Huawei v. ZTE: Enforcing standard-essential patents as abuse of dominance

Following the request for a preliminary ruling issued by the Landgericht of Düsseldorf (Germany), on July 16th 2015, the European Court of Justice addressed the question whether or not, and at what conditions, the firm holding a standard-essential patent (SEP: namely, a patent essential to produce manufactures in compliance with a particular standard), which has committed to grant a license to third parties on FRAND terms, abuses its dominant position by seeking injunctions against alleged infringers (decision available here).

The long-awaited judgment of the Court confirms the general approach adopted by the Commission in both Motorola and Samsung cases (available here and here). However, while the Commission had merely stated that enforcing a SEP in court can constitute an abuse of dominance under certain circumstances, the ECJ decision goes further, clarifying what those circumstances are. In particular, the Court held that seeking an injunction against an alleged infringer does not violate competition law when the following conditions are met:

  1. prior to bringing the action, the SEP holder has informed the alleged infringer of the violation of its intellectual property right, specifying the mode of infringement;
  2. the SEP holder has presented a written offer for a license on FRAND terms to the “infringer” (which has previously expressed its intention to conclude a license agreement). The offer must include all the relevant conditions of the agreement, in particular the royalty rate applied and the way it is calculated;
  3. the potential licensee has not “diligently responded to [patent owner’s] offer in accordance with recognized commercial practices in the field and in good faith”, and has continued to use the protected technology.

The decision of the Court of Justice seems to subordinate the finding of abuse to the “bad faith” of both SEP owners and producers of standard-based products. On the one hand, the formers have to concretely fulfill the obligation to the standardization bodies consisting in giving a license on FRAND conditions to third parties. Indeed, a patent cannot obtain the SEP status unless the legitimate holder undertakes to grant a FRAND license to anyone who may require it, in order to prevent the SEP holder from “reserv[ing] to itself the manufacture of the products in question”. Thus, it is not surprising that, according to the ECJ, the patent owner may incur in an abuse of dominance if it seeks an infringement injunction without even submitting a licensing agreement to the alleged infringer.

On the other hand, the ECJ imposes the obligation of good faith also to the potential licensee, which – having decided not to accept the offer submitted by the patent owner – “may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counter-offer that corresponds to FRAND terms”.

The ECJ judgment has definitely the merit of striking a reasonable balance between the interests at stake: those of the potential (and willing) licensees, which supposedly made specific investments relying on the FRAND license promised by the SEP holder; and those of the SEP holder itself, which should be granted the right to effectively protect its intellectual property rights from free-riders.

Nonetheless, the intervention of European judges leaves some issues unsolved. Firstly, the decision does not explain when a license can be considered FRAND. Secondly, it does not answer the question whether holding a SEP implies, per se, a dominant position on the market (actually, the referring court had not asked about the finding of dominance). At first glance, there seems to be the glimmer of an opening for such a conclusion. A passage of the sentence, in fact, reads as follows: “[…] the patent at issue is essential to a standard established by a standardization body, rendering its use indispensable to all competitors which envisage manufacturing products that comply with the standard to which it is linked. That features distinguishes SEPs from patents that are non essential to a standard and which normally allow third parties to manufacture competing products without recourse to the patent concerned and without compromising the essential functions of the product in question” (emphasis added). This appears quite close to an irrebuttable presumption of dominance. A debatable position: in my view, the presumption should be rebuttable (as suggested by the Advocate General Whatalet in his opinion, available here), hence the judges should continue assessing, case-by-case, a situation of actual, effective dominance.

Piera Francesca Piserà

CJEU, 16 July 2015, case C-170/2013, Huawei Technologies Co. Ltd. v. ZTE Deutschland GmbH.

Trade Secrets: EU Commission’s Proposal for a Directive

In November 2013, the European Commission (EC) proposed a draft Directive on “the protection of undisclosed know-how and business information (trade secrets) against unlawful acquisition, use and disclosure” (full text here). The draft was approved in May 2014 by the Council of the European Union (full text here).

The proposal is innovative, it has no precedent in EU legislation. It has the ambitious goal of aligning existing laws against the unlawful acquisition, use and disclosure of trade secrets across the EU. This impulse of harmonization is consistent and part of the broader strategy of the EC aiming at strengthening the single market for IP rights.

At the moment, the proposal is still under scrutiny following the ordinary EU legislative procedure. Therefore, the final directive is not due to be issued before the end of 2015.

The draft directive is the final step of a thorough assessment of the role played by trade secrets in enhancing innovation and competition within the EU market, in particular through their interaction with intellectual property, and of the legal framework governing them. The analysis was carried out on the basis of two external studies and consultations with stakeholders.

One of the main results of this assessment was that the legal framework governing trade secrets protection is highly fragmented throughout the EU. Hence, corporations have less incentives to do cross border investments in R&D or to exchange valuable information within the EU. Thus, the proposal starts by giving a uniform definition of trade secrets in accordance with existing international binding standards such as art. 39.2 of the TRIPS Agreement. Essentially, information is considered a trade secret when it is not easily accessible by an average expert in the field, it has a commercial value and it has been subjected to reasonable secrecy measures. Furthermore, the draft defines the relevant forms of unlawful acquisition, use and disclosure of trade secrets and clarifies that reverse engineering and parallel innovation shall be considered a lawful manner of appropriation of trade secrets.

Moreover, the proposal harmonizes the legal remedies available to plaintiffs to enforce the misappropriation of trade secrets: in particular, injunctions and corrective measures (i.e. the cessation of or prohibition on the use or disclosure of trade secrets, the prohibition on the production or import/export of “infringing goods” and the adoption of appropriate corrective measures with regard to the infringing goods), interim and precautionary measures at the request of trade secret holder, and the victim’s right to compensation for the damages caused by the unlawful use or disclosure of the misappropriated trade secret.

In conclusion, an analysis of this general framework indicates that trade secrets are not yet being elevated, in terms of status and legal protection, to the level of IP rights. In this manner, the proposal avoids the risk that patents, and their related pro-competitive effects such as disclosure of information, are replaced by trade secrets.

Alessandro Massolo

Researcher at Osservatorio di proprietà intellettuale, concorrenza e comunicazioni, LUISS Guido Carli

Topographic maps as databases: CJEU

The CJEU ruled that topographic maps may fall within database protection under Directive 96/9 (full text here). The dispute concerned the use by Verlag Esterbauer, an Austrian travel books publisher, of certain topographic maps published by the Land of Bavaria. In particular, Verlag Esterbauer scanned the maps and extracted the underlying geographic data with a graphics programme to produce and market its own maps dedicated to walkers and cyclists.

According to the Court, the concept of “database” must be interpreted widely, as collections of works and/or other data, in any form, without technical or material restrictions, therefore applying also to analog databases. Indeed, the Court stressed the “functional” nature of database protection and its aim at fostering investment in data processing systems.

The main requirement of a database under Art. 1(2) of Directive 96/9 is the existence of “independent materials”, i.e. separable without affecting their value. Independent materials can also consist of combination of pieces of information, if they have autonomous informative value after being extracted. This may be the case of geographical information (e.g., “geographical coordinates point” plus “the numbered code used by the map producer to designate a unique feature, such as a church”), as long as the extraction of such data from the map does not affect their autonomous value. Under the broad definition of database, this autonomous value shall be assessed vis-à-vis the degree of interest of third parties to the extracted material, irrespective of the fact that such value might diminish after the extraction.

The Court found that in the captioned case: (i) Verlag Esterbauer made an autonomous commercial use of the information extracted from the Land of Bavaria’s maps, and (ii) it provided its customers relevant geographical information. Thus, such geographical information constitutes “independent material” from a database.

It seems all too evident that the Court, in line with its settled case-law (see our comments on the Ryanair case here), keeps broadening the notion of database under Directive 96/9 with the aim of further protecting investments in the information market.

Francesco Banterle

CJEU, 29 October 2015, Case C-490/14, Freistaat Bayern v Verlag Esterbauer GmbH

Product-by-process patent = product patent??

Worthy of comment is a recent decision of EPO’s Enlarged Board of Appeal (March 25, 2015) in the cases Tomato II and Broccoli II (respectively, Case Number G2/12 here and Case Number G2/13 here). Both cases relate to the patentability of plants and plant matter under Article 53(b) EPC. The Tomato II case concerns a “method for breeding tomatoes having reduced water content and product of the method”, while the Broccoli II case concerns a “method for selective increase of the anticarcinogenic glucosinolates in brassica species”.

The EPO’s Enlarged Board of Appeal stated that even a product-by-process patent is a “product patent” autonomously protected from the process that describes the former and from which the implementation as product depends.

The EPO’s approach (see, in each decision: Reasons, Legal erosion of the exceptions to patentability,§ 6.(b), p.61) is open to criticism. On the one side it risks paralyzing the competitive dynamics of process innovation, in contrast an interpretation of articles 64(2) EPC and 34 TRIPs whereby third parties are allowed to make the same product with a totally different process—hence,   without any absolute block imposed by pre-existing product patents that are the fruit of a totally different intellectual process. On the other side, EPO’s opinion ‘forgets’ that in absence of that process, the product wouldn’t even exist, as the facts of the cases highlighted that no other processes were available to achieve the same result. The final outcome of said decisions is even more debatable as the process through which the product was described and claimed was essentially biological , thus as such non patentable: with the paradoxical ultimate result of allowing the patenting of a product that could be realized only through a process not patentable by definition!

Gustavo Ghidini

Gianluca De Cristofaro

EPO, Enlarged Board of Appeal, 25 March 2015, Case Number G2/12 and Case Number G 2/13, Tomato II and Broccoli II

updated on 12 November 2015