From March to September 2016 the team is joined by Guest Kats Emma Perot and Mike Mireles.

From April to September 2016 the team is also joined by InternKats Eleanor Wilson and Nick Smallwood.

Thursday, 16 July 2015

Shock ruling by top European Court: enforcing a patent is an abuse of process, except where it isn't

The Court of Justice of the European Union delivered its judgment today in Case C-170/13 Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH. a reference from the Landgericht Düsseldorf on a matter of great concern to the standard-essential patent (SEP) community. At the time of posting this item, the full judgment was still not available on the Curia website [nb: it is now: you can read it in full here], so here's the Curia media release:

The bringing of an action for a prohibitory injunction against an alleged infringer by the proprietor of a standard-essential patent which holds a dominant position may constitute an abuse of that dominant position in certain circumstances

In particular, where the proprietor of the patent has undertaken in advance to grant third parties a licence on fair, reasonable and non-discriminatory terms, that proprietor must, before it brings such an action for an injunction prohibiting the infringement of its patent or for the recall of products for the manufacture of which that patent has been used, present to the alleged infringer a specific offer to conclude a licence

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 (such as the right to bring an action for infringement) forms part of the rights of the proprietor, with the result that the exercise of that right, 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 [citing Case C-418/01 IMS Health].

However, the situation at issue in the present case can be distinguished from that case-law. First, it concerns a ‘patent essential to a standard’ (a ‘standard-essential patent’ or ‘SEP’), that is to say, 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 (the standard being established by a standardisation body). 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 terms (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 (ETSI) 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 (Regional Court, Düsseldorf, Germany) 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 [this standard is composed of more than 4,700 essential patents: both Huawei and ZTE are holders of numerous patents essential to that standard, and have undertaken to grant licences to third parties on FRAND terms] and thus use Huawei’s patent without, however, paying Huawei a royalty. By its action, Huawei is seeking 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 has requested the Court of Justice to clarify the circumstances in which an undertaking in a dominant position such as Huawei [according to the referring court, the fact that Huawei occupies a dominant position is not in dispute, so the questions referred only concerned whether any abuse has occurred] abuses that position by bringing an action for infringement. In today’s judgment, the Court distinguishes 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 actions, the Court holds that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that 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, inter alia, that the alleged infringer which has not accepted the offer made by the proprietor of the SEP 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.

A dominant position ...
With regard to the second type of actions, the Court holds 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 a patent essential to a standard established by a standardisation body, 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, so far as is indicated in this media release, 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?

2 comments:

Mark Schweizer said...

I think the key here are the obligations the alleged infringer of an SEP has. The German thinks the infringer has to make an unconditional offer for a license ("the defendant must have made the applicant an unconditional offer to conclude a licensing agreement not limited exclusively to cases of infringement, it being understood that the defendant must consider itself bound by that offer"). According to the German court, the European Commission only requires that the infringer "is willing to negotiate an Agreement".

The CJEU, as so often, finds middle ground (para. 71 of the judgment). In order to avoid a finding of abuse of dominant Position, the patentee must:

prior to bringing that action, the proprietor has (...) 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.

So, unlike the German Court, the CJEU does not require an "unconditional offer" by the infringer, but only a willingness to negotiate in good faith without "delaying tactics". Is this going to make it easy to decide who is abusing a dominant position in practice? No. But it establishes that the German court's Position was wrong. I'd call it a win for ZTE.

Jeremy said...

Thanks so much, Mark, for providing context as well as comment.

It's not clear to me from the language of para 71 whether the description of action by the patent proprietor that does not abuse its dominant position requires one to conclude that any conduct falling outside its scope is automatically an abuse of dominant position. This is something that the national courts will have to consider and which they presumably will either decide for themselves or refer to the CJEU for more specific guidance and clarification.

Subscribe to the IPKat's posts by email here

Just pop your email address into the box and click 'Subscribe':