I won’t go back to the numerous litigations involving OPPO and Nokia around the world, nor will I comment on the decisions rendered by the German courts since this summer. What interests me is the unprecedented attitude of OPPO in these proceedings – which withdrew its products from the German market even before the execution of a preliminary injunction -, which will certainly tend to upset the patentees’ negotiation strategies. In other words, and I stress this, the present text is only a perspective of the situation seen from France.
OPPO’s strategy
Nokia obtained several provisional injunctions against OPPO: two in Mannheim in June and two provisional injunctions in Munich in August. However, even before the execution of these injunctions, OPPO preferred to withdraw its products from the German market. However, it continued to fight as much in Germany as in the many other parallel proceedings (to my knowledge: France, Great Britain, Netherlands, Spain, China, Sweden, Finland, India, Indonesia, and even an action in Russia withdrawn following the war with Ukraine).
Instead of folding to Nokia, OPPO preferred to leave Germany. This strategy, which is the result of a fine calculation of opportunity costs, does not prevent OPPO from continuing to hold a very strong position against its adversary in the numerous procedures that oppose them, while continuing, it seems, to negotiate licenses for other territories.
An unprecedented strategy
The threat to withdraw all of its products indefinitely from a market is not new; its execution, which is more before the execution of the injunction, is.
Recently HMD had temporarily withdrawn some, but not all, of its smartphones, following injunctions obtained by VoiceAge EVS.
Previously Qualcomm obtained the withdrawal of some Apple products (the iPhone 7 and 8). But while Apple was temporarily unable to sell them directly in its Apple Stores or online, the devices remained available through resellers, who were not affected by the injunctions. Then, in the end, Apple resolved the problem by incorporating Qualcomm, not Intel, chips in its IPhones 7 and 8. Finally, the lack of a settlement between Apple and Qualcomm was certainly the result of the lack of an issue, and the Court of Appeals lifted the injunction.
Last year, Apple threatened to leave the UK market if the court set the overall royalty rate too high, but it finally accepted the UK court’s decision.
Indeed, in FRAND licensing, negotiators often face this threat from the opponent should a case be lost: leave the relevant market rather than negotiate a global royalty. But these statements often appear to be unserious, and the examples cited above, which are not numerous, prove that when there is a withdrawal it is very limited.
Thus, previously we had only seen :
– sales bans that temporarily affected limited parts of a given smartphone manufacturer’s lineup,
– temporary feature removals, and
– declarations of intent to withdraw from a market rather than give in to a patentee’s demands, but in none of these cases did this happen when the situation deteriorated.
On the contrary, OPPO in Germany took a radical decision and apparently crossed a threshold by withdrawing all its products from the market in a way that was not even implemented by the injunctions: for the first time, a market player considered it better to withdraw from a market than to bend on the FRAND rate. OPPO’s withdrawal from the German market is unprecedented in scope and scale.
In any case, from my point of view, this strategy tends to redistribute the cards in the FRAND negotiations. If we stay with the current paradigm, obtaining injunctions in a single country will not be sufficient to set a global royalty rate. In light of recent French and English case law developments, this leads us to a contractual (or global) analysis of the FRAND commitment, focusing on the FRAND commitment made to ETSI.
Competition law approach vs. contractual approach (or “global approach”)
I have discussed these two antagonistic approaches to the nature of the FRAND commitment on this blog several times before. It seems that OPPO’s attitude makes the choice for the former more questionable.
As a reminder, according to the competition law approach, the FRAND commitment is analyzed only in relation to the criteria of this matter: this is the approach adopted by the CJEU in the Huawei case. In short, the question is whether the patentee’s conduct did not degenerate into an abuse of a dominant position when negotiating the FRAND terms of the license. If this is not the case, the implementer will be considered to be in bad faith and may, for example, be subject to an injunction on German territory. Thus, the German courts propose a strict application of this approach, so that they can result in injunctions, which are used by negotiators to get implementers to agree to set global royalties.
The contractual approach focuses on the very nature of the FRAND covenant, which is a stipulation for third parties in favor of future licensees that the SEP licenses will be FRAND. Since ETSI is located in France, only the French judge should have jurisdiction to set a global royalty rate. There is no need in this case to multiply actions for provisional bans in various countries, as the OPPO precedent might require.
This contractual approach has recently been recognized by the French Judges on two occasions (TCL and Huawei cases), by retaining their jurisdiction as well as by the English Supreme Court in Unwired Planet, then in Optis which applies this decision, while the German Supreme Court seems to open the door in FRAND-Einwand II.
If the contractual approach, or global approach, is highly criticized in English courts, for lack of territorial jurisdiction, this does not seem to be the case for France, where this objection seems inadmissible, because the headquarters of ETSI is located in France. As Professor Chiariny has already pointed out: “Given the location of ETSI on French territory (in Nice), the competence of the French judge seems natural to set a global fee rate. However, in a debatable manner, the English judge has already considered that he could also do so.” . This competence of the French courts was recently reinforced by an interview with Judge Nathalie Sabotier (i.e. President of the Third Chamber of the Paris Judicial Court with exclusive jurisdiction over patents): “The French courts are in a special situation insofar as the European Telecommunications Standards Institute (ETSI) is based in France and subject to French law, so that the obligations entered into within this framework should also be subject to French law.” .
The lessons of OPPO
It is therefore easier to see how OPPO’s attitude could reshuffle the cards for FRAND strategies: if injunctions are applied in one country, and if litigation continues to multiply throughout the world, wouldn’t it be in their interest to favor a global approach by taking a contractual approach and centralizing their actions in the very place where ETSI is located: France?
Our purpose is not to claim that OPPO’s attitude will sweep away any competitive approach. It is simply to highlight that the patentees’ strategies could change in light of the opposing party. For OPPO, from an economic point of view, it was more attractive to give up selling in Germany than to lose competitiveness in all world markets by paying royalties. However, OPPO apparently generates only about 1% of its worldwide sales in the German market.
In the face of this unprecedented attitude, strategies may have to change. It is to be feared that the escalation of litigation will not subside any time soon and that the patentees will be even more imaginative. For example: bringing prohibition actions in one or more countries coupled with a central action in France; bringing a single central action in France.
Matthieu Dhenne
Avocat (Paris Bar)