On 22 November 2024, in a case between Panasonic and OPPO, the Mannheim Local Division (LD) of the Unified Patent Court (UPC) handed down the first ever full-fledged substantive decision on the licensing of standard essential patents (SEPs) on Fair, Reasonable and Non-Discriminatory (FRAND) terms. The UPC had already dealt with FRAND cases in the context of procedural orders. Below we provide a brief overview of these developments, which are relevant to both SEP holders and implementers.

LD Mannheim decision

This case is part of a large patent enforcement campaign by Panasonic against OPPO and Xiaomi that started in 2023, with Panasonic invoking several SEPs relating to the 3G and 4G telecom standards. In the court's decision, which deals with one of the patents invoked (EP 2 568 724), the LD Mannheim ruled in favour of patentee Panasonic and granted an injunction.

The fact that the decision was issued at all came as a surprise. Although a three-day hearing had taken place in October, all cases between Panasonic and OPPO (and between Panasonic and Xiaomi) had reportedly been settled afterwards. Apparently, the settlement was not fully finalised (or at least not processed by the court) and the decision was nevertheless handed down. The LD panel consisted of presiding judge Tochtermann, legal judges Böttcher and Brinkman, and technical judge Loibner.

Key takeaways

Before arriving at the FRAND element of the decision (which is partially redacted for confidentiality purposes), the court found that the SEP invoked by Panasonic was valid and had been infringed. The court then turned to OPPO's FRAND defence and examined the facts of the case within the context of the landmark ruling of the Court of Justice of the European Union (CJEU) in Huawei/ZTE. That ruling provides a framework to assess if a SEP holder seeking injunctive relief against an alleged infringer might be abusing a dominant position (article 102 TFEU). The Huawei/ZTE ruling also provides a series of steps to be followed by an SEP holder and alleged infringer (also known as the "FRAND dance").

The following are some key points from the recent LD Mannheim decision:

Infringement notice (step 1 of Huawei/ZTE)

The court found Panasonic's infringement notice to OPPO to be sufficient, despite the infringement notice containing a claim chart of the Chinese part of the patent family. It seems, however, that the relevant European patent was referred to in the claim chart as well as in an updated list of patents sent (paras. 195, 206).

Expression of willingness (step 2 of Huawei/ZTE)

The court found that when assessing if there is willingness to license on FRAND terms, it is not necessary to insist on certain wording in the declaration, as such wording does not provide insight into the actual intention of the implementer. The court felt that in the present case, there were no circumstances that would show, at that point in time, that OPPO's declaration of willingness was insufficient to serve as a starting point for further negotiations (para. 207).

SEP holder to provide FRAND offer (step 3 of Huawei/ZTE) and the counteroffer by the implementer (step 4 of Huawei/ZTE)

The court frowned at the refusal by OPPO to provide certain information on the extent of its use. Instead of doing this, OPPO referred to information by IDC (an economic data services provider), which – according to the court – did not provide the necessary information on actual use. The court did not accept OPPO's argument that also the plaintiff used IDC data, among other factors, because third party licence partners have a legitimate interest in confidentiality (para. 202).

Under these circumstances, the court rejected OPPO's argument that Panasonic, in its offer, had not provided OPPO with a full-fledged licence agreement, but only with basic economic terms. The court noted that the SEP holder's offer should represent a constructive starting point for further negotiations towards concluding a FRAND licence agreement. The precise contractual terms in complex patent licence agreements must be adapted to the economic terms (para. 213).

Moreover, under these circumstances and at that time, Panasonic also did not have to disclose licence agreements that it had concluded with third parties for comparison purposes (para. 216).

The court further held that competition law does not oblige the SEP holder to offer the lowest rate possible (para. 224). The offer cannot, however, deviate in a way that is unjustifiable in specific circumstances.

The court then looked at whether OPPO's counteroffer was FRAND or not. More generally, the court ruled that OPPO had not acted in good faith, and attributed weight to – among other factors – the fact that OPPO had initially requested the court to set a FRAND rate only for EPC-contracting states, the US and Japan; and this was maintained in its alternative claims (even after an amendment of its main claim to request a global lump sum). As part of this, OPPO asked (in its first alternative claim) that the main part of the licence (including for sales in China) be determined separately by a Chinese court. The court found this to contradict OPPO's argument that a FRAND rate should be determined globally. Also, the court found that bringing FRAND rate determination proceedings for sub-regions of the world before different courts in the world between whose states there are no treaties establishing a priority order between the courts seized, is not in line with a party working in good faith towards the conclusion of a licence agreement. This further complicates an already complex situation (para. 230-235).

Jurisdiction to hear counterclaim

Finally, the court assumed jurisdiction for the counterclaim filed by OPPO aimed at determining a FRAND licence. It referred to article 32(1)(a) UPC Agreement, which reads that the UPC has exclusive jurisdiction over "actions for actual or threatened infringement of patents (…) and related defences, including counterclaims relating to licences". According to the court, this includes not only disputes relating to existing licences to a patent, but also to actions aimed at concluding a licence. However, the court rejected OPPO's counterclaims for substantive reasons (referring to factors regarding OPPO's conduct).

European context

The UPC decision in Panasonic/OPPO comes at an interesting moment. The European Commission ("EC") had earlier in 2024 submitted an amicus curiae brief in German proceedings in HDM/VoiceAge, taking a critical view at the approach taken by German national courts after the Sisvel/Haier decision (an important German post-Huawei/ZTE decision). The LD Mannheim referred to this brief and notes in a general sense, stating that the Commission's view - although not binding on the UPC as an independent court - could be taken into account (para. 190). On several points, however, that view seems to deviate from the approach taken by the LD Mannheim. For instance, the Commission is of the opinion that strict requirements apply to step 1 of Huawei/ZTE and thus to the contents of the infringement notice, see part D, II.2 of the amicus curiae brief. The LD Mannheim, however, clearly rejected a "formalistic" interpretation of this step and held that Huawei/ZTE left it up to the courts of EU member states to decide on a case-by-case basis (para. 194).

As to the assessment of the implementer's willingness, the EC took the position that this was not to be based on behaviour after the declaration of willingness (Part D, III.2 of the amicus curiae brief). The LD Mannheim felt that, although the seriousness of the initial declaration of willingness must be assessed on the basis of the immediate circumstances accompanying it, the behaviour of both parties during subsequent negotiations should not be excluded from this assessment. The SEP holder and the implementer should rather conduct themselves in accordance with commercial practice and they should work in good faith towards the conclusion of a licence agreement (para. 201).

In view of the changes in the Commission and in parallel to the developments above, the status and timing of the Commission's Proposal for a SEP Regulation that we reported on earlier this year is currently unclear.

Furthermore, in the UK, the Court of Appeal recently ruled (in the case between Panasonic and Xiaomi) that Panasonic is in breach of its good faith obligations by pursuing an injunction against Xiaomi in foreign courts. The reasoning was that both Panasonic and Xiaomi had asked the English court to determine the FRAND terms for a global licence. Although Panasonic had initially indicated that it would not enforce any injunctions obtained in parallel foreign proceedings pending that FRAND determination, it later changed its position. The Court of Appeal ruled that under these circumstances, a willing licensor would grant Xiaomi an interim licence pending the final FRAND determination by the English court.

Other UPC decisions (procedural)

Before the Panasonic/OPPO decision, the UPC had already handed down some relevant procedural decisions in the context of FRAND cases. We briefly discuss these below.

Production orders

The Court of Appeal, again in a case between Panasonic and OPPO, ruled that a request to order the production of evidence is also available to defendants. The court furthermore stated that it was still too early stages in the case to allow the request as it did not meet the requirements of necessity and proportionality. However, this assessment could be different at a later stage of the proceedings, especially if the adjudication reaches the stage when FRAND rates are addressed.

Furthermore, in Panasonic/Xiaomi, Panasonic requested and obtained an order against itself compelling it to submit licence agreements. This could, for example, be needed if the licence agreement provides that it is confidential and may only be disclosed by court order.

Confidentiality

As noted above, the question of confidentiality is often an issue in FRAND cases. The UPC has provided some guidance on the submission of confidential documents and the creation of confidentiality clubs. In some cases, a two-step process has been created. For example in Avago/Tesla, first, the UPC representatives of the counterparty are to get access; second, specific individuals can be named. Next, there will be the opportunity to respond by the party requesting the confidentiality regime. Similarly, in a more detailed manner, the LD Mannheim created a process in Panasonic/Oppo.

Looking ahead

The question is whether, given that the parties reached a settlement, Panasonic/OPPO will go to the Court of Appeal of the UPC. In any event, other FRAND decisions are expected to be handed down soon, such as by the LD Munich in Huawei/Netgear. Recognising the factual differences between the cases, it remains to be seen whether a similar approach will be adopted to that in the Panasonic/OPPO decision, or whether the LD Munich will adopt another approach.

These recent developments show that the UPC is open to handling large FRAND cases, rule on them quickly, and deal with related aspects (for example, production orders, and confidentiality) in a practical manner.