Context: In December it became known that the Munich I Regional Court entered a WiFi 6 standard-essential patent (SEP) injunction against Amazon at the end of a trial (December 26, 2023 ip fray article). The written decision was provided in February, and the dispute was settled, through a global patent license agreement, shortly thereafter (March 5, 2024 ip fray article).
What’s new: The Munich court has now provided a public redacted version of the judgment. While a fair amount of confidential business information is redacted, the court’s reasoning is clear, especially in the part that relates to Amazon’s FRAND defense.
Direct impact: It is possible that Amazon understood quickly (after the written judgment issued) that it would be hard to get the decision overturned, as Amazon would have had to convince the appeals court that the Munich I Regional Court had erred on several questions at the same time.
Wider ramifications: The decision shows that German courts don’t generally take shortcuts (though it has happened in other cases) to decide SEP cases against implementers, but sometimes go far beyond the call of duty in explaining why, on top of an implementer having met the criteria for being deemed an unwilling licensee, a licensor’s conduct was clearly FRAND-compliant.
Since the December 14, 2023 bench ruling, which is generally unusual but even more so in a SEP case, ip fray has been interested in the reasons for the decision. The settlement between Amazon and Huawei moots the issues in the case, but with a view to other SEP cases (not only but also those in which Huawei is asserting WiFi 6 SEPs against router makers Netgear and AVM), further analysis was warranted.
The FRAND part spans almost 20 pages. First, the court explains the standard applied in Germany post-Sisvel v. Haier and also cites repeatedly to a 2022 ruling by the Karlsruhe Higher Regional Court (an out-of-circuit precedent as it would be called in the U.S.).
That standard places a high burden on implementers. They must genuinely pursue a license on FRAND terms at all stages of the negotiation. If they deem the licensor’s offer non-FRAND, German courts nevertheless expect them to make a FRAND counteroffer, the only exception being that the patentee’s offer amounts to a refusal to grant a license because its terms are so outrageous they cannot be considered a serious proposal. And that extreme scenario is usually not given only because one of various terms is allegedly non-FRAND. Instead, an implementer has to state its complete criticism of an offer (at least to the extent it can reasonably do so prior to obtaining further information that may be required to address parts of the proposal).
The Munich court could have decided the case against Amazon just on the basis of that company’s own conduct, such as the delays it caused in negotiations, combined with the fact that Huawei’s offer was worthy of serious consideration as opposed to a prohibitive demand that amounted to a refusal to deal.
But the three judges (the 7th Civil Chamber’s Presiding Judge Dr. Oliver Schoen, Judge Dr. Hubertus Schacht and Judge Katalin Tözsér) didn’t stop there.
They note that Huawei’s offer was consistent with other license agreements the company had entered into. The court distinguished between license agreements entered into in order to settle litigation and those entered into without any prior litigation. In the latter case, there cannot be a presumption of coercion.
The judgment explains why certain gradual differences between the terms Huawei had agreed upon with other parties and the ones offered to Amazon were justified by objective differences. In other words, Huawei did not apply unequal terms to equal facts, but any deviations can be adequately explained.
The court also notes that Huawei responded swiftly (unlike Amazon in some situations) and made a good-faith effort to reach a license agreement over an extended period of time, which also included making senior IP executives available for early discussions.
The judgment primarily focuses on Huawei’s bilateral agreements with other parties. One paragraph refers to Huawei’s participation in a WiFi 6 pool by Sisvel, but unlike some other German SEP cases in which the focus was on a pool offer, that part (which is particularly heavily redacted) was not central in this case. It just added to the overall picture of Amazon being interested in bringing down royalties rather than taking a license on reasonably acceptable terms.
Given the various aspects of Huawei’s conduct that the judgment validates in terms of efforts to discharge a SEP holder’s FRAND licensing obligations, it’s not an exaggeration to say that Huawei’s negotiating behavior vis-à-vis Amazon stands as a textbook example and other SEP holders seeking to prevail in SEP disputes in Munich may use that judgment as an example and a check list (though no single decision can ever be a complete check list, as each negotiation is different).
The only weakness of the decision is just an oversight, and it is actually funny: toward the end, the judgment notes that Amazon was not prepared to take a license “whatever it takes.” But what was meant was (now-Lord) Justice Colin Birss’s holding that an implementer must be prepared to take a license on “whatever terms are in fact FRAND” (based on a final court ruling). The most likely reason for the confusion with “whatever it takes” is that it’s what then-European Central Bank president Mario Draghi said at the height of the eurozone’s sovereign debt crisis in response to the question of what the ECB would do to stabilize the common currency. Those three words discouraged speculation by hedge funds against the viability of the euro, at least for many years.
This clarification was just needed because, if taken out of context, that erroneous wording could suggest that the Munich court expects implementers to take any deal. Much to the contrary, the Huawei v. Amazon judgment is based on the fact that Amazon engaged in hold-out, presumptively for the purpose of driving down royalty rates, while Huawei acted in good faith and in compliance with FRAND every step of the way.