equally agrees with the view that something is wrong with the case law if each and every implementer, out of a sample that is more than large enough to be statistically reliable, loses in a certain court. There are unwilling licensees, and they will be more likely to be sued than willing licensees, but there are also willing licensees facing hold-up by SEP holders. Both hold-out and hold-up are facts of life.
The court will soon publish a redacted version of the judgment. Here’s our unofficial translation of what the court told us:
“In appeal no. 6 U 3824/22 Kart, the Senate [which is the name of German appellate panels] has rejected, by judgment of March 20, 2025, Defendant’s appeal of the Regional Court’s judgment of May 25, 2022 (case no. 7 O 14091/19). The Senate reached the conclusion that a patent infringement has been correctly identified, all other requirements are met and the FRAND affirmative defense has failed. Pursuant to its advisory legal opinion of October 30, 2024 (published, inter alia, in GRUR 2025, 246) on the requirements for the analysis of the FRAND defense in patent injunction proceedings, the Senate arrived at the conclusion in this particular case that Defendant did not sufficiently demonstrate its willingness to take a license on FRAND terms, as it declined to provide sufficient collateral. Therefore, the Court did not have to conduct an analysis of whether Plaintiff’s (final) licensing offer was in fact FRAND. This will be explained in more detail in the written reasons that the Senate intends to publish in due course.
“It has not yet been decided by a court of final appeal whether a closer FRAND examination should depend on the provision of collateral or whether the compulsory license defense under antitrust law fails in the event of insufficient collateral, and whether a defendant’s willingness to take a license must be analyzed from different angles. Therefore, the Senate has granted leave for an appeal, confined to the FRAND affirmative defense, to the Federal Court of Justice, recognizing the fundamental importance of these questions.”
The wordings suggest that HMD did provide security, but based on its own calculation of what a reasonable royalty would be. Maybe HMD even offered to give more collateral than its own views on the license fee suggested, but in any event, it fell short of what VoiceAge EVS wanted, and the appeals court therefore threw out the FRAND defense without any further analysis.
The appeals court was clearly unreceptive to everyone’s input, including that of the EC. It is difficult to see why it then took so long to hand down a decision that merely reflects the panel’s preconceived notion as communicated almost five months ago.
In the end, it just means protracted legal uncertainty, which is neither in the interest of SEP holders nor if implementers. It would have been preferable for the matter to be referred to the ECJ at this stage of proceeding.
At the Federal Court of Justice, the case will not be heard by the panel that typically hears patent infringement cases, but it will be referred to the antitrust division.
The EC will have to decide on whether to participate in the further proceedings, but it would be surprising if it did not, though budget constraints may play a role.
Whether implementers would actually benefit from a full FRAND analysis by German courts is another question. It is actually doubtful. German courts would not conduct week-long FRAND hearings with expert testimony. They would probably still just look for a shortcut to resolve the case within their very limited time budgets. SEP holders who can show that their royalty demands are consistent with license agreements they have concluded with comparable implementers should still be in a strong position to obtain injunctive relief in Munich.
By coincidence, a different SEP matter involving HMD as an allegedly unwilling licensee was heard in India today. In the Delhi High Court, counsel for Dolby (March 20, 2025 ip fray article).