On the 16 July 2015, the Court of Justice of the European Union (CJEU) handed down judgment in Huawei Technologies Co Ltd v ZTE Corp (Case C-170/13).
The case concerns a standard-essential patent (SEP); a type of patent which the European Telecommunications Standards Institute (ETSI) considers sufficiently important for the future growth and evolution of technology in a particular sector that it ought not be subject to the same rules and laws as regular intellectual property rights. The owner of an SEP must commit to ETSI to grant licenses in relation to their patent on fair, reasonable, and non-discriminatory terms (FRAND terms).
The parties had unsuccessfully attempted to negotiate a licensing agreement on FRAND terms, and Huawei (the SEP owner) had proceeded to bring an injunctive action against ZTE for its continued use of the SEP. ZTE claimed that, since it was ready and willing to negotiate, the taking of injunctive proceedings constituted a clear abuse of dominance in breach of Article 102 TFEU.
On 5 April 2013, the Dusseldorf Regional Court made a request for a preliminary ruling. The European Court of Justice (ECJ) was asked whether injunctive action brought by an SEP owner against an undertaking which manufacturers products in accordance with that standard will constitute an abuse of a dominant position.
On the 20 November 2014, AG Wathelet opined as follows:
1. An SEP owner must offer a licensing agreement on FRAND terms to the alleged infringer before bringing an injunctive action.
2. If the alleged infringer is “ready, willing and able to conclude” a licensing agreement on FRAND terms, and responds to the offer in a “diligent and serious manner,” then the SEP owner will be in breach of Article 102 if it nonetheless brings an injunctive action.
3. It is considered “diligent and serious” for the alleged infringer to request that FRAND terms be fixed by a court or arbitral tribunal if the parties cannot reach agreement between themselves. In that case, the SEP owner is entitled to request from the alleged infringer either a bank guarantee or a deposit at the court or arbitral tribunal in respect of its past and future use of the patent.
4. An alleged infringer is still to be regarded as “diligent and serious” where they reject a license agreement under which they would have no right to challenge the validity of the patent.
The Court of Justice of the European Union (CJEU) handed down judgment on the 16 July 2015 and agreed with AG Wathelet’s opinion. The CJEU’s approach was to seek an accommodation between free competition on the one hand and the protection of SEP owners’ intellectual property rights on the other. However, the decision is of particular significance to SEP owners who will now be found to be in abuse of a dominant position if they bring an injunctive action without first clearing the required hurdles outlined in the judgment. Firstly, they must alert the alleged infringer as to the infringing act complained of in writing and in detail, “giving reasons, and specifying the SEP concerned and the manner in which it has been infringed by the infringer.” Secondly, they must offer a licensing agreement on FRAND terms to the alleged infringer, specifying “the precise amount of the royalty and the way in which the amount is calculated.” The alleged infringer need only be ready and willing to enter into a licensing agreement on FRAND terms and respond “diligently” to any offer made in order to protect itself.
Whilst the CJEU and the AG may have attempted to reach a middle ground, SEP holders should not be penalised for asserting their own rights and negotiating a fair deal if they feel they are faced with onerous terms.
However under the judgment, neither the SEP holder or the putative licensee are any closer to understanding what, in objective quantifiable terms, a FRAND offer actually entails. It seems more likely that by further restraining the ability of SEP holders to bring interim injunctions, including the ability of the challenger to delay matters further with court or arbitral proceedings, the ability of SEP holders to enforce their intellectual property rights has been considerably watered down.