On 16 April 2019, the Paris Court of appeal considered that the two patents remaining under discussion were non-essential and thus refused to fix FRAND terms and conditions.
Determination of FRAND terms and conditions is known to be an issue widely debated worldwide by the doctrine and by courts. Indeed, through its declaration to the European Telecommunications Standards Institute (ETSI), on the essential nature of its patents in respect of 2G, 3G and/or 4G standards the owner of a standard essential patent (SEP) undertakes “to grant irrevocable licenses on fair, reasonable and non-discriminatory (FRAND) terms and conditions” (Article 6.1 of the ETSI Intellectual Property Right Policy (ETSI IPRP)). There is however no guideline on what is to be considered a licence on FRAND terms and conditions in the ETSI IPRP. This is the reason why, both SEP holders and implementers are looking to national courts to get some indications on the method to negotiate a FRAND licence.
FRAND terms and conditions, which include the licence royalty rate, are assessed globally by national courts, which means that exorbitant royalty rates are usually a factor taken into account to assess whether a SEP holder has breached its ETSI undertaking.
In this context, the Conversant Wireless v. LG decision, handed down by the Paris Court of Appeal on 16 April 2019, was highly expected as it would have been the first decision issued by a French court, on the determination of FRAND terms and conditions. Unfortunately, the French court missed the opportunity to address this issue by judging the patents, on which the action was based, as non-essential.
Conversant Wireless (Conversant) acquired from Nokia a patents portfolio composed of more than a thousand patents declared essential to ETSI for the implementation of the 2G, 3G and 4G standards. Conversant and LG entered into negotiations to licence said portfolio, but negotiations failed. Consequently, in 2014, Conversant introduced an action seeking damages, arguing that LG’s devices, implementing the 2G, 3G and 4G standards, infringe its patents declared essential to these standards. Both parties were also seeking the fixation of a FRAND royalty rate by the Court.
On 17 April 2015, the First Instance Court judged that Conversant failed to prove the essentiality of its patents, and therefore dismissed the claims of both parties. Conversant appealed this decision. The only major difference with Conversant’s claims in the first instance is that they relied on five patents, whereas they only relied on two patents on appeal. This may have weakened Conversant’s claim in terms of the recognition of its patents essentiality since it could have been interpreted as a recognition that the three other patents discussed before the Court of First Instance were not essential.
The Paris Court of Appeal found the two patents invoked by Conversant as non-essential and, once again, dismissed the parties’ claims on the fixation of a FRAND royalty rate.
However, even if that decision disappoints, it cannot be concluded that France is not a suitable forum to seek the determination of FRAND terms and conditions.
Indeed, according to the ETSI IPRP, the construction, validity and performance of ETSI members’ undertakings shall be governed by French law. French courts are thus in the best position to judge whether SEP holders have breached their commitments toward ETSI by offering a licence on non-FRAND terms.
Moreover, this decision also shows that the new provisions on the protection of trade secrets (transposing the European Directive of 08 June 2016), and especially article L. 153-1 of the French Commercial Code, could provide valuable assistance in the resolution of FRAND related issues. One of the methods privileged by judges in determining whether the royalty rates offered by SEP holders are FRAND is to compare these rates with those offered in comparable licenses. But, because such agreements usually include a non-disclosure provision, parties are often reluctant to disclose confidential information on the licence agreements they have previously concluded with third parties in courts.
In the case at hand, in application of said provisions, the Court implemented measures to protect the parties’ confidential information. The Court therefore restricted the communication of some pieces of evidence, such as licence agreements, to the parties’ counsels and to a limited number of individuals who signed a non-disclosure agreement. Additionally, access to the courtroom was restricted when the question on the comparable licence agreements was discussed.
This procedural tool might encourage parties to use comparable licence agreements as a benchmark to discuss in court the determination of FRAND royalty rates, and thus, considerably enhances the attractiveness of French courts.
Finally, it is worth noting that, in the case at hand, the Court’s refusal to set a FRAND rate might have been triggered by the specifics of the case. The Court thus pointed out it did not have enough information on the essentiality of the patents in order to set a FRAND royalty rate for the totality of the patents portfolio. Indeed, Conversant, did not detail or list in its brief to the Court the patents included in its portfolio. Consequently, one of the teaching of this case is that SEP holders should provide as much information as possible to the Court, on the SEP to be licenced, when seeking the determination of FRAND royalty rate by the Court (ie precise identification of the concerned patent, clarification on the essential nature of the patent, etc).
In light of the above, French courts will hopefully have more opportunities in the future to give guidance to SEP holders and licensees on the method to negotiate a licence on FRAND terms and conditions.
By limiting to two SEP, over the five SEP which were over discussion before the first instance court (among a portfolio of more than a thousand of SEP), the opportunity has been missed to fully discuss FRAND terms and conditions. The Court however used for the first time the new French law on trade secrets in the context of a FRAND dispute, which should increase the attractiveness of the French forum to discuss such issue.
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