Modern technical standards, especially those in telecommunications, often can only be implemented with the use of patented inventions. Therefore, application of such technical standards requires the use of so-called standard-essential patents. If a proprietor of such a standard-essential patent brings patent infringement claims against an infringer on the basis of respective standard implementation by said infringer, then an antitrust objection in the sense that said proprietor abuses his dominant market position could be raised in defence by said infringer (Article 102 AEUV, AEUV- The Treaty on the Functioning of the European Union; or Sections 19, 20 GWB, GWB – German Act Against Restraints of Competition).
The Federal Court of Justice (BGH) outlined the conditions of such abuse for standard- essential patents in its keynote judgement “Orange-Book-Standard” some years ago (BGH, judgement of 6/5/2009 – KZR 39/06). Since then an assertion of such a patent infringement is considered abusive if a proprietor refuses to enter a license agreement with a patent infringer on non-discriminatory and non-obstructing conditions (so-called FRAND-conditions). The Federal Court of Justice accepted an abuse of the dominant position of the patent proprietor only if an infringer as a prospective licensee made an unconditional license offer to the patent proprietor, which the patent proprietor could not reject without violating antitrust regulations. If the prospective licensee considers the license conditions offered by the patent proprietor to be excessive or abusive or if the patent proprietor refuses to define a license fee, then it is sufficient to make a license offer according to which the patent proprietor is to define a license fee on the basis of reasonable discretion.
However, the form in which such an offer can be properly made is largely unclear. The Court of Appeals of Karlsruhe (OLG Karlsruhe) specified the requirements for such license offers in its two recent decisions (judgements of 23.1.2012 and 27.2.2012 – both in re 6 U 136/11). In essence both aforementioned proceedings we concerned with two questions:
1. Firstly, should the patent proprietor accept license offers comprising no terms regulating potential consequences of a future offensive legal action by the licensee against the licensed IP?
With reference to Article 5 para. 1 lit. c of the Commission Regulation (EC) No 772/2004 on Transfer of Technology the Court of Appeals of Karlsruhe ruled that the patent proprietor is not obliged to accept such offers. Furthermore, patent licensing contracts are abusive if they comprise an obligation of the licensee not to legally challenge the licensed IP. However, the patent proprietor can reserve a right to dismiss the license agreement in such a case. The Court of Appeals of Karlsruhe ruled that although the patent proprietor could not behave anti-competitively, his interests also need to be taken into the account (judgement of 23/1/2012, paragraph 28 et seq.).
2. Secondly, is a permissible license offer to be considered unconditional, if the prospective licensee reserves a right to deny the infringement?
According to the Federal Court of Justice an antitrust objection of compulsory license is not to be accepted if the license offer was given conditionally, particularly under a condition that the court finds a patent infringement (BGH, judgement of 6/5/2009 – KZR 39/06, paragraph 32). Based on the above the Court of Appeals of Karlsruhe comes to the conclusion that a license offer should be formulated in such a way that in case of acceptance of such an offer, a licensee is not entitled to dispute an obligation to cease and desist as well as to compensate damages (for example through private prior use or through exhaustion; cf.: Court of Appeals of Karlsruhe, judgement of 27/2/2012, paragraph 34). However, the foregoing does not apply if the licensee reserves a right for re-assessment of the amount of the license fee. In this connection the Court of Appeals refers to the possibility of determination of the license fee on the basis of reasonable discretion. In any case a licensee should have a possibility to get a license fee re-assessed by court decision under 315 Abs. 3 BGB (BGB, German Civil Code).
In summary, according to the Court of Appeals of Karlsruhe the following points are to be considered for the licensee’s FRAND-offer under German Law:
- A proprietor of a standard-essential patent can reserve a right to reject a FRAND-license agreement in case of an offensive legal action by a licensee directed at the licensed IP.
- A party seeking a FRAND-license cannot reserve a right to be entitled to dispute an obligation to cease and desist as well as to compensate damages.
- A party making a FRAND-license offer is not obliged to abandon the right get the license fee re-assessed in the license offer. Although he is obliged to pay, he has the right to get a license fee re-assessed by court decision under 315 Abs. 3 BGB.