The Advocate General of the CJEU has handed down his opinion in the Standards Essential Patents (SEP) dispute between Huawei and ZTE. The Court is, as usual, not obliged to follow the opinion of the advocate general but almost invariably it does so and there is no reason to suspect it will not do so in this case.
The case referred to the CJEU was a patent infringement dispute between Huawei, the patent owner and ZTE. Huawei is the proprietor of European Patent number EP2090050 which has been held to be essential to the LTE standard developed by the European Telecommunications Standards Institute (ETSI). As with all SEPs this means that any party which chooses to use the standard will inevitably fall within the scope of protection of the patent and will need to take a licence.
Licences in SEPs have to be available on Fair, Reasonable and Non-Discriminatory terms (FRAND). As standards develop, patentees with patents which they believe to be essential to the standards have to notify these to the relevant standard issuing body (in this case the ETSI) and must give a commitment to grant licenses to third parties on FRAND terms.
In this particular case there was a breakdown in negotiations and Huawei therefore brought an infringement action against ZTE seeking an injunction as well as various other relief. The advocate general’s opinion in this case is based primarily on the competition law aspects of the dispute. These stem from the fact that the holder of an SEP is considered to hold a dominant position and is therefore subject to sanction under European competition law should it abuse that dominant position.
In this case ZTE developed and marketed in Germany base stations with LTE software which inevitably used the Huawei patent. Although negotiations for a FRAND licence commenced between the parties these were inconclusive and Huawei brought infringement proceedings in Germany. These proceedings gave rise to a set of questions for the CJEU.
The Advocate General’s opinion answers these as follows:
- The holder of a SEP abuses its dominant position where it can be shown that has not fulfilled its commitment to grant third parties a licence on FRAND terms even though the infringer has shown itself to be ready, willing and able to conclude such an agreement.
- Prior to seeking any corrective measures the SEP holder must alert the alleged infringer to the fact of its infringement in writing, giving reasons, identifying the patent, and must make a written offer of a licence on FRAND terms including all the terms normally included in such a licence, and in particular the amount of the royalty and how that is calculated.
- The infringer must respond in a diligent and serious manner. If it rejects the offer it must promptly present to the SEP holder in writing a reasonable counter offer relating to the clauses with which it disagrees.
- If negotiations are not commenced or are unsuccessful and the infringer requests that FRAND terms be fixed by a court or an arbitration tribunal then the SEP holder may ask the infringer to provide a bank guarantee or a payment to Court in respect of past and future royalties for use of the patent.
- An infringer may legitimately include during negotiations for a FRAND licence the right subsequently to challenge the validity of the patent, including the question of the patents essential nature.
- The SEP holder does not abuse its dominant position if it takes action to secure the rendering of accounts from the infringer or if it brings the damages for past acts for the purpose of obtaining compensation for previous infringements.
This latest chapter relating to SEPs and FRAND licensing give clarity to the steps which an SEP and an alleged infringer must take in the negotiation of FRAND licences and what steps an SEP holder may take without abusing its dominant position. We expect the CJEU to endorse the Advocate General’s opinion and will provide an update when this happens.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.