/>iIn a landmark decision, the Unified Patent Court’s (UPC) Local Division Mannheim set standards for enforcing standard essential patents (SEPs) and for negotiating fair, reasonable, and nondiscriminatory (FRAND) licenses under SEPs. In line with the framework previously established by the Court of Justice of the European Union (CJEU) in Huawei Technologies Co. Ltd. v. ZTE Corp., the judgment outlines the obligation on parties in FRAND negotiations. Panasonic Holdings Corp. v. Guangdong OPPO Mobile Telecommunications Corp., Ltd., OROPE Germany GmbH, Case No. UPC_CFI_210/2023; ACT_545551/2023 (Local Division Mannheim Nov. 22, 2024) (Tochtermann, J.; Bötter, J.; Brinkman, J.; Loibner, TJ.)
This case is part of a wider global dispute involving Panasonic, OPPO, and Xiaomi Technology Germany GmbH over patents alleged as essential to the 3G and 4G mobile communication standards. Panasonic, OPPO, and OROPE agreed that Panasonic’s patent at issue is essential to the 4G standard. Panasonic filed an infringement action seeking an injunction. In response, OPPO asserted a counterclaim for revocation of the patent in suit, alleging invalidity, and FRAND-related counterclaims.
While the Local Division Mannheim’s competence over the counterclaim for revocation was uncontested, the Court expressly confirmed its jurisdiction to hear the FRAND counterclaims under Article 32(1)(a) of the Agreement on a Unified Patent Court (UPCA). The Court explained that the essence of the claim concerned the right to defend against a patent by asserting a counterclaim that is based on competition law. Since the task assigned to the UPC is the same as that of national courts when dealing with SEP disputes, and since the UPC fully applies and respects the primacy of Union law (Article 20 of the UPCA) and bases its decisions thereon (Article 24(1)(a) of the UPCA), the Court reasoned that this includes the mandatory application of EU competition law as relevant for SEP enforcement, particularly Article 102 of the Treaty on a Functioning of the European Union.
Another argument the Local Division Mannheim considered is the need to apply both patent and competition law, which becomes apparent when considering the UPC’s exclusive jurisdiction over SEPs that are European patents with unitary effect (or European bundle patents that cannot be opted out after the expiry of the transitional period under Article 83 of the UPCA).
In Depth
LEGAL ISSUES ON INJUNCTIVE RELIEF AND FRAND CONDUCT
Unlike the position taken by the UK Court of Appeal in Panasonic Holdings Corp. v. Xiaomi Technology Germany GmbH ([2024] EWCA Civ 1143), the Local Division Mannheim emphasized that remedies in SEP cases are not limited to financial damages. Rather, regarding the Directive on the Enforcement of Intellectual Property Rights (2004/48/EC, Enforcement Directive) and the Charter of Fundamental Rights of the European Union (particularly Articles 17(2) and 47), the Court affirmed that SEP owners may also exercise their right to an exclusionary injunction provided they have acted in accordance with FRAND principles.
In this case, the Local Division Mannheim found the FRAND counterclaim to be admissible but rejected it as unfounded.
EUROPEAN LEGAL FRAMEWORK: ORIENTATION TOWARD HUAWEI v. ZTE
In accordance with Union law (Article 24(1)(a) of the UPCA), the Local Division Mannheim interpreted the CJEU’s decision in Huawei v. ZTE and considered it binding pursuant to Article 21 of the UPCA.
A SEP Owner’s Duty to Notify the Alleged Infringer
According to the principles set forth in Huawei v. ZTE, the SEP owner must first notify the alleged infringer before filing suit for an injunction. The notice should include the designation of the SEP in question and specify how it has been infringed. The specific requirements of the obligation to notify depends on the circumstances of the individual case, but with reference to national case law from the Netherlands and Germany, the Local Division Mannheim found it sufficient that Panasonic only provided claim charts for a Chinese counterpart to the asserted patent (with a reference to the patent in suit). The Court noted that any objections or misunderstandings should have been promptly raised by OPPO in its reply to the notification letter.
Contrary to the European Commission’s (EC) recent opinion, which it expressed in an amicus curiae brief filed in national infringement proceedings between other parties before the Munich Higher Regional Court (See Amicus Curiae Brief of April 15, 2024, 020078-24 MLO/DF), the Local Division Mannheim rejected a strictly formalistic step-by-step approach when considering whether the parties acted FRAND-compliant.
While the Local Division Mannheim held that Panasonic must plausibly explain why its offer is FRAND-compliant, including the relevant mathematical factors for royalty calculation, the Court clarified that a formal offer in the sense of a draft agreement is not necessarily required, especially at the beginning of negotiations.
The Criterion of the Willing Licensee
After being notified of the alleged infringement, the implementer must express its willingness to conclude a license agreement on FRAND terms. According to the Local Division Mannheim – and in alignment with the German Federal Court of Justice’s case law (See FCJ, judgment of May 5, 2020 – KZR 36/17, GRUR 2020, 961, paragraph 83) and the High Court of Justice in England and Wales (See Unwired Planet v. Huawei, EWHC 711 (Pat) paragraph 708) – OPPO must express its willingness to take a license “on whatever terms are in fact FRAND.” In this regard, the case’s circumstances must be duly taken into account.
The Local Division Mannheim agreed with the EC’s position that the initial declaration of willingness to license is the prelude to further negotiations.
Further FRAND Negotiations
Subsequent negotiations between the parties should also be assessed based on FRAND criteria. The parties’ conduct cannot be considered in isolation but must be assessed in light of their mutual interaction. In view of the fundamental objective of the “negotiation programme” developed by the CJEU, it is crucial to assess whether the parties are working toward the conclusion of a FRAND-compliant license agreement in a timely manner.
Depending on the stage of the negotiations, in the event of an impasse, the court must assess what actions a reasonable party genuinely interested in achieving a mutually satisfactory conclusion to the negotiations would take in the specific circumstances of each case.
The stage of the negotiations also plays an important role in determining the extent of the patentee’s obligation to clarify the FRAND compliance of its offer and its information obligations in general. According to the Local Division Mannheim, particularly at the beginning of negotiations, it is not necessary for the patent owner to disclose third-party license agreements. The Court explicitly held that it is “not in every case” necessary to disclose the names of the licensees and the terms of those agreements, especially if the implementer has not provided sufficient information during the FRAND negotiations. The implementer cannot demand more disclosure from the SEP owner than it is willing to disclose itself.
Further, the Local Division Mannheim emphasized that FRAND is a “corridor” that gives SEP owners some leeway and there is a range of different types of agreements, all of which can be FRAND. SEP owners are not obligated under competition law to make the cheapest offer that is still within this corridor.
OPPO’S CASE
Applying the above principles, the Local Division Mannheim concluded that Panasonic’s offer was FRAND-compliant while OPPO lacked willingness to negotiate in good faith.
Although key parts of the judgment regarding the license terms are redacted (e.g., Panasonic’s pricing), the unredacted portions show that the Local Division Mannheim placed significant emphasis on OPPO’s unwillingness to negotiate in good faith. For example, OPPO raised objections to Panasonic’s offers for the first time during litigation rather than raising them during the negotiation process. The Court based its finding of “unwillingness” on the delays during negotiations and OPPO’s failure to provide sufficient information about its products and sales of infringing articles while also making an offer limited to Europe, the United States, and Japan (rather than for a worldwide license).
PRACTICE NOTES
With its decision, the UPC strengthens the European-Union-wide harmonization of SEP jurisprudence. The Local Division Mannheim combined the principles developed by the CJEU with national approaches, especially with the German Federal Court of Justice’s case law. In line with German case law, the Local Division Mannheim also clarified that an implementer must provide adequate security if its counteroffer is rejected.
It is also noteworthy that the decision explains in detail why the UPC has competence to hear FRAND counterclaims. While a freestanding FRAND determination may not be an option, the UPC is competent for FRAND counterclaims, and there is no reason not to regard them as counterclaims within the meaning of Article 32(1)(a) of the UPCA, as the Local Division Mannheim explained.
By distinguishing itself from UK case law (where, for example, the UK Court of Appeal in the above-mentioned decision recently qualified Panasonic as an unwilling licensor in the negotiations with Xiaomi) and by considering the requirements of EU law, the UPC is beginning to establish itself as a central authority for SEP disputes and providing important guidance for practitioners. In terms of notification to the implementer, the Local Division Mannheim acted more patentee-friendly than implementer-friendly as compared to the UK Court of Appeal.
The Local Division Mannheim’s decision emphasized that FRAND terms must always be assessed in the specific context of the negotiations. Notably, the Court criticized the step-by-step approach that the EC advocated in its amicus curiae brief. According to the amicus curiae brief, activities by the parties in FRAND negotiations would be assessed sequentially in the sense that a party’s next obligations will only be triggered if the other party has fulfilled its obligations on the preceding stage of the negotiation process. In that regard, the Court’s decision was in line with the German national approach. The Court also declined to set FRAND terms, which was not necessary given that the Court found OPPO an unwilling licensee. Rather, because of OPPO’s classification as an unwilling licensee, the Court issued an injunction for Germany, France, Italy, the Netherlands, and Sweden against OPPO in favor of Panasonic.
The decision came as a surprise to many as Panasonic and OPPO had already agreed in principle to settle their global patent dispute in October 2024. However, as a final agreement had not yet been reached, the Local Division Mannheim had an opportunity to rule on the matter – but only by expediting the announcement date of its decision by two weeks (a possibility the Court had already announced after the oral hearing).
An important takeaway for SEP implementers is to raise objections against the information provided by the SEP owner as early as possible. In the present case, the Local Division Mannheim found that OPPO’s argument that the information provided in Panasonic’s notification letter was insufficient was only raised during litigation and therefore was too late.
If the Local Division Mannheim’s decision is adopted by other UPC divisions and upheld on appeal (a decision from the UPC’s Court of Appeal would bind all parts of the UPC), this would make the UPC an attractive venue for SEP owners given the possibility of obtaining an injunction with significant effect and covering multiple European jurisdictions at once.
