UPC Outlines Criteria for Assessing FRAND Defence

On 18 December 2024, the Munich Local Division handed down their decision on the merits in UPC_CFI_9/2023, the dispute concerning alleged infringement of Huawei’s patent EP 3,611,989 by Netgear Germany GmbH, Netgear Inc., and Netgear International Limited. The alleged infringement concerned the marketing and sale of Netgear’s WiFi 6-compatible routers, with Huawei declaring their patent essential to the WiFi 6 standard.

Netgear sought to rely on a FRAND defence, alleging that Huawei had not fulfilled their obligations to offer a licence on fair, reasonable, and non-discriminatory terms. Huawei had submitted both a bilateral licence offer and an offer concerning a licence to the SISVEL patent pool. Netgear argued that the bilateral licensing offer discriminated against Netgear, and argued that the pool offer could not be considered better.

Whether the offers submitted by the plaintiff were compliant with FRAND was in fact left open by the Panel, who deemed it unnecessary to decide in the present case. In reference to the ECJ Huawei v ZTE decision, the Panel explained that assessment of a FRAND defence should not solely be based on determination of licenses, but encompassed a broader assessment of behavior of the parties. The following key principles of the ECJ decision were assessed by the Panel:

1. Injury Note
   In the present case, Huawei were shown to have validly notified the defendants of the alleged infringement before bringing the action, as required by Huawei v ZTE.
2. Declaration by Defendant of Willingness to Licence 
   The defendants had submitted a request for a licence, although whether the request was sufficiently formulated was deemed unnecessary to assess in the present decision, for reasons set out below.
3. Further Behaviour of the Parties 
   The Panel deemed that Netgear had not signalled sufficient willingness to work towards conclusion of a licence agreement in their behaviour, in part because of their delaying the negotiations.
4. Offer by the Patent Holder
   Whilst often taking centre stage during a FRAND discussion, assessment of Huawei’s offers for FRAND compliance was also deemed unnecessary in the present decision, for reasons set out below.
5. Counteroffer by the Patent User, Information and Provision of Security
   In interpreting the ECJ decision, the Court highlighted that, where the alleged infringer is already using the patented teaching, they are required to provide a security and account of their usage if their counter offer is rejected. Whilst Netgear had submitted a counter-offer, they had not provided a security or sufficient information regarding their usage of the patented teaching, instead enclosing only generally available figures. The Panel deemed that as a result, Netgear had not fulfilled the requirements necessary to rely on a FRAND defence, and hence the Panel did not conduct a full analysis of the previous requirements.

As a result, Netgear could not rely on a FRAND defence. Huawei’s patent was found valid and infringed, and Netgear were found liable for infringement, with the exception of routers including a Qualcomm modem, which were found to be exempt under exhaustion of rights. 

Interestingly, whilst the Panel did not conduct a full analysis of the FRAND-compliance of Huawei’s offers, they did express their disagreement with opinions provided by the European Commission, the Higher Regional Court of Munich, and the Federal Court of Justice, that only the first offer by the patentee is to be examined for FRAND conformity. The Panel opined that requiring FRAND compliance of the first offer made was contrary to the aim of promoting genuine negotiations between parties, and would render all events after the first offer moot, and instead suggested that a patent proprietor was only obliged to have at least one licensing route satisfying FRAND requirements open to the patent user at the time of assessment.

While sidestepping a full FRAND assessment of Huawei’s offers, the Panel’s stance on evaluating licensing routes at the time of assessment, rather than fixating on the patentee’s first offer, signals a pragmatic approach to fostering fair licensing practices. This decision not only underscores the burden on implementers to actively engage in negotiations but also adds a notable perspective to the evolving European FRAND landscape.