Judicial desk-clearing at the Court of Justice before the 2015 summer recess included the handing down of judgment in Huawei v ZTE. Cases are often described as “eagerly awaited”, but this is genuinely one which has had owners and users of standard essential patents (SEPs) on the edge of their seats. And there are a lot of SEPs out there, as the judgment observes.

Having been involved in a number of cases relating to the enforcement of SEPs (on both sides of the fence), we would predict that there will be a considerable mismatch between the theory and practice. This first post takes a look at the theory. A second post will follow shortly where we’ll consider some areas where the judgment perhaps doesn’t resolve all the difficulties.

But let’s look first at the theory:

The overall approach of the judgment remains in line with the recommendations of Advocate General Wathelet, who espoused a “middle path” between the interests of owners of standard essential patents and those of SEP users (as discussed in our earlier post on this subject).

In accordance with this, the Court outlines the applicable legal principles under both patent law and competition law:

• On the IP side, the Court briefly notes the relevant provisions of the EPC (Convention on the Grant of European Patents) and the Enforcement Directive (noting in particular the provision for patentees to seek injunctive relief), as well as the ETSI rules.
• On the competition side, the judgment recalls that the exercise of an IP right will amount to an abuse of a dominant position only in exceptional circumstances – however, the circumstances of this case are rather different from prior case law due to the essentiality of the patents and the fact that irrevocable FRAND undertakings have been given. Such undertakings are said to create “legitimate expectations” on the part of implementers as to the availability of licences. Accordingly, a refusal by a SEP holder to grant a licence may “in principle” amount to an abuse.

The judgment then sets out a theory of how FRAND-encumbered SEPs should be litigated in the EEA. It is actually quite limited in scope – since the judgment includes an almost unconditional endorsement of the ability of SEP holders to seek damages/other financial relief, the relevance of the ruling is limited to:

• SEP holders wishing to avoid abusing a dominant position when they seek injunctive relief against unlicensed implementers, and
• Implementers of SEPs which wish to avoid having an injunction enforced against them.

If no injunction is in play, the steps below simply do not apply. (Of course, for implementers, there is likely to be uncertainty about whether an injunction may be sought for a considerable period – they are therefore likely to need to comply with their ‘obligations’ under the CJEU judgment in most cases where SEP licensors seek to engage them in licensing negotiations. Although perhaps “negotiations” is not the right word for what the CJEU proposes should occur…)

In summary, the steps required by the CJEU ruling are as follows:

Perhaps the main conclusion to be drawn at this stage is that the Court seems to have engineered something of a shift in the obligations applicable. Even though the implementer is not subject to the special responsibilities which apply to dominant companies, it now has some clear obligations to fulfil if it wishes to avoid being subject to an injunction (provided the SEP owner has fulfilled its prior responsibilities, of course). This could perhaps be seen as the “price” for unlicensed use of the rights.