Key Insights From the UPC’s First SEP

In November 2024, the Local Division (LD) Mannheim of the Unified Patent Court (UPC) issued the UPC’s first-ever substantive decision on standard essential patents (SEPs) and fair, reasonable, and non-discriminatory (FRAND) licensing disputes in Panasonic v. Oppo. UPC, Local Division Mannheim, decision of 22.11.2024 — UPC_CFI_210/2023, GRUR 2025, 62. The decision was closely watched as a bellwether for insights into how the UPC might be expected to approach SEP and FRAND issues, which have grown in prominence worldwide in recent years. The decision indicates that the UPC may take a flexible approach to adjudicating SEP licensing disputes.

Based on the UPC’s approach, we provide some practical tips for both SEP owners and implementers.

Basics of the UPC

The UPC is a supranational court that allows owners of European patents and Unitary Patents to enforce their rights in all European Union (EU) member states that have ratified the UPC Agreement (UPCA). Launched in June 2023, the UPC provides litigants a simpler and more efficient avenue for enforcing patent rights by eliminating the need for litigation in national courts of multiple countries. The courts of first instance of the UPC consist of several LDs, a regional division, and a central division. Appeals may be made from the courts of first instance to a court of appeal. Both the courts of first instance and the court of appeal may refer questions of EU law to the Court of Justice of the European Union (CJEU), whose decisions are binding on the UPC. (For more information about the UPC, please see our FAQs here.)

The European SEP and FRAND framework

The UPC is bound by CJEU case law under Art. 21 UPCA. In Huawei v. ZTE, the CJEU’s precedential case on evaluating SEP and FRAND disputes, the CJEU established a framework to determine whether an SEP owner who has committed to license its SEPs on FRAND terms may be found in breach of EU competition law by seeking an injunction against a potential licensee.¹ See CJEU 16.7.2015 — case C-170/13, ECLI:EU:C:2015:477 ¶¶ 52-54 — Huawei v ZTE. The CJEU approach appears to be intended to balance the interest of the SEP owner in protecting the value of their innovation and the interest of the implementer in developing and marketing products that use the standard.²

The CJEU outlined five steps with which the parties (i.e., the SEP owner and implementer) must comply during licensing negotiations to prevent an SEP owner from being regarded as abusing a dominant position when requesting a permanent injunction:

1. The SEP owner must alert the implementer in writing of infringement by noting the relevant SEPs and how they are alleged to be infringed. Id. at ¶ 61.
2. The implementer must express a willingness to conclude a licensing agreement on FRAND terms. Id. at ¶ 63.
3. The SEP owner must provide a specific written offer for a license on FRAND terms, specifying the amount of the royalty and how it was calculated. Id.
4. If the implementer does not accept the offer, it must make a counteroffer promptly and in writing, consistent with FRAND terms. Id. at ¶¶ 65, 66.
5. If the SEP owner declines the implementer’s counteroffer, the implementer must render accounts and provide adequate security in respect of its past and future use of the SEP. Id. at ¶ 67.

Since the CJEU’s decision in Huawei v. ZTE, EU national courts have applied its framework inconsistently. Some courts require a strict application of the framework in which the parties must engage in each step sequentially, such that taking a later step out of turn can cause an earlier step to be found unfulfilled. Other courts, including those in Germany, have adopted a more flexible, contextual approach that does not require the parties to complete the steps strictly sequentially. The European Commission (EC) expressed concerns about this inconsistency and filed an amicus brief in another case expressing its preference for the strict application of the framework.³ Generally, the EC’s view is seen as friendlier to implementers, while the German courts’ approach is seen as friendlier to SEP owners.

The UPC’s first-instance decision

While European national courts and the CJEU have both issued a variety of substantive SEP and FRAND decisions, the UPC had no SEP or FRAND case law of its own until the LD Mannheim decided Panasonic v. Oppo. In this instance, Panasonic owned patent EP 2,568,724 (“the ’724 patent”). Panasonic considered the ’724 patent essential to the 3GPP standard , in particular to TS 136 213 V8.8.0 (Evolved Universal Terrestrial Radio Access (E-UTRA); Physical Layer Procedures), TS 136 211 V8.9.0 (LTE; Evolved Universal Terrestrial Radio Access (E-UTRA); Physical Channels and Modulation) and TS 136 331 V8.12.0 (LTE; Evolved Universal Terrestrial Radio Access (E-UTRA); Radio Resource Control (RRC)), and asserted the ’724 Patent against implementer Oppo. See decision of 22.11.2024 – UPC_CFI_210/2023, GRUR 2025, 62, ¶ 2. Panasonic (“the plaintiff”) requested the LD Mannheim of the UPC to issue an SEP-based injunction against Oppo (“the defendant”) due to unsuccessful negotiations on the conclusion of a FRAND license agreement. Id. at ¶¶ 6, 7. The defendant requested that the infringement action be dismissed and countersued with a revocation of the ’724 patent. Id. at ¶¶ 8, 9. The defendant also filed a FRAND counterclaim asking the court to set a FRAND rate. Id. at ¶¶ 6, 11, 48 et seqq. Additionally, the defendant argued that the claim for injunctive relief was excluded due to antitrust reasons (the FRAND defense). Id. at ¶¶ 17 et seqq.

The LD Mannheim first rejected the defendant’s invalidity arguments (see id. at ¶¶ 92 et seqq.) and found that the defendant’s 4G-enabled products directly and indirectly infringe the ’724 patent (see id. at ¶¶ 150 et seqq.) before moving on to the FRAND defense (see id. at ¶¶ 188 et seq). With regard to the FRAND defense, the LD Mannheim explained that its assessment of the negotiations is not merely economic; it must also take into account the relevant behavior of the parties. Id. at ¶ 193. The parties must conduct themselves during negotiations “according to commercial practice” and in good faith toward the conclusion of a license agreement. Id. at ¶ 201. The LD Mannheim noted that it would assess the conduct of the parties according to whether it is in line with the fundamental objective of the CJEU’s negotiation program to achieve the timely conclusion of FRAND license agreements on a primarily private-autonomous basis in targeted negotiations. Id.

The LD Mannheim rejected the EC’s preferred approach to strictly apply the Huawei v. ZTE framework as overly formal. Instead, it adopted the more flexible German approach. Walking through the Huawei v. ZTE steps, the LD Mannheim found the following:

Step 1: Notification by SEP owner

An SEP owner must inform the implementer of the patent and specify how it was infringed. Id. at ¶ 194. The LD Mannheim explained that the contents of the notification depend on the circumstances of the case. Id. While the LD Mannheim declined to impose strict formal requirements, it noted that a list of SEPs and claim charts could be sufficient for the notification. Id.

In the present case, the LD Mannheim found that the plaintiff's infringement notice was sufficient because it included a list of patents and claim charts it believed to be infringed. Id. at ¶ 206.

Step 2: Willing negotiation by implementer

The implementer must express a willingness to conclude a FRAND license. Id. at ¶ 198. That willingness must be expressed in behavior throughout the negotiation process, not merely as an initial pro forma matter. Id. at ¶ 201. The parties must conduct themselves according to commercial practice and work in good faith toward the conclusion of a license agreement, which the LD Mannheim explained includes an obligation to provide requested information to the other party. Id.

Here, the LD Mannheim found that the defendant's initial willingness to take a license was sufficient because it made that declaration in an email to the plaintiff and named a contact for further discussions. Id. at ¶ 207. The LD Mannheim found that no specific wording is required to indicate willingness to negotiate. Id.

Step 3: FRAND-compliant offer by SEP owner

The SEP owner must explain why its offer is FRAND-compliant. Id. at ¶ 203. The LD Mannheim noted that, in addition to mathematical calculations, the SEP owner must explain why it believes its offer is FRAND-compliant, and the extent of that explanation depends on the stage reached in the negotiations between the parties. Id. Because the SEP owner has superior knowledge of its licensing practices, it should communicate them to the implementer so that the latter can react in good faith. Id. In some cases, that communication could include disclosures of third-party licenses. Id.

In the present case, the LD Mannheim found that the plaintiff presented the “economic cornerstones” of an offer in a Zoom call and subsequently presented a top-down analysis of how it calculates its license fees, which was sufficient for early-stage negotiations. Id. at ¶ 208. Importantly, the court held that a written offer ready for execution is not required. Id. Rather, it is sufficient for the implementer to be able to recognize from the SEP owner’s offer the conditions of the proposed license agreement and, if necessary, to react thereto with a counteroffer. Id. at ¶ 213. Further, it is up to the implementer to request a formal offer (if it wishes) at this stage of the negotiations in such a way that is different from the usual practice. Id. The LD Mannheim also found that the plaintiff (1) used objective criteria to justify the economic positions it had taken at each stage of the negotiations, and (2) explained its considerations in a comprehensible manner that allowed the defendant to take positions thereon. Id. at ¶ 208.

Step 4: FRAND-compliant counteroffer

The implementer must diligently respond to the SEP owner’s offer, which may include making a counteroffer. Id. at ¶ 230.

The LD Mannheim in this case considered the defendant's counteroffer non-FRAND-compliant. Id. However, the reasoning for this factor remains unclear due to its redaction from the LD’s opinion.

Step 5: Rendition of accounts and provision of security

The implementer must provide adequate security if the SEP owner rejects its counteroffer. Id. at ¶ 202. To do that, the implementer must provide the SEP owner with information to assess the scope of the implementer’s actual use so as to be able to determine whether the security is sufficient. Id. at ¶ 233.

In the present case, the LD Mannheim found that the defendant did not behave in good faith, holding that the defendant should have provided the plaintiff with information on its actual use after the plaintiff rejected its counteroffer. Id. at ¶ 234. This was the only way the plaintiff could know whether the defendant’s offered security was sufficient. Id. The LD Mannheim found that the security the defendant provided — a bank guarantee — and the wording thereof was insufficient because it did not protect the plaintiff's claims in the event that the defendant became insolvent. Id.

Accordingly, the LD Mannheim ruled that the defendant’s FRAND defense was admissible but unfounded and granted the injunction.

Takeaways for SEP owners and implementers

The LD Mannheim focused heavily on the behavior of the parties and imposed obligations on both sides to act in good faith toward the other. Throughout its opinion, traits the LD Mannheim considered to indicate good faith included diligence, transparency, and fairness. On the other hand, examples of behavior the LD Mannheim found to be not in good faith included self-contradictory conduct (Id. at ¶ 235), refusing to provide information when requested (Id. at ¶ 202), failing to seek clarifications from the other party (Id. at ¶ 195), raising objections for the first time in litigation instead of during negotiations (Id. at ¶ 206), and dragging out the negotiations (Id. at ¶ 202).

This case has provided an early indication of how the UPC might apply the Huawei v. ZTE framework. The LD Mannheim generally took a flexible approach, emphasizing the importance of determining FRAND compliance on a case-by-case basis in light of the specific circumstances of the case and the behavior of the parties. This approach is similar to that of German national courts, indicating that the UPC (at least the LD Mannheim) will not require formal sequential adherence to the Huawei v. ZTE factors, contrary to what the EC urged.

This case also suggests a number of best practices for SEP owners, SEP implementers, and their legal counsel.

For SEP owners:

• Include details regarding your infringement allegations (e.g., claim charts) in your notification to alleged infringers.
• Prepare license offers early and include relevant and substantive deal points.
• React to communications quickly; reacting slowly can create the appearance of unwillingness to negotiate.
• Explain the rationale for your royalty rates, for example, by including supporting details. You can do this verbally (e.g., in a personal or virtual meeting) or in a side letter.
• Tie royalty rates to relevant support like existing licensing agreements. Avoid charging high royalty rates to small or inexperienced licensees and using those rates as a basis for negotiating with larger and more sophisticated licensees.

For SEP implementers:

• React to communications quickly to avoid the appearance of delaying negotiations.
• If replying to the SEP owner’s offer with a counteroffer, explain your reasons for deviating from the SEP owner’s offer.
• Base your counteroffer on relevant support like existing, comparable license agreements.
• Ask the SEP owner who the existing licensees are. If they are predominantly small or inexperienced, consider challenging the SEP owner’s offered royalty rate.
• Render accounts and provide security at appropriate intervals and where necessary using a reasonable, or jurisdictionally required, rate as a basis.

This case is merely the UPC’s first decision in what is expected to be a long line of SEP and FRAND cases, given the growing adoption of standardized technologies and increase in disputes among SEP owners and implementers. Nonetheless, it gives practitioners an early opportunity to glean insights into how the UPC is likely to handle such matters going forward.