Source: https://blogs.dlapiper.com/iptgermany/2015/07/22/huawei-v-zte-cjeu-landmark-decision-provides-new-ground-rules-for-asserting-standard-essential-patents-in-europe/
Timestamp: 2020-01-23 07:30:05
Document Index: 676848026

Matched Legal Cases: ['CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ']

“Huawei v ZTE” – CJEU landmark decision provides new ground rules for asserting standard-essential patents in Europe – IPT Germany
SEPs are patents essential to implement a specific industry standard. Therefore, it is not possible to manufacture products that comply with a certain standard without making use of the technologies covered by these patents. This may give companies owning SEPs significant market power. As a result, standards bodies generally require their members to commit to license SEPs on fair, reasonable and non-discriminatory (so-called “FRAND”) terms. In March 2013, the Düsseldorf Regional Court had to rule over a case where Huawei holds an SEP to the LTE standard developed by the European Telecommunications Standards Institute (ETSI). Huawei is a member of ETSI, notified the patent to that institute and made a commitment to ETSI to grant licenses to third parties on FRAND terms. ZTE marketed base stations with LTE software in Germany and was therefore allegedly making use of Huawei’s patent. Since discussions between Huawei and ZTE regarding the conclusion of a licensing agreement on FRAND terms were unsuccessful, Huawei brought an action for infringement against ZTE before the Düsseldorf Regional Court, seeking inter alia an injunction prohibiting continuation of the infringement. According to ZTE, the action for a prohibitory injunction constitutes an abuse of a dominant position, since ZTE is willing to negotiate a license.
The CJEU points out that the decision needs to strike a balance between maintaining free competition and the requirement to safeguard the proprietor’s intellectual property rights. Taking into consideration the large number of SEPs composing a standard, it is not certain that an alleged infringer will necessarily be aware that it is using the teaching of an SEP. Further, as the SEP proprietor is better placed to check whether its offer complies with the FRAND requirements than is the alleged infringer, the CJEU places the burden of initiating FRAND license negotiations on the SEP proprietor. Following up on the proposals of Advocate General Wathelet, the CJEU held that an SEP proprietor, who made a commitment to a standards body to grant third parties a FRAND-license, does not abuse its dominant position in seeking an injunction or the recall of products only when complying with the following obligations prior to bringing such an action:
First, the SEP proprietor shall alert the alleged infringer designating the claimed SEP and the allegedly infringing products or services.
Second, if the alleged infringer expresses its willingness to conclude a FRAND license agreement, the SEP proprietor shall send a written offer for a license on such terms, specifying, in particular, the amount of the royalty fee and the way of its calculation.
It is then for the alleged infringer to diligently respond to the proprietor’s offer, in accordance with the recognized commercial practices in the field and in good faith, which must be determined on the basis of objective factors and which in particular implies that there are no delaying tactics.
Does the alleged infringer not want to accept the proprietor’s offer, it has to submit to the SEP proprietor a specific counter offer promptly and in writing, which corresponds to FRAND terms. Where this counter offer is rejected by the proprietor, but the alleged infringer is still using the teaching of the SEP, the alleged infringer has to provide appropriate security in accordance with recognized commercial practices from the point at which the counter offer is rejected. The security can be provided in the form of a bank guarantee or by depositing the necessary amounts. Further, where no agreement is reached, the SEP proprietor and the alleged infringer may – by common agreement – request that the royalty fee be determined by an independent third party.
The CJEU’s decision considerably deviates from German case law developed in recent years pursuant to the German Federal High Court of Justice’s “Orange Book Standard” decision (2009). According to German case law, an SEP proprietor may file an action for prohibitory injunction without any prior duties and “only” needs to wait for an offer by the alleged infringer after filing the action. The alleged infringer must make an unconditional offer for entering into a FRAND-agreement which a reasonable SEP proprietor then shall accept. If the alleged infringer already uses the invention, it is further forced to “behave like a licensee”. Therefore, the alleged infringer, inter alia, must deposit the license fees in advance and is not allowed to challenge the validity of the SEP.
Based on the CJEU’s decisions, an SEP proprietor will now be required to make an alert designating the claimed SEP to the potential infringer and subsequently make an offer for concluding a FRAND license on its own initiative, prior to seeking an injunction or the recall of products in European courts. With this, the CJEU substantially shifts the obligations of both parties. In addition to the burden of seeking a license from the infringer in the first place, the SEP proprietor must tolerate a validity or essentiality attack even after concluding a FRAND-license agreement. The alleged infringer even has the possibility to challenge the use of the SEP after concluding the agreement.
The CJEU did not have the possibility to decide whether an SEP proprietor always has a dominant position just because of owning an SEP, as the Düsseldorf Regional Court based its questions on the assumption that a dominant position exists. Further, the CJEU did not mention any requirements or indications for determining the “willingness” of the alleged infringer and the “diligence” of its response. Therefore, it will be left to the national patent infringement courts to develop measures on which the willingness and the diligent response can be determined.
Nevertheless, the decision of the CJEU constitutes a crucial milestone on the way to achieving a uniform European case law at the intersection of patent and antitrust law. The case law of some national patent infringement courts, in particular in Germany, will need to be adopted to the ground rules laid out by the CJEU. However, some issues (such as the question whether the CJEU’s decision applies not only to de jure standards, but also to de facto standards), remain to be sorted out.