Where patent injunctions meet FRAND: Samsung v Apple in the Netherlands

The patent infringement litigation between Samsung and Apple in the Netherlands last month, leading to a judgment on 14 October, is worthy of note for the meshing-in of demands for traditional preliminary patent infringement relief with the analysis of the effects of contract law -- even when no contract has been concluded

This information comes from Ruprecht Hermans (Brinkhof), who reported as follows:

"In the worldwide conflict between Apple and Samsung the Dutch judge rendered a decision in preliminary injunction proceedings commenced by Samsung against Apple regarding infringement of a number of Samsung’s essential universal mobile telephone system (UMTS) patents. Samsung’s claims were rejected in a decision containing some interesting thoughts on the enforcement of essential patents.

Samsung based its infringement claim on the allegation that Apple’s phone products necessarily infringed Samsung’s patents as they complied with the applicable UMTS standards and therefore contained technology falling under the scope of Samsung’s patents. Samsung declared these patents to be essential under the applicable European Telecommunications Standards Institute (ETSI) policy.

Apple’s defence boiled down to the following: 

1. Samsung’s patent rights were exhausted because the chipsets used by Apple originated from third parties that were licensed by Samsung; 

2. Samsung’s Fair, Reasonable and Non-Discriminatory (FRAND) declaration was governed by French law; under French law this declaration was considered a licence as soon as it is accepted by a third party -- even if the royalties are still to be negotiated. It is sufficient that the royalties could be objectively determined, which is the case as they should be FRAND; 

3. As a result of the FRAND declaration Samsung forfeited its right to enforce its patents. Users may trust that they can apply the standard. If no agreement can be reached on FRAND royalties the patent owner can only claim damages for the past and FRAND royalties for the future; 

4. Samsung forfeited its right to enforce the patents because Samsung declared its patents to be essential only after the setting of the relevant standard.

However, as its first line of defence Apple relied on the lack of urgency required in preliminary injunction proceedings on the part of Samsung. Apple’s alleged infringing products had been on the market since 2008 and Samsung did not undertake any action. The judge’s view was remarkable. Instead of taking the usual position that, in matters of IP infringement, urgency is a given as long as the infringement continues, he considered that these proceedings were part of a conflict with proceedings in Japan, Korea, USA, Germany, UK, France, Italy and the Netherlands. Against this background it was likely that Samsung, although it at first didn’t do anything, has (again) an urgent interest in obtaining an injunction. This was already the case because such an injunction would strengthen Samsung’s position in its negotiations with Apple regarding a licence.

The judge rejected Apple’s exhaustion of rights defense because of lack of evi-dence in relation to the origin of the chipsets. He also rejected Apple’s defence that acceptance by Apple of Samsung’s FRAND declaration amounted to a licence. The expert opinions brought forward by both parties explaining the position under French law did not concur and the judge was not convinced that under French law a licence could exist absent an agreement on the licence fees. Moreover he had serious doubts whether the French requirement that a licence should be in the form of a written document was fulfilled.

But did Samsung forfeit its right to enforce? In a judgment on the merits of the District Court of The Hague of 17 March 2010 (Philips/SK Kassetten) it was held that, as long as a party does not have a licence, there is in principle no ground on which to allow it to use the patented technology. The court held: 

“Allowing the use of patented technology or preventing the enforcement of a patent right on the basis of a mere entitlement to a FRAND-licence would moreover lead to legal uncertainty. As long as the alleged entitlement is not converted into an actual licence, it is uncertain for both parties if the alleged entitlement is justified, let alone that it is clear what the licence terms will be. There will be frequent cases of such uncertainty, as parties regularly will have different opinions regarding the answer to the question which terms, and especially which royalty rates, are FRAND. Therefore, also in view of legal certainty a system is desirable where the right to enforce a patent only stands after a party actually has a licence.”

However, in Philips/SK, SK had only requested a licence under FRAND conditions after Philips had commenced infringement proceedings.

The judge in Samsung/Apple considered that the question was to be dealt with under Dutch law, under which there is forfeiture of rights if the right holder’s conduct is contrary to principles of reasonableness and fairness. This is the case if there are circumstances which cause the other party to trust that the right holder no longer wishes to enforce his rights or if the other party's position would be unreasonably harmed. Samsung’s obligation to license under FRAND terms under ETSI rules was not sufficient to come to such conclusion. Third parties may trust to get an offer for a licence on FRAND terms, but they may not trust that they can apply the standardized technology without a licence.

According to the judge the case wasalso different from the conflict between Philips and LG (The Hague District Court, 25 April 2007). In that case Philips neglected to disclose its essential patents although it participated in the standard setting. Samsung did make a general declaration that it would be prepared to license its essential patents under FRAND terms before the standard was established. That Samsung only disclosed the particulars of the essential patents later does not change this.

So for Samsung the case looked very good. Unfortunately for Samsung, though, the judge was not convinced that Samsung had complied with its obligation to negotiate a licence agreement on FRAND terms. The part of the proceedings actually dealing with the status of the negotiations between Apple and Samsung is -- for obvious reasons -- confidential,  and so, therefore, is part of the decision. However, the judge concluded that Samsung’s licence offer to Apple could not be considered FRAND and that the offer made even showed that Samsung was not really prepared to conclude a licence with Apple. According to the judge Samsung did not give the impression that substantially lower royalties than offered could be discussed. The judge considered that, under those circumstances, it would be likely that the court in proceedings on the merits would consider the enforcement of the patents by Samsung a misuse of patent rights. Therefore, other than in Philips/SK, Samsung had under these circumstances no right to obtain an injunction against Apple. Only if, after Samsung had made a FRAND offer but no agreement could be reached, could Samsung return to obtain an injunction against Apple".

A helpful analysis of this decision by Gertjan Kuipers, Douwe Groenevelt and Oscar Lamme (De Brauw Blackstone Westbroek) reached this blogger shortly after Ruprecht's account. You can access it here.