On July 16, the European Court of Justice issued a decision stating that standard essential patent (“SEP”) owners that seek injunctions against companies willing to license intellectual property on fair and reasonable terms may be illegally abusing their dominance.  You can read the full opinion here.

The dispute between Huawei Technologies Co. Ltd. (“Huawei”) and ZTE Corp. (“ZTE”) arises from Huawei’s patent on Long Term Evolution (“LTE”), a technology that is used in mobile phones and was developed by the European Telecommunications Standards Institute (“ETSI”).  Complying with LTE technology is essential for mobile phone manufacturers.  Huawei is a member of ETSI, and made a commitment to ETSI to grant licenses to third parties on fair, reasonable, and non-discriminatory (“FRAND”) terms.

ZTE offers products that use LTE technology.  Huawei and ZTE were unable to reach a licensing agreement, however, and Huawei sought an injunction against ZTE before the Düsseldorf Regional Court in Germany.  ZTE claimed that the action for a prohibitory injunction constitutes an abuse of dominant position, since ZTE was willing to negotiate a license.

The German court referred those questions to the European Court of Justice, which decided the matter today:

[T]he proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without infringing Article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged infringer without notice or prior consultation with the alleged infringer, even if the SEP has already been used by the alleged infringer.

(emphasis supplied.)  The European Court of Justice held that, in order to bring an injunction proceeding, the SEP owner must first alert the alleged infringer of the infringement and specify the way it has been infringed.  In addition, if the alleged infringer “has expressed its willingness to conclude a licensing agreement on FRAND terms, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer[.]”  The European Court of Justice left it open for the referring German court to apply these legal principles to the facts of the dispute at issue.

Notably, today’s decision does not affect damages suits.  The European Court of Justice specified that the law does not prevent an SEP owner from “bringing an action for infringement against the alleged infringer of its SEP and seeking the rendering of accounts in relation to past acts of use of that SEP or an award of damages in respect of those acts of use.”