The Court of Justice of the European Union (CJEU) handed down an important decision on the 16 July 2015 dealing with the thorny issue of the balance to be struck between the rights of patent proprietors of patents that have become part of a European standard and the rights of third-parties who have not concluded an agreement with that patent holder for the use the protected technology – but have used it in any event to comply with the requirements of the EU standard.
Essentially, what was at stake was the rights of the holder of a patent to enforce that patent, even where the patent was part of an EU standard and the countervailing right of the third party to rely on Article 102 of the EU Treaty (the prohibition on the abuse of a dominant position) to resist infringement proceedings and specifically a claim to an injunction to restrain the alleged infringement.
By way of background, in the EU, standardisation of telecommunications technology is the responsibility of ETSI (the ‘European Telecommunications Standards Institute’) which the court explained is:
“… a body the objective of which, according to Clause 3.1 of Annex 6 to the ETSI Rules of Procedure, which annex is entitled ‘ETSI Intellectual-Property Rights Policy’, is 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 could be wasted as a result of an essential intellectual-property right for those standards being unavailable. To that end, Annex 6 seeks a balance between the needs of standardisation for public use in the field of telecommunications and the rights of the owners of intellectual-property rights.” (para 22 of the Judgment)
In order to meet that objective the Annex requires that the IP right holder of the right to be included within a standard shall be adequately rewarded but to counterbalance that the DG of ESTI must immediately request of the patent holder that within three month of notifying a patent essential to a standard (a so called Standard Essential Patent ‘SEP’) that the right holder gives an irrevocable undertaking to grant licences on fair, reasonable and non-discriminatory terms (‘FRAND Terms’) – although it should be appreciated that there is no accompanying definition in the Annex of what actually constitute FRAND terms.
In the case in question Huawei Technologies was the proprietor of a patent titled ‘Method and apparatus of establishing a synchronisation signal in a communication system’, granted by the Federal Republic of Germany, (‘patent EP 2 090 050 B 1’). This patent was notified to ETSI as a SEP in March 2009 as a patent essential to the ‘Long Term Evolution Standard’ and undertook to offer licences on FRAND terms. However, ZTE Corp. proceeded to use the technology disclosed in patent EP 2 090 050 B 1 without ever having been able to agree a licensing arrangement with Huawei – although offer and counter-offer had been made by the parties – and subsequently ZTE Corp distributed products in the EU that infringed the Huawei patent and without paying any royalty to Huawei. Unsurprisingly, Huawei brought patent infringement proceedings before the Landgericht Düsseldorf (Germany) seeking an injunction prohibiting the infringement, the rendering of accounts, the recall of products and an award of damages.
However, the Landgericht felt unable to deal with the claim a it stood and instead referred a number of questions to the CJEU for a preliminary ruling – which in essence asked in what circumstances is it an abuse of a dominant position (contrary to Article 102) for the proprietor of a SEP to seek to enforce its IP rights where it has been unable to conclude a licensing agreement with the alleged infringer of its patent: remembering always that a balance must be struck between the rights of the patent holder and the rights of the third-party not to be subject to a party abusing its dominant position. The CJEU explained the legal balance to be truck in the following terms:
"45 First of all, it must be recalled that the concept of an abuse of a dominant position within the meaning of Article 102 TFEU is an objective concept relating to the conduct of a dominant undertaking which, on a market where the degree of competition is already weakened precisely because of the presence of the undertaking concerned, through recourse to methods different from those governing normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition (judgments in Hoffmann-La Roche v Commission, 85/76, EU:C:1979:36, paragraph 91; AKZO v Commission, C 62/86, EU:C:1991:286, paragraph 69; and Tomra Systems and Others v Commission, C 549/10 P, EU:C:2012:221, paragraph 17).
46 It is, in this connection, settled case-law that the exercise of an exclusive right linked to an intellectual-property right — in the case in the main proceedings, namely the right to bring an action for infringement — forms part of the rights of the proprietor of an intellectual-property right, with the result that the exercise of such a right, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute an abuse of a dominant position (see, to that effect, judgments in Volvo, 238/87, EU:C:1988:477, paragraph 8; RTE and ITP v Commission, C 241/91 P and C 242/91 P, EU:C:1995:98, paragraph 49; and IMS Health, C 418/01, EU:C:2004:257, paragraph 34).
47 However, it is also settled case-law that the exercise of an exclusive right linked to an intellectual-property right by the proprietor may, in exceptional circumstances, involve abusive conduct for the purposes of Article 102 TFEU (see, to that effect, judgments in Volvo, 238/87, EU:C:1988:477, paragraph 9; RTE and ITP v Commission, C 241/91 P and C 242/91 P, EU:C:1995:98, paragraph 50; and IMS Health, C 418/01, EU:C:2004:257, paragraph 35).”
The CJEU sought, in its judgment, to strike a middle way between upholding the rights of patent proprietors – even of a SEP that had been notified to ETSI and irrevocably made subject to licences on FRAND terms – and the necessity of preventing rights holders abusing the position of possessing a patent that is essential to an ETSI standard.
What the CJEU determined was that the proprietor of a SEP that had been made the subject of an irrevocable offer of FRAND licences did not infringe Article 102 by bringing an action for infringement and seeking an injunction recalling or restraining the distribution of infringing goods subject to the following conditions; namely that:
So there will be no Article 102 abuse in bringing a claim for patent infringement where:
Whilst the decision of the CJEU seems to impose some restraint on patent holder using SEP to gain an abusive market advantage the difficulty still remains as to what constitutes FRAND terms – particularly where the alleged infringer is not (like ZTE Corp.) a very substantial business but a small technology company that need access to the SEP to comply with the ETSI standard. Who is going to decide what constitute FRAND terms in those circumstances and critically the appropriate royalty rate? And will such terms depend on the nature of the company seeking the FRAND terms – or the importance of the SEP to the technology standard?
For those who would like to read the full judgment it can be found at:
Dr Tim Sampson / 1st Jul 2015
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