Huawei v ZTE: standards and standard essential patents
Standards play an important role in the establishment of modern electronics/computing devices, especially in fields such as telecommunications or broadcasting where interoperability is required. A 'standard essential patent' (SEP) – a patent which would necessarily be infringed by any products implementing the standard – can therefore be extremely valuable.
Many standards setting bodies require parties contributing to the development of the standards technology to declare any patents they hold which are considered to be essential to the standard, and to commit to granting a license for those patents to other parties on 'fair, reasonable, and non-discriminatory' (FRAND) terms. However, what is meant by FRAND and the rules for negotiating a licence are often left open.
One issue is whether a patentee who has committed to granting FRAND licences may use an SEP to bring action for an injunction against an infringer whose products implement the standard.
Huawei Technologies Co Ltd v ZTE Corp
In Huawei , concerning the LTE standard for mobile telecommunication, the Court of Justice of the European Union (CJ) was asked whether such injunctive action would constitute an abuse of a dominant position under European competition law.
The Advocate General for the CJ recently delivered his opinion on this matter. While not decisive (the court could reach a different conclusion), in most cases the court follows the Advocate General's opinion.
The Advocate General said that merely owning an SEP does not necessarily mean that the patentee holds a dominant position in the market – this would need to be determined case-by-case.
However, assuming that a dominant position is established, the Advocate General set out several considerations for determining whether the patentee's conduct is an abuse of a dominant position:
Considerations for the patentee
1. Where the patentee has committed to granting licences for an SEP on FRAND terms, and the infringer has shown itself to be "objectively ready, willing and able to conclude such a licensing agreement", the patentee's action for an injunction would be considered abusive.
2. Unless it has been established that the infringer is fully aware of the infringement, then before bringing any action for an injunction, the patentee must:
- inform the infringer in writing of the SEP and the reasons it is believed to be infringed (although we would advise the patentee to be careful not to infringe any national law concerning groundless threats for patent infringement)
- make a written offer of a FRAND licence, including terms setting the royalty due and how to calculate the royalty.
Otherwise, the injunctive action would be considered abusive.
3. Action to secure rendering of accounts, or a claim for damages for previous infringements of the SEP, would not be considered abusive.
Considerations for the infringer
1. When the patentee makes an offer of a FRAND licence, the infringer must respond in a "diligent and serious manner". The infringer may make a reasonable counter-offer relating to the licence terms with which it disagrees.
2. If the infringer's conduct is "purely tactical and/or dilatory and/or not serious", then the patentee's action for an injunction would not be considered abusive.
3. A request by the infringer for the FRAND terms to be settled by the court or an arbitration tribunal would not be considered "tactical", "dilatory" or "not serious". The infringer may also reserve the right to challenge the patent's validity, whether their actions infringe the patent, or whether the patent is actually essential to the standard. Otherwise, the meaning of "tactical", "dilatory" or "not serious" has been left open!
We await with interest whether the court follows the Advocate General's Opinion.
Case C?170/13 Huawei Technologies Co Ltd v ZTE Corp: http://dycip.com/huaweicj