Last week the Court of Justice of the European Union (CJEU) delivered its judgment (16 July) in Case C-170/13 Huawei Technologies v ZTE on a matter of great concern to the standard-essential patent (SEP) community.
EU law seeks to safeguard the exercise of exclusive rights linked to an intellectual-property right, such as a patent, while at the same time maintaining free competition. As regards the relationship between those two objectives, the court has already clarified that the exercise of such exclusive rights, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute an abuse of a dominant position. It is only in exceptional circumstances that the exercise of the exclusive right may give rise to such an abuse.
However, the situation at issue in this case can be distinguished from that caselaw. First, it concerns a ‘patent essential to a standard’ (a ‘standard-essential patent’ or ‘SEP’) – a patent, the use of which is indispensable to all competitors who envisage manufacturing products that comply with the standard to which it is linked.
Secondly, the patent obtained SEP status only because its proprietor gave an irrevocable undertaking to the standardisation body that it is prepared to grant licences to third parties on fair, reasonable and non-discriminatory (FRAND) terms. Huawei Technologies, which is a multinational company active in the telecommunications sector, is the proprietor of a European patent, which Huawei notified to the European Telecommunications Standards Institute as a patent essential to the ‘Long Term Evolution’ standard. At the time of that notification, Huawei undertook to grant licences to third parties on FRAND terms.
Huawei brought an action for infringement before the Landgericht Düsseldorf against two companies belonging to the multinational group ZTE. That group markets products in Germany that operate on the basis of the ‘Long Term Evolution’ standard and uses Huawei’s patent without paying Huawei a royalty. Huawei sought an injunction prohibiting that infringement, the recall of products, the rendering of accounts and an award of damages. Previously, Huawei and ZTE had engaged in discussions concerning the infringement and the possibility of concluding a licence on FRAND terms, without, however, reaching an agreement.
The Landgericht requested the CJEU to clarify the circumstances in which an undertaking in a dominant position such as Huawei abuses that position by bringing an action for infringement. In last week’s judgment, the CJEU distinguished actions seeking a prohibitory injunction or the recall of products from those seeking the rendering of accounts and an award of damages.
With regard to the first type of action, the court held that the owner of an SEP, which has given an irrevocable undertaking to a standardisation body to grant a licence to third parties on FRAND terms, does not abuse its dominant position by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:
‒ prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating the patent in question and specifying the way in which it has been infringed, and, secondly, presented to that infringer, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and
‒ where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.
The court has held that the alleged infringer which has not accepted the offer made by the SEP owner may invoke the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.
As regards the second type of action, the court held that the prohibition of abuse of a dominant position does not, in circumstances such as those in the main proceedings, prevent an undertaking in a dominant position and holding an SEP, which has given an undertaking to that body to grant licences for that patent on FRAND terms, from bringing an action for infringement against the alleged infringer of its patent with a view to obtaining the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use. Such actions do not have a direct impact on standard-compliant products manufactured by competitors appearing or remaining on the market.
Is this Kat alone in feeling that we haven’t learned anything we didn’t already know: the law is what we assumed it was and the enforcement of a patent is either an abuse of a dominant position or it isn’t, depending on what the trial court finds on the facts. Or has he seriously missed something?
The IPKat team comprises David Brophy, Birgit Clark, Merpel, Jeremy Phillips, Eleonora Rosati, Darren Smyth, Annsley Merelle Ward and Neil Wilkof. Their blog can be read here.