Tag: FRAND

The Court of Milan says that standard-essential patents may be only “optionally” implemented in compliant products.

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This past September the Court of Milan issued an interesting – and so-far unpublished – decision in a patent infringement cahtc-legendse involving smartphones and standard-essential patents. The decision is noteworthy as it addressed (albeit briefly) the dynamics of standard-setting and the concept of essentiality, in partial reversal of previous decisions from the same Court and other Italian Courts.

The facts first. The case involved, on the one side, TLC giant HTC and, on the other, IPCom: a German non-practicing entity. Around 2010 IPCom pressed criminal charges against HTC, claiming that a number of HTC smartphones infringed three of its patents (EP 1 236 368, EP 0 913 979 and EP 1 226 692) that had been declared essential to a number of standards (e.g. WDCMA, SAP and UMTS). In response to this, in September 2010, HTC summoned IPCom before the Court of Milan, looking for a declaration of invalidity and non-infringement of said patents. IPCom counterclaimed for infringement, but only for EP 1 226 692 (hereinafter “EP ‘692“).

A (complex and very lengthy) technical investigation phase followed suit, with the appointment of an independent expert. In particular, it was questioned whether HTC smartphones would have directly or indirectly infringed EP ‘692, which was preliminarily deemed valid by the Court-appointed expert.

In assessing infringement, the experts and the Court had to first come at odds with the fact that EP ‘692 had been declared “essential” to ETSI, a prominent standard-setting organisation, for the UMTS standard. And that HTC smartphones were undisputedly compliant to said technical norm.

IPCom contended that since EP ‘692 was formally declared essential to the UMTS standard, every product that proved to be complaint with said standard would automatically infringe its patent.

The Court of Milan, however, viewed things differently.

In the first place, it held that a declaration of essentiality is a “necessarily unilateral” statement, particularly referring to paragraph 3.2 of the ETSI Guide on IPRs, wherein the Institute specifies that it “cannot confirm, or deny, that the patents/patent applications are, in fact, essential, or potentially essential” (for the latest version of the ESTI Guide on IPRs see here). Therefore, the Court affirmed that it had to assess the infringement on a factual and technical basis, implicitly affirming that it could not presumptively do so, on the basis of the patent’s declaration of essentiality alone.

In the second place, the Court of Milan further reviewed the UMTS technical specification at stake, noting that the execution of the activities covered by the patent (relating to the so-called PDCP layer), although regulated in the standard, were only optional for standard-compliant products. To ascertain this, the Court ordered for tests to be carried out on HTC smartphones, simulating both the network operations and the phones’ connection to the providers. As the test revealed that “the phones communicated to the base station that they cannot do” the particular operations mentioned in the patent and that, in any case, “Italian providers don’t ask them to do” said operations, the Court excluded the occurrence of both a direct and an indirect infringement of IPCom’s EP ‘692 patent.

This passage of the decision highlighted a circumstance that is often disregarded in the SEPs discourse: namely that technically-essential patents may be indeed essential, but in relation to portions of the standard that are only optionally implemented in compliant products.

In light of the above, the Court of Milan seems to have stepped away from a previous case law of 2008, where – in line with the technical report drafted by Court-appointed expert – it established infringement of a standard-essential patent by referring only to its essentiality and to the product’s necessary compliance to the standard: a sort of presumptive assessment of the infringement (see Court of Milan, 8 May 2008, Italtel s.p.a. et al. v. Sisvel s.p.a et al.; similar reasoning were put forward – although in preliminary injunction matters – also by Court of Genoa, 8 May 2004, Koniklijke Philips Electronics N.V. v. Computer Support Italcard s.r.l., in Giur. ann. dir. ind. 2006, 4949; Court of Trieste, 23 August 2011, Telefoaktiebolaget L.M. Ericsson v. ONDA Communication s.p.a. ,in Giur. ann. dir. ind. 2013, 5951).

The approach here suggested by the Court of Milan in determining the infringement of SEPs seems to better take into account the inherent technical and legal nuances of the standard setting dynamics, where the possibility of the so-called “over-disclosure” phenomenon — i.e. claiming essentiality for non-essential patents – is considered to be wide spread, and where specific technical features may often be only “optionally” implemented within standard-compliant products.

Giovanni Trabucco

Court of Milan, IP division, decision of 21 September 2016, No. 10288

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)