On April 5, 2013, the Landgericht Düsseldorf (a German regional court) referred a set of questions relating to injunctive relief over standard-essential patents (“SEPs”) to the European Court of Justice (“ECJ”) in connection with a patent dispute between Huawei Technologies Co. Ltd (“Huawei”) and ZTE Corp. and ZTE Deutschland GmbH (collectively “ZTE”). This lawsuit was originally brought by Huawei in 2011, relating to an alleged infringement by ZTE of a patent owned by Huawei and declared to be essential in the LTE standard developed by the European Telecommunications Standards Institute (“ETSI”).
On November 20, 2014, the Advocate General (“AG”) issued his Opinion on this matter, in which it was pointed out that the ECJ is called upon for the first time to answer whether seeking an injunction by the holder of a SEP, who has committed to grant licenses on FRAND (fair, reasonable, and non-discriminatory) terms, against a candidate-licensee may amount to an abuse of dominant position and which conditions apply.
Not all but most of the time, the ECJ adopts the AG’s Opinion, which is a detailed legal assessment and could serve as a guidance for the ECJ in publishing a preliminary ruling in this matter months later.
Advocate General Wathelet’s opinion
In his carefully worded Opinion, AG Wathelet notes that the German Court has proceeded on the assumption that Huawei, as a SEP owner, holds a dominant position. However, the AG is of the opinion that the fact a company owns a SEP does not necessarily mean that it holds a dominant position. It is for national courts to determine, on a case-by-case basis, whether that is in fact the case. Although the fact that anyone complying with the standard to which the SEP is essential must inevitably make use of the teaching of a SEP may give rise to a rebuttable presumption that the patent holder is in a dominant position, it must be possible to rebut that presumption with specific evidence. This opinion may shed light on the future SEP-related antitrust enforcement in China. It is worth noting that in the case of Huawei v. IDC before Shenzhen Municipal Intermediate People’s Court, the Judge ruled that a SEP owner holds a dominant position per se.
The AG further expressly states in his Opinion that where the proprietor of a SEP has made a commitment to license its SEP on FRAND terms, it constitutes an abuse of a dominant position to seek an injunction, or make a request for corrective measures where it is shown that the SEP holder has not honored its FRAND commitment, even though the offending party has shown itself to be a willing licensee.
The AG’s recommendations regarding the circumstances in which injunctions can be granted will be very significant if the Judges rule along similar lines. The AG declined both to apply the Orange Book-Standard and to accept the EU Commission’s view as expressed in the Samsung Commitments that the offending party need only express a “highly vague and non-binding” willingness to negotiate to curtail the SEP holder’s right to enjoin. Instead, the AG proposed that in order to avoid an abuse of its dominant position, in advance of making a request for corrective measures or seeking an injunction, the SEP holder must alert the third party to the infringement in writing and present the third party with a written offer of a license on FRAND terms which contain all of the licensing conditions that are customary for that sector (including the precise royalty and the way in which it is calculated).
The AG goes on to propose that a considered and serious response must be provided by the third party. If the conduct of the third party is purely tactical and/or dilatory and/or not serious, an application for corrective measures or an injunction by the SEP holder does not constitute an abuse of a dominant position.
Finally, the Advocate General has proposed that the offending third party may request that FRAND terms be fixed either by a court or by an arbitration tribunal, and be able to challenge the validity, use and essential nature of the SEP after entering into an agreement for a license without being labeled an ‘unwilling licensee’.
The Advocate General’s opinion provides helpful guidance on the negotiating steps that should be taken by both sides to show their willingness to either honor the FRAND commitment, or enter into a license agreement, and is broadly in line with the position taken by the EC. However, there is still a lack of any meaningful guidance on what constitutes ‘FRAND terms’.
The Advocate General’s Opinion on dominant position is interesting, but given that the EC has stated that each SEP can be considered “as a separate market in itself as it is necessary to comply with a standard and thus cannot be designed around, i.e. there is by definition no alternative or substitute for each such patent”, it is difficult to see what evidence could be put forward to make a compelling case that the presumption of dominance could be rebutted.
Last but not the least, the Opinion and the preliminary ruling that will follow it (likely in the first half of 2015) once again show the global reach of EU competition law in the technology sector and, indeed, in all sectors where IP plays an important role. The case involved two Chinese multinationals, litigating about a standard which has global reach. Yet it was decided based on EU competition law, EU competition law continues to play a dominant role in driving developments in the tech sector, whether it would impact the pending litigation in relation to the same dispute between the two Chinese multinationals before Shenzhen Municipal Intermediate People’s Court is expected.