In With the New? Not So Fast: The UPC’s First SEP Ruling Aligns With German Precedent

To date, the Unified Patent Court (UPC) has not held a trial involving standard-essential patents (SEPs). However, the new forum’s Mannheim Local Division has now authored its first SEP-specific order in a case between Panasonic and Xiaomi. The decision aligns with SEP precedent set in German courts by underscoring the significance of transparency in the context of SEP licensing negotiations. Specifically, it orders Panasonic to produce numerous SEP licenses it has with third parties not involved in its litigation against Xiaomi. In a world where the negotiating and licensing actions of SEP owners and implementers are retroactively scrutinized to determine whether they complied with FRAND principles, this decision edifies that existing SEP contracts with third parties are highly relevant. Further, such prior licenses may be used in SEP litigation at the UPC to inform whether either parties’ behavior complied with its FRAND obligations. If SEP precedent in German courts serves as a bellwether for how the UPC plans to approach disputes, SEP owners would be wise to consider the UPC—in particular, its local German divisions—as a strategic forum when seeking to resolve licensing disputes. 

Background: In July 2023, after years of negotiations, Panasonic launched global patent assertions against two Chinese SEP-implementers: Xiaomi and Oppo. Panasonic filed a total of twelve lawsuits against both implementers at the UPC local divisions in Mannheim and Munich. All asserted patents in the lawsuits relate to the WCDMA and LTE telecommunications standards. To date, the Panasonic campaign is the most extensive series of SEP lawsuits at the Unified Patent Court. 

Decision: On April 30, the UPC’s Mannheim Local Division authored a notable decision in one of Panasonic’s cases against Xiaomi. In the decision, the presiding judge underscored the significance of transparency in the context of SEP licensing disputes by ordering the production of existing SEP licenses that Panasonic has with third parties. Interestingly, the order comes in response to a request from Panasonic that it be allowed to disclose licensing terms they have with third parties—subject to redaction requests by the third parties. To justify the relief granted in its ruling, the Court invoked the FRAND negotiation framework defined by the European Court of Justice in the seminal Huawei v. ZTE case. That case sets a procedural framework for balancing the interests and obligations of SEP owners and implementers throughout a FRAND negotiation. As a reminder to SEP practitioners, the specific requirements laid out in the Huawei v. ZTE decision are as follows:

• Before bringing an action for injunctive relief, a SEP holder must give notice to the alleged infringer by designating the SEP in question and specifying the way in which it has been infringed;
• The alleged infringer must express a willingness to take a license on FRAND terms;
• The SEP holder must provide a written license offer on FRAND terms, specifying the royalty and how it is to be calculated; 
• The alleged infringer must respond, without delay, to the SEP holder’s offer in accordance with commercial practices in the field and in good faith by accepting the SEP holder’s offer or making a counter-offer on FRAND terms; and
• The alleged infringer must provide appropriate security and be able to render an account of its acts of use.

Importantly, the present decision signals continued relevance and precedent of the Huawei v. ZTE framework in the context of SEP licensing disputes at the UPC.

Takeaways: At a practical level, the decision enables Panasonic to present SEP license agreements it has with third parties in the context of its litigation against Xiaomi—provided certain, third-party, confidential information is protected. Presumably, Panasonic believes disclosure of its existing licensing contracts with third parties will reveal terms that benefit its litigation and negotiating positions by showing its current and past offers to Xiaomi comply with its FRAND obligations. But a decision like this has the potential to cut both ways. In the future, a SEP owner may be forced—at an implementer’s request—to produce licenses it has with third parties that may undermine its negotiating approach and/or litigation strategy. Accordingly, SEP owners should ensure that their licenses with third parties comply with FRAND principles as they may ultimately be forced to produce them in UPC litigation. 

At a higher level, the UPC’s first SEP-related order shows that some of the policy issues that the European Commission sought to address and harmonize through new legislation—like transparency in negotiating licensing agreements between SEP owners and implementers—may be addressed in the short term by the UPC. Indeed, the decision suggests that the production of SEP license agreements may spur settlement between the parties. If so, it is a positive outcome: a bilateral licensing agreement reached between SEP owners and implementers informed, and likely catalyzed, by negotiating transparency. While the UPC does not have exclusive jurisdiction over SEP cases in Europe, its decisions—including the present one—have the potential to shape the SEP enforcement landscape. 

Beyond all of this, the decision should serve as a reminder to SEP owners that the familiar Huawei v. ZTE decision—whose framework served as the justification for the issuance of the present order—is alive and well. If nothing else, the present decision indicates that the ECJ’s Huawei v. ZTE case will continue to inform, or even dictate, how the UPC approaches SEP licensing disputes. SEP owners would be wise to comply with its teachings. And, if UPC decisions continue to align with SEP precedent set in German courts—as this one did—SEP owners should strongly consider the UPC as a fulcrum to resolving global SEP licensing disputes.

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