On 5 May 2021, ACT | the App Association hosted a fireside chat on the licensing of standard-essential patents (SEPs) and the questions the Düsseldorf court recently referred to the Court of Justice of the European Union (CJEU) on the matter.
The licensing of the patented technologies that underpin connectivity standards like Wi-Fi, 4G LTE, and 5G is critical to using the standards themselves. For small and medium-sized enterprises (SMEs) the ability to either purchase fully licensed modules or license directly on fair, reasonable, and non-discriminatory (FRAND) terms are crucial to innovate and remain competitive.
The case referred to the CJEU by the Düsseldorf court focuses on the central issues of standard-essential patent licensing and competition, and the decision will shape the future of SEP licensing, innovation, and manufacturing in the EU for years to come.
The background of the case
The first half of the webinar explored the background of the referred case C-182/21, Nokia v. Daimler. Giuditta Caldini, of Latham & Watkins, provided an outline of the case in the context of patent infringement litigation in the German courts, explaining that the referred case relates specifically to the issue of connected cars and that it represents the first battleground on determining how the SEP licensing model will function in the future. Caldini also highlighted how the development of the internet of things (IoT) sector, and the rise of connectivity standards, contribute to the increase in cases like these.
Following Caldini’s remarks, Dr Andreas Kramer, of Vossius & Partner, offered some insights on the perspective of German courts. Kramer pointed out 10 complaints have been filed in the Düsseldorf, Mannheim, and Munich courts in recent years, demonstrating the increase in these court cases. Further, Kramer explained, the issue should be considered a multijurisdictional one since at least one of the parties involved in the ongoing German cases has also brought litigation in the United States, specifically against the patent pool Avanci. Describing what a patent pool is and how Avanci specifically fits into the bigger picture, Caldini explained that Avanci’s licensing methodology only provides the license to the original equipment manufacturer (OEM), which in this case is the final car.
Part 1: “Is there an obligation to license suppliers preferentially?”
Moving on to the two sets of questions the Düsseldorf Regional Court referred to the CJEU, the panellists first discussed whether there is an obligation to license suppliers preferentially. Caldini referred to the multi-layered automotive supply chain to underline how licensing at the OEM level creates complicated outcomes for research and development (R&D) and business expansion at the component level. To benefit from patent exhaustion, Caldini suggested licensing higher up in the supply chain as a solution and outlined some of the benefits.
To provide further context, Kramer defined the FRAND licensing framework and described how it functions to combat the anti-competitive effects of standardisation. Closing out the discussion on the first set of questions, Caldini commented on the requirements under competition law as to whether a supplier should be granted an unrestricted license so that others in the supply chain do not need to worry about facing patent infringement claims.
Part Two – What are the requirements outlined in Huawei v. ZTE?
The discussion of the second set of questions referred to the CJEU focused on the Court’s 2015 judgement in the case Huawei v. ZTE. Kramer provided an overview of the Court’s findings in the case and how they have played out in practice since 2015, with a particular focus on German courts where SEP disputes have arisen. According to Kramer, the CJEU case did not provide specific enough details, making it difficult to use the Huawei framework as a reference in other cases before the courts.
In closing, Caldini provided her point of view on the effects of injunctions in the FRAND negotiation process, especially concerning competition issues. Despite an injunction, implementers that have often already started production cannot afford to stop operations. So, because of the injunction threat hanging over their heads, Caldini explained, implementers are bound to accept whatever condition the SEP holder proposes in the licensing agreement, despite it being non-FRAND.
The event concluded with a brief Q&A. While this discussion was quite technical, the CJEU’s decision will likely have far-reaching consequences that could affect tech businesses across all sectors of the economy. Stay tuned for another event on SEPs coming up in June!