Huawei Technologies Co. Ltd v. ZTE Corp., ZTE Deutschland GmbH

Despite the fact that standard-essential patents (SEPs) have been on the agenda of the European Union (EU) competition law debate for some time now, little guidance has actually been provided to intellectual property right (IPR) holders and implementers of technologies as regards the licensing and protecting of essential technologies.

With two decisions on the abusive use of SEPs having been issued by the European Commission (Commission) earlier this year, the time is ripe to discuss the EU competition law understanding of the law on the matter. The much-awaited opinion of Advocate General (AG) Wathelet in case C-170/13, Huawei v ZTE does just that—it explains how the highest court in the EU might interpret the law on the seeking and enforcing of injunctions by SEP holders in the EU.  Huawei Technologies Co. Ltd v. ZTE Corp., ZTE Deutschland GmbH,Case C-170/13. 

Huawei, the holder of a patent essential to the LTE standard, entered into discussions with ZTE which had expressed an interest in signing a fair, reasonable and non-discriminatory (FRAND) licensing agreement allowing it to implement the technology. Given that negotiations between the companies were unsuccessful, Huawei brought an action for infringement against ZTE, seeking an injunction prohibiting continuation of the infringement.

In adjudicating on the matter, the Regional Court of Düsseldorf referred the following preliminary question to the Court of Justice of the EU (CJEU):  whether—and, if so, in what circumstances—an action for infringement brought by a SEP holder against a manufacturer of products that comply with that standard constitutes an abuse of a dominant position for the purposes of EU competition law where the patent holder has made a commitment to grant licences on FRAND terms.

AG Wathelet issued his opinion in the case on November 20, 2014. Although not binding, this opinion sheds some light as regards the likely scope of the final judgment by the Court of Justice of the European Union (CJEU).

The AG devoted most of his attention to the two most persistent issues, namely whether SEPs confer market power and therefore create a presumption of dominance and whether the seeking of an injunction against an alleged infringer might be deemed as an abuse of dominance by the SEP holder under Article 102 of the Treaty on the Functioning of the EU (TFEU).

Dominance

It is almost too tempting for a national court to simply proceed with an Article 102 TFEU case on the assumption that the SEP implies that its holder enjoys dominance. In this respect, however, the AG reiterated that a company does not necessarily hold a dominant position when it owns standard-essential technology. He argued that any presumption of dominance should be rebuttable by reference to “specific, detailed evidence,” and that this should ultimately be assessed by national courts on a case-by-case basis.

That said, against the above (enthusiastic) deliberations of the AG, it is difficult to imagine a situation in which the SEP holder would not enjoy dominance on the relevant market. In other words, although it should in theory be possible to rebut the presumption that SEPs confer dominance, in practice this would not normally be the case.

Injunctive Relief Sought by the SEP Holder

According to the AG, if the potential licensee is “willing, ready and able” to enter into a FRAND licence and to pay an appropriate royalty, the SEP holder must take certain specific steps before seeking an injunction. AG Wathelet justifies this position by the fact that the technology implementer will not always know if the IPR in question is infringed, valid or essential.

The AG outlined what steps the SEP holder ought to take before seeking an injunction in order to limit the risk of his conduct being perceived as abusive.

First, the SEP holder should send to the implementer a written notice, specifying the SEP in question and how it is allegedly being infringed. Crucially, the AG explained that the SEP holder should not be obliged to alert the alleged infringer of the infringement if it has been established that the implementer was fully aware of the infringement.

Second, and regardless of the above point, the AG suggests that there must always be a written licence offer containing all terms which are “normal” for the industry as well as detailing the amount of royalty and how it was calculated. In relation to this guideline, it must be noted that contractual conditions will inevitably differ across industry sectors and jurisdictions. It is not difficult to envisage therefore that in certain circumstances this requirement could lead to the situation whereby the SEP holder is led to include specific clauses that will not be necessary (or “normal”) in every jurisdiction.

The AG clarifies that once these steps have been taken, the alleged infringer should respond to the offer in a diligent and serious manner. If the SEP holder’s offer is not accepted, it must present him with a reasonable counteroffer relating to the terms with which the licensee disagrees. The idea behind this mechanism is that it decreases the likelihood of the infringer’s conduct being tactical or dilatory, in which case it would not constitute an abuse under Article 102 TFEU for the SEP holder to seek an injunction. Similarly, if a potential licensee requests that a court or an arbitral tribunal determine the terms of the licence, its conduct should not be considered as dilatory or non-serious.

Other Considerations

One other consideration by the AG merits closer attention. He notes in his opinion that it is reasonable for a FRAND-bearing SEP licence to be negotiated and obtained “ex post”, i.e., following the licensee’s exploitation of the underlying technical specifications. In other words, the AG sees it as a legitimate step that the potential licensee would start using the patented technology even before negotiating and entering into the licence agreement with the SEP holder.

Comments

The opinion of AG Wathelet, together with the Commission’s decisions in the Samsung and Motorola cases, constitutes another piece of the SEP puzzle. The opinion contains some valuable guidance that makes the overall picture much clearer, but it is still far from being full and final.

As pointed out above, this opinion will not be binding on the CJEU, which can take a different stance on the issue, although in the majority of cases AG opinions tend to be followed. That said, given the complexity of the issues and the inherent difficulty in striking the right balance between the competing interests of the stakeholders concerned, it would not at all be surprising to see the CJEU suggesting yet another solution.

Pending the final judgments, SEP holders are therefore advised to take caution in their dealings with implementers of the patented technologies and vice versa.