UPC Issues Third FRAND Decision, Tripling Down on German Approach

The Unified Patent Court (UPC) has issued its third merits decision in a dispute over fair, reasonable, and nondiscriminatory (FRAND) licensing. On March 18, the UPC’s Düsseldorf Local Division (Düsseldorf LD) ruled in favor of standard essential patent (SEP) owner Dolby Laboratories (Dolby International), granting an injunction and damages against Turkish electronics manufacturer Arçelik and its German subsidiary Beko Germany over smart TVs supporting the Opus audio codec. The court rejected the defendants’ FRAND defense, finding that they had failed to sufficiently declare a willingness to take a FRAND license as required under EU law—doing so under the more restrictive approach followed by German national courts.

The UPC’s First Two FRAND Decisions

The UPC’s first FRAND merits decision came in November 2024, when the court’s Mannheim Local Division (Mannheim LD) issued an infringement ruling and imposed an injunction in litigation filed by SEP owner Panasonic against implementer OPPO. The decision confirmed that the UPC has jurisdiction over FRAND counterclaims, which had previously been a key point of uncertainty. It also took a deep dive into the proper application of Huawei v. ZTE, the landmark 2015 decision from the Court of Justice of the European Union (CJEU) that lays out a series of steps parties must adhere to during FRAND negotiations to be found compliant with their respective obligations.

On multiple key points, the Mannheim LD diverged from positions taken by the European Commission, which in April 2024 pushed for a more rigid application of Huawei in an amicus brief filed in an unrelated German national court appeal (in VoiceAge EVS v. HMD, which concerned a controversial FRAND approach adopted by the Munich Higher Regional Court). In particular, the Mannheim LD pushed back against the Commission’s position that the patent owner’s infringement notice at Huawei step one requires the inclusion of claim charts, holding that this position was overly formalistic.

Additionally, the Mannheim LD rejected the Commission’s view that for Huawei step two, the implementer’s statement of willingness to take a FRAND license must be assessed solely through that declaration. Rather, the UPC argued in part that subsequent conduct may be considered. This is a view more consistent with the German approach, which allows the Huawei steps to be applied out of order.

The court’s second FRAND decision was issued by the Munich Local Division (Munich LD) in December 2024. In that opinion, the court imposed an injunction against implementer NETGEAR for SEP owner Huawei over certain Wi-Fi 6 routers.

The judgment adopted largely the same positions on SEP licensing principles as the Mannheim LD’s November decision. It also provided additional clarity on Huawei step three, which addresses the patent owner’s written offer. In part, the court clarified that where multiple FRAND offers are submitted, it is the last one that the court will evaluate. The Mannheim LD also held that it is not abusive for a patent owner to submit an initial non-FRAND offer, as this merely serves as the starting point for negotiations. Most notably, it also ruled that a patent owner can comply with its antitrust obligations by offering just a pool license.

The Munich LD additionally gave further detail on the approach to Huawei step four, the defendant’s counter-offer. Here the court laid out a series of requirements the implementer must follow: Not only must it make the offer without “delaying tactics”, it must also provide a security to compensate for potential lost license fees or damages, as well as an accounting of its use of the asserted patents.

The Düsseldorf LD’s Dolby Decision: Implementer Willingness Must Be Expressed Without Undue Delay

The Düsseldorf LD’s decision here (reviewed and quoted below based mainly on a machine translation of the original German) came in one of two UPC cases filed by patent owner Dolby against Arçelik and Beko Germany in April 2024. That complaint accused the defendants of infringing a single audio processing patent (EP 3 605 534) through the provision of smart TVs based on Android TV that support the Opus audio codec standard, seeking an injunction covering Germany, France, Italy, and the Netherlands, information on the extent of relevant sales, damages, and an order that Beko must recall and destroy the infringing products.

The ‘534 patent belongs to a portfolio that Dolby licenses through Vectis IP Ltd’s Opus pool, along with fellow licensors Fraunhofer-Gesellschaft (discussed elsewhere in this decision) and NTT (not mentioned here). Notably, while Dolby considers the patent to be essential to the Opus standard, neither Dolby nor Fraunhofer participated in the development of that standard. This meant that Dolby had undisputedly not made a FRAND declaration during that standardization process (i.e., it had not agreed to license those patents on FRAND terms in exchange for the patents’ inclusion in the standard).

The defendants raised a FRAND defense during the course of litigation, arguing in part that the plaintiff has a dominant position in the market under antitrust law—in part because the Opus standard is mandatory for the Web Real-Time Communication (WebRTC) videoconferencing standard, because consumers expect marketable smart TVs to support all common audio standards, and because Dolby has a “dominant position in the entire licensing market for audio codecs, also taking into account the AAC standard”. Dolby countered that it does not have a dominant position because Opus compatibility “is not a prerequisite for competitiveness on the downstream product market”, that average consumers do not buy TVs based on support for a particular codec, and that the WebRTC issue is irrelevant in this context.

The parties also disputed the impact of Dolby not having submitted a FRAND declaration: Dolby argued that the absence of that declaration meant that Huawei “could not be applied in an unmodified form and it would therefore have been up to the defendant to . . . to make the first offer”. The defendants responded that the lack of a FRAND declaration did not release Dolby from its antitrust obligation not to abuse its dominant position under Article 102 of the Treaty on the Functioning of the European Union (TFEU) (which the CJEU interpreted in Huawei).

Additionally, the parties sparred over the nature and impact of a patent license covering the defendants’ chip supplier, MediaTek: The defendants argued that MediaTek already had a chip-level patent license and that as a result, Dolby’s offer failed to account for patent exhaustion as required to be FRAND and violated Article 102 TFEU’s prohibition on double licensing. Dolby countered that MediaTek only had a Dolby trademark license and alleged that MediaTek may not have been the defendants’ only chip supplier.

Moreover, the defendants asserted that Dolby had engaged in patent ambush by concealing the essentiality of its portfolio to the Opus standard for two decades, only beginning to license the relevant patents once the standard became established. Dolby countered that patent ambush “presupposes” that the patent owner was involved in the standardization process, whereas its patents had been included without its knowledge or cooperation; and that it has not “advertised the Opus standard as royalty-free”.

The defendants also argued that Dolby had discriminated against manufacturers of smart TVs, which have the Opus codec preinstalled, by not pursuing licenses against “competing manufacturers of monitors for PCs and consoles that can be connected to monitors”, even though buyers of PCs could still install Android and use Opus as intended without the burden of a license. Dolby asserted in response that it does in fact pursue licenses against PC and monitor manufacturers; that PCs, consoles and smart TVs are not interchangeable from a consumer standpoint and thus “belong to different product markets”; and that it would be “extremely unusual at best” for a user to install Android on a PC rather than Windows, macOS, or Linux. Relatedly, the defendants contend that Dolby runs a “two-tier licensing model” in violation of EU antitrust law, to which the patent owner replied it did not operate such a model.

Especially important here was the question of whether the defendants had sufficiently expressed their willingness to take a FRAND license as required by step 2 of Huawei. The defendants argued that they had already shown that willingness by taking a license to the AAC pool operated by one of its “affiliated companies”, Via Licensing (now Via-LA, following its merger with MPEG-LA), under which they argued they are already licensed, and should not be expected to take a double license. Moreover, they asserted that because they had “justified doubts” about the “substance” of the Opus pool as well as its “demonstrably excessive license price”, it was up to the plaintiff to submit a “negotiable and verifiable FRAND offer with comprehensible claim charts and reasonable prices”.

Dolby argued that the defendants had failed to declare their willingness under Huawei, asserting that there had “not even been the usual lip service” about willingness to accept a license before the trial. This, plus the defendants’ late-breaking argument that they were licensed and their arguments regarding supra-FRAND rates, were “a prime example of how an implementer seriously interested in a FRAND license would not behave”, the patent owner contended. Dolby additionally faulted the defendants for undisputedly not making a counteroffer, providing information about the accused products sold to date, or provided a security as also required under Huawei.

In its March 18 merits decision, the Düsseldorf LD began by ruling in the plaintiff’s favor on infringement and validity, with that analysis constituting the bulk of the opinion.

The court then turned to exhaustion, treating it as a threshold issue before reaching the FRAND defense. Here the Düsseldorf LD held that Dolby’s rights had “not been exhausted, not even in part”—finding that the defendants had failed to show that the MediaTek license covered placing infringing products on the market within the EU, as required to establish exhaustion under the UPC Agreement. The court held that because it “cannot be established” whether all accused products have MediaTek chips, this precludes complete exhaustion, finding that it is additionally relevant that the accused products could also have other decoders (such as those implemented by other components like the CPU or GPU or in software). The court further pointed to the fact that the MediaTek license explicitly establishes a two-tier license system wherein OEM electronics manufacturers using MediaTek chips still need their own licenses.

The Düsseldorf LD then turned to the defendants’ FRAND defense, beginning by agreeing that Dolby has a dominant position in the relevant licensing market—since without a license to the asserted patent, “no products compatible with the Opus standard can be offered”. Moreover, the court pointed to consumer expectations that a smart TV should “decode all common audio and video codecs used by the service providers for coding”, as argued by the defendants; and agreed that the defendants had shown it was a “common standard in this sense”. Given the codec’s widespread use for this purpose, the court declined to address the defendants’ arguments related to WebRTC.

Additionally, the Düsseldorf LD held that the lack of a FRAND declaration by Dolby does not affect its competition law obligations under Article 102(1) TFEU. That said, the court held that this is a separate question from whether the Huawei steps “apply without restriction in such a case”.

Regardless, the Düsseldorf LD ruled that it does not need to answer that question because the defendants’ FRAND objection failed in this case.

Before explaining this conclusion, the court stated that it was adopting the interpretations of Huawei set forth by the Mannheim LD in Panasonic v. OPPO and by the Munich LD in Huawei v. NETGEAR—finding that “[a]ny differences between the two Local Divisions in the application of the principles under Huawei v. ZTE are irrelevant” in this case (here quoting the version of this language found in the original English headnotes, which are the only officially translated portion of the judgment).

The Düsseldorf LD then proceeded through the Huawei steps, beginning by finding under step one that the plaintiff had provided an adequate notice of infringement through a January 2024 letter that included claim charts and indicated how the patent-in-suit was infringed.

It was at Huawei step two, under which the implementer states its willingness to license, that the court determined the defendants’ FRAND defense had failed. Here, the court adopted the more restrictive approach followed by German courts under the German Federal Court of Justice’s judgment in Sisvel v. Haier I, echoing that case’s holding that “the infringer must clearly and unambiguously agree to declare that they will conclude a licence agreement with the patent proprietor on reasonable and non-discriminatory terms, and must also subsequently participate in the licence agreement negotiations in a targeted manner”. (As RPX has noted in other coverage, the result of this stringent approach is that implementers are almost always found to be unwilling.) The Düsseldorf LD also recounted the European Commission’s views on this factor as expressed in its amicus brief in the VoiceAge EVS appeal, in part agreeing with the Commission (and the Mannheim and Munich LDs) that the court must look beyond the declaration of willingness and consider the broader circumstances, under which the parties’ conduct is to be assessed in an “overall view”.

Applying those principles, the Düsseldorf LD found the defendants’ expression of willingness to license was “lacking”. Key here was the amount of time it took to respond to the plaintiff: The court noted that the defendants did not respond to Dolby’s January 2024 infringement notice until it filed suit in April—a period of “two months and just under two weeks”. This was long enough for the plaintiff to have assumed that no response was forthcoming, the court found, particularly since it had not contacted the plaintiff since July 2023 and failed to respond to three emails after that.

Nor did the court find that the defendants had actually declared that they were “prepared in principle to conclude a license agreement on FRAND terms”, since their responses merely stated that they had asked their “technical team” to audit their products’ use of Opus and, later, that this review had not yet completed. “These declarations do not indicate a willingness to conclude a licence agreement”, the court found. The Düsseldorf LD declined to address whether a declaration of willingness can later be made after an injunction has been sought, which (as it had earlier noted) the European Commission had argued should not be allowed under Huawei, since it determined that none of the defendants’ statements since the action was filed included an expression of willingness.

Having thus concluded that the defendants had failed to satisfy the second step of Huawei, the Düsseldorf LD held that it was “no longer necessary” to address the remaining steps, the next of which would have been to evaluate the FRAND compliance of the plaintiff’s offer—an approach that the court noted was consistent with those of the Mannheim and Munich LDs. The court also held that “[t]here was no need for a referral to the” CJEU, as the questions at issue here are specific to the case at hand and can be resolved by the court here under existing EU law.

Since the defendants’ FRAND defense failed, the Düsseldorf LD proceeded to address remedies for infringement—holding that an injunction was justified, as well as recall and destruction of the accused products. The court also held that damages were justified, rejecting the defendant’s attempt to limit the period of damages to begin in January 2023 based on the first date royalties would have been payable under the Opus pool, finding that this does not limit the plaintiff’s claim for damages. Additionally, the court ruled that the plaintiff had a right to information about the extent of sales and set the terms for penalties in case the defendants were to violate the court’s orders.

Germany’s Top Court Affirms Plaintiff-Friendly Approach, Prompting Constitutional Complaint

This latest decision follows another significant SEP development in Germany: In late January, the Federal Court of Justice issued a decision on appeal in VoiceAge EVS v. HMD that maintained its prior patent owner-friendly approach to FRAND licensing disputes—under which, as noted above, implementers have rarely been able to avoid injunctions in SEP cases—and declined to refer the matter for review by the CJEU. As summarized in an accompanying press release, the court reaffirmed its holding that under Huawei and Sisvel, a SEP owner does not abuse its dominant position by enforcing its patents in court against an unwilling licensee, also upholding the lower court’s finding of unwillingness based on the timing of the responses by defendant HMD during negotiations.

On March 12, HMD announced that it had filed a constitutional complaint with Germany’s Federal Constitutional Court over that decision. The company expressed concern that the Court of Justice had decided not to refer the case to the CJEU despite the “key questions” raised by European Commission’s amicus brief over the court’s interpretation of EU law on SEP matters. HMD argues that the Federal Court of Justice’s “refusal to refer these essential questions to the [CJEU] constitutes a violation of its constitutional right to the lawful judge, as it denies judicial clarification by the court competent to interpret EU law”. Its complaint, as characterized in that press release, “seeks clarification of questions of EU law that have broad implications for fair licensing practices, legal certainty, and the functioning of Europe’s technology markets”.