We are Incapable of Making FRAND Determinations Say More UPC and German Judges

I recently attended the IPBC/IAM Live conference in Paris, where judges from both the Unified Patent Court (UPC) and a German court shared their perspectives on standard-essential patent (SEP) litigation. A consistent theme emerged from these discussions: neither the UPC nor Germany is equipped to make real FRAND (fair, reasonable, and non-discriminatory) determinations.

Florence Butin, President of the Court of First Instance of the UPC and herself a UPC judge, noted that the UPC has limited information and insufficient clarity into FRAND rates and licenses.  This makes the UPC the “wrong forum” for making a FRAND determination or determining a FRAND rate.[1]

Similarly, Matthias Schoen, presiding judge of the 7th Civil Chamber of the Regional Court of Munich, admitted that German courts are inherently unable to calculate FRAND rates within the current judicial framework.  He stated: “we think it is not possible to determine a FRAND rate.”

These comments highlight a broader structural issue. Both the UPC and the German courts operate with extremely limited evidentiary tools, particularly compared to other jurisdictions such as the U.K. and the U.S. which have much more robust discovery tools. As a result, the UPC and German courts  rely heavily on the materials selected and presented by the parties, without the benefit of a fully developed factual record. This dynamic favors SEP owners because of the lack of transparency and  information asymmetries that exist in the SEP world (see, Transparency, Transparency, Transparency).

Judge Schoen in particular seemed to have a very unbalanced view of SEPs and the FRAND obligation.  For background, Judge Schoen is the German judge who recently detailed the hoops implementers must jump through in order to maybe, sometimes, somehow, be found to be a willing licensee and so avoid an injunction.  But, in his comments at the IPBC conference, it was clear to me that these procedures are mostly window dressing.  Indeed, Judge Schoen acknowledged that his court is “a tool that can be used by SEP owners to get a license.”  And that tool is a blunt one that appears to favor SEP holders over implementers:  Judge Schoen admitted that the rate of favorable judgements for SEP holders in his court is over 90%.

Judge Schon also stated that in the [seemingly unlikely – see note 2] event that an implementer was found to be willing, his court would then potentially entertain a determination as to whether the SEP holder’s offer was FRAND.  But, when asked how the court would do so and whether the court would take or allow discovery into licenses in order make such a “FRAND” decision, Judge Schoen said that there was no mechanism to engage in any such discovery. 

Instead, the court would make a “FRAND” decision by allowing the SEP holder to provide whatever licenses it wanted to establish that its offer was in the “FRAND range.” 

It would then be up to the implementer to show why those cherry-picked licenses were not comparable.  But, of course, the implementer would have no discovery and thus very limited, if any, information about whether and to what extent the cherry-picked licenses were within the FRAND range or instead had been hand-selected by the SEP holder because they were outliers with very high rates.  This type of “decision” making institutionalizes and encourages the very lack of transparency that has long disadvantaged SEP implementers in licensing negotiations. 

Judge Schoen also shockingly said that German courts do not need to apply the European Directive on proportionality (the “IPRED”) before issuing injunctions in SEP cases. Instead, he believes that the FRAND concept negates any requirement for consideration of proportionality in SEP cases.  If it was not clear before, Judge Schoen’s statement conclusively shows that the problem is not that the IPRED is being “inconsistently” followed, but rather that it is being willfully ignored by certain courts (see, "Inconsistency" - Europe Dithers Some More).

I’ll say it again.  Europe needs to stop dithering when it comes to standards and FRAND and when it comes to proportionality.  The EU Proposal took years of careful study and input from multiple stakeholders and then the European Commission simply discarded it for no good reason.  Similarly, the recent EU Study involved talking to numerous stakeholders and investigating the issues from many different perspectives.  The EU Study determined there were significant “priority” issues that needed to be addressed, but then rejected all active solutions, simply suggesting that waiting and seeing, and more training, would somehow fix the problems. 

But, just about each and every time a UPC or German judge talks in public about SEPs, it is clear that they are unwilling, and unable, to make real FRAND determinations.  And now at least one German judge has flat out stated that his court does not need to consider proportionality in SEP cases at all.  

The EU already has defined solutions that it could use to solve at least some of the “priority” issues identified in the EU Study. The EU should for example implement the EU Proposal and amend the IPRED to make clear that it applies, and how it applies, in all patent cases, including SEP cases. Waiting and seeing will not solve these problems. Nor will more training.  Europe needs concrete solutions to solve these concrete problems (see The EU Study – Europe Needs Concrete Solutions (Some are Proposed Here)).  The time for action is now.

[1]          She said: “I have only limited information.  I do not have sufficient clarity to make a FRAND determination or determine a FRAND rate.  I am the wrong forum for this.”

[2]          According to press reports, in his recent pronouncement from the bench in Nokia vs Acer and Asus, Judge Schoen yanked the rug out from under implementers that thought they were following the rules necessary to be found to be “willing.”  It was a decision that, yet again, “redefine[d] FRAND rules” to be even more burdensome for implementers seeking a FRAND license.  See Nokia vs Asus and Acer: Regional Court Munich redefines FRAND rules.