Huawei v ZTE: will the CJEU be first past the post on SEP policy....?

The Huawei v ZTE CJEU (C-170/13) oral hearing took place on 11 September 2014.  As ‘standardized’ readers will know this case has the potential to bring about a sea-change in EU policy on the enforcement of SEPs and so is being followed very carefully all over Europe – and even beyond, given that many of those involved in this sector are from elsewhere, including the unfortunate litigants in the case.  Similar issues have been/are being debated in other jurisdictions  for example, we commented on the US perspective here and here earlier on in the year.

In March 2013 a German court referred five questions to the CJEU owing to the seemingly divergent approaches being taken in Europe on the conditions under which a claim for injunctive relief for SEPs can be sought without infringing EU competition law.  The German courts have a long line of case-law (commencing with the OrangeBook case) which gives prospective licensees a valid defence against an injunction if they behave as a licensee should behave (according to the courts' view) when seeking a licence.  This German version of the ‘FRAND licence defence’ requires licensees to:

  • make an unconditional licence offer which the SEP holder cannot reject without unfairly obstructing or discriminating against them (the licensee can also make a licence offer agreeing to a royalty rate specified by the SEP owner, subject to review/control by the court);
  • comply with the obligations which affect any actual licensee – i.e. account for past use and pay either directly or into escrow accrued licence fees.
This line of case-law has been put in the spotlight by the recent EU Commission cases dealing with injunctions sought by Motorola and Samsung for mobile telecoms SEPs.  The decisions in these cases (an infringement decision and a commitments decision respectively) revealed that the Commission applies different criteria to the admissibility of the FRAND licence defence under competition law than those applied in Germany under its rules over recent years.  The Commission considers that SEP holders should neither seek nor enforce injunctive relief against ‘willing licensees’.  It is clear, particularly from the Motorola infringement decision which arose out of German patent litigation between Motorola and Apple, that it does not envisage the same criteria as in the OrangeBook line of case law, although its press release and FAQs announcing the Motorola decision sought to differentiate that case from the general line of OrangeBook cases (not entirely successfully in this blogger’s humble opinion).  The questions posed by the court in the Huawei v ZTE reference therefore attempt to clarify what standard of licensee ‘willingness’ is sufficient for an SEP holder to be held to have abused a dominant position by seeking an injunction for an SEP against that potential licensee  and, perhaps more to the point from a practical perspective, what criteria can be applied to identify who is willing and who is not – or in the curious words of the Commission, who is ‘not unwilling’?.   

Some commentators have argued that such an intense focus on the behaviour of the licensee is misguided (for example, see here) as it is the licensor who has given a FRAND undertaking (and who the Commission has stated is likely to be dominant).  That being the case, arguably it is its behaviour that should be tested – has it made a FRAND offer and/or, at the very least, has it given the licensee the opportunity to negotiate and/or to show that it is willing?  Some flavour of this can be found in the Samsung commitments, which provide for a minimum negotiation period and offer a mechanism for third party determination, allowing the potential licensee to take advantage of a clearly defined ‘safe harbour’.  Notwithstanding views to the contrary, however, the Huawei v ZTE proceedings, unsurprisingly given their German origins, focus squarely on the question of licensee willingness.

The only member states that intervened at the oral hearing were the Netherlands and Finland.  A representative from the Commission also made submissions, as did the parties.  The Netherlands and Finland strongly argued that SEP holders have the right to seek injunctive relief for all patents and that this can only be limited in ‘exceptional circumstances’.  For example, Finland asserted that an SEP holder can only abuse a dominant position if it refuses to license its SEPs when offered terms proven by a court or arbitration to be FRAND. The Netherlands, in line with the commentators mentioned above, emphasised that the conduct of the licensor is more relevant to the issue of abuse than that of the licensee.  On the other side of the Court room the Commission and ZTE asserted that as we are dealing with very ‘special’ kinds of patents, a lower threshold for abusive behaviour should apply i.e. that the seeking of injunctive relief against someone who agrees in principle to take a licence is abusive.   

The CJEU judges asked a number of questions (from how to assess dominance in SEP cases; the proper method for determining FRAND royalties; to whether injunctive relief could be sought if the potential licensee does not make an offer to be bound by a third party determination and/or if such offer can also be made by the SEP holder).  Interestingly, all parties appeared to agree that a licensee must remain free to challenge validity and infringement in general (although Huawei submitted that licence proposals made by prospective licensees must not be conditional on proving the validity or infringement of the SEP(s) in question as this creates undue delay in agreeing a licence).  The acceptance of third party determination of the terms of a FRAND licence (by Court or arbitration) was also a central theme indicating that this may become a key criterion in the assessment of both licensor’s and licensee’s conduct. This would, of course, be in line with the Commission’s Decisions against Samsung and Motorola.

The next procedural step is the Advocate General (AG) opinion from AG Wathelet on 20 November 2014.  This will not be binding on the CJEU (although the CJEU follows AG opinions in the majority of cases...).  The Commission has indicated that the CJEU’s judgment is likely to be handed down in early 2015 so, if that timetable is followed, the industry could finally get some* clarity within half a year.

The ability of SEP holders to seek injunctive relief also continues to be debated within ETSI in the IPR SC meetings which began in March 2010.  At the end of 2013/beginning of this year it looked as though some progress was being made towards agreeing an ‘industry led solution’.  However, submissions made before and during the most recent ETSI IPR SC meeting held in mid September suggest that any progress that appeared to have been made may have been illusory.  At this rate it looks like the CJEU may get there first, presenting ETSI members with something of a dilemma, given that ETSI is an official European Standardisation Body and might be expected to reflect EU law in its policies, notwithstanding that there clearly remains intense disagreement within the industry (and thus among ETSI members) about how, if at all, to limit recourse to injunctions for SEPs.

* ‘Some’ is a key word in this sentence.  Given the sometimes perfunctory nature of CJEU judgments, we do not expect that all of the questions surrounding this issue are likely fully to be answered.

Helen Hopson

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