Germany: Court of Justice of the European Union Provides Restrictions for Asserting Standard Essential Patents in Europe

Last Updated: 20 August 2015
Article by Ana Elisa Bruder and Dr. Ulrich Worm

The exclusive rights conferred by a patent may be subject to limitations based on competition law. For example, patents that have been declared essential to an industry standard (so-called standard essential patents, "SEP(s)") shall be made available for licensing to all third parties under fair, reasonable and non discriminatory ("FRAND") terms in order to comply with Article 102 of the Treaty on the Functioning of the European Union ("TFEU") which sets forth that any abuse of a dominant position within the internal market shall be prohibited. This interface between patent and competition law is an area of potential friction and has been a matter for the courts for some years.

On 16 July 2015, the Court of Justice of the European Union ("CJEU") (C-170/13) issued a ruling that provides guidance on some issues, in particular, on how courts should deal with patent holders seeking injunctions on the basis of an (alleged) infringement of a SEP. The case involves Chinese telecommunication giant Huawei asserting a European patent, allegedly essential to the 'Long Term Evolution' (LTE) standard, against Chinese rival company ZTE. Huawei is a member of the European Telecommunication Standards Institute ("ETSI"), notified the patent to that institute and, thus, made a commitment to grant licenses to third parties on FRAND terms pursuant to the ETSI Intellectual Property Rights Policy. Since discussions between the parties regarding the conclusion of a licensing agreement on FRAND terms were unsuccessful, Huawei brought an action for infringement against ZTE before the District Court of Düsseldorf, seeking, inter alia, an injunction prohibiting continuation of the (alleged) infringement. The District Court stayed the proceedings and asked the CJEU to provide guidance on whether and under which circumstances this conduct of Plaintiff – the assertion of SEPs subject to FRAND commitments – could be considered an abuse of a dominant market position.

Previous decisions in this regard: The German "Orange Book" decision

In a decision issued on 6 May 2009 (KZR 39/06), known as the "Orange Book" decision[1], the German Federal Court of Justice ("BGH") ruled that a SEP holder may file an action for injunctive relief without any prior duties to actively engage in licensing negotiations. The alleged infringer may, however, defend itself by arguing that the SEP holder refuses to license the SEP on fair and reasonable terms (so-called 'compulsory license defense'). However, the BGH further held that a party may only rely on the compulsory license defense, if it meets the following two conditions:

(i) the party seeking the license must submit a binding and unconditional offer to the SEP holder which the latter cannot reject without unfairly hindering the party seeking the license or acting discriminatorily; and

(ii) if the party seeking the license uses the patent prior to the conclusion of a license agreement, it must pay (or at least security deposit) the corresponding license fees which would be due under such license agreement.

Essentially, these conditions would place the party seeking the license in the position it would be in, if a license had already been granted. Therefore, the party seeking the license, inter alia, would have to pay or at least deposit license fees at a point in time when a license agreement has not yet been concluded. While the BGH did not specify how the amount of license fees to be paid or deposited is to be calculated, it stated that it should be "in any event adequate", leaving the risk to make insufficient payments or security deposits with the party seeking the license.

Previous decisions in this regard: Decisions of the European Commission

Two decisions of the European Commission ("EC") issued on 29 April 2014 (cases AT.39985 and AT.39939) also deal with the concept of abuse of a dominant position in the context of SEPs. In both cases, the SEP holders had committed to ETSI to grant licenses under the patents on FRAND terms. The EC clarified that when a SEP holder has made such commitment and a competitor has expressed genuine willingness to obtain a license under FRAND terms, invoking the patent may constitute an abuse of a dominant market position.

While the German Orange Book Standard primarily puts the burden on the alleged infringer, the EC takes the SEP proprietor up on its responsibility to conclude a licensing agreement: the party seeking a license does neither have to submit a binding and unconditional licensing offer, nor pay (or deposit) any royalties for using the SEP in advance of the conclusion of a FRAND term license agreement. The mere willingness on the part of the alleged infringer to acquire a license on FRAND terms may be sufficient to consider an application for injunctive relief by a SEP holder an abuse of a dominant market position.

The CJEU decision

In the Huawei vs. ZTE case, if the District Court of Düsseldorf were to follow the German Orange Book decision, it would likely conclude that there was no abuse of a dominant market position, since the alleged infringer had neither made an unconditional licensing offer nor made any payments for the use of the patent. However, if the District Court of Düsseldorf was to apply the position of the EC, it would likely hold Plaintiff's conduct an abuse of a dominant position, since Plaintiff had committed to licensing the patent on FRAND terms and the Defendant was seemingly willing to take a license under such terms.

Seeking to ensure a fair balance between maintaining free competition and the requirements to safeguard the proprietor's intellectual property rights, the CJEU clarified the circumstances under which an undertaking can be viewed as a "willing licensee", and which actions shall be taken by the SEP holder in order to avoid having its conduct considered an abuse of a dominant market position:

(i) a SEP holder that has committed to grant a license to third parties on FRAND terms must, prior to bringing an action seeking an injunction or the recall of products, alert the alleged infringer of the infringement, specifying why the SEP holder believes the patent to be infringed;

(ii) the alleged infringer, on the other hand, must express its willingness to conclude a license agreement on FRAND terms;

(iii) the SEP holder must then present to the alleged infringer a specific, written offer for a license agreement on FRAND terms, specifying, in particular, the royalty fee and how it is to be calculated;

(iv) the alleged infringer shall diligently respond to the SEP holder's offer in accordance with recognized commercial practices in the field and in good faith.

If the SEP holder respects the conditions indicated above and the alleged infringer continues to use the patent and does not respond diligently to the SEP holder's offer, then any actions of the SEP holder seeking an injunction or the recall of products shall not constitute an abuse of a dominant position. If no agreement can be reached between the parties on the amount of royalties, they may, by mutual agreement, request the amount to be determined by an independent third party (e.g. an arbitral tribunal). Another interesting issue is the affirmation of the competitor's right to challenge the validity of the SEP. Such challenge shall have no impact on the status of the competitor as a "willing licensee", even if licensing negotiations are ongoing.

Conclusion

The CJEU strikes a balance between the patent owner-friendly position taken by the BGH in the Orange Book case and the position of the European Commission. The CJEU clarifies rights and obligations of SEP holders and "willing licensees", and provides effective guidance on how undertakings should conduct negotiations to avoid pitfalls in this area of intersection between patent and competition law.

[1] For a complete report on this decision see https://www.mayerbrown.com/files/Publication/e00a482e-89be-4c39-92c7-bdba2f7d3d3f/Presentation/PublicationAttachment/f2799e36-85d9-442c-9c1a-88a510a33d09/Patent_Update_%20Zwangslizenzeinwand.pdf.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2015. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions