The case in question, Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp, ZTE Deutschland GmbH, was a reference from the Landgericht Düsseldorf and concerned a possible clash between the law as understood in Germany and the published position of the European Commission (Statement of Objections sent to Samsung ) on the balance between the extent of the obligation on patent holders to grant licences under FRAND terms (fair, reasonable and non-discriminatory terms) and the restriction on abuse by such patent holders of a dominant postion. The headline finding of the CJEU is that 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 FRAND 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.
Background
Huawei is the owner of a European patent for a ‘Method and apparatus of establishing a synchronisation signal in a communication system’, which is considered essential to the 4G Long Term Evolution standard for mobile telecommunications developed by the European Telecommunications Standard Institute (the ETSI). The Long Term Evolution standard is composed of nearly 5,000 standard essential patents, in respect of which operators have undertaken to grant licences to third parties on FRAND terms. The ETSI is a body which aims to create standards which meet the technical objectives of the European telecommunications sector and to reduce the risk to ETSI, its members and others applying ETSI standards, that investment in the preparation, adoption and application of standards might be wasted as a result of the unavailability of an essential intellectual-property right for the standards in question. ZTE is a manufacturer of base stations that comply with the LTE standard. Both Huawei and ZTE are holders of numerous patents essential to the Long Term Evolution standard, and have undertaken to grant licences to third parties on FRAND terms.
ZTE discussed with Huawei the infringement of the patent in question with a view to concluding a licence on FRAND terms. But no agreement was reached and Huawei brought an action for infringement against ZTE and sought, inter alia, a prohibitory injunction.
Judgment
The CJEU reviewed the relevant law. 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.
However, the CJEU considered that the situation at issue in the present case can be distinguished from that case-law. First, it concerns a ‘patent essential to a standard’ (or ‘SEP’), ie 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. 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 FRAND terms.
The Landgericht Düsseldorf had found as a fact that Huawei occupies a dominant position in the relevant market. The questions referred therefore asked the CJEU simply to clarify the circumstances in which an undertaking in a dominant position such as Huawei abuses that position by bringing an action for infringement.
The Court distinguished 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 held 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.
With regard to the second type of actions, the Court held 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.
Laurence Eastham writes:
I missed this judgment when it was first published (16 July). Now I have read the judgment, I am not sure it wasn’t a fortuitous oversight. If the CJEU was aiming to clarify the position then I suppose it has shown that the German stance was a little out of step but, given the immense complexity of defining FRAND terms, true clarification required rather more than is on offer here. The very clear answer from the Court to the question ‘when will there be abuse of a dominant position?’ is ‘sometimes’.
In fact, clarification may be beyond the wit of man.
Abuse will continue to be in the eye of the behol
