Yesterday, the European Commission issued decisions in two antitrust proceedings centered around the enforcement of standard essential patents (SEPs). The decisions, one involving Samsung and the other Motorola, essentially create a “safe harbour” for willing licensees of FRAND-encumbered SEPs to avoid an injunction and address the circumstances under which an SEP holder may seek injunctive relief against a potential infringer.

Commission Vice President Joaquín Almunia stated that the decisions will provide “clarity to the industry on what constitutes an appropriate framework to settle disputes over ‘FRAND’ terms in line with EU antitrust rules” and encouraged other industry players to consider establishing dispute resolution mechanisms in line with yesterday’s decisions. These decisions significant as they will affect future analyses of whether various SEP enforcement strategies run afoul of EU antitrust rules.

The Motorola Mobility Decision

The first decision arises from Motorola Mobility’s efforts to enforce FRAND-committed SEPs related to the ETSI GPRS mobile communications standard (a part of the GSM standard) against Apple in Germany. According to the Commission’s press release regarding the Motorola decision, Apple had agreed to take a license and be bound by the German court’s FRAND determination. After receiving a complaint from Apple, the Commission opened an investigation in April 2012 and issued a Statement of Objections to Motorola’s actions in May 2013.

In yesterday’s decision, the Commission found that it was abusive for Motorola to both seek and enforce injunctive relief against Apple on the basis of FRAND-encumbered SEPs where Apple had agreed to be bound by the FRAND terms determined by a German court. The Commission also found Motorola’s insistence that Apple relinquish any potential infringement or invalidity challenges to be a violation of the EU’s antitrust regulations, particularly as Motorola’s demands were made under the threat of injunction:

Implementers of standards and ultimately consumers should not have to pay for invalid or non-infringed patents. Implementers should therefore be able to ascertain the validity of patents and contest alleged infringements.

Although Motorola was found to be engaged in anticompetitive behavior, the Commission declined to impose a corresponding fine, reasoning that (i) there is an absence of case-law by EU courts dealing with the legality of SEP-based injunctions under pertinent antitrust law prohibiting abusing a dominant position and (ii) European national courts have issued diverging opinions on the issue.

The European Commission commented in the FAQ memo that the decision “provides a “safe harbour” for standard implementers who are willing to take a licence on FRAND terms”, noting that such implementers may avoid getting hit with an SEP-based injunction if they are able to “demonstrate that they are a willing licensee by agreeing that a court or a mutually agreed arbitrator adjudicates the FRAND terms.”

The Samsung Electronics Decision

The second case arises from Samsung Electronic’s bid for injunctive relief against Apple based on FRAND-committed SEPs related to ETSI 3G UMTS mobile communication standards. According to the press release regarding the Samsung decision, Samsung began seeking injunctive relief for patent infringement in April 2011. The Commission opened an investigation of Samsung’s SEP enforcement in January 2012. In December 2012, the Commission issued a Statement of Objections, informing Samsung that it considered Apple to be a willing licensee of Samsung’s SEPs and expressing concern that Samsung’s SEP enforcement constituted an abuse of a dominant position under EU law. In response to the Commission’s concerns, Samsung offered a series of commitments regarding SEP enforcement and licensing.

Specifically, Samsung committed to not pursue any injunctions in the European Economic Area (made up of the EU plus Iceland, Liechtenstein, and Norway) for a period of five years based on any SEPs related to smartphone/tablet technologies against companies that agree to a licensing framework that provides for (i) a 12-month negotiation period and (ii) a third party FRAND determination if no agreement can be reached within the 12-month negotiation period (see our Oct. 18, 2013 post).

The Commission’s decision renders the commitments offered by Samsung  legally binding under EU antitrust laws. Similar to the statement issued in the Motorola decision, the Commission further commented in its FAQ memo:

Samsung’s commitments implement in this case the “safe harbour” concept established in the Motorola decision in practical terms. They provide for a “safe harbour” available to all potential licensees of the relevant Samsung SEPs. Potential licensees are protected against injunctions sought by Samsung on the basis of such SEPs if they submit to the licensing framework provided for by the commitments.

Other European Commission Statements on SEP/FRAND Issues

The European Commission also released a FAQ-style memorandum regarding antitrust decisions on SEPs, which it claimed “strike a fair balance between the interests of SEP holders to be appropriately remunerated for their IP and the interests of implementers of standards to get access to standardised technology on FRAND terms.” The FAQ summarized the Motorola and Samsung decisions as follows:

Today’s action by the Commission clarifies that it is anti-competitive to use injunctions in relation to SEPs in the following circumstances: when in a standardisation context, a SEP holder has committed to license the SEP on FRAND terms and the licensee is willing to take a licence on such terms. In these circumstances, the seeking of injunctions can distort licensing negotiations and lead to licensing terms with a negative impact on consumer choice and prices.

The FAQ-style memorandum addresses several other topics relevant to European patent disputes.

Injunctive Relief Reaffirmed. The Commission emphasized that it is not questioning the use or pursuit of injunctions by patent holders, noting that recourse to injunctive relief is generally a legitimate remedy for patent holders in infringement cases. The Commission further clarified that SEP-based injunctions should be available against unwilling licensees and that the Samsung and Motorola cases do not stand for the elimination of injunctive relief in view of anticompetitive concerns:

Rather, in the specific circumstances where the holder of a SEP has given a commitment to license on FRAND terms and where the company against which an injunction is sought is willing to enter into a FRAND licence agreement, the seeking of an injunction on the basis of SEPs can constitute an abuse of a dominant position.

Who are “willing licensees”? The Commission expressed the view that whether a company can be considered a “willing licensee” should be determined on a case by case basis. The Commission noted that while yesterday’s decisions provide a “safe harbour” for willing licensees, no findings have been made regarding the willingness of licensees that are not willing to have binding FRAND terms determined by a third party in the event of a dispute. The Commission also clarified that potential licensees who challenge validity, essentiality, or infringement are not unwilling, per se:

Potential licensees of SEPs should remain free to challenge the validity, essentiality or infringement of SEPs. It is in the public interest that potentially invalid patents can be challenged in court and that companies, and ultimately consumers, are not obliged to pay for patents that are not infringed.

What about FRAND calculations? Without providing specific guidance or input on how FRAND rates ought to be calculated, the Commission indicated that courts and arbitrators are well-placed to set FRAND rates in cases of disputes and encouraged national courts may seek guidance from the Commission on the interpretation of EU competition law. The Commission noted that Germany’s Mannheim Regional Court sought guidance on setting FRAND rates in the Motorola v. Apple SEP dispute in November 2013 and that the Commission’s responses to this inquiry would be posted on the Commission website at some point in the future.