Wednesday, July 16, 2014

Müller and Henke on the European Commission's Decisions in Samsung and Motorola

As most readers probably are aware by now, in April the European Commission published a press release accepting Samsung’s commitment not to seek injunctions within the European Economic Area for a period of five years for the unauthorized use of its SEPs relating to smartphones or tablets “against any company that agrees to a particular framework for licensing the relevant SEPs.”  According to the Commission, “[t]he 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.”  The Commission also published a press release announcing its finding that Motorola Mobility had abused its dominant position by seeking and enforcing an injunction for the infringement of an SEP.  In this press release, the Commission stated:

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. Since injunctions generally involve a prohibition of the product infringing the patent being sold, seeking SEP-based injunctions against a willing licensee could risk excluding products from the market. Such a threat can therefore distort licensing negotiations and lead to anticompetitive licensing terms that the licensee of the SEP would not have accepted absent the seeking of the injunction. Such an anticompetitive outcome would be detrimental to innovation and could harm consumers. . . .

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.

Finally, in a separate document titled “Frequently Asked Questions,” the Commission also wrote that

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".

We’re still waiting for the Commission to release its detailed findings in these two cases, but in the meanwhile Tilman Müller and Volkmar Henke have just published an article titled Patentdurchsetzung als Kartellrechtsvertoß.  Die Entscheidungen der EU-Kommission in Sachen Samsung und Motorola (“Patent Enforcement as Competition Law Offense:  The European Commission’s Decisions in the Samsung and Motorola Cases”) at pages 662-65 of the July 2014 issue of GRUR Int.  Here is the abstract (my translation from the German):

On April 29, 2014, the European Commission announced in two press releases that the competition law investigations against Samsung and Motorola had ended.  The specifics of the Commission decisions are not yet fully known, but the releases provide some principles for the enforcement of SEPs in Europe that may prove to be significant.

Drs. Müller and Henke argue, among other things, that for the time being litigants and courts in the E.U. are in an awkward position, insofar as the Commission's decisions in these two cases are not technically binding in other cases; the issue of whether the owner of a FRAND-encumbered SEP may seek injunctive relief is currently pending before the CJEU in the Huawei-ZTE case; and, at least in Germany, the Orange-Book-Standard procedure is still in place.  They also argue that the Commission's decision betrays a favoritism for infringers.  According to the authors, an infringer can, with minimal risk, make use of the procedure the Commission has spelled out and thereby figure that even in an unfavorable case it will be no worse off than if it had directly concluded a license ("Ein Verletzer kann beinahe risikolos die von der Kommission geforderte Verplichtungserklärung abgeben und damit rechnen, dass er selbst im ungünstigen Fall nicht schlechter steht als wenn er sich unmittelbar auf seinen Vergleichsabschluss eingelassen hätte.").  They also question how patent owners will in the future be fairly compensated for their contribution to the art, if their right to exclude others is taken away; and they wonder how the procedure the Commission envisions will play out if the compensation for single patents must be determined country-by-country, if there are hundreds of SEPs in a given portfolio, and if patent owners have to wait until the conclusion of lengthy proceedings to be compensated.

These are all fair questions; and as I've stated before, I'm not altogether convinced that addressing these types of issues through the lens of competition law, as opposed to the law of patent remedies, is ideal.  Nevetheless, as I've also stated before, I don't think it's quite right to state that allowing courts to award FRAND royalties and to dispense with injunctions in certain classes of cases is unduly favorable to infringers.  One could argue just as well, as indeed the Commission has, that an automatic entitlement to injunctive relief puts undue pressure on defendants to settle on terms that reflect the difficulty of designing around the SEP ex post (and therefore are not related to the inventor's contribution to the art).  Moreover, not every defendant necessarily is an infringer, given the high percentages of litigated patents that are either not infringed or invalid.  And if the defendant is an infringer and ultimately has to pay a FRAND royalty, it will also have to pay interest (albeit in some countries, including Germany, the interest is not compounded even though from an economic perspective it probably should be), its own attorneys' fees, and at least some portion of the patentee's attorneys' fees.  Finally, while it certainly is possible that the costs of litigating hundreds of patent royalties in dozens of countries could be enormous, one would expect that in most instances the parties will, at the end of the day, settle, as they do in most cases most of the time.

I do think it is fair to say, though, that the law in Europe will remain in a state of confusion until the CJEU renders its decision in Huawei v. ZTE.  And if that court mostly agrees with the Commission's perspective, perhaps the next major topic the European tribunals will need to take up will be how courts should calculate FRAND royalties.

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