The world’s five largest patent authorities – the so-called IP5 – collectively issued nearly 2 million patents in 2012 – an increase over 2011 of nearly 17 percent.

As the importance of patents grows, so does concern about the abusive exercise of patent rights and, thus, closer scrutiny of patent rights by antitrust authorities.

LEGAL FRAMEWORK: PATENT LAW VERSUS ANTITRUST LAW

There is a natural tension between patent and antitrust laws. Patents constitute restrictions of competition, because they grant the holder of the patent an exclusive right. These kinds of restrictions are politically intended to a certain extent, because they particularly foster innovation: the protection against imitation will cause an increase of innovation.

However, a correction by the application of antitrust laws is necessary where the legal monopoly granted by the patent law is being abused. Such conduct may constitute an abuse of a dominant position under antitrust laws. A dominant position is not already created by the fact that a certain patent awards the holder of the patent an exclusive right, because otherwise any rights holder would be obliged to license the patent to any third party.

However, in the case of patents which are essential for the production of specific products due to the lack of availability of alternative technologies – so-called standard-essential patents (SEPs) – license requirements may arise. In such cases, an injunction by the patentee can be abusive. Such a situation usually occurs, if a technology or technological development becomes a standard (EU Commission Horizontal Guidelines (2011/C11/01), para. 257, 266). Familiar examples include JPEG, MP3 or G3. Currently, patent disputes are pending between all major electronics manufacturers relating to the telecommunication standards UMTS and GPRS, which are essential for the use of mobile phones. In terms of SEPs, patentees are obliged to grant licenses to competitors on the basis of so-called FRAND conditions (fair, reasonable and non-discriminating) because they are in a position to control both the technology market as well as access to the downstream market through their licensing. If a licensee submits an effective offer, the patentee will be accused of anti-competitive behaviour if the patentee rejects the license offer either without basing the rejection on objective reasons or by making the contract subject to conditions that are unlawful and, hence, the licensee could not reasonably be expected to accept. If, in such a case, the licensee uses the patent without being licensed by the patentee, the licensee may raise the so-called compulsory license-defense in order to repel an injunctive relief sought by the patentee. This objection is based on the consideration that the licensee, while acting unlawfully if using the patent without being awarded a proper license in advance, cannot be subject to a cease-and-desist order when the patentee would otherwise obtain a legal position that would immediately have to be returned . The legal practice under German and EU law, however, is not consistent in terms of the requirements a company requesting a license for SEP needs to meet in order to repel an injunction by the patentee in such cases.

CURRENT DEVELOPMENT

The German Federal Court of Justice requires, on the one hand, that the infringer has made a binding and concrete offer to the SEP holder in such a way that the SEP holder cannot refuse licensing without treating the infringer unfairly or discriminatorily; and, on the other hand, that the infringer has lodged an “appropriate” license fee in advance. The difficult question of the “appropriateness” of the license fee may, under German law, be addressed by applying section 315 of the German Civil Code, which may entitle a company requesting an SEP license from the patentee to determine the amount of an appropriate license fee at its own discretion (FCJ, judgment of 6 May 2009, KZR 39/06 – Orange Book Standard). Which conditions exactly need to be met in order to submit a “concrete” offer remains uncertain.

The EU Commission, on the other hand, apparently takes the view that a request for licensing already needs to be complied with if the rights holder has committed to grant a license under FRAND terms and the licensee is “willing to negotiate a license”. In the context of a patent dispute between the electronics makers Huawei and ZTE, the Regional Court of Dusseldorf, which hears more patent infringement cases than any other court in Europe, referred this question to the CJEUfor a preliminary ruling (LG Düsseldorf, 4b O 104/12). An opinion issued by Europe’s highest court will be binding on the European Commission’s Directorate-General for Competition as well as the courts and competition authorities of the EU member states.

However, for the time being companies concerned are only on the safe side, if they meet the extensive requirements of the FCJ with regard to the concreteness of the offer as well as the appropriateness of the license fee. It remains to be seen how the CJEU will position itself in this matter. It is welcome, in any case, that this issue will now be decided at the highest European level

CONCLUSION

Companies that may be affected by this increasingly important legal topic should be aware that market dominance with regard to patents is not conditioned by the size or turnover of the company but by the importance of its patent(s) in terms of SEP quality. Should a company be a right holder of an SEP patent, it is subject to certain limitations of its market conduct, in particular relating to discrimination issues. An undertaking requesting a license for an SEP patent may therefore under German law not be rejected without legitimate cause if it has submitted a binding and concrete offer to the SEP holder and additionally has lodged an appropriate license fee.