ZTE files competition complaint against Vringo with the European Commission


ZTE has this week announced that it has made a formal competition complaint to the European Commission, asking it to investigate the licensing practices of Vringo and its subsidiaries on the grounds that competition in the telecommunications market is being adversely affected by Vringo’s activities.

Vringo, a non-practising entity, holds numerous standard essential patents (SEPs) relating to telecommunications standards, many of which were acquired from Nokia: in 2012, Vringo paid $22 million for 500 patents in a deal whereby Nokia would continue to use the patents on a “non-exclusive” basis and would also be entitled to receive a 35% share of any revenue in excess of $22 million that they generate.

Vringo, which is understood from Birss J’s interim judgment of last June in Vringo v. ZTE, to have offered ZTE a global portfolio licence on the whole of its SEP portfolio, has made a commitment to license these patents on fair, reasonable and non-discriminatory (FRAND) terms. However, ZTE and Vringo have so far failed to agree on what these terms should be and the companies have been embroiled in litigation, with Vringo suing ZTE for patent infringement in several jurisdictions (full details of the claims are available on Vringo’s website).

As readers of our blog will know, the Commission recently reached decisions in the Samsung and Motorola cases (commitments and infringement decisions respectively). The Commission appears to see these decisions as a package which will clarify the application of EU competition rules to the licensing of SEPs (see our post here as well as the Commission FAQs and an illuminating Competition Policy Brief). However, it has not yet had to consider what a reasonable royalty rate should be, stating instead that national courts and arbitrators are “well-placed” to set FRAND rates in disputed cases and that national courts may seek guidance from the Commission on the interpretation of EU competition law “to the extent they deem necessary”.

So far, the Commission has therefore been able to avoid looking at FRAND itself.  Going back a few years, the Commission closed an investigation into Qualcomm’s licensing of SEPs when Qualcomm and the complainants reached a settlement. This complaint puts the issue squarely back on the agenda.  The Commission may have hoped to close a chapter of the smartphone wars with it recent Motorola/Samsung package, but it appears that a broader armistice is still some way off.