In short, the court grants Panasonic’s claims for damages and a prohibition of Oppo's 4G-enabled smartphones and smartwatches on the European markets in scope, subject to penalty payments. The decision offers critical insights for both SEP holders and alleged infringers worldwide.
In Schedule one, we have included an indicative overview of the FRAND licensing requirements applied by the UPC in Panasonic v. Oppo. Below, we summarize the judgement before delving into its SEP and FRAND aspects in-depth.
Summary
In summary, the court follows the negotiation program set by the pivotal decision of the Court of Justice of the European Union (CJEU) in the case of Huawei v. ZTE. Generally speaking, the UPC’s assessment of each step of this program is essentially based on the parties’ behavior rather than a proper economic assessment of whether the proposed rates are FRAND or not, which seems to be predominantly inspired on the German practice. The present approach also leaves space for negotiation between parties without undue formalism, while ensuring a balance between the interests of the SEP holder, such as the respect of other third-party licensees, as well as the implementer’s, who is encouraged to request clarification and challenge the SEP holder’s (counter-)offers. Below, we discuss key considerations from the UPC's judgement in Panasonic v. Oppo:
- The court generally follows the requirements laid down by the CJEU in the case of Huawei v. ZTE.2
- The court dismissed various interpretations of FRAND licensing by the European Commission (EC) in a recent ‘amicus curiae’ observation letter and refused a referral request to the CJEU for a preliminary ruling.3
- The ‘willingness to license’-requirement is assessed based on an overall view of both parties’ conduct throughout the CJEU’s negotiation program, contrary to the EC’s view that only the stage of the initial declaration is relevant for this assessment.
- Both the SEP holder and implementer are generally required to cooperate to achieve the timely conclusion of a FRAND license agreement through targeted negotiations on a primarily private-autonomous basis, leaving little room for formalistic defenses based on substantial FRAND requirements.
- Various SEP licensing terms can qualify as FRAND, but terms may not deviate unjustifiably from established benchmarks, typically derived from the SEP holder's own comparative licenses or from comparable licensing arrangements discussed in court decisions.
- The court pushed for a global FRAND license rate in line with customary business practice.
- Dutch, English, and German national case law are used to interpret the requirements laid down in Huawei v. ZTE, but the Orange-Book case law of the German Federal Court of Justice is rejected.
It is currently uncertain whether the judgment will be appealed, as the parties seem to have agreed on a nearly final settlement, based on media articles.4
Case overview
Background
Panasonic Holdings Corporation (Panasonic) accused Guangdong OPPO Mobile Telecommunications Corp. Ltd. (Oppo) and its German subsidiary OROPE Germany GmbH (Orope) of infringing European Patent No. EP 2 568 724 B1 (Patent). This Patent pertains to radio communication devices and methods essential to the 4G standard, dealing with a solution to a technical problem in the context of the Long Term Evolution (LTE) standard. The Patent was filed on August 13, 2008, claims the priority of both JP 2007211548 dated August 14, 2007 and JP 2008025535 dated February 5, 2008, and was granted on December 17, 2014.5
Panasonic sought injunctive relief, recall, damages, and other remedies. Oppo and Orope countered with a claim for revocation based on the alleged invalidity of the Patent and a FRAND defense, arguing that Panasonic had failed to offer a license on FRAND terms. Alternatively, the defendants sought a court-determined FRAND license, by formulating several auxiliary claims in that respect.
Validity and infringement
The court dismissed OPPO's arguments regarding the invalidity of the Patent, affirming its validity and enforceability. The ruling addressed various formal and substantial legal arguments, such as the alleged lack of novelty and inventive step. Additionally, the court held that the defendant's 4G-enabled smartphones, like the OPPO Find X5 Pro, and 4G-enabled smartwatches directly and indirectly infringed Panasonic's Patent, rejecting the defendants’ non-infringement arguments, including those based on proportionality considerations.
The core of the case revolved around FRAND licensing obligations and the defendants' antitrust defense. The court's analysis of these issues offers valuable insights into the application of FRAND principles under the UPC framework, which we explain below.
Quick introduction on SEPs and FRAND
Before examining Oppo and Orope's FRAND defense, we briefly explain concepts important to understand the SEPs and FRAND licensing.
- Standard Essential Patents (SEPs) are patents that are indispensable for complying with a specific industry standard, which are generally set by industry-wide private bodies known as standard setting organizations (SSOs). Unlike regular patents, manufacturers cannot design around SEPs without sacrificing key functionalities. This makes SEPs crucial for ensuring interoperability and standardization in various industries.
- Patent holders who have participated in the standard-setting process are generally required to license their SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. This obligation arises from European competition law, which aims to prevent anti-competitive practices and ensure fair access to essential technologies.
- Huawei v. ZTE’s negotiation program. The Court of Justice of the European Union’s (CJEU) case of Huawei v. ZTE dated July 16, 2015, serves as a framework concerning FRAND licensing litigation. The case concerned a European patent of Huawei covering a telecommunications device essential to the LTE standard, as established by the European Telecommunication Standards Institute (ETSI), an SSO. Under ETSI rules, Huawei was under an irrevocable obligation to grant licenses on FRAND terms to third parties. In 2010, FRAND licensing negotiations between Huawei and ZTE, another LTE patent holder, failed, leading Huawei to file an infringement action. ZTE countered with a defense based on Huawei's alleged breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU) concerning abuse of a dominant position.
- In summary, the CJEU confirmed that holding an SEP does not automatically imply a dominant position under European competition law, but there is a presumption that such a position may be dominant in the relevant market. The CJEU emphasized that a commitment to grant licenses on FRAND terms creates legitimate expectations among third parties. Therefore, refusing to grant a license under these conditions could constitute an abuse of a dominant position. However, the CJEU stressed the need to balance the protection of intellectual property rights, as guaranteed by Article 17(2) of the Charter of Fundamental Rights of the European Union, with compliance with competition rules. To achieve this balance, the CJEU ruled that an essential patent holder subject to FRAND conditions must meet specific requirements to bring an infringement action based on an SEP without being accused of abusing a dominant position. Please refer to Schedule one for an overview of the requirements, as applied by the UPC in Panasonic v. Oppo.
UPC’s assessment of FRAND requirements
Turning back to the judgement of the UPC’s Local Division of Mannheim. Therein, the court ruled in short that Panasonic complied with its obligations under the CJEU's negotiation framework established in Huawei v. ZTE. The court found Oppo and Orope's FRAND defense based on abuse of dominant position admissible but unfounded, reasoning that they behavior was not FRAND-compliant. Below, we discuss the court's reasoning.
Adherence to CJEU requirements
The court emphasized the importance of following the CJEU's guidelines in Huawei v. ZTE, based on Article 102 TFEU. The court did not deem it necessary to refer this case to the CJEU for a preliminary ruling under Article 267 TFEU, reasoning that the case-specific questions could be resolved by applying the CJEU's established principles. The court stressed its commitment to applying Union law fully and respecting its primacy, noting that while it can consider the EC's views (included in a recent observation letter), they are not binding.
FRAND licensing requirements
Below, we will discuss the five FRAND licensing requirements that the UPC applied in its judgement, based on the CJEU’s decision in Huawei v. ZTE.
Notification obligation for SEP holder
The court held that the SEP holder must inform the alleged infringer of the patent infringement specifying the way in which it has been infringed. Sending a list of SEPs and claim charts, including the asserted patent(s), is sufficient for this purpose. Deciding otherwise based on formalistic objections would not in accordance with customary business practice.
Accordingly, the court rejected the EC's formalistic view that a formal reference to the infringement analysis must be included in the notification letter. It also dismissed the defendants' arguments that (a) the notification was insufficient for the comprehensibility of the infringement allegation, which Oppo and Orope lately raised at the oral hearing for the first time, and (b) the same EC’s formalistic position as above, noting that the claim charts sent by Panasonic – which concerned a Chinese patent with broader claims in the Patent’s same family – referenced the Patent.
Willing licensee
The court then assessed whether the alleged infringer expressed willingness to conclude a licensing agreement on FRAND terms. Contrary to the EC’s view to limit the assessment of the “willingness to license”-requirement only to the stage of the initial declaration, the court introduced the need for a “willingness to license” based on the conduct of both the SEP holder and the alleged infringer throughout the CJEU’s negotiation program (see Schedule 1 for further information): the conduct of both parties – also after the implementer’s initial declaration – must be assessed according to whether it takes sufficient account of the fundamental objective of the CJEU's negotiation program to achieve the timely conclusion of a FRAND license agreement in targeted negotiations on a primarily private-autonomous basis. Now, this requirement results in obligations to be concretized at each stage of the negotiations; as can be seen, in the present case, whilst Oppo fulfilled step 2 “willingness to license”, it did not fulfill step 4 “FRAND counter-offer”. In practice, the court considers that the depth of the court's examination of the SEP holder’s conduct is largely based on which points the alleged infringer has objected against in their negotiation process and, conversely, which information the alleged infringer has made available to the SEP holder to make the alleged infringer an offer tailored to his circumstances. Objections raised only during the proceedings before the court against the background of the threatened injunction alone are not sufficient.
In the present case, the court held that Oppo and Orope's initial willingness to take a license was sufficient to start negotiations, as they made a declaration in an email to Panasonic and named a specific contact person for further discussions, which Panasonic did not object.
FRAND-compliant offer
The Mannheim Local Division of the UPC assessed whether the SEP holder has presented a FRAND-compliant license offer. It held that the SEP holder must plausibly explain why its offer is FRAND-compliant so the alleged infringer can respond in good faith. In particular, while a statement on the mere mathematical factors with which the SEP holder calculates the license fee when submitting his offer is insufficient, the extent of the explanations depends on the negotiation stage. The court further stressed that both sides are interdependent on each other’s economic data to agree on license terms that are FRAND-compliant (and tailored to the implementer’s circumstances).
In the present case, Panasonic initially provided economic cornerstones of a license offer in a virtual meeting and subsequently provided slides including (top-down) analysis of royalty mechanics.
The court dismissed the defendants’ defense that these statements are not yet to be regarded as an initial offer because a written contractual offer would be required. Indeed, this would deviate from customary business practice, which is to first clarify central economic points before providing a complete draft agreement ready to be signed. According to the court, a patent user negotiating in good faith in the direction of a FRAND license would use the elements initially provided to progress the negotiations, without a written agreement being needed unless requested by the alleged infringer.
The court also ruled that there was no need for Panasonic to provide more information, and in particular third-party license agreements for comparison purposes, at the stage of the first presentation. Indeed, the decision points out that third-party licensees have a legitimate interest in keeping their agreements confidential. Accordingly, the SEP holder is not obliged to make such figures accessible if it is still open whether the implementer is discussing seriously and in accordance with the FRAND requirements. The court derives this reasoning from a general principle that the SEP user cannot request more information from the SEP owner than it is prepared to disclose itself.
It is also possible for the SEP holder to make certain concessions in relation to the initial offer without this being held FRAND-incompatible.
The court further held that the defendants’ objection against Panasonic’s economic framework by submitting a private expert opinion at the stage of the infringement proceedings cannot replace their obligation to co-operate.
Since the defendants only provided third-party economic data from IDC, a data broker, instead of data about their own acts of use concerning the technology protected by the Patent (e.g. based on sales figures), amongst others, the court ruled that Panasonic was not required to submit its license agreements with third parties to the defendants for comparison purposes (being noted that Panasonic subsequently provided settlement license agreements upon request of the court).
Based on the respective circumstances of the negotiations, the court ruled that Panasonic’s last submitted offer was FRAND compliant. This because Panasonic, in the court’s view, (i) used objective criteria to justify why it supported and changed the economic position taken during the respective negotiation stages, and (ii) explained its considerations in such a way that a willing licensee is able to comment on the content.
In sum, the court assessed whether Panasonic’s offers were FRAND-compliant mainly based on both parties’ behavior and the elements and methodology underlying these offers. Interestingly, while the court did not carry out a full economical assessment of the FRAND-ness of the license rates at stake, it nevertheless held that Panasonic’s offers appear to be FRAND-compliant in view of the elements on file, in particular third-party licenses. In this respect, the approach of the court slightly deviates from the German practice.
Lack of FRAND-compliant counteroffer
The court held that the alleged infringer must always respond to the SEP holder’s offer and at least provide its objections against this and request improvements, except in extreme circumstances.
In the present case, the court held that Oppo and Orope’s counteroffer with a lump sum global flat-rate license fee, which was solely based third-party economic data disputed by Panasonic and not their own economic data, was not FRAND-compliant. Key factors for this view are the court’s considerations that (i) the defendants seemed unwilling to negotiate in good faith, (ii) used contradictory arguments without sufficient grounds and (iii) refused providing their economic data on the acts of use such as sales figures (thereby delaying the negotiations). However, the court’s full reasoning remains unclear because of removed paragraphs in the judgement (presumably based on confidentiality considerations).
Sufficient security
The court held that the implementer must provide the SEP holder with information to assess the scope of actual use after rejecting the offer, reasoning that this is the only way for the SEP holder to check if the security offered is sufficient. The court agreed with Panasonic's objections that the guarantee's wording was insufficient and questioned its insolvency-proof nature.
Global FRAND rate
Through a counterclaim in the alternative, Oppo and Orope formulated several claims for setting the terms of a FRAND license, which the court all dismissed.
The court rejected the defendants’ request for a lump sum global license fee based on IDC data, as it was not calculated based on their own acts of use, reasoning this is not FRAND-compliant based on CJEU case law.
Furthermore, the defendants requested a partial determination of the license rate for certain global regions, requesting a lump sum licence fee for the acts of use in (a) the contracting states of the European Patent Convention, Japan and the USA determined by UPC based on the same IDC data, and (b) China determined by the Beijing Intellectual Property Court. The court rejected this counterclaim because it would not be FRAND-compliant, arguing that this deviates from customary business practice. This because (i) the counterclaim would leave core points of the contract open, (ii) the parties ultimately agreed that a comprehensive dispute resolution through a global FRAND rate determination matches with customary business practice, and (iii) the defendants did not put forward any arguments that could justify a partial determination of the licence rate only for certain global regions, whereby the court regarded the mere reference to the greater local proximity of a (Chinese) court to the respective submarket insufficient.
It is worth noting that the court also dismissed auxiliary group of claims III, although some of them were not directed to rates based on IDC data and/or limited to specific regions, for the mere reason that Oppo and Orope did not behave in accordance with the requirements of the CJEU case law. Accordingly, it can be inferred that the court would refuse to set a FRAND rate if one party did not act in a FRAND-compliant manner. Therefore, we wonder whether the court would accept to set a FRAND rate when both parties have acted act in a FRAND-compliant manner, also considering that the court explicitly states that this question can be left open. If the court did not close the door of a FRAND rate determination, it remains to be seen whether the UPC will use this opportunity in the future.
Indicative overview of FRAND requirements applied by UPC in Panasonic v. Oppo
Notification SEP holder
- No requirement to clear the way, even if implementer already uses SEP
- Reference to patent is suit sufficient if claim chart to family member included
- Claim charts of enforced SEP are always sufficient
Willing implementer
- Implementer must express willingness to conclude FRAND licence
- Assessed against overall view together with the conduct of SEP holder, its offer and especially the implementer's objections thereto
- Reciprocal obligation to negotiate to achieve timely conclusion of FRAND licence in targeted negotiations on primarily private-autonomous basis
FRAND offer SEP holder
- Offer must be FRAND-compliant. Various licence terms can qualify as FRAND, if not deviated unjustifiably from established benchmarks typically derived from SEP holder's own comparative licences discussed in court decisions
- Considering the negotiation state, SEP holder must make plausible why it believes the offer is FRAND-compliant, so implementer can react in good faith ("specifying (...) the royalty and the way in which it is to be calculated")
FRAND counter-offer
- Implementer must respond diligently to offer according to customary business practices and in good faith, without delaying tactics
- If not accepted, then prompt, specific and written counter-offer required which must be FRAND-compliant, otherwise no FRAND-defense
Rejection
- If counter-offer is rejected and SEP use is continued without Licence, then implementer must provide (i) sufficient security (e.g. bank guarantee or deposite) and (ii) render accounts re. SEP's past acts of use (i.e. sales data of the implementer's actual use of the SEP)
Footnotes
1. The decision was issued by the presiding judge and judge-rapporteur Prof. Dr Tochtermann, the legally qualified judges Böttcher and Brinkman and the technically qualified judge Loibner.
2. CJEU July 16, 2015, ECLI:EU:C:2015:477 (Huawei v ZTE) C-170/13.
3 European Commission’s amicus curiae letter to the Munich Higher Regional Court in HMD v. VoiceAge dated April 15, 2024 under 02007824 MLO / DLF.
4. For example, see Klos, Juve Patent, Oppo infringed Panasonic SEP says local division Mannheim in first FRAND ruling, dated November 22, 2024 (link).
5. The Patent is in force, inter alia, in the Federal Republic of Germany, the French Republic, the Italian Republic, the Kingdom of the Netherlands and the Kingdom of Sweden.
