On 16 July 2015, the Court of Justice rendered its long-awaited judgment in Huawei/ZTE. In answer to several preliminary questions asked by the Landgericht Düsseldorf, the Court of Justice considered under which circumstances seeking an injunction for infringement of a "standard-essential patent" ("SEP") constitutes an abuse of a dominant position. Unfortunately, the judgment raises more questions than it answers.
As its name suggests, an SEP is a patent reading on technology that is essential to the implementation of a standard. In other words: it is impossible to implement the standard without incorporating the technology on which the SEP reads. Thus, a manufacturer wishing to produce a standard-compliant product must obtain a license to the SEP. If an industry is "locked-in" to a standard, implementers may be "held-up" by an SEP owner's refusal to license or demand for excessive royalty payments. In order to prevent hold-up from occurring, most standard setting organisations require SEP owners to agree to their SEPs on "fair, reasonable and non-discriminatory" ("FRAND") terms.
Commentators have pointed out that the hold-up problem may be worsened by SEP owners threatening to shut down the operations of an infringing company through an injunction. However, the possibility that seeking injunctive relief for infringement of an SEP may be contrary to competition law has only been recognized in the context of the "smartphone wars". The current case also relates to a dispute between major technology companies in the mobile market: Huawei Technologies and ZTE. In 2011, the former brought an action for infringement against the latter before the Landgericht Düsseldorf, seeking amongst others an injunction prohibiting the infringement of one of its SEPs. In 2013, the Landgericht Düsseldorf asked the Court of Justice whether the action brought by Huawei could be qualified as an abuse of a dominant position.
Interestingly, the European Commission did not wait for the Court of Justice's answer before intervening in similar disputes. In 2014, it adopted two decisions relating to this issue: one addressed to Motorola and one addressed to Samsung. In short, the Commission took the position that an SEP owner who has given a FRAND commitment may breach Article 102 TFEU if it seeks an injunction against "willing licensees". It follows from both Commission decisions that alleged infringers should be regarded as "willing licensees" if they agree to determination of FRAND terms by an objective third party, such as a court or arbitral tribunal.
As the Commission did in Samsung and Motorola, the Court of Justice in Huawei/ZTE considered that the exceptional circumstances of this particular case warranted deviation from its earlier case law on mandatory licensing. These special circumstances were the fact the injunction was sought for an infringement of a "patent essential to a standard established by a standardisation body" as well as the fact that Huawei had given a commitment to license on FRAND terms. In such a scenario, the Court of Justice considered that Article 102 TFEU requires an SEP owner to fulfil certain obligations before it is entitled to seek an injunction. First of all, the SEP owner should alert the alleged infringer, identify the infringed SEP and specify the way in which the infringement occurred. If the alleged infringer expresses its willingness to conclude a license on FRAND terms, the SEP owner must present "a specific, written offer for a license on such terms, specifying, in particular, the royalty and the way it is to be calculated". The SEP owner can seek an injunction if the "alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith". An injunction may furthermore be sought if an alleged infringer unwilling to accept the initial offer did not submit "promptly and in writing, a specific counter-offer that corresponds to FRAND terms".
The Court of Justice furthermore clarified some of the rights and obligations resting on the alleged infringer. For one, the Court considered if the alleged infringer does not accept the SEP owner's offer while already implementing the standard, it must provide adequate security. According to the Court, parallel to the negotiations, the alleged infringer should remain free to challenge the validity of the SEP, its essential nature or its actual use.
While the judgment does shed some light on the matter, the position of SEP owners and their prospective licensees still remains largely unclear. A notable reason for this is the Court of Justice's use of many open legal norms, such as "good faith" and "recognised commercial practices in the field". It is moreover unclear whether the rules laid down by the Court of Justice also apply to owners of patents that are essential to de facto standards or patents that should be regarded as commercially rather than technically essential. Also, it would have been helpful if the Court of Justice in Huawei had at least clarified whether it agreed with the Commission's characterisation in Motorola and Samsung of a "willing licensee". Most importantly, courts, SEP owners and implementers remain in the dark as to how FRAND terms and conditions should be determined. This is unfortunate, especially considering the fact that an SEP owner retains the right to bring an injunction against a licensee who made a counter-offer which is not FRAND.
As a result, it is likely that Samsung, Motorola and Huawei will have a sequel in the near future.