cjeu-4
(The Court of Justice of the European Union)
16 July 2015Patents

Huawei v ZTE: No power abuse if SEP owner makes specific FRAND offer

Europe’s highest court has said that owners of standard-essential patents (SEPs) should make a specific licensing offer on fair, reasonable and non-discriminatory (FRAND) terms before seeking an injunction against the alleged infringement of a SEP.

In an eagerly awaited judgment, handed down today, July 16, the Court of Justice of the European Union (CJEU) ruled on the Huawei v ZTE case.

SEPs are required to be licensed on FRAND terms.

The CJEU added that if the SEP owner has made an “irrevocable undertaking” to grant a licence to third parties on FRAND terms, it would not be an abuse of dominance to seek an injunction.

But the CJEU said this can only be done as long as, before bringing the action, the patent owner has alerted the other party about the alleged infringement and, secondly, presented a FRAND licensing proposal.

If the alleged infringer continues to use the patent in question, the court said, it will be viewed as not having “diligently responded” to that offer.

The court added that an alleged infringer that has not accepted a licensing offer may claim that the action is abusive only if it has submitted, in writing, a specific counter-offer that it believes corresponds to FRAND terms.

The dispute started in 2011 when Huawei sued ZTE at the Regional Court of Düsseldorf.

Huawei, China’s largest phone maker, was seeking an injunction against the alleged infringement of an SEP covering LTE (4G), a standard for wireless communication of data for mobile phones.

But ZTE criticised the demands, citing article 102 of the Treaty on the Functioning of the European Union, which claims that an application for an injunction based on an SEP would be an abuse of a dominant position.

ZTE argued that because it was willing to negotiate an agreement to license the patent, no injunction could be issued against it.

The CJEU was then asked to rule on the dispute by the German court.

In an opinion issued in November, the CJEU’s advocate-general Melchior Wathelet said the court should adopt a ruling that is a “middle course”.

Wathelet said that an SEP owner should make a licensing offer to a competitor before seeking a legal injunction for any alleged infringement.

Martin Chakraborty, partner at law firm Hogan Lovells in Munich, told WIPR that the judgment would provide “some legal certainty” to parties engaged in patent disputes.

“This long awaited judgment defines in a positive way under which conditions seeking an injunction ... [based on a ] ... SEP for which the patent holder has entered into a FRAND commitment is not an abuse of a market dominant position.”

Lorna Brazell, partner at law firm Osborne Clarke in London, said the decision will not just impact the mobile research market but also “all other areas—like connected cars or energy smart grids—where technology standards are fundamental”.

“The decision favours technology users; where standardised technology is concerned, the bringing of an injunction could be an abuse of dominance if the SEP holder hasn't attempted to conclude a licence agreement with its alleged infringer on FRAND terms.

"Clearly this decision won’t please everybody. We'll soon see huge knock-on effects for IP litigation in Europe. Yet it's not a total defeat for the SEP holders. What they lose by not being able to bring an injunction against infringers, they probably gain through royalties payments."

In a statement ZTE said the ruling makes it clear that seeking injunctions against alleged patent infringers that are willing to negotiate a FRAND licensing deal constitutes a breach of EU competition law, unless the patent owner follows specific rules.

Shen Jianfeng, the company’s chief IPR officer, added: “ZTE is glad that the court agreed with our position and confirmed the legal standard on patent licensing negotiations, particularly relating to SEPs. Today’s ruling will bring more clarity to the industry and will help reduce unnecessary and costly patent litigation, which always comes at the expense of customers.”

A spokesperson for Huawei said: “The CJEU’s decision has clarified a number of rules for claiming injunctions for infringements of SEPs in Europe. Huawei always honours its commitment to license its SEPs on FRAND terms.”

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