The Munich Higher Regional Court issued a decision concerning the fair, reasonable, and nondiscriminatory (FRAND) negotiation process and an implementer’s obligation to provide security if a license offer for standard essential patents (SEPs) is rejected. HMD Global v. VoiceAge, Case No. 6 U 3824/22 Kart, (Judgment of 20 March 2025).
In this case, the Munich Higher Regional Court attempted to fill a gap left by the Court of Justice of the European Union (CJEU) in Huawei v. ZTE regarding an implementer’s obligation to provide adequate security for royalties. This obligation arises when an implementer rejects a SEP holder’s license offer and the SEP holder rejects the implementer’s counteroffer, so there is no agreement on a license.
The Munich Court found that the implementer, HMD Global, provided an inadequate security that was based on HMD Global’s lower counteroffer. The Court explained that it is the SEP holder’s, here VoiceAges, final offer (i.e., the requested royalty) that is determinative for calculating the security amount that an implementer should provide. This is because a willing licensee must accept the SEP holder’s offer if a court declares it to be FRAND and the royalties subject to this offer must be covered by the security. The Court emphasized that an implementer can only establish that it is a willing licensee by making a counteroffer and providing adequate security after rejecting the offer.
However, the Munich Court left open the issue of whether security must be provided if the SEP holder’s final offer is obviously not FRAND, noting that there may be “special cases” where the SEP holder’s final offer may not be determinative of the security without further defining those cases.
The CJEU’s Guidelines to FRAND Negotiations Are Not a Rigid Set of Rules
The Munich Court also took a critical stance in response to the European Commission’s amicus curiae brief and found that the FRAND guidelines set by the CJEU in Huawei v. ZTE are not to be viewed as a rigid set of rules but rather as a “dynamic concept for negotiation.” A court is not limited to assessing the FRAND defense by strictly examining in sequence each step of the CJEU’s guidelines, which includes the following:
- The SEP holder must send a notice of infringement to the implementer.
- The implementer must declare to be a willing licensee.
- The SEP holder must make a FRAND offer.
- If the offer is not FRAND, the implementer is allowed to reject it but must make a counteroffer.
- The implementer must provide adequate security for royalties if the SEP holder rejects the implementer’s counteroffer.
The European Commission argued that a court must examine each step before moving on to the next one. This means that, for example, once a court has found that the implementer is a willing licensee, the court must leave the implementer’s subsequent (possibly non-FRAND) conduct out of consideration and cannot undermine the implementer’s established willingness to take a license. A court must then assess whether [...]
Continue Reading
read more