The behavioural standard required of an implementer in fair, reasonable and non-discriminatory (FRAND) licence negotiations is evolving across Europe – that standard was recently scrutinised by the Dutch Court of Appeal in The Hague in separate judgments: Philips v Wiko and Philips v Asus.
What did the court decide?
Like other European courts, Dutch courts have strived to follow and interpret the “roadmap” provided by the EU Court of Justice (CJEU) on how holders of standard essential patents (SEPs) and implementers should behave during FRAND licence negotiations.
In Philips v Wiko and Philips v Asus, the Dutch Court of Appeal provided guidance on that roadmap. Specifically, the court considered that an SEP holder enforcing its SEP would not immediately and necessarily abuse its dominant position if it failed to comply precisely and fully with the CJEU’s map. Rather, the steps set out by the CJEU in Huawei v ZTE should be understood as guidelines for bona fide negotiations between the parties. This approach is in line with Birss J’s Unwired Planet v Huawei decision in the UK.
Like the German Supreme Court in Sisvel /Haier (see our blog post here), in Philips v Wiko and Philips v Asus, the Dutch Court of Appeal focused much of its attention on whether an implementer had in fact behaved like a willing licensee. In the German case, the Supreme Court considered that a licensee would only be considered willing if it purposefully participated in licence negotiations with an SEP owner. In the same spirit, the Dutch court clarified that it is not sufficient for the implementer merely to express its willingness to conclude a licence, if that willingness is not actually demonstrated.
In the Dutch cases, the court eventually saw through the implementers’ behaviour: Wiko and Asus only acted out as if they were willing (but they weren’t really). There were various flags that put the court on alert:
- the implementers had not shown any initiative to set up meetings themselves;
- the implementers repeatedly requested technical meetings with the SEP holder (Philips) and when Philips consented to such meetings, subsequently they did not bring to those meetings representatives who possessed the right level of expertise;
- each time, the implementers ended the meetings after (only) a few hours, meaning that a discussion about FRAND licence terms could not take place and a follow-up meeting had to be scheduled; and
- the implementers failed to follow-up and answer the questions raised by the SEP holder during the meetings, in particular with regard to FRAND licensing terms.
The willing licensee – past, present and future
Comparing these decisions with the way in which the Dutch courts have previously approached FRAND cases, there has been a shift in the standard of behaviour required of an implementer in FRAND licence negotiations:
In the past, many implementers have, if not completely ignored requests by SEP holders for FRAND licence negotiations, adopted a passive attitude. If negotiations could not be postponed for longer, implementers have tried to delay the negotiations as much as possible and/or limit them to technical discussions, rather than FRAND discussions. Many implementers changed this behaviour (somewhat) after the CJEU’s Huawei v ZTE decision, which made it clear that implementers needed to adopt a more active attitude. However, some of this typical pre-Huawei v ZTE behavior could still be seen in the way Wiko and Asus reacted to Philip’s efforts to conduct licence negotiations.
At present, most implementers have started to follow the CJEU’s roadmap, which in principle requires them to express willingness to enter into a FRAND licence in a timely manner, and then make a counter-offer and offer security in a timely manner. Many implementers (still) believe that if they follow these steps, they will automatically be deemed willing. However, as can be seen from the Philips v Wiko and Philips v Asus judgments, this is not necessarily the case anymore. Most implementers’ behavior is currently more active than in the past, but it is still predominantly responsive to what the SEP holder is doing.
In the future, a more “pro-active” attitude of the implementers is to be expected. As can be seen from the Dutch judgments, an attitude that is considered too passive or responsive may be interpreted by the Court as a sign that the implementer is unwilling. Simply giving in to (technical) meetings is no longer sufficient; nowadays it is required that implementers themselves also take the initiative to hold such meetings. In addition, the meetings should then not only be about the technical aspects of the case. This is likely to be the new standard against which future FRAND cases will be decided in The Netherlands.
Negotiators: plan ahead
While implementers are (still too) often inclined or even encouraged to apply delaying tactics during negotiations, resulting in an often lengthy “FRAND dance”, the more sensible approach is to adopt a pro-active stance. Although it is, of course, still advisable to align the negotiations with the “guidelines” set out by the CJEU in Huawei v ZTE, implementers and their legal advisors should be aware that simply following these steps does not guarantee that they will be seen as willing.
An additional warning is in order here: long negotiations are not necessarily a sign of the implementer’s willingness to negotiate in good faith. On the contrary, a lengthy FRAND process may even increase the risk of the implementer being labelled unwilling. Because all circumstances are taken into consideration by the court, lengthy negotiations may, rightly or wrongly, contribute to the impression that the implementer is not really willing. What is clear is that courts will have little sympathy for implementers who use delaying tactics – as our German colleagues pointed out further to Germany’s Supreme Court ruling, implementers should adopt a solution and goal-driven approach in their negotiation.
Implementers are therefore advised to go through the negotiations with a well thought-out negotiation plan. Naturally, Freshfields’ lawyers are happy to assist in drawing up such a plan.