Case C-170/13, Huawei Technologies – synchronising FRAND across the EU [judgment 2015, ECLI:EU:C:2015:477]

Where a patentee indicates he will licence his invention on a FRAND basis but a rival company does not agree to the terms, can the patentee get an injunction to stop the rival from infringing the patent or would that be an abuse of a dominant position?

Facts
Huawei Technologies is a telecoms company. It also owns the rights in a number of patents. One of its patents protects ‘a method and apparatus of establishing a synchronisation signal in a communications system’ (EP 2 090 050 B 1). Despite its dull title, the patent is very important for mobile telephones: it is a ‘standard-essential patent’ for the wireless high-speed communication of data.

Huawei Technologies was aware of the patent’s potential importance for the next generation of mobile phone technology. When it filed its patent application at the European Patent Organisation in 2009, it also wrote to the European Telecommunication Standards Institute (ETSI), informing them not only of the patent application but also of their intention to make the technology available on ‘fair, reasonable and non-discriminatory’ terms – in other words, on a FRAND basis.

At a certain point in time however, Huawei Technologies suspected that some of its patented technology and software had been incorporated into the mobile phones infrastructure and telephone base-stations produced by a Chinese company known as ZTE Corp., and its German subsidiary ZTE Deutschland GmbH. Consequently, in November 2010 Huawei Technologies asked ZTE to pay a licence fee for use of the patented technology. Notwithstanding repeated requests for a licence fee from ZTE, none could be agreed. Accordingly, Huawei Technologies brought an action for patent infringement before the Landgericht in Düsseldorf, Germany.

At the Landgericht in Düsseldorf
The initial issue facing the Landgericht was the relationship between on the one hand an injunction designed to stop patent infringement; and, on the other, the compatibility of such an injunction with EU competition law.

This issue had recently become topical because the EU Commission had issued a press release on precisely that relationship. In its ‘Samsung’ press release of December 2012, the Commission had expressed its interim view that an injunction could constitute an abuse of a dominant position in situations where (i) a patent was an essential standard and the standard setting organisation had been informed that licences would be made available on a FRAND basis; and (ii) the alleged infringer was prepared to enter into negotiations.

The Commission’s press release did however pose the Landgericht with a particular problem which had two aspects to it. The first was that the Commission had not specified how to identify whether an alleged infringer was prepared to negotiate. In this case, the Landgericht was not certain whether it could be said that ZTE Deutschland was willing to negotiate. Yet the answer was critical because if ZTE Deutschland was deemed to be willing to negotiate, then Huawei would be stopped from getting an injunction because an injunction would mean it was abusing its dominant position.

The second aspect to the problem was determining whether an abuse was taking place. If this was assessed under German law, then Huawei was doing nothing wrong. Under German law, Article 82 TFEU is read together with the German Civil Code’s provision on good faith. As a result, there must be an acceptable, unconditional offer to conclude a licensing agreement – which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination. Equally, a potential licensee must fulfil his contractual obligations for those acts of use already performed in anticipation of the licence being granted.

Applying that test here put Huawei in the clear: ZTE Deutschland could not be said to be willing to negotiate for it had only been prepared to pay the royalty/licence fee for the products which fell within the scope of the licence, and in this particular case, the licence only expressly mentioned base-stations. ZTE believed that the royalty would only be paid to Huawei Technologies if Huawei could establish that ZTE Deutschland was indeed infringing the patent. Moreover, ZTE Deutschland had also not paid a royalty nor given an undertaking to do so. Nor had ZTE Deutschland even allowed its books to be consulted for the purposes of assessing earlier use. Consequently, under German law there was no abuse – a result which was the direct opposite to the one generated if the Commission’s Press Release would be followed.

The Landgericht thought that the Commission’s Press Release could not lay down the criteria for establishing an abuse of a dominant position. The Landgericht sketched out the policy considerations. Standards were particularly significant. They applied across Europe. Given the investment necessary to develop parallel technologies, standards were economically sensible, effective and necessary. A technology standard inevitably brought about compatibility norms that were needed to make the latest technology available to a broad public at an acceptable price, and to do so within a reasonable period. Market access was facilitated by a publicly accessible standard which, in turn, would increase competition and ultimately lead to a greater choice of compatible products for consumers. The right holder of a standard essential patent with the right to obtain an injunction already had a particularly strong position – a position which must not be misused.

That said, the Landgericht appreciated that an alleged infringer should not benefit from being able to demand licence terms if it would mean that the alleged infringer could dictate those terms, which was a risk if the patentee had no option to seek an injunction. Being without access to an injunction would deprive the patentee of the necessary means to exert pressure on the negotiations. Weakening the position of the patentee would also be undesirable since it was generally the case that several companies, and not just one, would want, and may already possess, a licence for a standard-essential patent. Companies who had already paid their licence fees would have to be treated the same as any other who subsequently wished to own a licence. In that sense, the patentee was also acting on behalf of the existing licencees to stop the allegedly infringing company from using whatever was protected by the patent and using it without paying the cost of paying a royalty, and thereby gaining a competitive advantage over the existing licencees.

In light of these considerations, a balance could be achieved – a balance which would not be achieved if the only relevant criterion was whether the allegedly infringing company was willing to negotiate.

If, despite this, a willingness to negotiate was going to be a relevant criterion, then the German court felt that it should at least be interpreted in such a way as to include temporal and qualitative criteria so it would become apparent whether the alleged infringer was really acting in good faith, whose position should be protected.

In that context, the Landgericht could imagine that it might be preferable to require the alleged infringer to have a draft licence agreement containing all of the provisions normally found in the licences regulating that particular sector of industry. If the patentee subsequently refused to accept such a proposal, then this would discriminate against the other companies, and the patentee could reasonably be criticised for refusing the offer. The Landgericht added that, as a rule, allegedly infringing companies were specialist companies who were well aware of the licence agreements found in their sector of industry.

Questions Referred
According to the website of the UK Intellectual Property Office, the Landgericht in Düsseldorf has asked:

1. Does the proprietor of a standard-essential patent who informs a standardisation body that he is willing to grant any third party a licence on fair, reasonable and non-discriminatory terms abuse his dominant market position if he brings an action for an injunction against a patent infringer although the infringer has declared that he is willing to negotiate concerning such a licence?
Or
Is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of a standard-essential patent an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils his contractual obligations for acts of use already performed in anticipation of the licence to be granted?
2. If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:
Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate? In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that that he is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which he is prepared to conclude a licensing agreement?
3. If the submission of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:
Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer? Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question? In particular, may the offer be made subject to the condition that the standard-essential patent is actually used and/or is shown to be valid?
4. If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:
Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment? Is the infringer particularly required to render an account for past acts of use and/or to pay royalties? May an obligation to pay royalties be discharged, if necessary, by depositing a security?
5. Do the conditions under which the abuse of a dominant position by the proprietor of a standard-essential patent is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?