A Middle Path: Advocate-General’s Opinion On Abuse Of Dominance For FRAND-Encumbered SEPs

For the first time, the European Advocate-General has suggested on the grounds of European competition law the context for negotiations of fair, reasonable and non-discriminatory (FRAND) terms, and has set criteria for the enforcement of injunctions and other remedies in actions involving infringement of standard-essential patents (SEPs). The Court of Justice of the European Union (CJEU) decision is still pending.

On 5 April 2013, the German Düsseldorf Regional Court referred to the CJEU a number of questions to discover whether, and if so under what conditions, an action of infringement brought by the owner of a FRAND-encumbered SEP constituted abuse of a dominant position pursuant Article 102 TFEU based on the case Huawei Technologies (Huawei) v ZTE Corporation and ZTE Deutschland Gmbh.

Background

Huawei brought an infringement action against ZTE based on the failure to reach negotiations on FRAND terms for the licensing of a standard-essential patent (SEP). Following that action, Huawei sought a prohibitory injunction, an order for the rendering of accounts, a recall of products and damages.

Huawei made a commitment before the European Telecommunications Standards Institute (ETSI) to licence under FRAND terms its European patent registered under No EP 2 090 050 B, which is essential to the Long Term Evolution (LTE) standard – the 4G standard. Any company compliant with the 4G standard inevitably uses that patent. ZTE uses LTE software to put in the German market base stations.

According to the referring court, the European Commission did not explain the criteria set out by the German Federal Court of Justice, judgment of 6 May 2009 in Orange-Book-Standard (KZR 39/06) concerning abuse of a dominant position of a patent holder in an action for injunction. Nor, it said, did it specify circumstances when an SEP infringer was regarded as being willing to negotiate in its Statement of Objections sent to Samsung Electronics (COMP/C‑3/39.939).

The Advocate-General’s Opinion

The Advocate-General’s opinion of 20 November 2014 was limited to competition law, specifically to the framework for FRAND negotiations: abuse of dominant position of the SEP holder and the characterisation of the willing licensee in relation to the legality of seeking injunction and corrective measures.

He pointed out, however, that the matters raised in that case could be adequately “resolved in the context of other branches of law or by mechanisms other than the rules of competition law,” as to clarify the “requisite content” of FRAND terms.

Moreover, the Advocate-General (AG) expressly underscored that a FRAND commitment does not mean a FRAND licence, nor does it determine FRAND terms. He inferred that standardisation bodies could establish criteria or a framework for the negotiations of FRAND licensing terms, as follows.

[11]     If FRAND licensing terms are a matter entirely for the discretion of the parties and, where appropriate, the civil courts or arbitration tribunals, it seems clear to me that the risk of the parties concerned being unwilling to negotiate or of the negotiations breaking down could, at least in part, be avoided or mitigated if standardisation bodies were to establish minimum conditions or a framework of ‘rules of good conduct’ for the negotiation of FRAND licensing terms. Without these, not only actions for a prohibitory injunction but also the rules on abuse of a dominant position, which should be employed only as solutions of last resort, are being used as a negotiating tool or a means of leverage by the SEP-holder or the undertaking which implements the standard and uses the teaching protected by that SEP.

That stated, the AG highlighted it was necessary “to find a middle” path. He asserted the Orange-Book-Standard judgment was not applicable because it concerned de facto standards, and as such, the patent holder had not committed before a standardisation body to licence its patents under FRAND terms.

At the same time, as to the Samsung case, he declared the characterisation of a infringer’s willingness to negotiate was set out “in a highly vague and non-binding fashion [that] [could not], in any circumstances, be sufficient  (18) to limit the SEP-holder’s right to bring an action  (19) for a prohibitory injunction.”

Concurrently, he noted the referring court assumed Huawei held a dominant position, and that this presumption was rebuttable “with specific, detailed evidence.” Against this background, he suggested an interpretation of Article 102 TFEU applicable to the context of the case and provided a safe harbour for both the SEP holder and the alleged infringer.

Concerning the SEP holder safe harbour on abuse of dominance, it must take certain specific steps prior to seeking an injunction or requesting corrective measures against the SEP infringer, unless it can provide evidence the infringer is fully aware of the infringement. (The grant of an injunction can exclude a company from using the SEP and if so, from the market.)

The SEP holder does not abuse a dominant position where the infringer is not fully aware of the infringement, and

• [84] … [it] alert[s] [the infringer] to that fact in writing, giving reasons, and specifying the SEP concerned and the way in which it has been infringed… [and]

• [85]…, in any event, present[s] to the alleged infringer a written offer for a licence on FRAND terms that contains all the terms normally included in a licence in the sector in question, in particular the precise amount of the royalty and the way in which that amount is calculated.

The SEP holder does not constitute abuse of dominant position by bringing action to secure the rendering of accounts and/or “to claim for damages for acts of use for the sole purpose of obtaining compensation for previous infringements.”

Also, the SEP holder does not constitute abuse of a dominant position when the conduct of the infringer is regarded as “purely tactical and/or dilatory and/or not serious.”

As to the criteria determining the alleged SEP infringer is a willing licensee:

• [88] It must respond in a diligent and serious manner to the offer made by the SEP-holder. If it does not accept that offer, it must promptly submit to the SEP-holder, in writing, a reasonable counter-offer relating to the clauses with which it disagrees. As the referring court has pointed out, the bringing of an action for a prohibitory injunction would not constitute an abuse of a dominant position if the infringer’s conduct were purely tactical and/or dilatory and/or not serious.

• [99] … the conduct of the alleged infringer cannot be regarded as dilatory or as not serious if it asks for those terms to be fixed either by a court or an arbitration tribunal.

In addition, the conduct of the infringer cannot be regarded as dilatory or as not serious if it reserves the right to challenge validity, use and essentiality of an SEP before a court or arbitration tribunal, even after if it entered into a FRAND licensing agreement and the negotiations are over.

 

Image Credits: CJEU