Pursuant to its judgment of April 17th, 2015, the Paris First District Court dismissed all the claims of Core Wireless Licensing SARL against the Korean group LG Electronics.
In this case, the issue was to identify who bears the burden of proof where an action for patent infringement has been brought on the basis of patents characterized as essential1 to a standard. As the Court points out, it is not the role of the European Telecommunications Standards Institute (herein after: “ETSI”) to demonstrate the essentiality of the patent as it does not perform any verification of essentiality of patents notified to it, nor their validity.
In the matter at hand, Nokia Corporation has developed a patent portfolio, a number of which have been declared essential to the ETSI. Their teachings were reproduced by the standards GSM (2G), UMTS (3G) and LTE (4G). In 2011, Nokia transferred its portfolio to a trust, The Nokia Asset Intellectual Property Trust, which subsequently assigned its rights to Core Wireless Licensing SARL, a corporation established in Luxembourg.
Core Wireless believes that mobile phones sold on the French market by LG Electronics use these standards and, as such, LG Electronics is owed a fair, reasonable and non-discriminatory (herein after: “FRAND”) royalty. In accordance with the ETSI’s guiding principle, holders of intellectual property rights “should be adequately and fairly rewarded for the use of their intellectual property rights“2 in the implementation of these standards through a licensing policy based on FRAND rules.
In addition, Core Wireless claims to have engaged discussions throughout 2012 with LG Electronics in order to find an agreement on standards. Despite several meetings and written reiteration of its bid, Core Wireless would never have received in return a precise counter-proposal from LG Electronics.
In this context, Core Wireless assigned LG Electronics in 2014 before the Paris Court, so the Court could rule that the standard used by LG Electronics reproduce the teachings of its patents which must be classified as essential, that the mobile phones it sold reproduce the teaching of such standards and, consequently, fix the FRAND royalty’s rate to be paid.
The Court ruled, and correctly so, that in term of essential patents, the plaintiff bears the burden. Since Core Wireless did not demonstrate the proof of its allegation – whether for the essential character of its patents or for the reproduction – nor even brought any evidence of a bid, the Court grounded the dismissal of Core Wireless’s claims in accordance with the above-described principle.
On the other hand the Court did not make any determination on how to prove this essentiality. This judgment maintains legal uncertainty around this notion without making any answers on FRAND royalties’ neither.
The Court leaves open the question of how to prove the essentiality of a patent. But this is just an outstanding issue among many others, such as, the multiple issues around FRAND royalties: What is a fair royalty rate? What is the proper method for calculating this fee? Could it be possible to refuse a license to a third party under certain objective conditions?
In practice, these questions are in many cases generative of conflict as it implies a genuine economic cooperation between horizontal competitors in an unclear legal framework.
Also, the Court held that Core Wireless rightly argued that the mere fact of initiating legal proceedings in order to judicially set royalties which could not be amicably settled, shall not constitute, in the absence of other circumstances demonstrating a clear willingness to deprive LG Electronics’ company of the ability to use such patents in exchange for a fair and proportionate royalty, an abuse of a dominant position.
This ruling comes just few weeks after a similar trial in the US in which Core Wireless sued Apple on the same grounds and was unsuccessful in its claims, for not having proved the essentiality of its patents3. However, in this case, the US court ruled on the subject of the FRAND royalty rates. Consequently, it is interesting to wait and see whether Core Wireless appeals or not. The French judges could possibly provide clarification on these outstanding issues.
1 A patent will be characterized as essential when it is not technically possible, taking into account the state and technology available at the time of standardization, to manufacture, sell, rent, use, repair or maintain an equipment or a method that conforms to the standard without infringing the patent. Therefore, a firm wishing to use the standard must obtain a license for all essential patents pertaining to the standard.
2 Art. 3.2, Sect. 3 Policy Objectives, Annex 6: ETSI Intellectual Property Rights Policy, ETSI Rules of Procedure, 19 November 2014.
3 Core Wireless licensing S.A.R.L v. Apple, Inc.; case number 6:12-CV-00100, U.S District Court for the Eastern District of Texas.
