Posted: April 15th, 2020
Sisvel v. Xiaomi, Court of Appeal of The Hague, The Netherlands, 17 March 2020, Case No. ECLI:NL:GHDHA:2020:711
As a non-practicing entity, Sisvel International S.A. (“Sisvel”) focuses primarily on licensing out man-aged patents with third parties that exploit Sisvel’s patented technologies. Following the transfer by Nokia in 2012, Sisvel is the proprietor of (the Dutch designation of) the European patent 1 129 536 B1 (“EP 536”) entitled “Data Transmission in Radio System”. EP 536 has been declared a standard essential patent by Sisvel and Sisvel has declared that it licenses EP 536 under Fair, Reasonable and Non-Discriminatory (FRAND) conditions. The respondents (in the singular “Xiaomi”) is a producer of mobile phones. EP 536 expires on 7 September 2020.
Since 15 October 2013, Sisvel has asked Xiaomi on several occasions to license its portfolio (now called the “MCP Program”). After it was announced in the Dutch media on 29 March 2019 that Xiaomi will enter the Dutch market, Sisvel has applied for preliminary relief on 29 May 2019 seeking inter alia an injunction to prohibit the commercialization of mobile phones in the Netherlands. Sisvel essentially bases its claims on the infringement of EP 536.
Xiaomi defends itself by arguing that
(i) a balancing of interests argues against granting the claims in summary proceedings,
(ii) EP 536 is invalid,
(iii) it does not infringe EP 536 and
(iv) that Sisvel is not acting FRAND (resulting in a breach of its ETSI declara-tion or abuse of dominant position).
The PI judge of the District Court of The Hague had found in favour of Xiaomi by judgment of 1 August 2019 on the basis of the first defence: the balancing of interests in preliminary relief proceedings. Pending the appeal, Xiaomi provided security for the payment of license fees to Sisvel on 22 January 2020. Parallel proceedings between Sisvel and Xiaomi on patents belonging to the same portfolio are pending before the UK High Court, the Beijing District Court as well as merits proceedings before The Hague District Court.
The Court of Appeal holds that the nature of the preliminary injunction proceedings means that the granting of an order for an injunction depends on a balancing of interests. In balancing such interests, due account must be taken of the provisional nature of the judgment in such preliminary injunction pro-ceedings and the far-reaching effects of any injunction on the alleged infringer on the one hand, and of the extent of the damage which, in the absence of a prohibition, would be likely to be suffered by the patentee.
The interests identified by the Court of Appeal on the part of Sisvel are summarized as follows. The damage that Sisvel seeks to prevent with the claimed prohibition is the continuation of the alleged infringement of EP 536 in the Netherlands. This damage is limited to the extent that it concerns the infringement of one (soon to expire) patent from Sisvel’s patent portfolio for the territory of the Netherlands only. In view of Sisvel’s business model, its damage in the event of infringing use by Xiaomi does not therefore consist of the violation of an exclusive position on the market for mobile phones (but in particular of loss of licence fees and profits generated). Since this damage is purely financial in nature, it can therefore be relatively well-suited to be estimated and remedied retrospectively. In this context, the appellate court considers it important that Xiaomi has provided security for the payment of license fees for the use of Sisvel’s patents in the Netherlands.
At the same time, Xiaomi’s legitimate interests carry substantial weight, according to the Court of Appeal. An injunction will force Xiaomi to completely stop selling telephones in the Netherlands, close its stores and cease agreed deliveries to its customers. Partly in view of the damage this will cause to Xiaomi’s relationship with its customers, these are serious consequences. The only possibility that Xiaomi has, when granting the injunction, to pre-empt the demolition of its business built up in the Netherlands is to accept Sisvel’s licence offer. However, that alternative also has far-reaching consequences for Xiaomi, since Sisvel’s offer does not only concern the use of the subject matter claimed in EP 536, but the use of the more than 1,000 patents from the MCP portfolio in more than a billion phones in all countries worldwide.
All things considered, the Court of Appeal is of the opinion that the balancing of interests must be to the disadvantage of Sisvel, even if it would be assumed that EP 536 is valid, that Xiaomi infringes on it and that Xiaomi’s FRAND defence cannot succeed. This means that Sisvel’s infringement claim as well as its ancillary claims are rejected and that Sisvel is ordered to pay Xiaomi’s legal costs in the amount of (slightly more than) EUR 650,000.
The decision (in Dutch) can ber read here.
Headnote: Jeroen Boelens, NautaDutilh