Last week I published a summary of AG Wathelet's opinion in the pending CJEU case of Huawei v. ZTE, which addresses the question of whether (or more precisely, under what conditions) it is an abuse of dominant position for the owner of a FRAND-encumbered SEP to seek injunctive relief. Now that I've had some time to reflect on the opinion, here are a few thoughts.
First, the AG distinguishes his proposed approach to the question from that of the German Bundesgerichtshof in the Orange-Book-Standard case and from that of the European Commission as reflected in its December 2012 press release in the Samsung investigation. One might say that he has attempted to chart a middle path of sorts. Here's what he has to say about the two approaches he rejects:
31. First, the referring court points out that the Bundesgerichtshof (Federal Court of Justice, Germany) found in its judgment of 6 May 2009 in Orange-Book-Standard (KZR 39/06, ‘Orange-Book-Standard’) that, where the owner of a patent seeks a prohibitory injunction against a defendant who has a claim to a licence for that patent, the patent owner abuses his dominant position only where the following conditions are met:
‘First, the defendant must have made the applicant an unconditional offer to conclude a licensing agreement (an offer which, specifically, must not contain a clause limiting the licence exclusively to the cases of infringement), it being understood that the defendant must consider itself bound by that offer and that the applicant is obliged to accept it, since its refusal of the offer would unfairly hamper the defendant or breach the principle of non-discrimination.
If the defendant considers the amount of royalty claimed by the applicant to be excessive, or if the applicant refuses to quantify the royalty, the offer of an agreement is regarded as unconditional if it provides that the applicant is to determine the amount of the royalty fairly.
Secondly, if the defendant is already making use of the subject-matter of the patent before the applicant accepts its offer, it must meet the obligations which, for use of the patent, will be incumbent on it under the future licensing agreement. That means, in particular, that the defendant must render an account for its acts of use in accordance with the terms of a non-discriminatory agreement and that it must meet the resulting payment obligations.
As regards the fulfilment of that payment obligation, the defendant is not required to pay the royalty directly to the applicant. The defendant is at liberty to deposit a security for payment of the royalty at an Amtsgericht (Local Court)’.
32. Secondly, the referring court points out that, in a press release regarding a Statement of Objections sent to Samsung Electronics and Others (COMP/C‑3/39.939) in the course of an infringement procedure relating to the mobile telephony market, the European Commission made a preliminary assessment to the effect that the bringing of an action for a prohibitory injunction was unlawful in the light of Article 102 TFEU, given that the case concerned an SEP, that the patent holder had indicated to a standardisation body that it was prepared to grant licences on FRAND terms and that the infringer was itself willing to negotiate such a licence. . . .
47. It is clear that the referring court’s questions have been largely inspired by the Orange-Book-Standard judgment of the Bundesgerichtshof and the Commission’s press release in the Samsung case.
48. As regards Orange-Book-Standard, the significant factual differences between that case and the dispute before the referring court should be noted. The patent at issue here is essential to the LTE standard which was developed as a result of an agreement concluded between the undertakings (including Huawei and ZTE) involved in the standardisation process within ETSI, whereas the standard at issue in the Orange-Book-Standard case before the Bundesgerichtshof was a de facto standard. It follows that, in Orange-Book-Standard, the owner of the patent at issue had not given any commitment to grant licences on FRAND terms. It is only natural that, in those circumstances, the patent owner will have greater negotiating power than in the case of an SEP the owner of which is, like the licence applicant, a member of a European standardisation body, and that an action for a prohibitory injunction on its part will ultimately be regarded as abusive only if the royalty it demands is clearly excessive.
49. In view of that significant factual difference between that case and the dispute before the referring court, I am of the opinion that Orange-Book-Standard cannot be transposed by analogy to the present case.
50. On the other hand, although the press release in the Samsung case does concern an SEP the owner of which has given a commitment to a standardisation body to grant licences on FRAND terms, it seems to me that a mere willingness on the part of the infringer to negotiate in a highly vague and non-binding fashion cannot, in any circumstances, be sufficient to limit the SEP-holder’s right to bring an action for a prohibitory injunction.
The EC however (after the referring court made its referral to the CJEU) did provide more detail of what it means to be an "willing licensee" in its April 2014 FAQ on the Samsung and Motorola matters, which seems very similar to AG Wathelet's approach (a point that Florian Mueller notes here):51. To my mind, a pure and simple application to the present case of the case-law established by the Bundesgerichtshof in Orange-Book-Standard or the press release would result in the over-protection or under-protection of the SEP-holder, of those using the teaching protected by the patents or of consumers, respectively.
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.
Moreover, in footnote 18 of the opinion the AG recognizes that "the Commission itself is of the opinion that far more stringent requirements should be imposed on the infringer" than are suggested in the 2012 Press Release.
Second, I thought it was noteworthy that the AG alluded to the possibility that other laws might be more appropriate for addressing the issue presented:
8. In the light of the questions submitted by the referring court, I shall confine my observations in this Opinion to competition law and, in particular, to the question of abuse of a dominant position.
9. 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.
My own view is that other branches of law generally are better for addressing the question of whether or under what circumstances courts should deny injunctions. As I've stated many times before, including in this paper, competition law strikes me as a second-best solution to a problem that could be more directly addressed through the law of patent remedies. To be sure, the U.S. eBay approach isn't necessarily ideal in its articulation of the relevant criteria for granting or denying injunctions; but at its best it can focus courts' attention on what I view as the relevant economic considerations, namely whether the risk and potential consequences of patent holdup--properly defined as the ability of the patent owner to use the threat of injunctive relief to extract a royalty attributable not only the value of the technology in comparison with alternatives, but also on switching costs--exceed the information and error costs arising from having to calculate a postjudgment royalty. Article 12 of the EC Enforcement Directive, which the AG cites in paragraph 63, could be deployed to much the same effect.
Moreover, some of the considerations the AG cites as reasons for proceeding cautiously in the case at hand stem from E.U. law recognizing the right to intellectual property and the right of access to courts (paras. 59-67). It seems to me that both of these considerations weigh more heavily when the question is whether a patentee is violating positive law--in this case, competition law--by seeking an injunction, than when the question is merely whether a court should substitute a damages remedy for an injunction. Competition law also might not be an ideal fit because of the potential collateral consequences that can follow from a finding that a party is in violation. (In the U.S., though not in Europe, these would include among other things the prospect of the patentee incurring treble damages liability, though exactly what those damages might be in the present context is a bit unclear--a point I probably should have addressed in the paper linked above.) In addition, the competition law option might require proof of other elements including dominant market position (which the AG believes might not always be present in the SEP context) and, in the U.S. at least, would go against the grain of finding persons liable for unilateral conduct other than in the most extreme circumstances. And perhaps most importantly, if the reason for denying an injunction is based primarily on the economic considerations I sketched out above, it arguably doesn't matter much if the patent is FRAND-encumbered or has been declared essential. (If anything, the AG's reluctance to extend his analysis to de facto standards like the one at issue in the Orange-Book-Standard case itself might seem to invite some patent owners to opt out of participating in SSOs, a point that Florian Mueller also makes in his analysis linked above.) Nevertheless, I recognize that a more routine denial of injunctive relief in preference for an ongoing royalty would be a radical change for most European countries, and to be sure there would be problems if the ongoing royalty would not fully compensate for the delay and other losses occasioned by the infringement of a valid patent.
A third point I would highlight is the AG's proposal that implementers must be ready, willing, and able to accept a FRAND license, and that they may be enjoined if instead that are acting in a manner that is "purely tactical and/or dilatory and/or not serious" (para. 88). I'm not entirely sure what the right approach is here. On the one hand, an injunction could serve as a penalty for bad behavior on the part of implementers and therefore might seem to be a useful weapon for a court to have in reserve. On the other, if the SEP owner is willing to accept a FRAND license, why not just have the court determine the amount of the license if the parties can't agree on one, and award other (perhaps more proportional) sanctions if the court believes the implementer has acted in bad faith? (For some musings on this topic, see my post on Professor Choi's recent article here.) Perhaps the correct resolution of these matters depends in part on the body of law chosen to address the issue. Intuitively it seems somewhat unfair to accuse the patent owner of an antitrust violation or abuse of right if the defendant isn't bargaining in good faith, whereas if the question is merely what remedy a court should award in a patent infringement suit the defendant's good or bad faith is less relevant (and if necessary can be dealt with by other sanctions, as just noted). In any event, though, I am happy to see the AG propose that merely reserving the right to challenge validity and infringement does not mean that the implementer is acting in bad faith (paras. 94-96).