Huawei v. ZTE: Analysis

The long-awaited CJEU judgment in Huawei Techs. Co. v. ZTE Corp., Case C-170/13, takes something of a middle path to the question of whether it is an abuse of dominant position for the owner of a FRAND-encumbered standard-essential patent (SEP) to request injunctive relief against an alleged infringer.  Here are a few things that struck me:

1.  Like the Advocate General in his November 2014 opinion (which I blogged about here), the court emphasizes the need to balance various considerations:  

". . . the Court must strike a balance between maintaining free competition — in respect of which primary law and, in particular, Article 102 TFEU prohibit abuses of a dominant position — and the requirement to safeguard that proprietor’s intellectual-property rights and its right to effective judicial protection, guaranteed by Article 17(2) and Article 47 of the Charter [of Fundamental Rights of the European Union] respectively" (para. 42). 

2.  The court does not address the issue of whether ownership of an SEP necessarily proves market dominance, noting that "As the referring court states in the order for reference, the existence of a dominant position has not been contested before it by the parties to the dispute in the main proceedings. Given that the questions posed by the referring court relate only to the existence of an abuse, the analysis must be confined to the latter criterion" (para. 43).  My own view is that ownership of an SEP generally does establish dominance in the market for the (very specific) technology at issue, given that (if the patent really is standard-essential) there is no substitute for it--though conceivably there could be competing standards, which would complicate the analysis.  Others may disagree with my take on this, and perhaps the issue will turn up in some future case.  

3.  Like AG Wathelet, the court rejects both the German Federal Supreme Court's Orange-Book-Standard approach (which recognizes a competition law defense to a claim for injunctive relief only if the implementer comes forward with an offer that the owner cannot in good faith refuse and deposit money in escrow) and an expansive understanding of the European Commission's decision in Samsung (under which the owner of a FRAND-encumbered SEP abuses its dominant position if it asserts a claim for injunctive relief against an implementer who is willing to negotiate a license).  Instead, the court places the initial burden of coming forward with an offer on the SEP owner (noting, among other things, that as AG Wathelet observed "in view of the large number of SEPs composing a standard such as that at issue in the main proceedings, it is not certain that the infringer of one of those SEPs will necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard", para. 62), but it also requires the implementer to satisfy some stringent conditions (not just, to quote from the second question presented to the court, the implementer's oral statement that "in a general way . . . it is prepared to enter into negotiations").  Here's what the court says (paras. 60-61, 63, 65-68):

Accordingly, the proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without infringing Article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged infringer without notice or prior consultation with the alleged infringer, even if the SEP has already been used by the alleged infringer.

Prior to such proceedings, it is thus for the proprietor of the SEP in question, first, to alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed. . . .

Secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated. . . .

. . . [I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

Should the alleged infringer not accept the offer made to it, it may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.

Furthermore, where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter-offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit. The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

In addition, where no agreement is reached on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.

4.  Importantly, the court preserves the implementer's right to challenge validity and infringement:

having regard, first, to the fact that a standardisation body such as that which developed the standard at issue in the main proceedings does not check whether patents are valid or essential to the standard in which they are included during the standardisation procedure, and, secondly, to the right to effective judicial protection guaranteed by Article 47 of the Charter, an alleged infringer cannot be criticised either for challenging, in parallel to the negotiations relating to the grant of licences, the validity of those patents and/or the essential nature of those patents to the standard in which they are included and/or their actual use, or for reserving the right to do so in the future.

5.  The court also holds (not surprisingly) that it is not an abuse of dominant position to seek discovery on past uses of the SEP and damages for those past uses.

6.  Left unresolved, in my view, is the question of whether the analysis changes at all in a case (like the one that gave rise to Orange-Book-Standard) in which the standard is a de factor standard for which no FRAND commitment has been made.  The court did make a point of distinguishing cases like the one under consideration from other cases in which the court has discussed abuse of dominant position, stating in para. 51 that "the case in the main proceedings may be distinguished by the fact, as is apparent from paragraphs 15 to 17 and 22 of the present judgment, that the patent at issue obtained SEP status only in return for the proprietor’s irrevocable undertaking, given to the standardisation body in question, that it is prepared to grant licences on FRAND terms."  So is the FRAND commitment indispensable to the framework the court develops, or merely a relevant consideration?

7.  The court also remarks in para. 52 that "Although the proprietor of the essential patent at issue has the right to bring an action for a prohibitory injunction or for the recall of products, the fact that that patent has obtained SEP status means that its proprietor can prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question."  But what if the proprietor is a nonpracticing entity?  Is the owner's status as a competitor of the implementer in a downstream market an indispensable factor or just a relevant consideration?

8.  I don't see how the court's framework would impact non-SEP cases, so it would appear to me that outside the SEP context patent assertion entities would still be able to obtain injunctions--a serious limitation, in my view, on the competition-law approach to the issue of injunctive relief, but so it goes.