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Huawei v. ZTE: Integrating Good Faith Without Foregoing the Right to Enforce Your FRAND-Encumbered Standard-Essential Patents

How the Court of Justice of the European Union Reached a Compromise at the Crossroads of Antitrust and Intellectual Property

1. Introduction

The whole field of standard-essential patents – fair, reasonable and non-discriminatory (“FRAND”) commitments,01“FRAND” is an acronym for “fair, reasonable, and non-discriminatory”. In the US, the ‘fair’-part of the acronym falls off, as it is considered to be redundant with the ‘reasonable’-part. See United States Department of Justice and United States Patent & Trademarks Office, Policy Statement On Remedies for Standards-Essential Patents Subject to Voluntary F/Rand Commitments, Jan. 8, 2013, 1, footnote 2 (explaining that the acronym RAND is used in the US, while the acronym FRAND is used in other jurisdictions). injunctive relief and their analysis in various jurisdictions, and under different bodies of law including IP law, antitrust, contract law – is one that has been argued about in the past decade.03Michael Fröhlich, AIPPI Report, Availability of Injunctive Relief for FRAND-Committed Standard Essential Patents, Incl. FRAND-Defence in Patent Infringement Proceedings, March 2014, http://aippi.org/library/q222-aippi-report-on-the-availability-of-injunctive-relief-for-frand-committed-standard-essential-patents/, 2.

Many aspects of the debate are worth discussing; particularly, the whole standard-setting process is potentially subject to both ex ante and ex post issues. Ex ante, participants in the standard-setting process could deceive the standard-setting organization (“SSO”) by failing to disclose their patents covering a particular technology to be included in the standard, thereby committing what is known as a “patent ambush.”02Johan Verbruggen and Anna Lorincz, Patents and Technical Standards, 9 Ing.Cons. TIE 326 (2000). Also, the opposite problem can occur where the same participants over-declare their patents.04Alison Jones, Standard-Essential Patents: FRAND Commitments, Injunctions and the Smartphone War, 10 Eur. Competition J. 7 (2014). Ex post, these standard-essential patent-holders (“SEP-holders”) might renege on their FRAND-commitments and refuse to license their patents to implementers of the standard, extract unreasonable royalties that may be per se exploitative and potentially exclusionary in case of royalty-stacking, or sue them to obtain injunctive relief, thereby abusing their bargaining power.05Damien Geradin, Ten Years Of DG Competition Effort To Provide Guidance On The Application Of Competition Rules To The Licensing Of Standard-Essential Patents: Where Do We Stand?, February 2013, http://www.law.northwestern.edu/research-faculty/searlecenter/workingpapers/documents/Geradin_DG_Competition.pdf (accessed 24 March 2014), at 4; Marc A. Lemley, Ten Things To Do About Patents Holdup Of Standards (And One Not To), 48 B.C. L. Rev. 153 (2007); John Temple Lang, Eight Important Questions On Standards Under European Competition Law, 7 Competition L. Int’l 35 (2011).

In the US and in the EU, only recently have courts reached more legal certainty, albeit to a different extent. The purpose of this paper will be limited to one observation as to some commonality between the two jurisdictions when they face injunctive relief cases: reliance on an analysis constructed on a general obligation of procedural courtesy,06Nicolas Petit, HUAWEÏ V ZTE: Judicial Conservatism At The Patent-Antitrust Intersection, CPI Antitrust Chronicle, October 2015 (2), at 6. or duty of good faith.07James Nurton, Making Sense Of Courts’ Rulings On FRAND Injunctions, 241 Managing Intell. Prop. 19, 19 (2014). More specifically, this article will look at the recent judgment of the Court of Justice of the European Union (“CJEU”) regarding the circumstances that make the seeking of injunctions by the SEP-holder abusive under EU competition law. Before discussing this recent development, I will discuss the most important elements of the test applied by US courts when addressing injunctive relief in SEP/FRAND context from a contract law perspective. Lastly, it must be specified from the outset that a major difference between US and EU antitrust approach towards abusive conduct is that the European rule does not impede monopolization but rather prohibits an abuse of the dominant position,08Geradin, supra note 6, at 7; Inge Govaere, Abuses Of Dominant Position, Intellectual Property Rights And Monopolization In EU Competition Law: Some Thoughts On A Possible Course Of Action, in COMPETITION LAW AND ECONOMICS: ADVANCES IN COMPETITION POLICY ENFORCEMENT IN THE EU AND NORTH AMERICA 186 (Edward Elgar ed., 2010). while the American rule does not tackle exploitative abuses but only exclusionary acts.09Amedeo Arena, Bettina Bergmann & Jay L Himes, Two Bodies Of Law Separated By A Common Mission: Unilateral Conduct By Dominant Firms At The IP/Antritrust Intersection In The EU And US, 9 Eur. Competition J. 666 (2013). Besides, except for competition rules, the EU lacks a unitary body of law, like that of contract law in the US, which might serve to address the aforementioned issues.

2. The US Approach: the Duty of Good Faith and Fair Dealing

The US courts’ stance on the issue of injunctive relief sought by an SEP-holder against an implementer has been almost exhaustively summarized by Circuit Judge Berzon in Microsoft Corp. v. Motorola, Inc.10Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (9th Cir. 2015). His opinion lies at the end of a series of decisions on the same case, involving the two tech giants Microsoft and Motorola. The latter brought infringement actions in various fora to enjoin Microsoft from using Motorola’s SEP without a license.11Id. at 1029. Microsoft in turn sued Motorola, claiming that it breached its obligations to offer reasonable and non-discriminatory licenses to its patents in good faith.12Id. The Ninth Circuit Court eventually held that Motorola had given a sweeping promise to the SSO, which implied a reasonable guarantee that it would not take any steps to prevent potential licensees from using the SEP, but rather proffer licenses on RAND terms.13Id. at 1030, citing Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) . On April 25, 2013, Judge Robart set what RAND licensing terms the two parties should include in their license agreement,14Microsoft Corp. v. Motorola, Inc., No. 10-cv-1823, (W.D. Wash). See also, Microsoft-Motorola Update: Washington Court Sets RAND Royalty For Motorola 802.11 And H.264 Patent Portfolios, ESSENTIAL PATENT BLOG (April 25, 2013) http://www.essentialpatentblog.com/2013/04/microsoft-motorola-update-washington-court-sets-rand-royalty-for-motorola-802-11-and-h-264-patent-portfolios/ (giving an overview of Judge Robart’s 207 page- long decision). For a review and summary of the Georgia-Pacific factors as used by Judge Robart, see Stefano Barazza, Licensing Standard Essential Patents, Part One: The Definition Of F/RAND Commitments And The Determination Of Royalty Rates, 9 J, Intell. Prop. L. & Prac. 478-479 (2014); Tony V Pezzano and Jeffrey M Telep, Latest Development On Injunctive Relief For Infringements Of FRAND-Encumbered SEPS – Part II, 26 Intell. Prop. and Tech. L. J. 25-26 (2014). which led a Ninth Circuit jury to determine that Motorola did breach the good faith and fair dealing obligation it owed Microsoft pursuant to its RAND commitment.15Microsoft Corp. v. Motorola, Inc., 795 F.3d at 1030. As will be obvious after discussing the criteria used by the court, determining whether Motorola had breached its RAND commitment was inherently dependent on calculating what royalties would have been within the range of the RAND requirement.

First, it is now clearly established that the RAND commitment given by a SEP-holder to a standard-setting organization – of the kind that Motorola gave to the Institute of Electrical and Electronics Engineers (“IEEE”) – is an enforceable contract to which implementers are third-party beneficiaries, like Microsoft in the case analyzed here.16Microsoft Corp. v. Motorola, Inc., 696 F.3d at 877; Kassandra Maldonado, Breaching RAND And Reaching For Reasonable: Microsoft V. Motorola And Standard-Essential Patent Litigation, 29 Berkeley Tech. L. J. 419, 433 (2014); Roger G Brooks and Damien Geradin, ‘Taking Contracts Seriously: The Meaning of the Voluntary Commitment to License Essential Patents on “Fair and Reasonable” Terms’ (12 March 2010), http://papers.ssrn.com/sol3/pap-ers.cfm?abstract_id=1569498. Some scholars and courts go even further and claim that RAND commitments essentially amount to a waiver of the SEP-holder’s right to seek injunctive relief in case of patent infringement.17Joseph Scott Miller, Standard-Setting, Patents, And Access Lock-In: RAND Licensing And The Theory Of The Firm, 40 Ind. L. Rev. 371-376 (2007); Steven M Amundson, Recent Decisions Provide Some Clarity On How Courts And Government Agencies Will Likely Resolve Issues Involving Standard-Essential Patents, 13 Chi.- Kent. J. Intell. Prop. 91, 9-13 (2013); Barnes & Noble, Inc. v. LSI Corp., 849 F. Supp. 2d 925, 943-944 (N.D. Cal. 2012); Maldonado, supra note 17, at 427. For the present analysis, it is critical that the commitment be considered as a contract, in order to account for the application of the traditional contractual obligation of duty of good faith and fair dealing.18Maldonado, supra note 17, at 435.

Once Judge Robart had set RAND-compliant royalties for the two SEPs involved in the litigation, the jury was instructed to consider six main factors, alone or in combination, when assessing whether Motorola’s seeking of injunctive relief constituted breach of its duty of good faith and fair dealing.19Microsoft Corp. v. Motorola, Inc., 795 F.3d at 1045-1046. The jurors had to review whether Motorola’s conduct was contrary to reasonable and justified expectations of other parties to the contract, whether it would frustrate the purpose of the contract, whether it would be commercially reasonable, whether it would conform to ordinary custom or practice in the industry, whether Motorola reasonably used discretion, and also Motorola’s intent and possible bad motive.20Id. Evidence of several instances of Motorola’s behavior were given and analyzed in light of these elements. The jury determined that Motorola’s behavior frustrated the purpose of the contract, based on the fact that the injunction would have allowed Motorola to capture more than the value of its patents by inducing holdup and to prevent Microsoft from using those patents.21Id. at 1046. .22Microsoft Corp. v. Motorola, Inc., 696 F.3d at 877.

Also, the timing of Motorola’s injunctive claim indicated its bad faith: it sued Microsoft immediately after the twenty-day acceptance window provided in the offer letters had expired.23Microsoft Corp. v. Motorola, Inc., 795 F.3d at 1046. Finally, Motorola knew that its conduct could breach good faith and fair dealing because the FTC had investigated it and Google, giving rise to a consent decreed, and had shared its concerns with the ITC about the questionability of such practices.24Id. at 1047.

It can be concluded from these elements that the criteria measuring an SEP-holder’s behavior of seeking injunctive relief essentially rely on three main concepts: (i) good or bad faith, combined with intent; (ii) reasonable expectations of third parties; and (iii) industry practice. This broader approach seems to give more leeway compared to Judge Posner’s stance in Apple, Inc. v. Motorola that the SEP-holder should not be granted injunctive relief, unless the implementer refused to pay RAND-compliant royalties.25Maldonado, supra note 17, at 439 (citing Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 2012 (N.D. Ill. 2012).

This is also consistent with the DOJ’s and PTO’s approaches with regard to remedies available upon infringement of standard-essential patents: although the two enforcement agencies refer to anticompetitive effects and to public interest factors in discussing the availability of injunctive relief, their reasoning clearly aligns with the aforementioned contract law test.26United States Department of Justice and United States Patent & Trademarks Office, Policy Statement On Remedies For Standards-Essential Patents Subject To Voluntary F/Rand Commitments, January 8, 2013, 5-8.

As will be noted in the next section, the European Union, notwithstanding a long struggle to tackle the issue of injunctive relief in the FRAND/SEP context, might have reached a stage very similar to the US, potentially compensating for the absence of uniform contract law at the EU level.

3. The Court of Justice of the European Union: Unintentionally Brilliant

3.1. From Rambus to Samsung: the European Commission Driving the Process

As alluded to above, the European Commission (the “Commission”) has had different occasions to try to bring some legal certainty to the SEPs and FRAND context. I argue here that although the Commission has chosen the wrong path repeatedly, the most recent cases seemed to be driven by a more comprehensive approach. More specifically, I observe a tendency of the EU’s watchdog to refer to elements of each party’s conduct that can be situated in the broader spectrum of good faith and fair dealing.

§ 1 – Rambus: an Inconsistent Approach

The very first time the Commission had to deal with SEP-holders and their potential abusive conduct was the Rambus investigation, which opened in 2007 and concluded in 2009. The Commission investigated this Delaware-based US company for alleged intentional deceptive conduct that consisted of the non-disclosure of patents it had on technologies before these were set as standard by an SSO called “JEDEC,” thereby committing a “patent ambush” that would have enabled it to extract royalties for its license agreements with implementers of a higher value than it could have negotiated in the absence of standardization.27Press Release from the European Commission, Antitrust: Commission Confirms Sending A Statement Of Objections To Rambus, (Aug. 23, 2007) http://europa.eu/rapid/press-release_MEMO-07-330_en.htm .

It seems that the most concerning part of the conduct for the Commission was not the patent ambush itself, but the results of this deceptive behavior, in that Rambus would have been able to claim royalties for the use of its patents at a level not possible absent its allegedly intentionally deceptive conduct.282009 O.J. C 30/17, 27-28.

After consultation with the interested parties on June 12, 2009, the Commission finally decided to accept the Commitments offered by Rambus and make them binding on December 9, 2009,29Press Release from the European Commission, Antitrust: Commission Accepts Commitments From Rambus Lowering Memory Chip Royalty Rates, (Dec. 9, 2009) http://europa.eu/rapid/press-release_IP-09-1897_en.htm pursuant to Article 9 of Regulation 1/2003.30Council Regulation (EC) No 1/2003 on The Implementation Of The Rules On Competition Laid Down In Articles 81 And 82 Of The Treaty 2003 O.J. (L1)1

It is now relevant to point out that the Commission considered Rambus’ conduct as abusive given JEDEC policy requiring disclosure of any patents relevant for a standard and given the “underlying duty of good faith in the context of standard-setting, which resulted in a deliberate frustration of the legitimate expectations of the participants in the standard-setting process.”312009, O.J. C 30/17, 28, emphasis added.

The Commitments, however, mainly addressed FRAND issues. In fact, Rambus committed to offer a bundled five-year worldwide license for all its patents concerning the aforementioned JEDEC standard, certain patents being granted free of royalties and others being licensed at capped royalties.32Id. at para 49.

By accepting these Commitments, the Commission has, on the one hand, successfully corrected the alleged distorted licensing terms extracted by Rambus and brought them to a FRAND level, thereby avoiding the potential anticompetitive effects of Rambus’ conduct. On the other hand, the recourse to a Commitments decision under Article 9 of Regulation 1/2003 impedes, in this case, the setting of a precedent regarding FRAND terms in licensing agreements of SEPs, given the tailored nature of these Commitments and the absence of any general principles.33Geradin, supra note 6, at , 8.

All in all, the Commission seems to have succeeded in bringing under Article 102 TFEU an abuse through patent ambush.34Norman Neyrinck, Rambus Déclare Forfait: La Commission Dans Un FautEUIl, 41 RDTI, 109 (2010). However, it is difficult to imagine how the mere non-disclosure, taken individually, could constitute in itself an abuse of dominance, even if in theory there is no limited list of abuses of dominance and the competition authorities are free to consider as abusive practices others than those enumerated in Article 102 TFEU.35Id. at 108. Indeed, the subsequent conduct of demanding high royalties can fall within the scope of Article 102 TFEU, given the lock-in effect of standardization and the resulting dominance of the SEP-holder.

This case is relevant here because it shows how early considerations of the duty of good faith and fair dealing were, albeit implicitly, already involved in the reasoning behind enforcement actions by the European watchdog.

§ 2 – Qualcomm: Another Missed Chance

Running approximately parallel with the Rambus investigation but concluded in a shorter time period, the Qualcomm case resulted in a very different outcome, if one can call it an outcome at all.

On October 1, 2007, the Commission initiated formal proceedings against Qualcomm, a US chipset manufacturer owning patent rights in two standards for mobile telecommunication, one of which was part of the more renowned UMTS standard.36Press Release from the European Commission, Antitrust: Commission initiates formal proceedings against Qualcomm, (Oct.1, 2007), http://europa.eu/rapid/press-release_MEMO-07-389_en.htm. A number of mobile phone or chipset manufacturers had in fact lodged a complaint with the Commission, alleging that Qualcomm’s licensing terms were not FRAND; more precisely, those concerning its SEPs on the WCDMA standard, which was part of the UMTS standard.37Id.

The Commission made clear its underpinning reasoning with regard to the assessment of FRAND terms and commitments, stating that “the economic principle underlying FRAND commitments is that essential patent holders should not be able to exploit the extra power they have gained as a result of having technology based on their patent incorporated in the standard.”38Id. The Commission seemed, again, to rely on the leverage argument, a question that pervades any negotiation situation and that is essential to good faith and fair dealing concepts.

Yet the excitement created by a new investigation on FRAND terms and SEP-holders was squashed when the Commission decided to close the proceedings two years later, following the withdrawal of the complaints.39Id. Similarly, in the Rambus case, the Commission investigated for two years and analyzed a complex body of evidence for a complaint that was there supported by many major market players, but then decided to drop the case despite the fact that it was about to make commitments binding in the Rambus investigation.40Id. On the other hand, such a case confronted an SEP-holder with complainants that were very large undertakings: Qualcomm’s royalties hence resulted from arm’s length negotiations, which made it rather difficult for the European watchdog to find any evidence of exploitative prices within the meaning of Article 102 TFEU.41Geradin, supra note 6, at 8-9. Again, this rationale is a first sign of changing approach time in terms of how to analyze such conduct.

Although apparently some benchmarks had been proposed to assess the FRAND-character of Qualcomm’s royalties, these had major flaws from theoretical and practical perspectives, and Qualcomm also succeeded in showing that the royalties it asked for after standardization were similar to those it had been asking for before.42Id. at 9.

A caveat must, however, be made at this point, since these first two cases have something in common that the next ones do not have and that contrasts with US cases mentioned above. Rambus and Qualcomm both involved suspicious conduct, but none presented injunctive relief considerations.

§ 3 – Samsung: a Fast Investigation to the Detriment of Consistency and Precedent Setting

On January 30, 2012, the Commission opened a formal investigation into Samsung to assess whether it had “abusively, and in contravention of a commitment it [had given] to the [ETSI],43“ETSI” is the acronym for “European Telecommunications Standards Institute.” used certain of its standard essential patent rights to distort competition in European mobile device markets, in breach of EU antitrust rules.”44Press Release from the European Commission, Antitrust: Commission Opens Proceedings Against Samsung, (Jan. 31,2012, http://europa.eu/rapid/press-release_IP-12-89_en.htm. The grounds of this investigation were the multiple actions for injunctive relief brought by Samsung in 2011 in various jurisdictions against implementers of certain of its patent rights, which were essential to implement European mobile telephony standards.45Id.

At this stage, it is critical to highlight the language of ETSI’s Intellectual Property Rights Policy, containing the wording for the commitment to be given by SEP-holders: an “irrevocable undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable and non-discriminatory […] terms […]”46Id. at 36. It goes without saying that there is a substantial difference between being prepared to grant licenses and promising to grant licenses, especially in terms of contractual consequences.

On December 21, 2012, after an almost yearlong investigation, the Commission decided to send a statement of objections to Samsung, sharing its preliminary view that the Seoul company was in fact abusing its dominant position by seeking injunctions against Apple in different Member States based on alleged infringement of its SEPs on the 3G UMTS standard (used in all mobile devices for communications).47Press Release from the European Commission, Antitrust: Commission Sends Statement Of Objections To Samsung On Potential Misuse Of Mobile Phone Standard-Essential Patents, (Dec. 21, 2012)http://europa.eu/rapid/press-release_IP-12-1448_en.htm. Without further details, it was held that such conduct may be abusive if the potential licensee was willing to negotiate FRAND terms, and reference was made to the major risk of patent hold-up.48Id. Again, this seems to refer to an idea of fair dealing avoiding any unduly high level of royalties being extracted because of the strategic position of the SEP-holder.

When Samsung offered commitments, the Commission opened a consultation for interested parties on October 17, 2013.49Press Release from the European Commission Antitrust: Commission Consults On Commitments Offered By Samsung Electronics Regarding Use Of Standard-Essential Patents, (Oct. 17, 2013, http://europa.eu/rapid/press-release_IP-13-971_en.htm. The Commission’s concerns were reiterated, with emphasis on the danger of Samsung leveraging excessive royalties through the threat of seeking injunctive relief against potential licensees.50Id.

As to these first Commitments, Samsung essentially guaranteed that it would waive its right to seek injunctive relief before any judiciary of the European Economic Area for infringement of its Mobile SEPs against potential licensees for a duration of five years, provided that the latter agreed to negotiate and comply with a licensing framework.51Case COMP /C-3/39.939 – Samsung Electronics, Enforcement of UMTS standard essential patents, Commitments offered to the European Commission, at 1.7 (Sept.2013) http://ec.europa.eu/competition/antitrust/cases/dec_docs/39939/39939_1501_5.pdf. If the initial negotiation period of twelve months on the determination of FRAND terms did not result in an agreement on these terms, Samsung and the potential licensee would submit the question to arbitration or court adjudication.52Id. at 2. If the potential licensee refused to comply with this framework, becomes insolvent or itself seeks injunctive relief against Samsung based on its own Mobile SEPs, Samsung would recover its right to seek injunctive relief without breaching the Commitments offered to the European Commission.53Id. at 2-3. This last term uncannily resembles the argument given by scholars looking at FRAND commitments as some kind of waiver of the right to seek injunctive relief.54See supra, Section 2.1, 3.

Less than five months into 2014, the Commission considered itself satisfied with this investigation and decided to make the Commitments offered by Samsung, fundamentally unchanged,55The only modifications incorporated in the last version of the Commitments (Feb.3, 2014) entail a larger competence of the arbitral panel in terms of validity and infringement of SEPs and the extension of Samsung’s obligations for negotiations entered into by the parties during the Commitments’ five-year duration. Supra note 52, at clauses 9 (g) and 14. binding,56Press Release from the European Commission, Antitrust: Commission Accepts Legally Binding Commitments By Samsung Electronics On Standard Essential Patent Injunctions (Apr.29, 2014), http://europa.eu/rapid/press-release_IP-14-490_en.htm. applying Article 9 of Regulation 1/2003.57Supra, note 31.

Although a very thorough analysis of the Commission’s decision to accept these Commitments is warranted, it does not fall within the scope of this paper. Suffice it to say that the Commission looked at Samsung’s FRAND commitment to ETSI as a promise to grant irrevocable licenses on FRAND terms, notwithstanding the vaguer language of ETSI’s IPR policy.582014 O.J. (C 350)8, 60-61. Another important element in the Commission’s mind was that one of Samsung’s potential licensees, Apple, was willing to enter into a license agreement on FRAND terms.59Id. at 67-68. Finally, the Commission concluded that Samsung’s Commitments provide for a “safe-harbor” for all potential licensees that submit to the Licensing Framework.60Id. at 122. These last elements will be found again in Huawei v. ZTE, and indeed align with the US approach, where the other party’s attitude is also relevant to assess the SEP-holder’s reasonableness, although it will be more explicitly set out at EU level.

§ 4 – Motorola: the Commission Takes Over

Running more or less parallel with the Samsung investigation, the Motorola case, initiated on April 3, 2012 only a couple of months after Samsung, concerned the same issue of injunctive relief for breach of FRAND-pledged SEPs by Motorola and the question of whether Motorola offered non-FRAND terms for its SEPs.61Press Release from the European Commission, Antitrust: Commission Opens Proceedings Against Motorola, (Apr. 3, 2012) http://europa.eu/rapid/press-release_IP-12-345_en.htm.

When the Commission sent Motorola a Statement of Objections on May 6, 2013, it expressed the same competition concerns as in the Samsung investigation and referred again to the “exceptional circumstances” which could render the seeking of an injunction by an SEP-holder abusive under Article 102 TFEU; namely, where the latter has given FRAND commitments and the potential licensee is “shown to be willing to enter into a FRAND license.”62Press Release from the European Commission, Antitrust: Commission sends Statement of Objections to Motorola Mobility on potential misuse of mobile phone standard-essential patents – Questions and Answers, , (May 6, 2013) http://europa.eu/rapid/press-release_MEMO-13-403_en.htm. The Commission viewed a licensee as willing to enter into a license when it accepts a binding third party determination of the FRAND terms in case the common bilateral negotiations with the SEP-holder do not succeed.63Id. at 2. Moreover, having recourse to a negative definition, the EU competition watchdog took the view that the unwillingness of a potential licensee could be found in its unresponsive and passive attitude as to licensing negotiations or the recourse to clear delaying tactics.64Id. As we will see below, this “shared responsibility” was part of the CJEU’s recent response to a request for a preliminary ruling.65See infra, Section 3.2..

Looking more closely at a decision taken under Article 7 of Regulation 1/2003, one notices the Commission has developed a much more precise reasoning than in Samsung, despite the shorter investigation duration in Motorola. Finding abuse instead of accepting commitments, the Commission decided to take over and try to establish a strong precedent. It seems that the EU watchdog had more materials on which to base its finding of abuse, since Motorola’s conduct towards Apple was consistent throughout several years.66See 2014 O.J. (C 344) 6, 15-35 (giving a detailed description of the facts of the case concerning patent litigation between Motorola and Apple in Germany).

The Commission assessed whether Motorola’s conduct was abusive within the meaning of Article 102 TFEU, thereby applying previous case law on refusal to license cases and their Magill test.67Id. at 278. When applying that test, the Commission explained that the exceptional circumstances in this case were the existence of the GPRS standard-setting process and Motorola’s FRAND commitments given to the ETSI at the time of the selection of the technology.68Supra note 67, at 281. Regarding the latter circumstance, it was of great importance that the Commission to took into account the fact that, based on these FRAND commitments, manufacturers of standard-compliant products could reasonably expect that Motorola would make its SEPs available on FRAND terms.69Id. at 294. With this reasoning, the Commission ruled that the FRAND commitment in some way affects the right of an SEP-holder to seek injunctive relief (as Motorola also admits), unless the potential licensee turns out to be unwilling.70Id. at 295-297.

Next, the Commission looked at whether there would be an objective justification to “support” Motorola’s conduct and checked every ground brought by Motorola, the two most important being the protection of its commercial interests and the absence of waiver of the right to seek injunctions.71Id. at 424.

As to the first criterion, the Commission referred to the three scenarios enumerated in Samsung where an SEP-holder could seek an injunction, the major one being the potential licensee’s unwillingness to enter into a license agreement on FRAND terms.72Id. at 427. On this element, the Commission concluded from the facts of the case that Apple was indeed willing to enter into a license agreement on FRAND terms, yet failed to give more precise and concrete elements to determine what “willingness” implies in terms of behavior.73Id. at 430-464.

As to the waiver of the right to seek an injunction, the Commission insisted it had no effect on the antitrust enforcement of such behavior, subtly dodging the issue of legal qualification of FRAND commitments.74Id. at 474.

It is thus in a very implicit, probably unconscious way that a series of elements relating to good faith and fair dealing concepts have emerged throughout these non-judicial cases involving SEP-holders in general, and injunctive relief situations more recently. It will be clear in the next section that the CJEU drew on this, albeit with substantive input by Advocate General Wathelet.

3.2. The Preliminary Question of Huawei v. ZTE: the CJEU Finally Acts

In April 2013, the German Regional Court of Dusseldorf asked the CJEU for a preliminary ruling on the abusive character of an SEP-holder seeking injunctive relief, and thereby put the Court in the loop for the first time since the debate became relevant at the EU level.75Case C-170/13, Huawei Technology Co. Ltd v ZTE Corp., ZTE Deutschland GmbH.

The CJEU’s involvement was seen by Huawei’s counsel as a positive evolution, given the blurry set of circumstances resulting from the Commission’s latest cases.76‘EU’s Antitrust Approach To Patent Wars Under Scrutiny At Court’, mLex, (Sept. 11, 2014). The said case concerned the infringement proceedings brought by Huawei against ZTE after the parties had negotiated the conclusion of a licensing agreement on FRAND terms for Huawei’s SEPs on the LTE standard (4G), developed by the ETSI. Upon assessing whether the defendant, ZTE, could avail itself of the FRAND defense against Huawei’s injunctive action, the Landgericht Düsseldorf stayed the proceedings and decided to refer a question to the CJEU in order to have some guidance on the legal test to apply in this case. The referral can be summarized in two questions, which then have their own sub-questions depending on the answer of the two main questions. The first question is the following:

Does the proprietor of a standard-essential patent who informs a standardization body that he is willing to grant any third party a licence on fair, reasonable and non-discriminatory terms abuse his dominant market position if he brings an action for an injunction against a patent infringer although the infringer has declared that he is willing to negotiate concerning such a licence?77Supra note 76.

The second question looks at another possibility:

Is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of a standard-essential patent an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils his contractual obligations for acts of use already performed in anticipation of the licence to be granted?78Id.

This took place within a context where the referring court was caught between a national, established test that looks at non-SEPs being infringed by implementers and holding a very patentee-friendly analysis, and a more recent EU approach advocated by the EU Commission, trying to apply past case law and to integrate new “contract-related” elements. Thus, the German court could not rely on the recent results of the Samsung and Motorola investigations.79Sven Gallasch, The Referral Of Huawei V ZTE To The CJEU: Determining The Future Of Remedies In The Context Of Standard-Essential Patents, 34 ECLR 444 (2013).

Before looking at how the CJEU replied to these questions, it is necessary to shortly present the Advocate General’s (“AG Wathelet”) opinion, upon which the CJEU later based most of its reasoning. From the outset, AG Wathelet acknowledged that EU competition law might not be the best body of law to tackle the whole issue of injunctive relief in the standard-setting/FRAND context.80Case C-170/13, Huawei v ZTE, (2014) at 9, see Opinion of AG Wathelet:
That does not mean, however, that the matters at issue in the dispute before the referring court, which, in my view, stem largely from a lack of clarity as to what is meant by ‘FRAND terms’ and as to the requisite content of such terms, could not be adequately — if not better — resolved in the context of other branches of law or by mechanisms other than the rules of competition law.
He then gave his clear view that FRAND commitments are not the same as licenses on FRAND terms and that a good part of the debate could be resolved by a framework developed by SSOs, in order to obtain a “neutral” negotiation context including some sort of “rule of good conduct,” in a similar way to the notion of pre-contractual good faith utilized by the Dutch Courts.81Id. at 10-11. This gives another ground to link the EU’s recent approach to the US’s contractual reasoning.

AG Wathelet stated that this negotiating framework and the definition of “willingness to negotiate” are essential and pivotal elements in the assessment of a possible abuse, and further argued that a middle path should be found between a patentee-friendly and a licensee-friendly test.82Id. at 50-51. Also, before discussing the substance of the questions, AG Wathelet sided with one stance of legal scholarship and held the view that FRAND commitments given to ETSI, in this case by Huawei, do not entail any waiver of the right to seek injunctions for patent infringement.83Id. at 60.

Consequently, AG Wathelet established a test consisting of four cumulative circumstances in which the bringing of an action for a prohibitory injunction constitutes an abuse of dominant position for the purposes of Article 102 TFEU: (i) the infringer’s technological dependence flowing from the standard-setting process; (ii) the SEP-holder’s FRAND commitment; (iii) the infringer’s objective willingness to conclude a FRAND licensing agreement; and, finally, (iv) the SEP-holder’s unfair or unreasonable conduct.84Id. at 74. In this context, both the potential licensee and the SEP-holder would have to abide by certain negotiation guidelines. As long as the potential licensee remains able to enter into a license agreement, the SEP-holder must alert the infringer of its infringement and present a written offer for a FRAND license with common terms and conditions used in the sector.85Id. at 84-86. In turn, the infringer must respond in a diligent and serious way, refraining from purely tactical or dilatory measures, and may make a reasonable counter-offer if it is not satisfied by the original offer.86Id. at 88. All of this must take place during a time that takes into account “the ‘commercial window of opportunity’ available to the SEP-holder for securing a return on its patent in the sector in question.”87Id. at 89. In this context, requiring that FRAND terms be determined by a court or an arbitral tribunal and that payments of royalties should be secured on an escrow account is a legitimate demand from SEP-holders.88Id. at 93. On the other hand, the potential licensee’s request to maintain its right to challenge the validity of a patent is not a sign of unwillingness and is even a matter of public interest,89Id. at 94-95. to the benefit of the patent system and the state of innovation.

As to the judgement of the Court itself, the initial steps of the judicial reasoning provide clues to confirm my hypothesis. First of all, the Court acknowledges that, except for the Convention on the Grant of European Patents, patents remain governed by the national law of each of the Contracting States, meaning that any infringement of a European patent will be dealt with at national level andby national law.90Case C-170/13, EU 3 -6. Then, it considers the Directive on the enforcement of intellectual-property rights91Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on The Enforcement Of Intellectual-Property Rights. in order to mention the different sorts of relief the Member States may grant to the applicants: interlocutory injunctions, recall, and definitive removal from the market or destruction.92Id. at articles 9 and 10. Third, the Court interestingly references, in addition to German patent and antitrust rules, a specific provision of the German Civil Code on the duty of an obligor to perform an obligation in good faith.93Supra note 91, at EU 9. This point is also reiterated when the Court considers the concept of willingness to enter and finds it insufficient on its own to analyze the potential licensee’s conduct, adding that the good faith character of its dealing will have to be ensured.94Id. at 38. This is important to recall as it is the clearest sign given by EU authorities to pursue the “good faith” path, notwithstanding the absence of EU contract law.

As to the substantive issues of law, the Court moves to examine three questions together, as they all refer to one situation. When does an undertaking in a dominant position, holding an SEP and having given a FRAND commitment to an SSO, and seeking to obtain injunctive relief against a manufacturer using the said SEP, infringe Article 102 TFEU?95Id. at 44

The Court makes tabula rasa of previous case law and describes an ad hoc approach, inspired by AG Wathelet but rather recurring to a negative reasoning. It provides a test that seeks to strike a fair balance between the interests concerned, i.e., these legitimate expectations and the need for a wide implementation of the standard and the exclusive rights of a proprietor of an SEP.96Id. at 55-59. In a negative definition approach (criticized by Nicolas Petit),97Supra note 7, at 2. the Court sets out a negotiation framework with duties falling on both parties. The SEP-holder must, before seeking injunctive relief, alert the alleged infringer and disclose what SEP is being infringed and how.98Supra note 91, at EU 60-61. The alleged infringer must then express its willingness to conclude a licensing agreement on FRAND terms, and the SEP-holder is to present a written offer for a license on FRAND terms with the specifics on how the royalty is to be calculated.99Id. at 63. It is then up to the alleged infringer to respond diligently to the offer, complying with recognized commercial practices in the field and in good faith, and to submit its own counter-offer on arguable FRAND terms, should it not accept the one made by the proprietor.100Id. at 65-66. If the parties fail to reach an agreement following the counter-offer, they may agree to refer the decision on royalties to an independent third party.101Id. at 68. In sum, the Court defines a set of steps which provide the SEP-holders some sort of safe harbor: if they follow these steps and if the alleged infringer does not diligently reply or uses delaying tactics, then the proprietors will not be found to abuse their dominant position by bringing an action seeking injunctive relief to enforce their patents.102Id. at 71.

I evaluate positively this compromise reached at the EU-wide level. It does away with the difficult application of the refusal to license test the European Commission attempted to instate in Samsung and Motorola, by creating a new, sui generis test to apply in such circumstances. Also, it adequately takes into account the different dangers and potential abuses surrounding SEPs, FRAND terms, and licenses negotiations. In addition, the Court knew very well its limits in such a field (as mentioned by AG Wathelet in his opinion), and it managed to find an EU competition law solution without encroaching upon the Member States’ national contract rules and IP enforcement systems.

4. Conclusion

The brief analysis carried out in this article was intended to point out a harmonization trend in judicial approaches to injunctive relief by SEP-holders in the US and the EU. More specifically, a common analytical framework has arisen through the application of different bodies of law. Or, rather, the Court of Justice of the European Union, less experienced in this field of law than US courts, has managed to bring its reasoning closer to what US courts achieved through contract law, notwithstanding the absence of EU-wide harmonized contract rules. The overlapping reasoning between the EU and the US is now clearer: facing cases involving requests for injunctive relief, courts will look to craft their analysis around broader principles of good faith and fair dealing in order to impose behavioral standards to parties. US courts will rely on contract law principles, the CJEU will refer to the recent Huawei-test to achieve similar results. The outlook in the EU remains blurry, however; the project for a unified patent system might change the extent to which the CJEU and antitrust authorities might resort to competition rules.

References   [ + ]

01. “FRAND” is an acronym for “fair, reasonable, and non-discriminatory”. In the US, the ‘fair’-part of the acronym falls off, as it is considered to be redundant with the ‘reasonable’-part. See United States Department of Justice and United States Patent & Trademarks Office, Policy Statement On Remedies for Standards-Essential Patents Subject to Voluntary F/Rand Commitments, Jan. 8, 2013, 1, footnote 2 (explaining that the acronym RAND is used in the US, while the acronym FRAND is used in other jurisdictions).
02. Johan Verbruggen and Anna Lorincz, Patents and Technical Standards, 9 Ing.Cons. TIE 326 (2000).
03. Michael Fröhlich, AIPPI Report, Availability of Injunctive Relief for FRAND-Committed Standard Essential Patents, Incl. FRAND-Defence in Patent Infringement Proceedings, March 2014, http://aippi.org/library/q222-aippi-report-on-the-availability-of-injunctive-relief-for-frand-committed-standard-essential-patents/, 2.
04. Alison Jones, Standard-Essential Patents: FRAND Commitments, Injunctions and the Smartphone War, 10 Eur. Competition J. 7 (2014).
05. Damien Geradin, Ten Years Of DG Competition Effort To Provide Guidance On The Application Of Competition Rules To The Licensing Of Standard-Essential Patents: Where Do We Stand?, February 2013, http://www.law.northwestern.edu/research-faculty/searlecenter/workingpapers/documents/Geradin_DG_Competition.pdf (accessed 24 March 2014), at 4; Marc A. Lemley, Ten Things To Do About Patents Holdup Of Standards (And One Not To), 48 B.C. L. Rev. 153 (2007); John Temple Lang, Eight Important Questions On Standards Under European Competition Law, 7 Competition L. Int’l 35 (2011).
06. Nicolas Petit, HUAWEÏ V ZTE: Judicial Conservatism At The Patent-Antitrust Intersection, CPI Antitrust Chronicle, October 2015 (2), at 6.
07. James Nurton, Making Sense Of Courts’ Rulings On FRAND Injunctions, 241 Managing Intell. Prop. 19, 19 (2014).
08. Geradin, supra note 6, at 7; Inge Govaere, Abuses Of Dominant Position, Intellectual Property Rights And Monopolization In EU Competition Law: Some Thoughts On A Possible Course Of Action, in COMPETITION LAW AND ECONOMICS: ADVANCES IN COMPETITION POLICY ENFORCEMENT IN THE EU AND NORTH AMERICA 186 (Edward Elgar ed., 2010).
09. Amedeo Arena, Bettina Bergmann & Jay L Himes, Two Bodies Of Law Separated By A Common Mission: Unilateral Conduct By Dominant Firms At The IP/Antritrust Intersection In The EU And US, 9 Eur. Competition J. 666 (2013).
10. Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (9th Cir. 2015).
11. Id. at 1029.
12. Id.
13. Id. at 1030, citing Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) .
14. Microsoft Corp. v. Motorola, Inc., No. 10-cv-1823, (W.D. Wash). See also, Microsoft-Motorola Update: Washington Court Sets RAND Royalty For Motorola 802.11 And H.264 Patent Portfolios, ESSENTIAL PATENT BLOG (April 25, 2013) http://www.essentialpatentblog.com/2013/04/microsoft-motorola-update-washington-court-sets-rand-royalty-for-motorola-802-11-and-h-264-patent-portfolios/ (giving an overview of Judge Robart’s 207 page- long decision). For a review and summary of the Georgia-Pacific factors as used by Judge Robart, see Stefano Barazza, Licensing Standard Essential Patents, Part One: The Definition Of F/RAND Commitments And The Determination Of Royalty Rates, 9 J, Intell. Prop. L. & Prac. 478-479 (2014); Tony V Pezzano and Jeffrey M Telep, Latest Development On Injunctive Relief For Infringements Of FRAND-Encumbered SEPS – Part II, 26 Intell. Prop. and Tech. L. J. 25-26 (2014).
15. Microsoft Corp. v. Motorola, Inc., 795 F.3d at 1030.
16. Microsoft Corp. v. Motorola, Inc., 696 F.3d at 877; Kassandra Maldonado, Breaching RAND And Reaching For Reasonable: Microsoft V. Motorola And Standard-Essential Patent Litigation, 29 Berkeley Tech. L. J. 419, 433 (2014); Roger G Brooks and Damien Geradin, ‘Taking Contracts Seriously: The Meaning of the Voluntary Commitment to License Essential Patents on “Fair and Reasonable” Terms’ (12 March 2010), http://papers.ssrn.com/sol3/pap-ers.cfm?abstract_id=1569498.
17. Joseph Scott Miller, Standard-Setting, Patents, And Access Lock-In: RAND Licensing And The Theory Of The Firm, 40 Ind. L. Rev. 371-376 (2007); Steven M Amundson, Recent Decisions Provide Some Clarity On How Courts And Government Agencies Will Likely Resolve Issues Involving Standard-Essential Patents, 13 Chi.- Kent. J. Intell. Prop. 91, 9-13 (2013); Barnes & Noble, Inc. v. LSI Corp., 849 F. Supp. 2d 925, 943-944 (N.D. Cal. 2012); Maldonado, supra note 17, at 427.
18. Maldonado, supra note 17, at 435.
19. Microsoft Corp. v. Motorola, Inc., 795 F.3d at 1045-1046.
20. Id.
21. Id. at 1046.
22. Microsoft Corp. v. Motorola, Inc., 696 F.3d at 877.
23. Microsoft Corp. v. Motorola, Inc., 795 F.3d at 1046.
24. Id. at 1047.
25. Maldonado, supra note 17, at 439 (citing Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 2012 (N.D. Ill. 2012).
26. United States Department of Justice and United States Patent & Trademarks Office, Policy Statement On Remedies For Standards-Essential Patents Subject To Voluntary F/Rand Commitments, January 8, 2013, 5-8.
27. Press Release from the European Commission, Antitrust: Commission Confirms Sending A Statement Of Objections To Rambus, (Aug. 23, 2007) http://europa.eu/rapid/press-release_MEMO-07-330_en.htm .
28. 2009 O.J. C 30/17, 27-28.
29. Press Release from the European Commission, Antitrust: Commission Accepts Commitments From Rambus Lowering Memory Chip Royalty Rates, (Dec. 9, 2009) http://europa.eu/rapid/press-release_IP-09-1897_en.htm
30. Council Regulation (EC) No 1/2003 on The Implementation Of The Rules On Competition Laid Down In Articles 81 And 82 Of The Treaty 2003 O.J. (L1)1
31. 2009, O.J. C 30/17, 28, emphasis added.
32. Id. at para 49.
33. Geradin, supra note 6, at , 8.
34. Norman Neyrinck, Rambus Déclare Forfait: La Commission Dans Un FautEUIl, 41 RDTI, 109 (2010).
35. Id. at 108.
36. Press Release from the European Commission, Antitrust: Commission initiates formal proceedings against Qualcomm, (Oct.1, 2007), http://europa.eu/rapid/press-release_MEMO-07-389_en.htm.
37. Id.
38. Id.
39. Id.
40. Id.
41. Geradin, supra note 6, at 8-9.
42. Id. at 9.
43. “ETSI” is the acronym for “European Telecommunications Standards Institute.”
44. Press Release from the European Commission, Antitrust: Commission Opens Proceedings Against Samsung, (Jan. 31,2012, http://europa.eu/rapid/press-release_IP-12-89_en.htm.
45. Id.
46. Id. at 36.
47. Press Release from the European Commission, Antitrust: Commission Sends Statement Of Objections To Samsung On Potential Misuse Of Mobile Phone Standard-Essential Patents, (Dec. 21, 2012)http://europa.eu/rapid/press-release_IP-12-1448_en.htm.
48. Id.
49. Press Release from the European Commission Antitrust: Commission Consults On Commitments Offered By Samsung Electronics Regarding Use Of Standard-Essential Patents, (Oct. 17, 2013, http://europa.eu/rapid/press-release_IP-13-971_en.htm.
50. Id.
51. Case COMP /C-3/39.939 – Samsung Electronics, Enforcement of UMTS standard essential patents, Commitments offered to the European Commission, at 1.7 (Sept.2013) http://ec.europa.eu/competition/antitrust/cases/dec_docs/39939/39939_1501_5.pdf.
52. Id. at 2.
53. Id. at 2-3.
54. See supra, Section 2.1, 3.
55. The only modifications incorporated in the last version of the Commitments (Feb.3, 2014) entail a larger competence of the arbitral panel in terms of validity and infringement of SEPs and the extension of Samsung’s obligations for negotiations entered into by the parties during the Commitments’ five-year duration. Supra note 52, at clauses 9 (g) and 14.
56. Press Release from the European Commission, Antitrust: Commission Accepts Legally Binding Commitments By Samsung Electronics On Standard Essential Patent Injunctions (Apr.29, 2014), http://europa.eu/rapid/press-release_IP-14-490_en.htm.
57. Supra, note 31.
58. 2014 O.J. (C 350)8, 60-61.
59. Id. at 67-68.
60. Id. at 122.
61. Press Release from the European Commission, Antitrust: Commission Opens Proceedings Against Motorola, (Apr. 3, 2012) http://europa.eu/rapid/press-release_IP-12-345_en.htm.
62. Press Release from the European Commission, Antitrust: Commission sends Statement of Objections to Motorola Mobility on potential misuse of mobile phone standard-essential patents – Questions and Answers, , (May 6, 2013) http://europa.eu/rapid/press-release_MEMO-13-403_en.htm.
63. Id. at 2.
64. Id.
65. See infra, Section 3.2..
66. See 2014 O.J. (C 344) 6, 15-35 (giving a detailed description of the facts of the case concerning patent litigation between Motorola and Apple in Germany).
67. Id. at 278.
68. Supra note 67, at 281.
69. Id. at 294.
70. Id. at 295-297.
71. Id. at 424.
72. Id. at 427.
73. Id. at 430-464.
74. Id. at 474.
75. Case C-170/13, Huawei Technology Co. Ltd v ZTE Corp., ZTE Deutschland GmbH.
76. ‘EU’s Antitrust Approach To Patent Wars Under Scrutiny At Court’, mLex, (Sept. 11, 2014).
77. Supra note 76.
78. Id.
79. Sven Gallasch, The Referral Of Huawei V ZTE To The CJEU: Determining The Future Of Remedies In The Context Of Standard-Essential Patents, 34 ECLR 444 (2013).
80. Case C-170/13, Huawei v ZTE, (2014) at 9, see Opinion of AG Wathelet:
That does not mean, however, that the matters at issue in the dispute before the referring court, which, in my view, stem largely from a lack of clarity as to what is meant by ‘FRAND terms’ and as to the requisite content of such terms, could not be adequately — if not better — resolved in the context of other branches of law or by mechanisms other than the rules of competition law.
81. Id. at 10-11.
82. Id. at 50-51.
83. Id. at 60.
84. Id. at 74.
85. Id. at 84-86.
86. Id. at 88.
87. Id. at 89.
88. Id. at 93.
89. Id. at 94-95.
90. Case C-170/13, EU 3 -6.
91. Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on The Enforcement Of Intellectual-Property Rights.
92. Id. at articles 9 and 10.
93. Supra note 91, at EU 9.
94. Id. at 38.
95. Id. at 44
96. Id. at 55-59.
97. Supra note 7, at 2.
98. Supra note 91, at EU 60-61.
99. Id. at 63.
100. Id. at 65-66.
101. Id. at 68.
102. Id. at 71.

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