The European Commission outlined, according to a press release of April 29, 2014, that seeking injunctive relief before courts is generally a legitimate remedy for holders of standard essential patents (SEP) in case of patent infringements. However, depending on the particular circumstances in which the injunction is used, such use of an injunction based on an SEP may constitute an abuse of a dominant market position prohibited by Article 102 Treaty on the Functioning of the European Union. Here, the European Commission found that Motorola Mobility (“Motorola”) violated EU antitrust rules by both seeking and enforcing an injunction against Apple in Germany on the basis of an SEP which Motorola had committed to license on FRAND terms and where Apple had agreed to take a license and to be bound by a determination of the FRAND license fees by the relevant German court. In particular, the European Commission found it anticompetitive that Motorola insisted, under the threat of the enforcement of an injunction, on license terms according to which Apple gives up its right to challenge the validity or infringement of Motorola’s SEP. Motorola was ordered to eliminate the negative effects resulting from the injunction.
The European Commission has not yet issued a reasoning for its decision. This reasoning is expected to be released soon.
SEPs are patents that are necessary for implementing a specific industry standard. It is not possible to manufacture or use products that comply with a certain standard without using these SEPs. This may give holders of SEPs considerable power on the market. Therefore, standard developing organizations like the European Telecommunications Standards Institute (ETSI) normally require their members to commit to license their SEPs on so-called FRAND terms, i.e. fair, reasonable and non-discriminatory terms. In the case at hand, Motorola was the owner of SEPs relating to the GPRS standard and Motorola had committed to ETSI to license its SEPs on FRAND terms. Such obligation to license SEP on FRAND terms may also directly follow from EU and German antitrust rules itself. According to the European Commission’s press release, Motorola sought an injunction against Apple before German courts based on alleged infringement of a Motorola SEP which it had committed to license on FRAND terms. Apple agreed to take a license on FRAND terms. However, according to the European Commission’s press release, Motorola insisted, under the threat of the enforcement of an injunction, that Apple committed itself neither to challenge the validity of Motorola’s SEP nor to contest the alleged infringement.
Apple filed a complaint against Motorola’s conduct with the European Commission in 2012. In April 2012, the Commission opened the investigation and on May 6, 2013, a Statement of Objections (Memo/13/403) was issued informing Motorola of the Commission’s preliminary opinion that – under the specific circumstances of this case – seeking and enforcing an injunction constituted a violation of EU antitrust rules.
On April 29, 2014, the European Commission decided that Motorola’s conduct constitutes an abuse of its dominant position as an owner of a SEP, therefore violating Article 102 Treaty on the Functioning of the European Union. While the European Commission acknowledged that seeking injunctions generally is a legitimate legal remedy for SEP owners, it pointed out that the situation might be different if an SEP-based injunction is sought against a company which is willing to take a license on FRAND terms. In this case, seeking and enforcing an injunction might lead to unbalanced licensing terms which would be detrimental to innovation and harmful to consumers. According to the European Commission, the threat of an enforcement of the injunction might distort licensing negotiations and might lead to anticompetitive licensing terms that the licensee of the SEP would not have accepted absent the seeking or enforcing of the injunction. The European Commission also stated that the fact that a company seeking a FRAND license was not willing to give up its right to challenge the validity of the SEP in question or to contest the alleged infringement, did not make the company “unwilling” to take a license. 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 and contest alleged infringements.
With regard to the legal consequences, the European Commission decided not to impose a fine on Motorola because (1) there was no case-law by the European Commission itself or EU courts regarding the compatibility of SEP-based injunctions with EU antitrust law and (2) national courts within the EU had reached diverging conclusions on this question.
It is remarkable that the European Commission clearly ruled that, in the context of SEPs and if there is a FRAND commitment, a “willing licensee” was entitled to challenge the validity and the infringement of the SEP in question. This statement conflicts with the current practice of the infringement courts in Germany regarding the antitrust compulsory license defence established by the German Federal Supreme Court in its “Orange-Book-Standard” decision – at least on the basis of its interpretations rendered by the Karlsruhe Appeal Court. It will be interesting to see if and how the European Commission’s present decision will influence national (German) courts as well as the European Court of Justice in their upcoming decisions on the antitrust compulsory license defence. The European Court of Justice is supposed to render a preliminary ruling based on a referral submitted by the Dusseldorf District Court with respect to the patent infringement proceedings of Huawei and ZTE. With this referral of March 2013, the Dusseldorf District Court expressly asked the European Court of Justice to specify whether Article 102 Treaty on the Functioning of the European Union, insofar as the abuse of a dominant position in the market requires an acceptable unconditioned offer to conclude a license agreement, stipulates or allows that the license offer made by defendant can be made under the condition that the SEP is in fact used and/or is held to be valid (cf. BARDEHLE PAGENBERG IP Report 2013/II).
Apart from the foregoing, the European Commission pointed out that whether and when a company can be considered a “willing licensee” needs to be determined on a case by case basis taking into account the specific facts at hand (Memo/14/322).
Further, the European Commission did not outline what a reasonable royalty rate is. Instead, it stated that courts and arbitrators are well-placed to set FRAND rates in case of disputes. However, to the extent they deem necessary, national courts might seek guidance from the European Commission on the interpretation of EU competition law. In this context, the European Commission revealed that, in November 2013, the Mannheim District Court had asked the European Commission a number of questions in relation to the setting of FRAND rates in the SEP dispute between Motorola and Apple. The European Commission will publish its response to these questions on its website (Memo/14/322).