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.

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