Wah-the-ley on Wah-way: a matter of Opinion

He is Melchior Wathelet
too ...

The Opinion of Advocate General Wathelet  in Case C-170/13 Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH has already attracted a lot of attention, not least because some good souls have rather forgotten that, while the Advocate General is a member of the Court of Justice of the European Union (CJEU) and his rulings, always influential, are adopted by the CJEU in an estimated 75-80% of intellectual property cases, his Opinions are not actually the rulings of the court. Be that as it may, it's not every day that Europe's senior court takes a look at the enforcement of patents in any situation, let alone when they are in that sensitive area of essential technical standards that all market participants will want, indeed need, to use in order to comply with the standard in question.

The questions before the CJEU are as follows:

"Does the proprietor of a standard-essential patent who informs a standardisation body that he is willing to grant any third party a licence on fair, reasonable and non-discriminatory terms abuse his dominant market position if he brings an action for an injunction against a patent infringer although the infringer has declared that he is willing to negotiate concerning such a licence?

... But this is the actual AG 

or

is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of a standard-essential patent an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils his contractual obligations for acts of use already performed in anticipation of the licence to be granted?

If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:

Does Article 102 TFEU [Treaty on the Functioning of the European Union, of which Article 102 deals with abuse of a dominant market position] lay down particular qualitative and/or time requirements in relation to the willingness to negotiate? In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that that he is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which he is prepared to conclude a licensing agreement?

If the submission of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer? Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question? In particular, may the offer be made subject to the condition that the standard-essential patent is actually used and/or is shown to be valid?

If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:

Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment? Is the infringer particularly required to render an account for past acts of use and/or to pay royalties? May an obligation to pay royalties be discharged, if necessary, by depositing a security?

Do the conditions under which the abuse of a dominant position by the proprietor of a standard-essential patent is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?"

The 103 paragraph Opinion is well summarised by the following Curia media release:

According to Advocate General Wathelet [click here for guidance on how to pronounce this name], the proprietor of a standard-essential patent may be required, before seeking an injunction against a company that has infringed that patent, to make that company a specific licensing offer

That applies where the proprietor of the patent is in a dominant position and has made a commitment to the standards body to grant third parties a licence on fair, reasonable and nondiscriminatory terms and where the infringer is ready, willing and able to enter into such a licensing agreement

Huawei [click here for guidance on how to pronounce this name], a Chinese telecommunications company, holds a European patent regarded as ‘essential’ to the ‘Long Term Evolution’ (LTE) standard developed by the European Telecommunications Standards Institute (ETSI). The LTE standard relates to next generation — that is to say, fourth generation — mobile phone communications. Anyone complying with the standard inevitably uses the patent owned by Huawei, which is why that patent is categorised as ‘essential’. Huawei is a member of ETSI and notified the patent to that institute. Huawei also made a commitment to ETSI to grant licences to third parties on fair, reasonable and non-discriminatory (FRAND) terms.

Among the products marketed in Germany by ZTE, a group of Chinese companies, are base stations with LTE software and ZTE is therefore unavoidably making use of Huawei’s patent. Since discussions between Huawei and ZTE regarding the possibility of concluding a licensing agreement on FRAND terms were unsuccessful, Huawei brought an action for infringement against ZTE before the Landgericht Düsseldorf (Düsseldorf Regional Court, Germany). By that action, Huawei seeks an injunction prohibiting continuation of the infringement, an order for the rendering of accounts, recall of products and damages. According to ZTE, the action for a prohibitory injunction constitutes an abuse of a dominant position, since ZTE is willing to negotiate a licence.

The German court has referred a number of questions to the Court of Justice. It is seeking to ascertain whether — and, if so, in what circumstances — an action for infringement brought by the holder of a patent which is ‘essential to a standard developed by a standards body’ (standard essential patent (SEP)) against a manufacturer of products which comply with that standard constitutes an abuse of a dominant position for the purposes of EU competition law where the patent holder has made a commitment to grant licences on FRAND terms.

... Advocate General Melchior Wathelet first notes that the Landgericht Düsseldorf has proceeded on the assumption that Huawei holds a dominant position. However, the Advocate General points out that the fact that a company owns an SEP does not necessarily mean that it holds a dominant position and that it is for the national court to determine, on a case-by-case basis, whether that is indeed so [burden of proof: the AG appears to take the view that there is a rebuttable presumption that the holder of an SEP enjoys a dominant position. Merpel wonders what standard of proof the patent holder will have to achieve in order to rebut a presumption based on a right that excludes others from use of an essential piece of technology].

That said, the Advocate General proposes that the questions referred by the Landgericht Düsseldorf should be answered as follows:

Where the proprietor of a standard-essential patent (SEP) has made a commitment to a standards body to grant third parties a licence on fair, reasonable and non-discriminatory (FRAND) terms, it constitutes an abuse of a dominant position for that proprietor to request corrective measures or to seek an injunction against a company that has infringed the SEP ...  where it is shown that the SEP holder has not honoured its commitment even though the offending company has shown itself to be objectively ready, willing and able to enter into such a licensing agreement [this initiative on the part of the patent proprietor being an action which, if successful, may cause the products and services supplied by the offending company to be excluded from the markets covered by the standard].

Precise amounts only, please

[However, all is not lost for the SEP holder] In order to honour that commitment and to avoid abusing a dominant position, the SEP holder must, before making a request for corrective measures or seeking an injunction, alert the infringer to the infringement at issue in writing, giving reasons, and specifying the SEP concerned and the way in which it has been infringed by that company, unless it has been established that the alleged infringer is fully aware of the infringement [This Kat imagines that these conditions, even cumulatively, won't be much of a burden: the SEP holder is doing this in any event if he is suing]. The SEP holder must, in any event, present the alleged infringer with a written offer of a licence on FRAND terms and that offer must contain all the terms normally included in a licence in the sector in question, including the precise amount of the royalty and the way in which that amount is calculated [Merpel can't imagine that the term "precise amount" is intended to exclude an amount that is contingent on a formula that enables a precise amount to be calculated on the basis of variables that are not quantifiable at the point at which the licence is offered or concluded: is this right?].

The infringer must respond to that offer in a diligent and serious manner. If it does not accept the SEP holder’s offer, it must promptly present the latter with a reasonable counter-offer, in writing, in relation to the clauses with which it disagrees. An application for corrective measures or for an injunction does not constitute an abuse of a dominant position if the conduct of the infringer is purely tactical and/or dilatory and/or not serious [the use of terms such as "purely tactical", "dilatory" and "not serious", if adopted by the CJEU, is likely to attract further references for rulings as to how those terms should be understood and applied, since it is unlikely that national courts will have identical notions as to what they mean].

If negotiations are not commenced or are unsuccessful, the conduct of the alleged infringer cannot be regarded as dilatory or as not serious if it requests that FRAND terms be fixed either by a court or by an arbitration tribunal. In that event, it is legitimate for the SEP holder to ask the infringer either to provide a bank guarantee for the payment of royalties or to deposit a provisional sum at the court or arbitration tribunal in respect of its past and future use of the patent [this seems sensible but begs the question as to what happens when the dispute between SEP holder and would-be licensee relates specifically to the quantum of the royalty and therefore, by implication, to the quantum of the guarantee or sum provisionally deposited].

Nor can an infringer’s conduct be regarded as dilatory or as not serious during negotiations for a licence on FRAND terms if it reserves the right, after entering into an agreement for such a licence, to challenge before a court or arbitration tribunal the validity, use and essential nature of that patent [no surprises there].

In taking legal action to secure the rendering of accounts, the SEP holder does not abuse a dominant position. It is for the national court in question to ensure that the measure is reasonable and proportionate.

In bringing a claim for damages in respect of past use of the patent, for the sole purpose of obtaining compensation for previous infringements of its patent, the SEP holder does not abuse a dominant position [it is difficult to see how this might not be the case, unless the terms deemed to be FRANDly for other licensees include some sort of waiver of the right to collect damages for previous infringements].

How has the Opinion been viewed? According to a Bristows media release, it offers something for everyone:

Advocate General Wathelet has proposed that the European Court adopt a ‘middle-course’ between that taken by the German courts and that of the European Commission. The Advocate General accepts that seeking an injunction on a FRAND-encumbered patent can amount to an abuse of dominance. The Advocate General also made a number of ‘implementer-friendly’ statements in line with the European Commission’s approach. ...

However, Advocate General Wathelet’s approach is more nuanced than that of the European Commission. For example, he recognises that an implementer’s approach to negotiations may be dilatory and that seeking an injunction in such circumstances is legitimate. He also states that it is legitimate for the patentee to ask the implementer either to provide a bank guarantee for the payment of royalties or to deposit a provisional sum at the court or arbitration tribunal in respect of its past and future use of the patent. This requirement will go some way to ensuring that implementers do not abuse the negotiation process. Overall, then, neither Huawei nor ZTE will be too disappointed with the result, given that both companies own technologies and implement them.”

Europe Online magazine regards the Opinion as recommending that Huawei will have to jump through a number of legal hoops if it is to succeed in its action, which sounds a bit melodramatic. Viewed from the US-based Courthouse News, the Opinion is a shot across the bows for "patent trolls and tech inventors", who are warned that a court may not be the first port of call when it comes to pursuing infringers.

The IPKat notes that we are departing from the well-trodden path of essential facilities doctrine, in terms of vocabulary if not also in terms of principle. A word-search of the Opinion shows 34 appearances of the word "essential", while "facilities" gets no mention at all.

Merpel is impressed that both parties to the underlying litigation -- the SEP holder and the defendant in infringement proceedings -- are Chinese. Who says the Chinese aren't taking patents seriously?

The CJEU's ruling usually emerges around six months after the Advocate General's Opinion is published, so we should all know next summer what we can expect.