The CJEU has adopted and simplified the framework from Advocate General Wathelet's opinion in Huawei Technologies C-170/13 (see our bulletin here). An owner of standard essential patents (SEPs) who has given a FRAND undertaking, may be abusing its dominant position by seeking an injunction against an alleged infringer, unless the SEP holder alerts the alleged infringer - designating the SEPs in question and specifying how they have been infringed; and provides a specific written offer for a licence on FRAND terms - specifying the royalty and the way it is to be calculated. However, if the SEP holder follows these steps, then the SEP holder may seek an injunction if the other party continues to use the SEPs in question and fails to respond "diligently" to the SEP holder's offer "in accordance with recognised commercial practices in the field" and "in good faith". If the alleged infringer adopts "delaying tactics", then it will lose the right to object to a claim for injunctive relief as an abuse of a dominant position.

Furthermore, the infringer may only allege that an action for a prohibitory injunction is an abuse of a dominant position once it has "promptly" submitted in writing a "specific counter-offer that corresponds to FRAND terms".

The full decision of the CJEU in Huawei Technologies C-170/13 can be found here.

Business impact

  • The CJEU's judgment in this case provides important guidance and welcome clarity to both SEP holders and implementers as to what steps each must take in order to retain either the right to request or the right to object to a claim for an injunction preventing use of an SEP.  But there remains uncertainty: for example, does an infringer have to provide security for its counter-offer?  What is the effect of the parties agreeing to have an independent third party determine a FRAND royalty?
  • The judgment proposes to strike a balance between protection for SEP holders on the one hand and undue delay for implementers in bringing their products to the market on the other.
  • The language used by the CJEU is somewhat more beneficial to SEP holders than that used by the Advocate General ("AG").  That said, the decision reaffirms that an alleged infringer cannot be criticised for challenging, or insisting on reserving the right to challenge in any negotiations, the essentiality or validity of the SEP(s) in question.
  • A number of practical issues remain however: When is an SEP holder dominant?  What does FRAND mean in practice? Exactly how much detail does a SEP holder have to provide to an alleged infringer when first alleging use of the SEP? What factors will be relevant to whether an alleged infringer has responded in good faith and without delay? These will still need to be considered on a case by case basis, and so all eyes will be on the German court to see how it implements this ruling in the instant case.

Standard essential patents (SEPs) and competition law issues

SEPs are patents covering technology which are necessarily infringed by any product which complies with the relevant industry standard.  In principle, SEP holders undertake 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.  In the context of FRAND related disputes, it has been argued that holders of such SEPs may be abusing their dominant position under Article 102 TFEU by enforcing or threatening to enforce an injunction against an alleged infringer who has declared a willingness to negotiate a licence on FRAND terms.  The concern is that the threat of an injunction may lead to undue pressure during the negotiations and result in unfairly high royalties or the product disappearing from/not coming to the market.

The EU Commission decisions in Motorola and Samsung of April 2014 (see here for our briefing on these decisions) were the first cases to provide some guidance from the Commission on the compatibility of SEP injunctions and the EU competition rules.  Whilst recognising that seeking an injunction is a legitimate remedy against a patent infringer, the Commission held that applying for an injunction based on SEPs may be an abuse of a dominant position where the patent holder has given a voluntary commitment to license its SEPs on FRAND terms and where the injunction is sought against a licensee who is willing to enter into a licence agreement on FRAND terms.  The decisions provide a safe harbour for infringers who are willing to submit to third party resolution of FRAND disputes, and clarify that seeking to challenge the validity of a patent does not render an infringer unwilling, but do not expand much further on the concept of a 'willing licensee'.

More recently, the Commission carried out an industry wide consultation between October 2014 and February 2015 entitled "A modern framework for standardisation involving intellectual property rights" (see here).

The CJEU's ruling in Huawei Technologies therefore provides helpful clarification by confirming the framework within which the SEP-holder and infringer must negotiate in order for the infringer to avoid the risk of an injunction.

Background to the Huawei case

In March 2013, the Regional Court of 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 alleged infringer of the patents.  The case arose from the potential conflict between the approach taken by the German courts, which had traditionally been more SEP holder friendly (and imposed stricter requirements on infringers for them to be able to demonstrate that they were "willing licensees"), and the EU Commission's approach in the Samsung and Motorola cases (at the time the referral was made the Commission had given a first indication of its approach in a press release when the Statement of Objections in the Samsung case was issued).  The Düsseldorf Court was concerned that continuing with what had become known as the 'Orange Book Standard' framework in Germany would be incompatible with EU competition law.  The German Court therefore decided to stay proceedings and ask the CJEU for clarification on the appropriate threshold for an abuse of dominance defence in the context of an SEP injunction and on the concept of a 'willing licensee'.

The AG's Opinion

In his Opinion (see here for our briefing on the AG's Opinion), Advocate General Wathelet sets out a framework which specifies what is expected of SEP owners before they seek an injunction, so as to avoid the risk of abuse of a dominant position and the steps to be taken by alleged infringers in order to demonstrate they are a genuinely willing licensee.

Before commencing proceedings seeking injunctive relief, SEP holders must alert the alleged infringer to the infringement, specifying the SEPs concerned and the manner in which they have been infringed.  They should also make a written licensing offer on FRAND terms, including the proposed royalty and the way in which that amount is calculated.

Infringers should respond to the SEP-holder's offer in a diligent and serious manner and, if they decide not to accept the offer, promptly make a counter-offer in respect of the clauses with which they disagree.  If the infringer's conduct is purely tactical, dilatory or not serious, then the SEP holder seeking an injunction against that infringer should not be in breach of competition law.  

Where the parties are not able to reach an agreement under this process, they may request for FRAND terms to be determined by a court or arbitration tribunal.  If this is the case, the SEP holder can 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.

The user of the SEP should not be deprived of the right to challenge the validity of the SEP and can require this to be a term of any licence.

The CJEU's judgment

The CJEU has largely adopted the AG's Opinion as regards the availability of injunctive relief, with some simplification of the AG's framework and particularly the wording used for the various tests. Overall the language used by the CJEU seems to be somewhat more beneficial to SEP holders.

The obligations of the SEP holder before it may seek an injunction follow the AG's Opinion almost word for word. The SEP holders must alert the alleged infringer to the infringement, designating the SEPs concerned and specifying the manner in which they have been infringed. However, no indication is given as to the level of detail required to be given, but it is assumed that at the very least examples of the alleged infringer's products said to infringe must be provided.  Whether details of exactly how it is alleged a product falls within the claims of the SEP must be provided is unclear.  They should also make a written licensing offer on FRAND terms, including the proposed royalty and the way in which it is calculated.

As for the alleged infringer, if it continues to use the SEPs concerned, then it is obliged to respond "diligently" to the SEP holder's offer "in accordance with recognised commercial practices in the field" and "in good faith". This will be assessed objectively (rather than accepting the subjective assertions of the parties by themselves).  However, the judgment does not give any criteria by which such an objective assessment should be conducted.  The alleged infringer also must not adopt "delaying tactics".

Furthermore, the alleged infringer may only allege that an action for a prohibitory injunction is an abuse of a dominant position once it has submitted a "specific counter-offer that corresponds to FRAND terms". Presumably, as with the initial offer, this means that any such counter-offer must also contain a proposed royalty and calculation (though this is not stated expressly in the judgment).

The judgment also suggests that, should the SEP holder reject such a counter-offer, then the infringer is obliged to provide appropriate security (e.g. a bank guarantee or deposit) in respect of past and future infringement and render an account. The judgment does not specify whether the amount of security should be calculated by reference to the royalty rate in the offer or the counter-offer, so this remains a question for the national court to decide.  There is also a question mark as to whether this is a pre-requisite to avoiding injunctive relief:  it does not feature in the ruling at the end of the judgment, but only earlier on in the text of the decision (paragraph 67).

In accordance with the AG's Opinion, the CJEU held that it cannot be abusive to seek damages or  a rendering of accounts, since those remedies do not have a direct impact on products complying with the standard in question manufactured by competitors appearing or remaining on the market.
On the other hand, the CJEU upheld the right of the infringer to challenge the validity and/or the essentiality of the SEPs in question or to reserve the right to do so in future. This is a simpler formulation than the one recommended by the AG in his Opinion.

The CJEU noted that the parties may "by common agreement" request that the FRAND royalty be "determined by an independent third party, by decision without delay."  However, the judgment does not say anything about what happens to any ongoing litigation in the interim, and in particular the availability of injunctions.

The remains further uncertainty in that the CJEU judgment does not give any guidance on when an SEP holder is in a dominant position (which is a pre-requisite to being able to abuse that position).  The CJEU did not comment on the AG's obiter point that merely holding an SEP did not necessarily entail having a dominant position that could be abused, the Court merely saying that his issue was outside the scope of the questions that had been referred.