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NL – Philips v. Asus / Appeal / FRAND

09 May 2019

Koninklijke Philips N.V. v. Asustek Computers Inc., Asus Europe B.V. and Asus Holland B.V., Court of Appeal The Hague, The Netherlands, 7 May 2019, Case No. 200.221.250/01

Philips successfully appeals an earlier judgment regarding Philips’ Standard Essential European Patent EP 1 623 511 for a ‘Communication System’ (‘EP ‘511’). A copy of the earlier judgment can be read here. The Court of Appeal rules that EP ‘511 as amended in accordance with the second auxiliary request is valid and infringed.

Asus puts up a FRAND defence, but the Court of Appeal rejects that position since Asus clearly has not acted as a ‘willing licensee’ during the negotiations.

In order to be a willing licensee, it is not sufficient according to the Court of Appeal to only join in meetings. Asus never took the initiative for such meetings. Asus also frequently asked Philips for technical data, but never let specialists with sufficient technical expertise participate in the meetings. Moreover, as the Court of Appeal describes, after a few hours the meetings were terminated and therefore the technical part could not be finished, respectively the licensing terms part could not be started. After no meeting did Asus respond to Philips’ statements, especially not regarding the proposed licensing terms.

Asus thus was not constructive in these meetings and according to the Court of Appeal apparently tried to avoid discussion of licensing terms and tried to cause as much delay as possible. This behaviour according to the Court of Appeal qualifies as ‘hold-out’ as mentioned in the CJEU Huawei/ZTE judgment and according to said judgment the SEP-user should refrain from using such tactics.

As Asus has not shown willingness to enter into a license agreement on FRAND terms, Philips according to the Court of Appeal was not held to make a license offer to Asus and was allowed to enforce it’s patent by requesting an injunction.

Still, Philips offered Asus its standard license agreement and stated willingness to negotiate Asus’ counter offer. However, neither before, during or within a reasonable time frame after the subsequently held meeting did Asus make a counter proposal. That it was upon Asus to make a counter proposal should have been sufficiently clear according to the Court of Appeal, as this follows from the CJEU Huawei/ZTE judgment.

Asus’ argument that Philips’ offer did not meet the requirements of CJEU Huawei/ZTE as it was not made clear by Philips why that offer was FRAND, is put aside by the Court of Appeal as Philips was already entitled to an injunction before making that offer.

Superfluously, the Court of Appeal holds that it does not follow from CJEU Huawei/ZTE paragraph 63, that the SEP holder should state why its offer is FRAND. This paragraph of the CJEU ruling should be seen in the context of the underlying case and against the background of the Orangebook case and the specific questions asked by the referring German Court.

A offer made by Asus only áfter commencement by Philips of infringement proceedings can not make the above any different, according to the Court of Appeal. At the most, such counteroffer made after commencement of infringement proceedings can lead to the obligation of the SEP-holder to negotiate in good faith in parallel to the infringement proceedings. It does not lead to an obligation of the SEP-holder to stay the proceedings, nor does it make the proceedings by the SEP-holder an abuse of dominance, as this would put the door wide open to delaying tactics on the side of the SEP-users and that should be prevented, as stated by the CJEU in Huawei/ZTE at paragraph 65.

Since Asus is an unwilling licensee, and since Philips was free to enforce its patent, the question of whether Philips holds a dominant position in the relevant market, does not need to be answered according to the Court of Appeal. This, in light of the Huawei/ZTE decision of the European Commission. Also, it does not need to be assessed whether or not Philips’ opening offer was FRAND or not.

Also Asus’ other defences -such as abuse of right, precontractual good faith- fail on the grounds that Asus was unwilling to negotiate in good faith.

The Court of Appeal awards the injunction.

A copy of the judgment (in Dutch) can be read here.