Out-Law / Your Daily Need-To-Know

Asserting standard-essential patent rights through injunctions against willing licensees may be banned by EU court, says expert

Out-Law News | 28 May 2013 | 10:29 am | 4 min. read

The Court of Justice of the European Union (CJEU) may ban standard-essential patent (SEP) owners from pursuing injunctions that prevent rivals launching products onto the market where those rivals are willing to take out a licence to use their technology, an expert has said.

Competition law expert Natasha Pearman of Pinsent Masons, the law firm behind Out-Law.com, said that SEP holders would find it difficult to claim that injunctions against rivals that are willing licensees are objectively justified.

A court in Germany has asked the CJEU to rule whether SEP holders, having agreed to licence to others the use of their patents on fair, reasonable and non-discriminatory (FRAND) terms, can automatically be said to be abusing a dominant market position by initiating legal action in pursuit of an injunction against those infringing their patents where those infringers have declared a willingness to negotiate a licensing deal for the use of their patents.

The German court is trying to assess whether legal action pursued by SEP holder Huawei was in line with EU competition law which  prohibit companies from abusing a dominant market position without objective justification to do so.

Earlier this month the European Commission said it had taken the preliminary view that Motorola Mobility had breached competition rules by seeking and enforcing an injunction against Apple banning its rival from using technology it had helped to develop and holds patent rights for. The Commission said it took this view because Motorola, now owned by Google, had agreed to license the use of its standard-essential patents, for technology used in mobile and wireless communications, on FRAND terms and because Apple had shown that it was "willing" to agree a licensing deal on such terms.

"The important question here is what does 'willing' mean?" Pearman said. "The Commission in its recent statement of objections against Motorola suggests that 'willing' is the acceptance of binding third party determination for the terms of a FRAND licence, in the event that bilateral negotiations are not successful. If this is the position that the CJEU also advocates, then I could see how bringing an action for injunction could be an abuse of dominance."

"A dominant company has a special responsibility not to allow its conduct to impair genuine undistorted competition. Previous EU case law has established that where a dominant company engages in litigation that action 'cannot reasonably be considered as an attempt to establish' its rights, and that it 'can therefore only serve to harass the opposite party and is conceived in a framework of a plan to eliminate competition'. This is said to amount to an abuse being committed," Pearman added.

"If SEP holders sign up to FRAND commitments and there is an infringer willing to negotiate a licence through a binding process that can deliver an end result to negotiations on licensing terms, you have to question what rights a SEP holders will be objectively justified in asserting that cannot be done through that process," she said.

Pearman said that the CJEU's ruling in a case involving pharmaceuticals giant AstraZeneca (AZ) may also provide insight into how it will address the questions stemming from the Huawei case in Germany. The CJEU ordered AZ to pay €52.5 million for abusing a dominant market position in the market for ulcer medicines.

The CJEU upheld the view of the EU's General Court that AZ misled patent-granting authorities in the 1990s in a bid to increase the life of its patents on Losec, the world's best-selling drug at the time. It also ruled that AZ had taken advantage of gaps in the drug regulation system to delay the ability of competitors to release rival drugs. Both these actions unfairly restricted the ability of generic firms to release competing drugs, it said.

"Since the AstraZeneca case it is now well established that the use of public procedures and regulations, including administrative and judicial processes may constitute an abuse even where the letter of the law is followed," Pearman said. "Further, it is established case law that conduct that may otherwise be permissible even on the part of a dominant undertaking may be rendered abusive if its purpose is anti-competitive, in particular if it is part of a plan to eliminate competition."

"Where the Commission looks to tackle the misuse of intellectual property (IP) rights it has tended to rely on evidence of an intent to exclude, delay or hinder competition partly as a way to mitigate claims that an IP holder is simply enforcing a valid IP right.  However, proving intent is not necessary for acts to be deemed an abuse. The concept of abuse is objective and conduct may be abusive even in the absence of any intent to exploit customers or exclude competitors,", she said.

Pearman said that she expects the CJEU to lay out a framework for determining whether the seeking of injunctions by SEP holders against willing licensees is legitimate in its ruling in the Huawei case.

The CJEU will probably make it "very difficult" for SEP holders to claim that they have objective justification for pursuing an injunction against willing licensees, she said. SEP holders may argue that their actions were "intended to protect their legitimate commercial interests" or that their conduct had "economic benefits", but these arguments appear unlikely to succeed, she said.

Patent law expert Deborah Bould of Pinsent Masons said that manufacturers should make an open, clear written offer to take a licence of SEPs on FRAND terms, potentially spelling out what those terms would be, rather than rely on an oral statement. Pearman concurred, saying that the CJEU ought to rule that oral statements should not be relied upon.

One of the other questions that the CJEU has been asked to answer is whether qualifications made to offers to license SEPs, such as that payment of royalties is only made providing patents are valid and infringed, influence whether SEP holders can legitimately pursue injunctions against patent infringers. Pearman said that it was likely that the Court would ultimately leave these kinds of questions for the national courts to assess. 

Bould said that it may be unfair for manufacturers to have to behave as a licensee of SEPs to avoid an injunction and pay royalties through escrow, as was required by the Federal Court of Justice in Germany in the Orange-Book-Standard cases. Where SEPs are of questionable validity or relate to optional parts of a standard which may not be utilised, making a detailed conditional offer, agreeing to third party determination of any disputed FRAND terms and challenging the validity of any likely invalid patents in a timely way seems more sensible, she said.

Bould added that, once a licence has been concluded, UK case law has established that royalties cannot be reclaimed by licensees in the event that patents are later revoked. However, she said that in Germany and France a proportion of royalty payments can typically be reclaimed.

The Intellectual Property Office (IPO) is seeking comments on the questions before the CJEU in the Huawei case by 31 May.