The (German) FRAND saga continues: The FCJ’s decision “FRAND III”
In its FRAND III decision, the FCJ continues the path it had already shaped in its FRAND I and FRAND II decisions. The following article is an analysis of the FCJ's approach to the assessment of the implementer's obligation to deposit a security in course of negotiation and the assessment when an implementer is to be regarded a “willing licensee” or showing “qualified willingness to license”. Further, we will assess why the FCJ did not refer specific questions regarding the interpretation of the Court of Justice of the European Union's (CJEU) landmark decision Huawei v. ZTE dating back to 2015 to the CJEU for a preliminary ruling despite the amicus curiae brief having been filed with the Munich Higher Regional Court by the European Commission expressing significant disagreement with the approach taken by the German lower instance courts which dealt with the case at hand before. Notably, representatives of the European Commission still in the oral hearing before the FCJ expressed their disagreement with the German courts’ interpretation of Huawei v. ZTE.
The parties' obligations during licence negotiations under Huawei v. ZTE
According to the landmark decision of the CJEU in Huawei v. ZTE, the following applies: The SEP holder must bring an infringement notice to the implementer. Consequently, after the implementer has expressed its willingness to conclude a licence agreement, the SEP holder must provide such licence agreement offer. It is then for the implementer to provide a counteroffer. In case the SEP holder rejects the counteroffer, the implementer has to deposit security.
The mentioned steps have often been referred to as “FRAND dance”. Between the German (Higher Regional) courts it was and still is disputed whether these steps must be carried out and followed in strict consecutive order or whether there is no mandatory, strictly sequential process. The German Düsseldorf Courts tend to a stricter sequential interpretation, whereas the Munich and Mannheim Regional courts applied a more holistic approach when assessing the implementer's willingness to license and required a “continuous qualified willingness to license”. Also, the first two SEP decisions issued by the UPC apply the more holistic approach.
What the FSC had to decide in FRAND III
After notifying the implementer of the alleged SEP infringement, the claimant initiated a declaratory action seeking damages and information. The claimant subsequently submitted the statement of claim and proposed both a licence agreement and a non‑disclosure agreement (NDA). Several months later, the defendant issued a counteroffer, prompting the claimant to submit further licence proposals. The defendant then provided the requested information and deposited EUR 10,000 as security. They later countersigned the NDA and indicated interest in a lump‑sum licence. The claimant responded with a corresponding draft agreement, which the defendant rejected, now insisting on running royalties. As a result, the claimant expanded the action to include injunctive relief, destruction, and recall. Following the initial judgment of the Munich I Regional Court and the subsequent appeal hearing before the Munich Higher Regional Court, the defendant increased the security deposit to USD 1,000,000.
FCJ’s findings
Already in the official headnotes of its FRAND III decision, the FCJ stresses the importance of the continued willingness to take a licence by the implementer, thereby favouring a holistic interpretation of the parties’ behaviour under Huawei v. ZTE. The FCJ emphasizes that the willingness to license must be present throughout the whole negotiation process. In the absence of such willingness, licence negotiations lack a fundamental condition precedent and abuse of market dominance of the SEP holder according to Art. 102 TFEU cannot be assumed in case the implementer is unwilling to license.
Contrary to arguments raised in the proceedings, the FCJ clarifies that there is no rigid, strictly sequential process requiring the court first to ascertain FRAND-compliance of the SEP holder's offer before examining the implementer's conduct. The assessment must consider the conduct of both parties in the context of licence negotiations, aiming for a fair and reasonable result. Therefore, one party's failure to fulfil its obligations under Huawei v ZTE does not suspend the other party's obligations. Consequently, the implementer must promptly respond to any offer (be it FRAND or unFRAND) and, if rejecting it, submit a counteroffer detailing potential deviations to the offer made by the SEP holder.
Obligation to provide security but no duty to make partial payments
The FCJ confirms that once the SEP holder rejects an implementer’s counteroffer, the implementer must promptly provide appropriate security. Huawei v. ZTE did not resolve whether this security should reflect the SEP holder’s demand or the implementer’s offer.
According to the FCJ, failure to furnish adequate security without delay indicates a lack of genuine willingness to license. The Court leaves open whether the Munich Higher Regional Court was correct in requiring security based on the SEP holder’s latest offer. Instead, it focuses on the principle that any security must be sufficient to cover potential royalty claims; an approach that still places the risk of underestimating the amount on the implementer.
The Munich I Regional Court has taken a more stringent view, holding in earlier guidance and in ASUS I and ASUS II that security alone is insufficient where the implementer has made a counteroffer. In its view, the implementer must make a partial payment equal to its own offer to demonstrate willingness.
The FCJ expressly rejects this position, reasoning that an implementer cannot be required to make advance payments while it remains uncertain whether a licence will be concluded and under what terms. Practical difficulties—illustrated in ASUS I, where a partial payment failed due to the SEP holder’s insufficient cooperation—further reinforce the FCJ’s stance.
No referral to the CJEU – acte clair?
The FCJ held that no renewed referral to the CJEU was necessary, as it considered the interpretation of Art. 102 TFEU and Huawei v. ZTE to be sufficiently clear.
According to the FCJ, courts across Europe follow a consistent understanding of the steps required in SEP licensing negotiations, referencing Dutch and UK courts as well as the UPC. This assumption is debatable: even German lower courts diverge in their interpretation of the “FRAND dance,” and the European Commission, in its amicus curiae brief, advocated for a strictly sequential approach under Huawei v. ZTE.
Given the FCJ’s decision, further referrals from the FCJ or lower German courts appear unlikely. German lower courts are not obligated to seek preliminary rulings and therefore are also unlikely to do so. Any future referral may therefore need to come from a non‑German court or the UPC, particularly one that departs significantly from the FCJ’s holistic interpretation of Huawei v. ZTE.
Consequences of the FCJ’s decision
The FCJ’s ruling confirms that the bar for successfully invoking the FRAND defence in German patent infringement proceedings remains high and hopes that further clarity on how to interpret Huawei v. ZTE could be achieved through a further referral to the CJEU turned out to be wishful thinking. The judgment also provides limited additional clarity on the provision of security once the SEP holder has rejected the implementer’s counteroffer. In practice, the only reliable reference point appears to be the SEP holder’s latest offer. Calculating security based on the implementer’s own offer and subsequently increasing it to match later proposals presents significant timing and quantification risks.
Requiring security at the level of the SEP holder’s demand will, in many cases, impose substantial financial burdens and may undermine the practical viability of the FRAND defence, particularly as the dispute centres on determining the appropriate FRAND rate in the first place.
The FCJ’s approach effectively places the risk of misjudging the FRAND amount solely on the implementer, despite the implementer’s limited access to the information needed to assess what constitutes FRAND under the circumstances. The FCJ’s reasoning also appears to overlook the practical dynamics of standard setting and SEP licensing. Implementers play a central role in driving the demand for new standards and in ensuring their broad market adoption once a standard is endorsed by an SSO. Against this backdrop, a more balanced allocation of risk between SEP holders and implementers would be appropriate.
Link to human made English translation
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