Category: SEP

FRANDly negotiations: national Courts apply the Huawei v. ZTE framework

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The Bucharest Court of Appeal and the Regional Court of Düsseldorf have recently issued two decisions concerning the enforcement of standard essential patents (SEPs) in the telecommunication industry. The decisions (which have been made available by Comparative Patent Remedies: see here and here, also for their English translation) are particularly interesting in that they apply the framework depicted by the CJEU in the Huawei v. ZTE case (C-170/13, full text here) with regard to the availability of injunctive relief for SEPs encumbered by FRAND (Fair, Reasonable and Non-Discriminatory) commitments. As is well known, according to the Huawei v. ZTE decision, a SEP holder, before asking an injunction against an alleged infringer, must present him a specific and detailed FRAND license offer (Huawei v. ZTE, par. 63). In the absence of such a FRAND license offer, seeking an injunction may amount to an abuse of dominant position under Art 102 TFEU (Huawei v. ZTE, par. 77). But what if the infringer does not respond to the SEP holder’s offer? Is the FRAND-compliance of the SEP holder’s offer still to be verified, in order for the injunction to be granted?

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The Romanian case

In 2014, Vringo, Inc., an Israeli non-practicing entity (NPE), obtained from the Tribunal of Bucharest a preliminary injunction against ZTE Romania on the basis of a patent essential to the 4G/LTE standard. The decision was upheld by the Bucharest Court of Appeal. In particular, in the case at stake, Vringo had offered a license to ZTE Romania and ZTE Romania did not respond to the offer.

Later on, ZTE Romania filed a motion to have the above preliminary injunction lifted on the grounds of its alleged inconsistency with the Huawei v. ZTE framework. However, both the Tribunal and the Court of Appeal of Bucharest dismissed the petition. In particular, by decision of 28 October 2015, the Court of Appeal stated that, precisely in the light of Huawei v. ZTE, when the alleged infringer does not respond to the SEP holder’s offer (but the same applies to the case of a non-FRAND counter-offer), the SEP holder cannot be deemed to be abusing its dominant position. It seems from the line of reasoning of the decision that the Bucharest Court did not verify the FRAND-compliance of Vringo’s offer, and deemed it sufficient that ZTE Romania failed to present a FRAND counter-offer for an injunction to be granted.

The German case

The approach of German Courts is different. In an order of 13 January 2016, the Higher Regional Court of Düsseldorf held that the alleged infringer is not required to propose a FRAND counter-offer if the one it received is not FRAND-compliant. In other words, the Court has, first of all, to verify whether the patent owner’s offer is FRAND. Only if this condition is met, it will check if the counter-offer is FRAND-compliant too. Therefore, the alleged infringer who receives a non-FRAND offer and does not respond cannot be subject to an injunction under the Huawei framework and, if sued before a Court, he can simply object that its counterparty did not respect the FRAND “etiquette” provided by the CJEU. Obviously, the patent holder would still have the chance to prove before the Court that its offer was actually compliant to FRAND terms and conditions, and to obtain an injunction.

The same approach was recently adopted by the Regional Court of Düsseldorf too, in its decision of 31 March 2016 (English  translation  of  the  relevant  excerpts made available by Comparative Patent Remedies blog here). In this case, concerning a patent essential to the AMR-WB standard for 3G communications, the Court specifically assessed the FRAND nature of the patent holder’s offer, although it was undisputed that the alleged infringer had not proposed a counter-offer.

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The German approach seems to be preferable. Since, under the Huawei v. ZTE framework, a FRAND-compliant offer by the patent holder is mandatory, Court should not issue injunctions without a prior assessment of the FRAND nature of the patent holders’ offers. Should this assessment be omitted, the burden of estimating a fair offer would shift from the patent holder – the only one who has the very instruments to calculate a fair royalty rate according to “comparable licensing agreements” – to the alleged infringer. So that, in order to avoid an injunction, the alleged infringer will most likely present a very high counter-offer. This seems to stifle the pro-competitive effects of the Huawei v. ZTE framework.

Stefano Vignati

(IPlens’ guest)

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

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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.