Thursday, February 23, 2017

Larouche & Zingales on Injunctive Relief in EU FRAND Disputes

Pierre Larouche and Nicolo Zingales have posted a paper on ssrn titled Injunctive Relief in FRAND Disputes in the EU--Intellectual Property and Competition Law at the Remedies StageHere is a link to the paper, and here is the abstract:
In dealing with applications for injunctive relief by the holders of FRAND-encumbered SEPs in the course of protracted licensing negotiations, any legal system faces the challenge of reaching the proper balance between predictability for stakeholders and differentiation between possible scenarios (tough negotiations, holdup, holdout or exclusion). In the EU, that challenge fell to be addressed first under the various national laws concerning remedies for intellectual property violations, as partially harmonized by Directive 2004/48. The outcome was not optimal. After German courts introduced competition law in the equation in Orange Book, the European Commission felt compelled to intervene with a different approach in Motorola and Samsung, leading to a reference to the CJEU in Huawei v ZTE. That ruling sets out an elaborate choreography that SEP holder and implementer must respect, in order to avoid breaching Article 102 TFEU or avert injunctive relief, respectively. Huawei represents a satisfactory compromise in practice, but its theoretical foundation in competition law is not solid. Subsequent case-law has unmoored Huawei from competition law and is turning it into a stand-alone lex specialis for injunctions in FRAND cases. In the longer run, legislative intervention might be preferable to de facto harmonization via competition law. 
I thought this was a very thoughtful and informative paper.  Descriptively, the paper provides a good overview of the law of injunctions and its application to FRAND disputes in England, Italy, France,Germany, and the Netherlands.  Much of the authors' analysis turns on their classification of disputes between implementers and owners of FRAND-committed SEPs into four scenarios:  (1) "negotiation," where  "[t]he parties are locked in difficult negotiations to conclude a FRAND-compliant license," but "have no obvious interest to derail the negotiations by having recourse to outside options"; (2) "holdup," where the SEP owner exploits its market power to obtain exorbitant royalties, but normally isn't interested in excluding the implementer from the market; (3) "holdout," where the implementer wants to use the technology without a license or for an unreasonably low rate; and (4) "exclusion," where the SEP owner competes in a downstream market and wants to exclude the implementer from it (pp. 3-4).  The authors note that Huawei itself fell within the fourth category, and that as others have noted some of the CJEU's language in that decision supports the theory that the Huawei framework applies only in cases involving exclusion.  At the same time, however, other portions of the decision "seems to envisage that its reasoning applies more generally than as between competitiors," and that "a larger number of cases . . . apply Huawei to cases that do not fall within an exclusionary theory of harm. . . . [I]n most post-Huawei cases, the plaintiff is a patent assertion entity, which is by definition not competing with the defendant.  The theory of harm cannot then be exclusionary," but rather must be scenario 2 (holdup) (pp. 21-22).  The authors also argue that Huawei's imposition of certain obligations on implementers, which is part of what they refer to as the Huawei "choreography," cannot be justified under competition law; and they express concern that the limitation of Huawei to FRAND-committed SEPs (but not to de facto SEPs or FRAND-unencumbered SEPs) "risks introducing distortions into the standardization process" (p.29).  In addition, they express the view (which I've also tried to emphasize in recent work) that "On difficult issues such as these disputes, the key challenge for any legal system is to find the proper balance between accuracy (the ability to correctly identify which of the four scenarios is unfolding in a given case), consistency/predictability (the ability to treat like cases alike and enable firms to plan their actions accordingly) and efficiency (the minimum expense of resources in solving these cases)" (p.33); and, like the authors of the recent JRC report on SEPs, they argue that "FRAND is better seen as a guide for parties to deal with one another," rather than "to find a mystical 'right' FRAND set of terms and conditions" (p.36).  Finally, in a conclusion that calls to mind some thoughts I've expressed on these issues over the past few years, to the effect that competition law may be (for now) an adequate though imperfect source of legal norms for addressing FRAND/SEP disputes in Europe, the authors write:
On balance, even if it cannot be justified in theory, the unmooring of Huawei from competition law provides clear practical benefits. Considering that it would have been impossible to provide a comparable approach to SEP-related disputes from within IP law in such a short time, maybe Huawei represents the optimal institutional response by the EU to the proliferation of these disputes. Nevertheless, many questions remain open, and there is a risk that, sooner or later, the theoretical shortcomings will catch up with the evolution of the case law spawned by Huawei. It might be advisable for the EU institutions to follow up on Huawei via a legislative instrument that would rest on a more solid and broader foundation and would carry more legitimacy (p.37).
Overall, the paper is definitely worth a read.

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