The politics of SEPs – finding the third way to obtain/avoid injunctive relief?


The IP/competition interface was in the spotlight at the Court of Justice yesterday. The opinion of the Advocate General in response to a reference from the German Court in Huawei v. ZTE had been eagerly awaited, but early readers had to be content with German and French versions. (As of yesterday evening, an English version is now available.)

The opinion starts with first principles – running through the Charter of Fundamental Rights, the Enforcement Directive, the ETSI IPR Policy, and the polarised perspectives provided by the framework for FRAND litigation used in Germany (based on the Orange Book case) and the European Commission’s view of these issues as expressed in the press release accompanying the Statement of Objections sent to Samsung at the end of 2012. And then, in common with a long and distinguished line of ‘political’ (or policy) decisions over the years by the European Courts, the AG seeks to offer something for everyone. According to the AG, a “middle path” (a “third way”?) needs to be found between excessive protection for the right holder and excessive protection for the implementer. As a result, he dismisses both the German Orange Book type approach (too much protection to the patentee), and the approach of the Commission (which apparently gives too much leeway to implementers (the opinion here refers only to the press release accompanying the Samsung statement of objections and does not address the Motorola and Samsung decisions – a clear expression of the status of Commission decisions in the EU legal system).

But is this really something for everyone, or a disappointment to all concerned? On balance, our view is that the framework provided by the AG’s Opinion is rather closer to the Motorola decision than to Orange Book, but does perhaps provide a shade more certainty for patentees faced with ‘unwilling’ licensees. (Unlike politicians, we are capable of revising our original opinions…!).

So, what does the opinion actually say?  The operative parts can be summarised as follows:

  • On the central question of when an abuse of a dominant position will be found, the AG starts from the proposition that an injunction has at least the potential to restrict competition.  However, he also notes that the giving of a FRAND undertaking does not imply any renunciation of the right to seek injunctive relief, and the seeking of an injunction cannot in itself be an abuse of dominance.  Equally, the right to seek an injunction is not absolute, and can be overridden by the general public interest (including competition law considerations) – but any limitation on this right can be made only in exceptional and closely limited circumstances. (Note, this appears to reflect the approach now being taken in the 17th draft of the rules for the new UPC – have a look here if this is of interest.) To determine whether such circumstances exist requires a factual examination of the conduct of both the SEP holder and the implementer, again a matter for the national courts to determine.  Where the implementer is “ready, willing and able” to conclude a licence, seeking an injunction will be an abuse of a dominant position.
  • The AG identifies a number of specific ‘Guidelines’ for situations relating to the negotiation of SEP licences. These are informative, although it is not immediately obvious how these can be enforced in a national court setting or – if a party originally fails to abide by them but then remedies its conduct – what the remedy would be. One would think that some remedy ought to be available if conduct is illegal, short of involving the Commission and asking it to levy fines – another of the imponderable problems the CJEU is fond of leaving to national courts to disentangle:
  • For as long as an implementer is, and remains “able” to take and respect the terms of a licence on FRAND conditions and notably to pay an appropriate royalty, the SEP holder must take certain specific steps before seeking an injunction. (The word “able” is perhaps surprising in this context – in the conclusion the words “ready, willing and able” are used.  However, in the AG’s framework, the question of willingness arises more in relation to the response made by the licensee.)  The AG justifies this approach by noting that the implementer does not know if the patent is infringed, valid or essential – it is perfectly possible that even large telecommunications enterprises may not have made this assessment for all declared essential patents before launching a new product, in particular in relation to a standard such as LTE which comprises so many patents;
  • The SEP holder must alert the implementer in writing, noting the relevant SEP and how it is alleged to be infringed (raising the bar for pre-action steps in patent litigation?);
  • A written licence offer, corresponding to FRAND conditions, must be provided: this must contain all terms which are “normal” for the industry (likely to give rise to considerable scope for debate and disagreement, not to mention disclosure requests in disclosure jurisdictions until the meaning of “normal” is clarified) and must specify the amount of the royalty and how it is calculated;
  • The implementer must then react to the offer in a “diligent and serious” manner – “vague” indications of willingness to negotiate are not sufficient.  If the offer is not accepted, an explanation must be given within a “brief” time period, together with a written counter-offer for those clauses in relation to which there is disagreement.
  • The time periods for exchange of offers and counter-offers as well as the duration of negotiations must be considered in the light of the “commercial window of opportunity” which the SEP holder has to obtain a return on its patent – something which will be a matter for the national court to decide.  It will also be for the national court to decide if stipulations such as a requirement to enter into a cross-licence are reasonable.
  • The conduct of the implementer will not be considered as dilatory or non-serious if it requests the court or an arbitral tribunal to set the terms of the licence.  In that case, it is reasonable for the SEP-holder to request a bank guarantee or payment of a deposit in respect of royalties which may be due.
  • The implementer must retain the right to challenge SEPs, or to contest infringement even after conclusion of a licence.  (This is in line with the revised Technology Transfer Guidelines which were published by the Commission earlier this year and on which we blogged (endlesslysome would say…)
  • There is also no obligation on an implementer to abide by the terms of a future contract before one has been concluded. This was part of the Orange Book conditions, but is said not to be appropriate for FRAND-encumbered patents (the Orange Book case related to a de facto standard where no FRAND undertaking had been given). However, as above, a bank guarantee or deposit can be requested.
  • The seeking of other remedies (e.g. delivery up of products) is said to be subject to the same rules as that applicable to injunctions.  However, there is no objection to seeking damages equivalent to a FRAND royalty.  Damages and interest may be sought for the past, although it is left unclear whether an argument could be made that such past damages could be sought at a higher (supra-FRAND) rate:  the AG observes that there can be no question of market exclusion where past damages are concerned, which might suggest that supra-FRAND damages are not wholly excluded.  Equally, the fact that the SEP holder has accepted through its FRAND undertaking that it will monetise its patents at a FRAND rate could suggest that there is no reason to accord a higher reward.

The Court has not been asked to rule on relevant market / dominance – but the AG could not resist expressing an opinion on this point.  His view is that a SEP holder is not inevitably dominant, but it may be presumed to be so.  The presumption can be rebutted by “specific, detailed evidence” – however, no further detail is given as to what that evidence might comprise.  This will remain an issue for the national court to consider in line with its usual evidentiary rules.

The opinion contains considerable detail, but, as is often the case with CJEU references (or CJEU pronouncements generally), a great deal is still left to the national courts to determine.  Even if the Court upholds the AG in all respects, this is unlikely to be the final shot or the last uncertainty in the great FRAND wars.  The AG may have proposed a ‘third way’, but we would be unsurprised to see fourth, fifth and sixth ways emerging in due course…