The European Commission's Press Releases on SEPs

As stated earlier, today the European Commission published two press releases in the antitrust investigations relating to Samsung and Motorola Mobility.  The two press releases (here and here) and accompanying "Frequently asked questions" (here) are brief and to the point, and Florian Mueller’s write-up is thorough as usual, so I don’t have much to add.  I am pleased by the Commission's conclusion that a willing licensee retains the right to challenge validity, infringement, and essentiality of an asserted SEP.  I also agree with Florian that it probably makes sense for the Commission not to go further than it has in this case, given the Huawei-ZTE matter pending before the CJEU.

Here are the highlights from the three documents: 

1. From the press release relating to Samsung:

Samsung will not seek injunctions in Europe on the basis of its standard essential patents (SEPs) for smartphones and tablets against licensees who sign up to a specified licensing framework. Under this framework, any dispute over what are fair, reasonable and non-discriminatory (so-called "FRAND") terms for the SEPs in question will be determined by a court, or if both parties agree, by an arbitrator. The commitments therefore provide a "safe harbour" for all potential licensees of the relevant Samsung SEPs. . . .

To address the Commission's concerns, Samsung has for a period of five years committed not to seek any injunctions in the European Economic Area (EEA) on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets against any company that agrees to a particular framework for licensing the relevant SEPs.

The licensing framework provides for:

    a negotiation period of up to 12 months; and

    if no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this.

An independent monitoring trustee will advise the Commission in overseeing the proper implementation of the commitments.

2.  From the press release relating to Motorola Mobility:

The European Commission today adopted a decision which finds that Motorola Mobility's (Motorola) seeking and enforcement of an injunction against Apple before a German court on the basis of a smartphone standard essential patent (SEP) constitutes an abuse of a dominant position prohibited by EU antitrust rules in view of the particular circumstances in which the injunction was used (see also MEMO/14/322). The Commission has ordered Motorola to eliminate the negative effects resulting from it. . . .

Seeking injunctions before courts is generally a legitimate remedy for patent holders in case of patent infringements. However, the seeking of an injunction based on SEPs may constitute an abuse of a dominant position if a SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and where the company against which an injunction is sought is willing to enter into a licence agreement on such FRAND terms. . . .

In today's decision, the Commission found that it was abusive for Motorola to both seek and enforce an injunction against Apple in Germany on the basis of an SEP which it had committed to license on FRAND terms and where Apple had agreed to take a licence and be bound by a determination of the FRAND royalties by the relevant German court.

The Commission also found it anticompetitive that Motorola insisted, under the threat of the enforcement of an injunction, that Apple give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs. Implementers of standards and ultimately consumers should not have to pay for invalid or non-infringed patents. Implementers should therefore be able to ascertain the validity of patents and contest alleged infringements.

The Commission decided not to impose a fine on Motorola in view of the fact that there is no case-law by the European Union Courts dealing with the legality under Article 102 TFEU of SEP-based injunctions and that national courts have so far reached diverging conclusions on this question.

3.  From the FAQ:

Today's action by the Commission clarifies that it is anti-competitive to use injunctions in relation to SEPs in the following circumstances: when in a standardisation context, a SEP holder has committed to license the SEP on FRAND terms and the licensee is willing to take a licence on such terms.

What do these decisions mean in practical terms for patent holders and implementers of standards?

The Motorola decision provides a "safe harbour" for standard implementers who are willing to take a licence on FRAND terms. If they want to be safe from injunctions based on SEPs by the patent holder, they can demonstrate that they are a willing licensee by agreeing that a court or a mutually agreed arbitrator adjudicates the FRAND terms.

Samsung's commitments implement in this case the "safe harbour" concept established in the Motorola decision in practical terms. They provide for a "safe harbour" available to all potential licensees of the relevant Samsung SEPs. Potential licensees are protected against injunctions sought by Samsung on the basis of such SEPs if they submit to the licensing framework provided for by the commitments.

Is the Commission generally questioning the use of injunctions by patent holders?

No. Recourse to injunctive relief is generally a legitimate remedy for patent holders in case of patent infringements. Moreover, SEP-based injunctions should be available when there is an unwilling licensee. The cases are therefore not about eliminating the use of injunctions by patent holders. Rather, in the specific circumstances where the holder of a SEP has given a commitment to license on FRAND terms and where the company against which an injunction is sought is willing to enter into a FRAND licence agreement, the seeking of an injunction on the basis of SEPs can constitute an abuse of a dominant position.

When is a company considered to be a willing licensee?

Whether a company can be considered a "willing licensee" needs to be determined on a case by case basis taking into account the specific facts. Today's decisions provide a "safe harbour" for willing licensees who want to avoid the risk of being the subject of an injunction on the basis of SEPs, i.e. companies which, in case of dispute, are willing to have FRAND terms determined by a court or arbitrators (if agreed between the parties) and to be bound by such a determination. The decisions do not make findings on the willingness of licensees outside this "safe harbour".

Is a potential licensee who challenges validity, essentiality or infringement of SEPs unwilling?

No. Potential licensees of SEPs should remain free to challenge the validity, essentiality or infringement of SEPs. It is in the public interest that potentially invalid patents can be challenged in court and that companies, and ultimately consumers, are not obliged to pay for patents that are not infringed.

Does the Commission outline what a reasonable royalty rate is?

No. The Commission believes that courts and arbitrators are well-placed to set FRAND rates in cases of disputes. . . .

Are the decisions in conflict with the German Federal Court of Justice's so-called German "Orange Book" case law on injunctions?

No. The 2009 "Orange Book" ruling of the German Federal Court of Justice established that a potential licensee can raise a competition law defence against an application for injunctive relief by showing that (i) it has made an unconditional offer to license under terms that cannot be rejected by the patent holder without abusing its dominant position, and (ii) it actually acted as if it had entered into a valid patent licence. The German Federal Court of Justice's ruling did not specifically relate to SEPs and is therefore not directly applicable to the cases on which the Commission decided. The Motorola decision does, however, conclude that in the context of SEPs, if the ruling was to be interpreted as meaning that a willing licensee is essentially not entitled to challenge the validity, infringement and essentiality of the SEPs in question, this would be anti-competitive.

What is the link between today's decisions and the request for a preliminary ruling by the Regional Court of Düsseldorf to the European Court of Justice in the SEP-based litigation between Huawei and ZTE?

The Commission has adopted today's decisions in order to address the issues raised in the two cases in question in a way that can also provide guidance to the industry. The Commission has provided observations outlining its position to the European Court of Justice in the pending Huawei/ZTE case. The Commission will naturally fully take account of any further guidance by the Court of Justice.