The Advocate General's opinion in Huawei Technologies C-170/13 is that an owner of a standard essential patent (SEP) who has given a FRAND undertaking, may be abusing its dominant position by seeking an injunction against an infringer, where it is shown that the SEP-holder has not honoured its FRAND commitment even though the infringer has shown itself to be "objectively ready, willing and able" to conclude a licence.

Importantly, the Advocate General sets out a framework for determining whether the infringer is in fact "objectively ready, willing and able" to conclude a licence, including placing obligations on infringers to respond to any licensing offer in a diligent and serious manner and putting forward in writing a reasonable counter-offer.   If an infringer does not do so, or its conduct is otherwise purely tactical and/or dilatory and/or not serious, it will lose its protection from injunctive relief.

The full opinion of the Advocate General in Huawei Technologies C-170/13 can be found here.

Business impact

  • The Advocate General's opinion is important as it gives much needed specific guidance on the circumstances in which seeking injunctive relief in respect of an SEP can be an abuse of a dominant position.
  • The Advocate General sets out what is, in effect, a framework within which the SEP-holder and infringer must negotiate for the infringer to avoid the risk of injunctive relief.
  • However, the Advocate General's opinion does not comment on when an SEP-holder is in a dominant position, because this was not the subject of the questions referred by the Regional Court Düsseldorf.  This is likely to be the subject of much further debate, particularly as the Advocate General emphasised that the fact an undertaking owns an SEP does not necessarily mean that it holds a dominant position.  If it is not dominant, its behaviour in relation to its SEPs (whether it seeks injunctive relief or not) cannot be contrary to Article 102 TFEU.
  • It may be that one effect of the framework is to promote a greater degree of cooperation, more quickly, between SEP-holder and infringer prior to the commencement of proceedings.  An infringer's (subjective) assertion of readiness to negotiate will no longer be sufficient to avoid an injunction.
  • However, should the SEP-holder bring proceedings for an injunction, the infringer remains at liberty to challenge the essentiality and validity of the SEPs in question, and can avoid injunctive relief by requesting that the Court fixes the appropriate FRAND royalty and offering a bank guarantee or payment into court if the SEP-holder requests it.
  • The judgment of the CJEU in Huawei Technologies C-170/13 is likely to be published early next year.  

Standard Essential Patents (SEPs)

SEPs are patents covering technology which is necessarily infringed by any product which complies with the relevant industry standard. Some holders of SEPs have undertaken to the Standard Setting Organisations (SSOs) to license their SEPs to any third party willing to take a licence on Fair Reasonable And Non-Discriminatory (FRAND) terms (the so-called FRAND undertakings).

Such arrangements are intended to promote collaboration in the development of standards, whilst ensuring that anyone who is willing to agree to a licence on FRAND terms will be able to practise the standard.

Holders of SEPs that also have a dominant position in the market are subject to a prohibition on abusing that position under Article 102 of the Treaty for the European Union (TFEU).

The Huawei v ZTE reference to the CJEU, the Orange Book Standard defence and competition law

On 21 March 2013, the Regional Court Düsseldorf made a preliminary reference to the CJEU in a case between Huawei, as the holder of SEPs covering aspects of the LTE (Long Term Evolution or '4G') standard, and ZTE as the infringer, setting out five questions in relation to the interaction between SEPs, injunctive and other relief, and competition law.  The questions are available here.

In Germany, a body of case law has developed following the 2009 Orange Book Standard judgment of the Federal Court of Justice of Germany, which offered an infringer of an SEP a defence to a finding of infringement if certain criteria were met. Significantly, in that case, the SEP holder in question was not bound by a FRAND undertaking in relation to the Orange Book Standard for CD-Rs (Compact Disc-Recordable).

The Commission in its role as competition regulator has also taken an interest in SEPs and FRAND.  For example, on 29 April 2014, the Commission issued its decisions following investigations into Samsung and Motorola (see here for our Competition Regulation and Trade / IP e-Bulletin on these decisions).

The Advocate General's Opinion

The Advocate General was quick to distinguish the Orange Book Standard case on the basis that there were no FRAND undertakings given in that case.  Rather, the Advocate General sets out what is, in effect, a framework within which the SEP-holder and infringer must negotiate for the infringer to avoid the risk of injunctive relief.

The framework can be summarised as follows:

  1. Before commencing proceedings seeking injunctive relief, the SEP-holder must alert the alleged infringer to its infringement, specifying the SEPs concerned, the manner in which they have been infringed, and including a written licensing offer on FRAND terms including setting out the precise royalty due and the way that amount has been calculated.  This precludes suing an infringer first for injunctive relief, and then negotiating afterwards.  However, it is not an abuse of a dominant position for an SEP-holder to bring a claim for damages for past acts for the sole purpose of obtaining compensation for previous infringements, or to take legal action to secure a rendering of account, provided that such measures are reasonable and proportionate.
  2. The infringer must then respond to the SEP-holder's offer in a diligent and serious manner.  In particular, if it does not accept the offer, it must respond in writing with a reasonable counter-offer in respect of the clauses with which it disagrees.  It is implicit in this that the infringer should set out its counter-offer in relation to the proposed royalties due.
  3. The timeframe for the exchange of offers and counter-offers, and the duration of negotiations must be assessed in the light of the "commercial window of opportunity", something that will depend upon the particular industry sector in question.  However, an infringer will lose its protection from injunctive relief if its conduct is "purely tactical and/or dilatory and/or not serious".
  4. If negotiations are unsuccessful, it seems that an infringer can avoid the immediate threat of injunctive relief if it requests that FRAND terms be fixed either by a court or by an arbitration tribunal.  However, if the infringer does so, the SEP-holder can then ask for the infringer to provide a bank guarantee or to deposit funds at court, in respect of its past and future use of the SEPs.
  5. During the negotiations for a FRAND licence, the infringer is entitled to reserve the right, "after concluding an agreement for such a licence", to challenge the validity or essentiality of the SEPs.  One reading of this is that the infringer could be at risk of an injunction if it seeks to use essentiality/validity proceedings as a means of delaying entering into a licence.  However, the practical reality is that, to obtain injunctive relief, the SEP-holder would have to establish essentiality anyway and, depending upon whether the proceedings are bifurcated in the jurisdiction concerned, perhaps also validity.

It is important to note that all of the above is predicated on the SEP-holder actually being in a dominant position.  If it is not, its behaviour in relation to its SEPs (whether it seeks injunctive relief or not) cannot be contrary to Article 102 TFEU.  None of the questions referred by the Regional Court Düsseldorf related to that issue.  However, the Advocate General emphasised that the fact an undertaking owns an SEP does not necessarily mean that it holds a dominant position.  That is for the national court to determine.

Ultimately, it is the CJEU's judgment in this Huawei Technologies preliminary reference that will be binding (rather than the Advocate General's opinion).  However, it is likely that the CJEU will adopt most of the Advocate General's guidance in its judgment, which is likely to be published early next year.

Comment

The Advocate General's opinion is useful as it sets out with some specificity the way an SEP-holder and infringer should conduct negotiations if injunctive relief is to be avoided.  However, there remain a number of key aspects that are not dealt with, which are likely to be the subject of much further debate.  Most notably, the circumstances in which an SEP-holder is in a dominant position at all remain unclear.  This is likely to be of particular interest to non-practising entities and those approached by them (see here for our Legal Briefing on this subject).  It is highly likely that any SEP-holder will argue that it is, in fact, not in a dominant position.

It also remains to be seen how the framework in the Advocate General's opinion will be applied in practice.  For example, one possible scenario in the absence of agreement, would be for the SEP-holder to sue for injunctive relief, the infringer to counterclaim that the SEPs are not essential and/or are invalid, to agree to be bound by the court's determination of FRAND (thus depriving the SEP-holder of the right to an injunction) and then for negotiations to continue as the litigation progresses.  This is not significantly removed from the approach seen in FRAND related litigation to date.  Alternatively, it may be that a consequence of the framework is to promote a greater degree of cooperation, more quickly, between SEP-holder and infringer prior to the commencement of proceedings.

In practice, there could also be complications in some jurisdictions around assessing whether the infringer is "objectively ready, willing and able" to conclude a licence.  In some jurisdictions (England and Wales included), negotiations between the parties are commonly subject to without prejudice status, limiting the parties' abilities to adduce evidence on them before the court.  It remains to be seen in these circumstances how the courts will make the assessment of objectivity envisaged by the Advocate General's framework.