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DE – Confidentiality roulette in SEP proceedings

30 May 2018

Confidentiality roulette in SEP infringement proceedings, by Alexander Haertel and Jonas Block, Kather Augenstein

On 25 April 2018 the Higher Regional Court of Düsseldorf has continued its elaborated case-law with regard to confidentiality arrangements in standard essential patent (SEP) litigation (I-2 W 8/18). The Court deepened its transparency-approach taken already in a decision in January 2017 and fine-tuned the procedural implications of confidentiality arrangements between the parties – and also with respect to interveners.

I. Background

The background to this decision is that – according to the view of the Düsseldorf courts – the patentee bears the burden of proof for the fact that the license offer is non-discriminatory. To provide the required level of substantiation the patentee is obliged to disclose reference license agreements that have been concluded with industry players comparable to the defendant. Such license agreements are, however, in practice protected by a non-disclosure clause. To maintain confidentiality during German infringement proceedings the courts had to find a new approach as court proceedings are generally public in Germany (i.e. no attorneys’ eyes only or confidentiality clubs).

In January 2017, the Higher Regional Court decided that the defendant may either waive the constitutional right to assess all documents disclosed in the litigation (Art. 103.1 of the German Constitution) or to conclude an NDA with Plaintiff (Higher Regional Court Düsseldorf, decision of 17 January 2017, docket no.: I-2 U 31/16). At the time, the German courts threatened the defendant to issue an injunction for being an “unwilling licensee” in the language of the CJEU’s decision in the case “Huawei v ZTE” (dec. of. 16.07.2015, C-170/13) if they did not conclude an NDA.

II. Supplemental Decision by Higher Regional Court

The aspect has changed significantly with the new decision of the same Senate.

1. Facts of the Case

The decision was rendered with respect to an intervener’s request for file inspection in SEP infringement proceedings. Plaintiff and Defendant had concluded an NDA based on the case-law as lined out above. Subsequently, the Plaintiff disclosed its reference license agreements to the Court and the group of people designated in the NDA. When, however, a third party intervener joined the proceedings at a later point in time, the intervener requested file inspection and refused to sign an NDA or join the existing NDA. The first instance court rejected the request for file inspection partially, i.e. the intervener was not allowed to see the reference license agreements protected by the NDA. The intervener appealed the decision and argued that its right to unredacted file inspection based on the fundamental right of the publicity of court files had been infringed.

2. Decision

The Higher Regional Court clarified that the parties’ (including the intervener who joined) right to file inspection must, in principle, not be subjected to further conditions. Before this background, a litigant must take confidentiality precautions, i.e. conclude an NDA also with interveners, before disclosing its trade or business secrets to the court file. If one presents his case earlier and without appropriate security precautions, he therefore accepts – in the opinion of the Court – that his secrets come to the knowledge of potential further litigants by way of inspection of the files.

An exception shall be made, as in the case decided, for the intervener who accedes at a time when the party has already disclosed its confidential information on the basis of an NDA with the other litigants. As the intervener is not bound by the NDA, the disclosing parties may oppose the intervener’s request for file inspection as far as their trade and business secrets are at stake:

If the intervener joins the NDA in place or concludes a separate NDA, the contractual regime stipulated in the NDA applies to the case.

The interesting case alternative is, however, what happens if the intervener does not join the NDA or conclude an NDA. According to the Higher Regional Court, the Court will decide in such cases in the file inspection proceedings whether the disclosing party has sufficiently substantiated secrets worthy of protection which require and justify the requested security measure. What a “secret worthy of protection” is in practice is considered a legal question and decided by the Court at its discretion. If the Court concludes that there are no considerable confidentiality concerns, the intervener is granted full access to the files. Only as far as the Court identifies considerable business secrets, the file remains redacted.

What follows from this is that anyone claiming protection must not only identify the confidential information but must also specifically state that and why the information in question constitutes a trade or business secret to be protected in the desired manner. This requires a substantial presentation of the confidentiality measures in place and verifiable information on the exact disadvantages that can arise from a disclosure of the information in question and the degree of probability.

The Higher Regional Court specified this general rule with regard to license agreements that were concluded on the basis of a FRAND declaration. The Judges stated that it follows from the requirement of comparability of such license agreements under anti-trust law that the protection of secrecy generally requires very special justification and justification in such contracts because the promise to grant a fair and non-discriminatory license required the transparency of the applicable licensing conditions. This approach seems very strict and effectively makes the protection of FRAND license agreement impossible.

Besides the newly established regime with regard to interveners, the Higher Regional Court also amended the threatened legal consequences. In its decision in January 2017, the Court took the view that a Defendant who refuses to conclude an NDA is considered an “unwilling licensee”. This harsh consequence has been reconsidered by the Senate and was transferred into a more flexible regime of evidence rules as follows:

If the SEP-patentee has disclosed allegedly protect-worthy information and the Defendant does not conclude an NDA or violates the NDA (irrespective of any possible sanctioning of the NDA-infringement that has occurred), the patentee’s burden of substantiation and proof is reduced to that which he can disclose without prejudice to his legitimate interests in maintaining secrecy.

The Court will then analyse the patentee’s alleged and substantiated business secrets at the time it renders its decision. If the Court finds that the information is not a business secret, the full burden of proof shifts back to the patentee.

This newly established evidence regime will likely make the protection of business secrets a delicate issue if the parties are not able to negotiate an NDA. For both parties, the outcome of the proceedings can turn into a roulette game – depending on what the court considers to be a secret and what not. If the Court does not confirm the business secrets, the Plaintiff has not sufficiently substantiated the “non-discriminatory” dimension of its offer. If the Court does confirm business secrets, the Defendant is injuncted based on the reduced burden of substantiation. Given the Higher Regional Court’s commentary that FRAND license agreements are hardly secretive, the Defendant currently seems to have an advantage in this game.

The decision in the German language can be found here.