The Hague District Court in the Netherlands rejected a claim brought by smartphone maker Archos alleging that Philips had abused its dominant position during negotiations concerning licenses on fair, reasonable and non-discriminatory (FRAND) terms for standard essential patents (SEPs). Archos S.A. v. Koninklijke Philips N.V. (Dist. Ct. of The Hague, Feb. 10, 2017)
In June 2014, Philips discovered that Archos had used three of Philips’s patents covering UMTS and LTE technology. Because they covered standards used to transmit data via smartphones, the patents were registered as SEPs with the European Telecommunications Standards Institute.
After Philips notified Archos that it was using Philips’s SEPs, the two parties entered into negotiations. In July 2015, Philips made Archos an offer of EUR 0.7 per product sold that used UMTS and/or LTE functionality. In January 2016, Archos countered with an offer of EUR 0.07 per product.
These offers were made two weeks after the European Court of Justice (ECJ) decision in Huawei v. ZTE. In that case, the ECJ established three core principles concerning the licensing of SEPs on FRAND terms:
- The burden of making an offer lies with the SEP holder.
- The determination of what constitutes a FRAND offer is left up to national courts across European jurisdictions.
- An application by an SEP holder for an injunction against an alleged infringer that is not preceded by an opportunity for the alleged infringer to license the patent on FRAND terms is an abuse of dominance.
After unsuccessfully having made an offer in line with Huawei, Philips sought an injunction against Archos to prevent it from using Philips’s SEPs. Archos applied to the same court simultaneously, arguing that Philips’s offer had not been on FRAND terms and that, in line with Huawei, Philips’s application for an injunction was an abuse of dominance. Archos argued that Philips’s offer was too high in light of the fact that Archos produces low-cost smartphones and generates low profit margins. Archos further claimed that Philips had shown inflexibility in its negotiations.
The Hague District Court rejected Archos’s claim, stating that it had failed to prove that Philips’s offer had not been FRAND and that its application for an injunction had been an abuse of dominance. The Court stated that Philips had not failed to enter into effective negotiations and that, in fact, it had been Archos that had prevented a solution from being reached, evidenced by the fact that during the negotiations preceding the Huawei judgment—which shifted the burden of making an offer from the SEP user to the rights holder—Archos had failed to make an offer. Furthermore, Archos had told Philips that it would have to take legal action if it wanted higher royalty fees, thereby demonstrating an unwillingness to enter negotiations.
The Court also noted that Archos’s low margins did not necessarily mean that the offer made by Philips had not been FRAND.
Archos therefore failed to establish that Philips’s conduct had been in breach of the ECJ’s decision in Huawei. The claim was dismissed, and Archos was ordered to pay the legal costs.