The long-awaited Opinion delivered by Advocate General Wathelet on 20 November 2014 in the dispute opposing Huawei and ZTE (Case C-170/13) sheds a new and bright light on the legal landscape for injunctions in SEP-FRAND licensing contexts, provided the Court of Justice follows the Advocate General in its judgment for which we still have to wait patiently.
The constellation: Technology owner "O" has committed under ETSI (or equivalent) rules to grant a license on FRAND terms to any user "U" of his technology in the event that his technology becomes essential to a standard. A standard to which the technology is essential is adopted. U plans to use the standard in developing a new product. O and U fail to agree on the terms of the FRAND license.
The question: Can O take U to court and ask for an injunction or corrective measures, or does O abuse a dominant position (Article 102 TFEU) by doing so?
The answer: It depends.
According to AG Wathelet, the ownership of intellectual property is guaranteed under the EU Charter of Fundamental Rights (Article 17(2)), and owners of intellectual property rights do have the right of access to courts, as further developed in Directive 2004/48/EC on the enforcement of intellectual property rights, including the right to ask for preliminary measures and corrective measures. However, the exercise of these rights must not run counter to the objectives pursued by competition law. Here is the proposed framework of analysis proposed by AG Wathelet for the case at hand:
- The owner of a standard essential patent ("SEP") is presumed to hold a dominant position on the market for the technology concerned. This presumption is rebuttable by concrete and substantiated evidence.
- As to the abuse of such dominant position, AG Wathelet proposes a balancing between the property interests of O and the entrepreneurial freedom of U.
- The first step is on O. It is the "special responsibility" that is placed upon him by the fact that he holds a dominant position that obliges him to notify U in sufficient detail of the potential infringement and to submit in writing a fully developed offer to license the SEP on FRAND terms. The offer must include the precise amount of the royalty and the method in which it is calculated.
- U is then obliged to react swiftly and diligently. Should he disagree with the licensing terms offered, he must submit a counter-proposal within an appropriate window of time.
- U is entitled to request O that a court or an arbitration tribunal fix the FRAND terms. If he does so, O may require U to post a guarantee. U may also reserve the right to challenge the SEP or claim non-infringement.
AG Wathelet emphasises the need for speed in technology markets. He therefore considers that FRAND-licenses can in principle be negotiated ex post. As to the obligation on the owner to notify the user (as opposed to the obligation on a generic company in the pharmaceutical sector to "clear the way" before launch), Wathelet points out that the user of a standard cannot be expected to be aware of the, in this case, up to 4,700 patents incorporated in a standard. Wathelet points out that the case at hand is different both from the German Orange Book case (KZR 39/06) and from the European Commission's press releases in the "patent war" cases (e.g. IP/12/1448). Orange Book dealt with a de facto standard, not with a formal standard agreed by the members of a standard setting organisation. On the other hand, a merely vague and non-committing proposal for a FRAND licence by the user is not sufficient to deprive the owner of his right to oppose an infringement. His guidelines are thus a middle path and deviate from the European Commission's recent practice, as well as from the very restrictive German case law.
Conclusion: It needs to be seen whether and to what extent the EU Court of Justice will follow the Advocate General. As the case at hand is a preliminary ruling, the Düsseldorf Court will eventually need to rule on the facts. Nevertheless, the conclusions are noteworthy in so far as they would force the European Commission to correct its recently adopted position that Article 102 TFEU is infringed where the owner of a SEP seizes the court in reaction to a vague offer by a user. They would also force the German courts, which were relatively quick to issue injunctions on FRAND-pledged SEPs in the past few years, to adopt a more balanced regime.