On April 29, 2014, the European Commission published two decisions as a result of its investigations into the (alleged) abuse of standard-essential patents (SEPs) in patent litigation, in particular by seeking injunctions against competitors on the basis of SEPs. The first decision renders binding commitments offered by Samsung Electronics, not to seek injunctions in Europe on the basis of its SEPs for smartphones and tablets against licensees who sign up to a specified licensing framework (described in more detail below). The second decision equally finds that Motorola Mobility’s seeking and enforcement of an injunction on the basis of a smartphone SEP constitutes an abuse of a dominant position prohibited by EU antitrust rules and orders Motorola to eliminate the negative effects resulting from it. These decisions mark the first cornerstone in the ongoing debate about rules for dealing with SEPs in litigation at the intersection of patent and antitrust laws.
SEPs are patents essential to implement a specific industry standard. It is not possible to manufacture products that comply with a certain standard without making use of the technologies covered by these patents. This may give companies owning SEPs significant market power. As a result, standards bodies generally require their members to commit to license SEPs on fair, reasonable and non-discriminatory (so-called FRAND) terms. As part of the so-called ‘smartphone patent wars’, both, Samsung and Motorola, sought injunctions on the basis of their SEPs against Apple before German patent infringement courts. In January 2012, the Commission opened its investigation against Samsung and issued a Statement of Objections, setting out its preliminary competition concerns, in December 2012. In September 2013, Samsung offered commitments in order to address the Commission’s concerns, followed by a consultation of interested parties on Samsung’s commitments by the Commission. In February 2014, Samsung submitted the final version of the commitments which addressed the Commission’s competition concerns. Similarly, the Commission opened the investigation against Motorola in April 2012 after having received a complaint by Apple. This most recent decision by the Commission follows a Statement of Objections sent in May 2013.
While these investigations were pending, the German patent infringement courts found some of the asserted SEPs infringed and issued injunctions against Apple (and in one case brought by Motorola also against Microsoft). Following the German Federal Court of Justice’s landmark decision in the “Orange Book Standard” case in 2009, the German patent infringement courts created an evolving set of rules and requirements, which a Defendant against whom an SEP was asserted had to comply with in order to successfully raise a defense based on antitrust law. In essence, the Defendant must make an unconditional offer to license the SEP on FRAND terms, the rejection of which by the patentee then constitutes an abuse of its dominant position in that particular market. If the Defendant failed to fulfill all the requirements, the German patent infringement courts would issue an injunction, as is foreseen in the respective patent statutes, which do not make exceptions for standard-essential patents. It was widely debated though whether it should be permissible under antitrust laws to even bring a suit requesting an injunction, thereby effectively forcing the Defendant under the threat of the (enforcement of) an injunction into accepting licensing terms, which would otherwise be unacceptable.
With its decision to make Samsung’s commitments binding, the European Commission now accepted a framework under which any dispute over what are FRAND terms for the SEPs in question will be determined by a court, or if both parties agree, by an arbitrator. The commitments therefore provide a ‘safe harbour’ for all potential licensees of the relevant Samsung SEPs. In the Commission’s view, potential licensees that sign up to the licensing framework will be protected against SEP-based injunctions by Samsung. The Commission specifically pointed out that 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 an 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.
In order to address these concerns, the Commission accepted Samsung’s amended proposal, which in essence consists of a commitment by Samsung not to seek any injunctions in the European Economic Area (EEA) for a period of five years on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets against any company that agrees to a particular framework for licensing the relevant SEPs. That 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.
Thus, contrary to Samsung’s initial proposal, according to which the default dispute resolution mechanism would be submitting to arbitration if no other agreement could be reached, it is now left to either party to request that the FRAND determination be made by a court. The parties may still mutually agree on arbitration, but if they do not, there will be judicial determination, following a negotiation period of up to 12 months. It remains to be seen whether this approach will be generally adopted, but it is the first guidance provided by the European Commission from the antitrust perspective.
In its decision following the investigation against Motorola, the Commission did not impose a fine either. But the Commission found that it was abusive for Motorola to both seek and enforce an injunction against Apple in Germany on the basis of an SEP which it had committed to license on FRAND terms and where Apple had agreed to take a licence and be bound by a determination of the FRAND royalties by the relevant German court. Perhaps even more importantly, 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.
This is contrary to the German courts’ recent very strict requirements for a successful FRAND defense, which, inter alia, had required Defendants to present a licensing offer that included a right to terminate the agreement in case of validity attacks. Arguably some of the German courts had recently gone too far with their very strict requirements for a successful FRAND defense. Perhaps in view of these developments, the Commission argues that “implementers of standards and ultimately consumers should not have to pay for invalid or non-infringed patents” and that “potential licensees of SEPs should remain free to challenge the validity, essentiality or infringement of SEPs”.
Along with the two decisions, the Commission also issued a memo with FAQs on SEP cases, which explains some of the terms and implications of the two cases. Importantly, the Commission points out that it does not generally question the use of injunctions by patent holders and that “recourse to injunctive relief is generally a legitimate remedy for patent holders in case of patent infringements. Moreover, SEP-based injunctions should be available when there is an unwilling licensee”. While the Commission does not provide much guidance on when a company can be considered an “unwilling licensee”. But the Commission states that their 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 of this “safe harbour”.
The Commission also specifically addresses the German Federal Court of Justice’s “Orange Book Standard” decision, and while it distinguishes the case from its decisions on a factual basis, it does state that “if the ruling was to be interpreted as meaning that a willing licensee is essentially not entitled to challenge the validity, infringement and essentiality of the SEPs in question, this would be anti-competitive”.
Finally, the Commission points to the upcoming ruling by the Court of Justice of the EU in the Huawei vs. ZTE case referred to the CJEU by the Düsseldorf patent infringement court in March 2013. The Düsseldorf court posed a number of very specific questions to the CJEU, including what constitutes a willing licensee and which (pre-contractual) obligations the Defendant needs to fulfill. While these most recent decisions provide the European Commission’s view from the antitrust perspective, further and more detailed guidance as to the treatment of SEP/FRAND cases by the European courts is expected from that ruling.