Beyond Hold-Out: Munich I’s New “Internal Willingness” Test
In its third judgment of 5 February 2026 (Docket No. 7 O 7655/25) Munich I Regional Court continued its series of landmark FRAND decisions and further shaped how it assesses the FRAND defence raised against SEP assertions. This time Munich I Regional Court scrutinised the mutual offers made by the SEP owner and the implementer and developed a concept of how to assess the offers for their FRANDness. The assessment of the offers and counter-offers backfires with regard to the assessment of the parties’ willingness to license, according to the court, which concludes that an insufficiently-priced offer of the implementer indicates a lack of "internal willingness" to license. In our article we focus on the two-step assessment of the implementer’s willingness to license adopted by the Chamber of Munich I Regional Court, according to which even an implementer who made an offer and secured it by partial payment may lack an internal – intrinsically motivated – willingness to license.
The decision is remarkable in two ways. First, the court addresses the lack of comprehensibility of FRAND assessments in published court decisions due to extensive redactions by discussing abstract comparison values. This is laudable even if the authors do not share the view of the court with respect to the ranges that apply to determine whether a given offer can or cannot be assessed as FRAND.
Second, the decision is further proof that SEP assertions apply beyond common connectivity standards like cellular or Wi-Fi standards to more application-specific standards. This is why all stakeholders who use more specific standards, such as the IEEE 802.3bw standard litigated here, should take note of the decision. This and similar standards will become increasingly important for the automotive supply chain for setting up more reliable wired network connections with higher bandwidth than CAN-BUS, to support more sophisticated driver-assistance functions with high bandwidth and reliability demands and, last but not least, autonomous driving.
Background
The underlying dispute concerned the infringement of a patent relating to wired data communication under the Ethernet specification of the 802.3bw standard of the Institute of Electrical and Electronics Engineers (IEEE). Certain car models of the defendants were equipped with chips that implemented the 802.3bw standard and, in the opinion of the Chamber, realised the patented teaching. The defendants' FRAND defence regarding the patent relevant to the 802.3bw standard was unsuccessful. The Chamber concluded that the patent owner's offer was FRAND but the defendants' counter-offer was not. In the Chamber's view, the defendants were not willing to pay FRAND licence fees and therefore lacked the required (internal) willingness to license. The conclusion of a licence agreement failed in this respect due to the parties' conflicting FRAND-compliant payment intentions.
The Two-Step Approach: External and Internal Willingness to License
1. External Willingness to License – Assessment Based on Objective Circumstances
To answer the question of whether patent owners have made a FRAND offer, the Chamber, in line with its previous case law, first examined the willingness to license on the part of the implementers. For the first time, as far as we are aware, the court coined the term "external willingness". It considers external willingness to be given if there is no obvious hold-out. A hold-out refers to the deliberate delaying, hindering or refusal of SEP licence negotiations by implementers and thus a delaying tactic regarding the conclusion of FRAND licences. The focus is therefore on whether, based on objective circumstances, a general willingness to license can be inferred. The requirements to be met are defined by the obligations of the implementer in Huawei v. ZTE. As adopted by Munich I Regional Court, the implementer is not only required to make an unconditional offer to the SEP owner but must also pay the amount offered to it.
In the present case, the defendants had paid an undisputed amount (equal to their offer) and even provided additional security. In such a case, the Chamber considers that it can be assumed that there is no obvious hold-out and that there is therefore external willingness to license. The Chamber has indicated in its wording that the assessment of the external willingness to license is not an in-depth assessment and that the existence of certain exemplary circumstances can indicate an external willingness to license. Thus, regarding the absence of a hold-out, the Chamber (merely) required that this obviously not be the case, which can usually be assumed when a payment is made (on the basis of the implementer's last offer) and an additional security deposit. Other circumstances would also be conceivable. An external willingness to license on the part of the implementers can therefore basically be assumed on the basis of objective circumstances.
2. Internal Willingness to License – Assessment of the Substantive Seriousness
The hamber then emphasised that only after the external willingness to license has been established should the content of the patent owner's offer be examined to determine whether it is FRAND. If such an offer – which is subject to a comprehensive case-by-case examination with regard to FRAND conformity – is FRAND and the implementer does not accept it but instead submits a significantly lower counter-offer, then, according to the Chamber, the implementer lacks "internal willingness" to license.
In the present case, the defendants had insisted on a significantly lower rate – one that, according to the court, clearly did not fall within the FRAND corridor. The defendants referred to an expert opinion which the court found was not convincing in terms of content. This demonstrated, in the Chamber's view, a lack of internal willingness to license. However, the Chamber also clarified that the question of whether there is a FRAND offer by the patent owner is inseparably linked to the negotiation behaviour of the implementer. Thus, the patent owner should only be obliged to reduce its offer in favour of the implementer if the latter submits offers which are not obviously non-FRAND, i.e. within the FRAND corridor. The patent owner's obligation to compromise and the assessment of its offers are therefore linked to the submission of realistic counter-offers by the implementer. The court held that only if an implementer submits realistic counter-offers within the FRAND corridor can the patent owner's refusal to compromise on a lower than initially offered rate be regarded as non-FRAND.
Interdependence of the Assessment of the FRAND Conformity of the Parties' Conduct
Accordingly, as indicated, the implementer's (counter-)offer behaviour determines the assessment of whether the patent owner's offer behaviour is FRAND and whether the patent owner can fully exploit the FRAND corridor. In the opinion of the Chamber, if the counter-offers are significantly lower, the patent owner should in principle have no obligation to lower its (initial) offer as the conclusion of an agreement is not yet foreseeable at this point in time and the remaining duration and associated costs of the licence negotiations are uncertain. Furthermore, it is not yet clear at this stage to what extent this may result in non-recoverable costs for the patent owner, which may influence the licence fee. It is therefore up to the implementer to make realistic (counter-)offers which, in turn, influence the assessment of whether the patent owner must show willingness to compromise – within a certain FRAND corridor, of course – so that its offer can still be considered FRAND.
Once the implementer's external willingness to license has been confirmed on the basis of objective circumstances – e.g. making a payment and depositing security – the FRAND compliance of the patent owner's offer is assessed taking into account the implementer's counter-offer which on its own, if realistic, justifies the assumption of an internal willingness to license and thus prompts the patent owner to show willingness to compromise within the FRAND corridor.
Determining the FRAND Corridor
To establish the appropriate FRAND corridor, the court begins by identifying the licence agreements amongst the disclosed licence agreements that are sufficiently comparable in terms of portfolio scope, licensee scale, and relevant product categories. From these, the court selects the agreement with the closest similarity and uses its per-unit rate as a starting point, referred to as the mean value (the court apparently understands this as being the arithmetic mean value). This benchmark may be recalibrated if other comparable licences suggest that the initial figure is atypically high or low.
The FRAND corridor itself is then constructed by either setting its boundaries up to three times the lowest comparable rate or extending ±50% around the determined mean value, in line with the court’s internal normalisation approach. As more comparable agreements are considered, particularly those reflecting marginally higher rates, the mean value may be adjusted, resulting in a corresponding expansion or contraction of the corridor.
To ensure non-discriminatory treatment, the corridor is further narrowed if there is a licence with a close competitor, typically capping the upper boundary at no more than 15% above that competitor’s rate. The court assesses whether the patent owner’s most recent offer falls within the (adjusted) FRAND corridor; if it does, the offer is deemed FRAND.
Conclusion: Internal Willingness to License as a Decisive Factor in FRAND Negotiations when Expecting German Litigation
The ruling shows a further specification of the principles for assessing the implementers' willingness to license and their influence on FRAND negotiations. While external willingness to license is assessed (solely) based on external circumstances and signals a willingness to license as a prerequisite to FRAND negotiations, the existence of internal willingness to license demonstrates the existence of an actual willingness to license. (Counter-)offers from implementers must be realistic and serious for internal willingness to license to be assumed and must fall within a FRAND corridor. They also determine whether patent owners can fully exploit the FRAND corridor or whether, based on the implementer's realistic and serious counter-offer, it may be appropriate to leave the (upper) range of the FRAND corridor and thus behave in a FRAND manner. In any case, tactical (significant) underbidding does not appear to be an option for implementers when expecting litigation before Munich I Regional Court. At the same time, the patent owner's insistence on an (excessive) rate may likewise not be considered FRAND-compliant.
Our Assessment
The use of comparison calculations to illustrate the court's approach in determining FRAND corridors is laudable. As most published FRAND decisions are redacted when discussing the exchanged offers and their basis, these cannot be interpreted by the interested audience seeking guidance when negotiating SEP licences. This shielding has attracted strong criticism because it prevents transparency regarding SEP licence terms. Transparency would benefit implementers and spa re SEP owners a multitude of legal proceedings against implementers who feel they are being taken advantage of by the often rather weak justification of SEP owners' licence demands. In our practice, we have come across many negotiations where not a single licence agreement has been disclosed to the implementer before litigation was initiated.
However, the court explicitly allows the SEP owner to select the most advantageous comparable licence agreements, thereby maintaining control over determining the FRAND corridor. Although the court has established a limitation on the FRAND corridor by capping the licence rate increase at 15% above the rate paid by a comparable competitor, both the determination of the corridor (lowest agreed rate to three times the lowest agreed rate) and the upper limitation currently lack a fundamental economic basis considering the affected products and markets and their economics. According to the German courts' interpretation of FRAND, the FRAND corridor should also be determined on the basis of antitrust principles. This is because FRAND, according to the German courts' interpretation, is merely based on antitrust law. Nevertheless, the emphasis on comparable licence agreements does not fully reflect the antitrust basis of FRAND. The SEP licensing market is an imperfect market that does not allow for negotiations at arm's length. An SEP provides more than just a technological advantage over the competition where the prospective licensee could decide to leave the negotiation table and develop an alternative, maybe even advantageous technical solution, and compete without the claimed standardised technology. The SEP provides access to the standardised market itself while the standardisation excludes by agreement between competitors the inter-technology competition. In such a market situation, FRAND rates should open up a level playing field for the competition over non-standardised technology. The costs of mere access to standardised technology should not decide whether a product can compete in each market segment. That makes scrutiny of the affected markets, also in terms of territory and their specific economics and the competition required, an overly simplistic "splitting the difference" approach that may be legally valid but does not do justice to the complex nature of determining FRAND for a given case and risks distorting competition, reducing consumer choices and increasing prices. Still, Munich I Regional Court’s attempt to further explain and exemplify how it will assess the exchanged offers in terms of their content for FRANDness is a step forward towards more predictability with regard to the outcome of SEP litigation, which is most certainly to be welcomed.
Link to the Judgment
Link to human made English translation
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