Can a FRAND SEP stop ZTE? The CJEU rules on the rules
22 July 2015
The CJEU has set out criteria to determine when the owner of a FRAND encumbered patent may seek an injunction when the owner is in a dominant market position. Significantly, a patent owner in that position is now required to offer a licence at a specific royalty to the infringer before seeking an injunction.
This judgement was a result of a referral from the Landgericht Dusseldorf (Dusseldorf Regional Court), following a request that the Court of Justice of the European Union provide a preliminary ruling regarding the interpretation of Article 102 TFEU, relating to abuse of a dominant position.
The request was made during the proceedings between Huawei Technologies Co. Ltd (Huawei) v ZTE Corp. and ZTE Deutschland GmbH (ZTE), in which Huawei brought an action for infringement against ZTE in respect of European Patent Number EP 2090050B1, a standard essential patent (SEP) under the European Telecommunications Standards Institute (ETSI).
Huawei requested an injunction prohibiting the continuation of the infringement and an order for the rendering of accounts, the recall of products and the assessment of damages. ZTE argued that it had been willing to negotiate a licence (though no agreement had been reached) and therefore Huawei was abusing its dominant position by seeking an injunction (since the European Commission appeared to regard the bringing of an action for a prohibitory injunction as unlawful under Article 102 TFEU, where that action relates to an SEP, the proprietor of that SEP has indicated to a standardisation body that it is prepared to grant licences on FRAND (Fair, Reasonable, And Non-Discriminatory) terms and the infringer is itself willing to negotiate such a licence). Hence the Landgericht Dusseldorf stayed proceedings and requested consideration of this point.
The Court of Justice ruled that the proprietor 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 or recall of products, as long as:
“Prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer 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”.
An alleged infringer can only rely on the abusive nature of a prohibitory injunction or the recall of products if it:
- i) has submitted to the proprietor of the SEP a specific counter-offer that corresponds to FRAND terms; and
- ii) when a counter-offer is rejected, has provided appropriate security.
The Court of Justice also ruled that Article 102 TFEU must be interpreted, in circumstances such as the current case, as not prohibiting an SEP holder from bringing an action for infringement against an alleged infringer of its patent and seeking 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.
In this case neither ZTE nor Huawei disputed that Huawei was in a dominant market position. Consequently the Court did not provide any guidance, specific to SEP ownership, on what constitutes a dominant market position. In the earlier opinion from Advocate-General Wathelet (which this judgment generally follows) he shared the view of the Netherlands Government “that the fact than an undertaking owns an SEP does not necessarily mean that it holds a dominate position” but that opinion is not binding.
This judgment will act as an important reminder of the necessary conduct of both SEP proprietors and users to ensure that their respective obligations are maintained.
David Nicholls and Russell Barton
Electronics, Computing & Physics
If you require further information on anything covered in this briefing, please contact David Nicholls (firstname.lastname@example.org; +44 1926 310700), Russell Barton (email@example.com; +44 1926 310700), or your usual contact at the firm.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.