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EU regulator clarifies issues around enforcement of standard-essential patent rights in Motorola and Samsung cases

Out-Law News | 30 Apr 2014 | 10:20 am | 4 min. read

The European Commission has clarified some of the issues that arise around the enforcement of standard-essential patent (SEP) rights and the interaction with competition law in announcing the outcome of two cases involving major technology companies.

The regulator ruled that Motorola Mobility (MM) breached EU competition rules when it asked a German court to prevent rival Apple from using standardised technology it owned patent rights for. It separately announced that it had accepted commitments offered by Samsung to address similar concerns about the way the South Korean mobile device manufacturer had exerted SEP rights over Apple.

Among the points clarified by the Commission was that SEP owners who have voluntarily agreed to licence on fair, reasonable and non-discriminatory (FRAND) terms, but then seek and enforce an injunction against a willing licensee will be held to be in breach of competition rules. It confirmed that users of standardised technology will be considered to be 'willing' licensees of the applicable SEPs where they agree to be bound by a decision of a court over the terms of licence in the event that an agreement cannot be reached between the disputing parties.

In accepting Samsung's commitments, the Commission has signalled that disputes over whether licensing terms are FRAND should be determined by a court unless both parties agree to alternative arbitration. This is a departure from the proposals originally made by Samsung to settle its case last year where it had suggested arbitration would be the default option for parties where they failed to agree on SEP licensing terms.

Standards are agreed technical specifications to ensure that a single technology is used across an industry, often with the goal of achieving interoperability of products regardless of the manufacturer. Companies can opt to send experts to help develop standards but, in return, most standards setting organisations insist that companies agree to license any intellectual property they own that is essential to implementation of that standard on FRAND terms.

Often, technology companies dispute whether the licensing terms being offered or sought are FRAND and may also dispute the validity or essentiality of the patents at issue.

In the MM case, the European Commission said that the company abused a dominant market position "by seeking and enforcing" an injunction against Apple which banned the technology giant from infringing a standard-essential patent (SEP) owned by MM relevant to mobile and wireless communications. However, the Commission decided against imposing a fine against MM over its behaviour.

It found that Apple had shown itself to be a willing licensee of MM's SEP by agreeing to be bound by any court determination on what would constitute a FRAND licence in the event that the companies could not agree on royalty rates and other conditions between themselves, the Commission said. In those circumstances it criticised MM for using the threat of injunctive proceedings to pressure Apple into "a settlement agreement with very restrictive conditions" and said that it was also wrong that Apple had been required by MM to waive rights to challenge MM's patents before courts in Germany as part of the deal.

"The Motorola decision establishes clearly that a potential licensee is to be considered willing if, in case of dispute, it agrees to a determination of FRAND terms by a court," EU Competition Commissioner Joaquin Almunia said in a speech. "This constitutes a 'safe-harbour' against SEP-based injunctions. A licensee should also remain entitled to challenge the validity and infringement of the SEPs it has to licence."

"These principles strike the right balance between the interests of patent holders, who should be fairly remunerated for the use of their intellectual property, and those of the implementers of standards, who should get access to the standardised technology without being 'held up' through abuses of market power. The prohibition decision against Motorola should set a precedent and provide guidance to the industry," he added.

Competition law expert Jenny Block of Pinsent Masons, the law firm behind Out-Law.com, said that it was rare for the Commission to decide against imposing a fine. The regulator has the power to issue fines of up to 10% of businesses' annual global turnover for such offences.

"Here it was persuaded it would not be appropriate on the grounds that there was no EU law precedent for the application of competition law in these circumstances – seeking or enforcing injunctions based on SEPs," Block said. "Also, parties could be forgiven for not being fully aware of the limitations here as national courts had taken divergent views."

Patent law specialist Deborah Bould of Pinsent Masons added: "Another factor which may account for the Commission's reluctance to issue a fine against Motorola Mobility is the fact that the EU's highest court, the Court of Justice of the EU, is currently assessing the very same issues around the enforcement of SEP rights in a case involving Chinese telecoms company Huawei that has been referred to it from Germany."

The Commission said that the settlement agreement it has finalised with Samsung put into practice the legal principles which it determined applied in the MM case.

Samsung had worked under the framework of standard-setting body the European Telecommunications Standardisation Institute (ETSI) to develop 3G mobile and wireless technology for use in the industry. The company committed to licensing the use of the standard-essential patents relating to the technology on FRAND terms.

The Commission, however, previously issued a statement of objections against Samsung over the way the company sought injunctions against Apple in a number of EU member states after claiming that Apple had infringed its patent rights. Last autumn Samsung submitted draft proposals to address the Commission's concerns. Now the two parties have agreed on the final wording of that settlement.

"To address the Commission's concerns, Samsung has for a period of five years committed not to seek any injunctions in the European Economic Area (EEA) on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets against any company that agrees to a particular framework for licensing the relevant SEPs," the Commission said.

"The licensing framework provides for: a negotiation period of up to 12 months; and if no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this," it said.

"[The commitments] provide for a 'safe harbour' available to all potential licensees of the relevant Samsung SEPs," the Commission added. "Potential licensees are protected against injunctions sought by Samsung on the basis of such SEPs if they submit to the licensing framework provided for by the commitments."

Bould welcomed the pragmatic solution now agreed with Samsung: "The improved licensing framework offered by Samsung and now accepted by the Commission after market testing is good news for TMT companies. The safe harbour obtained by technology implementers when committing to take a licence on FRAND terms and the default position of court determination of those terms is a model that other SEP owners should follow."