16 February 2015Jurisdiction reportsAurélia Marie

The licensing of SEPs

This case comes after the Landgericht Düsseldorf (Düsseldorf district court) asked the CJEU to provide a preliminary ruling in a case between Chinese telecoms company Huawei, the owner of a SEP, and ZTE, which wants to implement the corresponding technology. The CJEU’s ruling will affect legal practice in France.

The European Commission has previously indicated that the introduction of an infringement action covering a SEP by an entity that agreed to license the patent under FRAND conditions, against an entity willing to negotiate a licence, was liable to constitute an abuse of a dominant position.

In the case submitted to the CJEU, Huawei and ZTE entered into negotiations regarding the terms of a possible licensing agreement. Following the failure of the negotiations between the parties, Huawei sued ZTE, which then argued that such a patent infringement action was an abuse of dominant position, in particular because Huawei had agreed to license the SEP on FRAND terms.

The Landgericht Düsseldorf then asked for a preliminary ruling on several questions regarding the assessment of the abuse of dominant position potentially committed by Huawei when it sued ZTE for patent infringement.

"If the alleged infringer’s conduct is purely tactical and/or dilatory and/or frivolous, the owner of the SEP may then legally introduce the action."

In his opinion of November 20, 2014, the Advocate General (AG) of the CJEU, Melchior Wathelet, indicated the conditions of infringement in such a case, in particular.

Unless it is established that the alleged infringer is fully aware of the infringement, the owner of the SEP has to alert it to that fact in writing, giving reasons, and specifying the SEP concerned and the way in which it has been infringed;  and in any event, the SEP owner has to present to the alleged infringer a written offer for a licence under FRAND terms that contains all the terms normally included in a licensing agreement in the sector in question, in particular the precise amount of the royalty and the way in which that amount is calculated.

The AG considered that the third party wishing to implement the SEP also has obligations, notably to respond in a diligent and genuine manner to the offer made by the owner of the SEP. If it refuses the offer, it must promptly submit, in writing, a reasonable counter-offer.

If the alleged infringer’s conduct is purely tactical and/or dilatory and/or frivolous, the owner of the SEP may then legally introduce the action. However, the AG indicated that the conduct of the alleged infringer cannot be regarded as dilatory or as frivolous if it (i) requests that FRAND terms be fixed either by a court or by an arbitration tribunal, or if it (ii) selects the right, after concluding an agreement for such a licence, to challenge before a court or arbitration tribunal the validity of that patent, the supposed use of the patent, or the essential nature of the SEP in question.

We will see if the CJEU follows the AG’s opinion. The CJEU should in any event specify the conditions in which the owner of a SEP may legally introduce an infringement action against a third party that wishes to implement the technology corresponding to the standard after having shown itself to be ready, willing and able to conclude a licence.

Aurélia Marie is a partner at  Cabinet Beau de Loménie. She can be contacted at: amarie@bdl-ip.com

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