Injunctions in standard-essential patent cases could be harder to justify after Commission ruling, say experts

Out-Law News | 08 May 2013 | 9:58 am | 4 min. read

It may be more difficult for patent holders to justify taking court action to prevent rival firms using technology they have been involved in developing after the European Commission has ruled on a patent dispute, two experts have said.

Patent law expert Indradeep Bhattacharya and competition law specialist Natasha Pearman, both of Pinsent Masons, the law firm behind Out-Law.com, said that it could be more difficult for firms to assert their rights over standard-essential patents (SEPs) following recent comments issued by the European Commission.

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 fair, reasonable and non-discriminatory (FRAND) terms.

On Monday the Commission announced that it had preliminarily determined that Motorola Mobility, now owned by Google, had breached EU 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 that it took the preliminary view that Motorola had abused a dominant market position by seeking and enforcing an injunction against Apple. It said it took this view because Motorola had agreed to licence 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 Commission said that standard-essential patent rights holders would not be precluded from seeking and enforcing injunctions against companies that were "unwilling" FRAND licensees.

"The Commission's preliminary view is that the acceptance of binding third party determination for the terms of a FRAND licence in the event that bilateral negotiations do not come to a fruitful conclusion is a clear indication that a potential licensee is willing to enter into a FRAND licence," the Commission said in a statement. "This process allows for adequate remuneration of the SEP-holder so that seeking or enforcing injunctions is no longer justified once a potential licensee has accepted such a process."

"By contrast, a potential licensee which remains passive and unresponsive to a request to enter into licensing negotiations or is found to employ clear delaying tactics cannot be generally considered as 'willing'," it added.

The Commission had said that Apple's willingness to accept a German court's setting of licensing terms for Motorola's patents had demonstrated that the company was suitably willing to enter into a FRAND arrangement.

In addition, the Commission said that companies could still be determined to be willing FRAND licensees even if they took out a challenge against the validity of patents at issue.

"In addition, in the Commission's preliminary view, the fact that the potential licensee challenges the validity, essentiality or infringement of the SEP does not make it unwilling where it otherwise agrees to be bound by the determination of FRAND terms by a third party," the Commission said. "In the case at hand, Motorola required clauses that prohibited such challenges by Apple, even after Apple had agreed to be bound by a third party determination of the FRAND terms. The Commission's preliminary view is that it is in the public interest that licensees should be able to challenge the validity, essentiality or infringement of SEPs."

Bhattacharya said that the regulator "seems to be taking a fairly broad view of what constitutes a 'willing' licensee". As a result it could become more difficult in future for SEP holders to hold-up the launch of rival products by aggressively pursuing injunctive relief over these standards essential patents, he added.

"The Commission's guidance reveals that it is acutely aware of the problem of hold-ups for standardised technology," Bhattacharya said. "The Commission clearly takes a dim view of such activity and its efforts to clarify what is meant by a 'willing' licensee will give potential licensees more leverage in the licensing negotiations for SEP patents."

Natasha Pearman said that the Commission's comments may mean that prospective SEP licensees have greater bargaining power in licensing negotiations.

"It would appear that a SEP would now have to show that there was no 'willingness' by the prospective licensee before it could feel confident that it would not later be accused of an abuse of dominance," Pearman said. "This clearly shifts the balance of power and could mean that licensees will have a greater range of strategic options which might allow them to offer lower royalty rates that could be deemed FRAND, giving rise to a reverse hold up."

She said that SEP holders may have to rely on courts determining the terms of licenses more often in future where "they are not happy with the offers put forward by the prospective licensee" as a result of the difficulties those firms could face in proving the 'unwillingness' of those prospective licensees.

Pearman said that a German court has asked the Court of Justice of the European Union (CJEU) to rule "whether it is acceptable for SEP holders to use injunctions against willing licensees" in a case involving Huawei and ZTE.

"The judgment of the Court of Justice could change the Commission’s position if it disagrees with the approach that the Commission is advocating in its statement of objections," Pearman said.

The European Commission is responsible for investigating possible abuses of dominant market position under the Treaty on the Functioning of the European Union (TFEU).

An abuse can include "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage" amongst other things, the TFEU states.