Thursday, November 20, 2014

Summary of the Advocate General's Opinion in Huawei v. ZTE

As I noted this morning, Advocate General Wathelet's opinion in the Huawei v. ZTE dispute pending before the Court of Justice for the European Union is now available for download (including, as of just a little while ago, in English) hereThe English-language version of the questions referred to the CJEU are as follows:
1. Does the proprietor of a standard-essential patent who informs a standardisation 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?
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?
2. If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:
Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate? In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that that he is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which he is prepared to conclude a licensing agreement?
3. If the submission of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:
Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer? Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question? In particular, may the offer be made subject to the condition that the standard-essential patent is actually used and/or is shown to be valid?
4. If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:
Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment? Is the infringer particularly required to render an account for past acts of use and/or to pay royalties? May an obligation to pay royalties be discharged, if necessary, by depositing a security?
5. Do the conditions under which the abuse of a dominant position by the proprietor of a standard-essential patent is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?
Here's my summary of the opinion, mostly based on my reading of the German version.  (The original language is French, which I didn't realize until I'd almost finished reading the German version, or else I would have read it in French.  Oh well.  In any event, I checked what I had written on the basis of the German version and have made a few small changes and additions based on the English-language version, which only came to my attention about two hours ago.)

1. The German Orange-Book-Standard case and the European Commission's approach to FRAND-encumbered SEPs as stated in its press release in the Samsung investigation present two conflicting approaches to the question of when European competition law prevents the owner of an SEP from seeking injunctive relief.  The AG believes that the Orange-Book-Standard approach is not directly relevant to the present case, however, because that case involved a de facto standard, rather than a standard adopted by an SSO (paras. 48-49).  At the same time, under the EC's approach the SEP owner cannot be denied an injunction simply because the accused infringer has made an utterly vague and nonbinding statement that it is prepared to enter into a license (para. 50).  Simply applying either approach to the present case would result in two much or too little protection accruing to the SEP owner, the user or the infringer (para. 51).

2.  The AG will proceed on the assumption that Huawei's patent confers upon Huawei a dominant position, because the questions presented rest upon this assumption, and therefore the issue of Huawei's dominance is not properly before the CJEU.  But the AG is of the view that national courts should not simply presume that SEPs confer dominance, rather they should consider the evidence (paras. 53-58).

3.  The questions presented require a weighing of, on the one hand, the right to intellectual property and the right of access to the courts (on the part of Huawei) and ZTE's freedom to conduct business, which could be compromised by the issuing of an injunction (para. 59).  The AG is of the opinion that merely seeking an injunction is not, by itself, an abuse of dominant position.  Rather, injunctions are an essential means for patent owners to assert their rights to IP (para. 61).  It therefore follows that any constraint on the right to seek an injunction inevitably constitutes an enhanced constraint on IP and thus may be permitted only under exceptional and very specific circumstances (para. 62).  At the same time, the right to IP is not an unconstrained right (citing recital 12 and article 12 of the 2004 EC Enforcement Directive) (para. 63).  The AG's view is that where the accused infringer is technologically dependent on the patent and is objectively ready, willing and able to conclude a license on FRAND terms, and where the patent owner conducts itself in an unfair or unreasonable manner against the infringer, the act of seeking an injunction can be an abuse of dominant position (para. 74).       

4. In answer to the first question, then, as long as the patent infringer is ready to conclude a license and to comply with it, especially with respect to paying a reasonable royalty, the SEP owner must before commencing an action for an injunction undertake certain concrete steps in order to respect its FRAND commitment and especially its special responsibility under article 102 of the TFEU.  This is all the more necessary when it is not certain that the infringer necessarily knows that it is using the teaching of a valid SEP.  The AG notes that for the LTE-Standard at issue here there are more than 4,700 declared patents, and that a substantial number of them are believed to be neither valid nor essential (paras. 80-81).  Therefore, it is not unreasonable to negotiate and conclude licenses for FRAND-encumbered SEPs ex post, that is, after commencing use of them (para. 82). 

What therefore must the SEP owner do before commencing an infringement action, in order to avoid an abuse of dominant position?  First, the accused infringer (to the extent it is not evident that is already so informed) must be informed in writing what the relevant patent is how it is infringed (paras. 83-84).  In addition, the SEP owner must present to the accused infringer a written offer of FRAND terms, which must contain all of the terms normally found in a license in the relevant industry, especially the amount of the particular royalty and the manner in which it is to be calculated (para. 85).         

What must the alleged infringer do?  It must consider the offer carefully and seriously.  If it doesn't accept the license, it should present to the owner within a short period of time a reasonable written counteroffer, pointing out the terms with which it disagrees.   But if the accused infringer is acting in a purely strategic and/or hesitant and/or insincere manner, it is not an abuse for the SEP owner to commence an action for an injunction (paras. 87-88). 

The AG is also of the view that the accused infringer should be able to reserve the right to challenge infringement and validity, because otherwise an invalid patent may go unchallenged or the defendant wind up paying for a patent it is not infringing (paras. 94-96).

5.  In light of the above, the AG did not find it necessary to answer the second and third questions (para. 97).

6.  On the fourth question, the AG believes that the posting of a bank guaranty for the payment of royalties or lodging interim payments in an escrow account for the past and future use of the patents may be demanded by the patent owner (para. 98).

7.  On the fifth question, because a recall or removal of allegedy infringing goods may have the same impact as an injunction, these remedies as well should be subject to the rules set out above.  However, there is nothing wrong with the patent owner seeking a rendering of accounts, by which the owner can determine the amount of the defendant's use, as long as the measures are reasonable and proportionate.  Similarly, an action for damages for past use does not pose a problem (paras. 100-02).

Finally, I'll conclude by quoting the English-language version of the conclusion (para. 103), which is more definitive than the brief summary of it that I posted earlier this morning:
103.   In the light of the foregoing considerations, I propose that the Court should reply as follows to the questions referred for a preliminary ruling by the Landgericht Düsseldorf:
The fact that a holder of a standard-essential patent (SEP) which has given a commitment to a standardisation body to grant third parties a licence on FRAND (Fair, Reasonable and Non-Discriminatory) terms makes a request for corrective measures or brings an action for a prohibitory injunction against an infringer, in accordance with Article 10 and Article 11, respectively, of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, which may lead to the exclusion from the markets covered by the standard of the products and services supplied by the infringer of an SEP, constitutes an abuse of its dominant position under Article 102 TFEU where it is shown that the SEP-holder has not honoured its commitment even though the infringer has shown itself to be objectively ready, willing and able to conclude such a licensing agreement.
Compliance with that commitment means that, prior to seeking corrective measures or bringing an action for a prohibitory injunction, the SEP-holder, if it is not to be deemed to be abusing its dominant position, must — unless it has been established that the alleged infringer is fully aware of the infringement — alert the alleged infringer to that fact in writing, giving reasons, and specifying the SEP concerned and the manner in which it has been infringed by the infringer. The SEP-holder must, in any event, present to the alleged infringer a written offer of a licence on FRAND terms which contains all the terms normally included in a licence in the sector in question, in particular the precise amount of the royalty and the way in which that amount is calculated.
The infringer must respond to that offer in a diligent and serious manner. If it does not accept the SEP-holder’s offer, it must promptly present to the latter, in writing, a reasonable counter-offer relating to the clauses with which it disagrees. The making of a request for corrective measures or the bringing of an action for a prohibitory injunction does not constitute an abuse of a dominant position if the infringer’s conduct is purely tactical and/or dilatory and/or not serious.
If negotiations are not commenced or are unsuccessful, the conduct of the alleged infringer cannot be regarded as dilatory or as not serious if it requests that FRAND terms be fixed either by a court or by an arbitration tribunal. In that event, it is legitimate for the SEP-holder to ask the infringer either to provide a bank guarantee for the payment of royalties or to deposit a provisional sum at the court or arbitration tribunal in respect of its past and future use of the patent.
Nor can an infringer’s conduct be regarded as dilatory or as not serious during the negotiations for a FRAND licence if it reserves the right, after concluding an agreement for such a licence, to challenge before a court or arbitration tribunal the validity of that patent, its supposed use of the teaching of the patent and the essential nature of the SEP in question.
The fact that the SEP-holder takes legal action to secure the rendering of accounts does not constitute an abuse of a dominant position. It is for the national court in question to ensure that the measure is reasonable and proportionate.
The fact that the SEP-holder brings a claim for damages for past acts of use for the sole purpose of obtaining compensation for previous infringements of its patent does not constitute an abuse of a dominant position.

English version of Advocate General's Opinion in Huawei v. ZTE is now up

Thank you to one of my readers, Damir Isanbirdin, for calling this to my attention; here it is.  I'll be back this afternoon with my own brief summary.

Opinion of the Advocate General in the CJEU's Huawei v. ZTE FRAND Case

Here is a link to CJEU's webpage, from which you can download today's Opinion of the Advocate General in German, French, Spanish, Italian, and several other languages, but not English.  I've just started skimming the German version (it's 7:00 in the morning where I am), and I may report back later today with more detail, but here's what I gather so far based primarily on the conclusion (Ergebnis) paragraph 103: 

1.  The owner of a FRAND-encumbered SEP abuses its dominant position by seeking an injunction when it is shown that it has not kept his commitment even though the defendant is ready, willing, and able to conclude a license on FRAND terms.
2.  The SEP owner should convey a comprehensive written offer to the defendant before seeking an injunction.
3.  The accused infringer should react to this offer carefully and seriously.  If he rejects it, he should within a short time propose a counteroffer.  It is not an abuse of dominant position if the accused infringer's behavior is strategic or hesitant or insincere. 
4.  If negotiations are fruitless, the accused infringer is not acting hesitantly or insincerely if it requests a determination of FRAND conditions from a court or arbitration panel.  In such a case, the SEP owner can demand a bank guaranty or deposit in escrow for the payment of past or future royalties.
5.   The accused infringer is not acting hesitantly or insincerely if it requests a determination of whether the patent is valid and infringed.
6.  The SEP owner is not abusing its dominant position if it requests financial information, but the court should ensure that the measures are reasonable and proportionate.
7.  The SEP owner's request for damages for past infringement is not an abuse of dominant position.
*                    *                    *

On a somewhat related note, Spicy IP and FOSS Patents both have coverage this week on the Indian FRAND case between Ericsson and Micromax.  The court lowered the interim royalty rates that Micromax must pay Ericsson pending trial.  According to the court's order, "It is made clear that the above order is purely an interim arrangement and is not a determination of the FRAND rates for the Ericsson portfolio," and "It is directed that the trial in any event will be completed not later than 31st December, 2015."

Wednesday, November 19, 2014

Video of Last Week's Patent Remedies Conference at American University

The video of last week's patent remedies conference at American University, which I blogged about here and here, is now available on the conference website, here.  I'd recommend clicking on the "Pop Out" window in the upper right-hand corner of the video screen, so you can fast-forward or rewind as you like. 

Tuesday, November 18, 2014

Patent Colloquium at University of Toronto This Friday, November 21

I won't be attending this one myself, but it looks like a terrific lineup of prominent jurists, economists, and law professors.  The final session, titled "Standards-Essential Patents: Enforcement Options with FRAND Terms," will be moderated by Anthony Niblett with presentations by Alison Jones, Jorge Contreras, and Norman Siebrasse.  Here's the conference website and the complete schedule.  Check it out if you're in Toronto Friday.

Monday, November 17, 2014

Papers from the Texas Intellectual Property Law Journal's February 2014 FRAND Conference

Some of the papers that were presented at or submitted in connection with the Texas Intellectual Property Law Journal (TIPLJ)'s February 21, 2014 IP Symposium on "FRAND and the Antitrust/Intellectual Property Interface," which I live-blogged (links here, here, here, here, here, here, and here), have now been published.  (Some of them also had been presented earlier at a workshop at the University of Florida, which I live-blogged in September 2013, see here, here, here, here, here, here, here, here, and here.  My own symposium paper, The Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, is still awaiting publication; in the meanwhile, the ssrn version can be accessed here.)  The following is a list of the ones that have been published so far.  (I'm actually not 100% sure if Professor Ko's paper was submitted in connection with the symposium, but it fits with the theme.)  The papers do not appear to be available on TIPLJ's website, but readers with a subscription to Westlaw or Lexis should be able to access them.  Moreover, versions of the papers by Professors Sokol & Zheng, Page, Hylton, and Ko are available on ssrn.  

Christopher Yoo, Standard Setting, FRAND, and Opportunism, 22 TIPLJ 69-70 (2013).

D. Daniel Sokol & Wentong Zheng, FRAND in China, 22 TIPLJ 71-93 (2013).

Roger D. Blair & Thomas Knight, Problems in Sharing the Surplus, 22 TIPLJ 95-107 (2013).

William H. Page, Judging Monopolistic Pricing:  F/RAND and Antitrust Injury, 22 TIPLJ 181-208 (2014).

Keith N. Hylton, A Unified Framework for Competition Policy and Innovation, 22 TIPLJ 163-79 (2014).

Haksoo Ko, Facilitating Negotiation for Licensing Standard-Essential Patents in the Shadow of Injunctive Relief Possibilities, 22 TIPLJ 209-21 (2014).


Thursday, November 13, 2014

New Papers and Other News on Reasonable Royalties, FRAND Royalties

1.  The Journal of Intellectual Property Law & Practice (JIPLP) has two articles relating to patent royalties this month (volume 9, issue 11, November 2014), both available here.  First, Jeremy Phillips has a short editorial titled The Typical License Royalty Rate:  A Sea of Change.  Second, Tilman Müller and Volkmar Henke have a paper titled Patent enforcement as a violation of antitrust law: EU Commission decisions in Samsung and Motorola, which previously appeared at pages 662-65 of the July 2014 issue of the German publication GRUR Int. under the title  Patentdurchsetzung als Kartellrechtsvertoß.  Die Entscheidungen der EU-Kommission in Sachen Samsung und Motorola, and which I blogged about this past July here.

2. The Essential Patent Blog noted recently that the European Commission is seeking public comments on patents and standards through January 31, 2015.  Here is a link to the Commission's webpage, from which readers may download and answer questions relating to eight key issues-- among them "What principles and methods do you find useful in order to apply [the terms "fair," "reasonable," and "non-discriminatory"] in practice?", and "How can it be ensured that injunctions based on standard essential patents are not used to (a) either exclude companies from implementing a standard or (b) to extract unreasonable, unfair or discriminatory royalties?"

3.  On September 10, 2014, U.S. Federal Trade Commission Chair Edith Ramirez delivered a speech titled Standard Essential Patents and Licensing:  An Antitrust Enforcement Perspective.  The speech briefly discusses the FTC's 2013 action relating to Google's acquisition of Motorola Mobility, the European Commission's investigations of Samsung and Motorola Mobility, and the FTC's recommendation in its 2011 report The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition that FRAND royalties be calculated on the basis of a hypothetical negotiation occurring "before the licensee has made significant investments to implement a technology" and reflecting the incremental value of the technology in comparison with alternatives.  More interesting, however, are some rather blunt statements about China:

In contrast to the FTC’s and EC’s approach, media reports indicate that China’s antitrust authorities may be willing to impose liability based solely on the royalty terms that a patent owner demands for a license to its FRAND-encumbered SEPs, as well as royalty demands for licenses for other patents that may not be subject to a voluntary FRAND commitment.

I am seriously concerned by these reports, which suggest an enforcement policy focused on reducing royalty payments for local implementers as a matter of industrial policy, rather than protecting competition and long-run consumer welfare.

The following week, FTC Commissioner Maureen Ohlhausen echoed these concerns about China in her speech titled Antitrust Enforcement in China-What Next?-Second Annual GCR Live Conference, and suggested that China was taking inspiration from the FTC's decision (from which she dissented) in Google/Motorola Mobility

4.  William Rooklidge has published an interesting paper titled Infringer's Profits Redux:  The Analytical Method of Determining Patent Infringement Reasonable Royalty Damages, in Bloomberg BNA Patent, Trademark & Copyright Law Daily (Nov. 5, 2014), available here behind a paywall.  As stated in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009), as an alternative to the hypothetical negotiation or willing licensor/willing licensee framework for estimating reasonable royalties, U.S. courts sometimes employ an "analytic" approach that “focuses on the infringer's projections of profit for the infringing product.”  Mr. Rooklidge argues that, in practice, courts that use this method do not properly take into account what portion of the anticipated profits are attributable to the patent, and do not consider the expected profits as merely a cap on the prospective royalty.  Worse yet, in Mr. Rooklidge's analysis, courts sometimes use the infringer's actual profits as a proxy for its anticipated profits and thus effectively restore the remedy of an accounting of infringer's profits, which (though common in many parts of the world, and still available for design patent and other IP infringement in the U.S.) was eliminated from U.S. utility patent law in 1946.