Standard Essential Patents and the Willing Licensee

 The Court of Justice has confirmed that Standard Essential Patent (SEP) holders cannot seek injunctions against the unlicensed use of their IPR, unless they have first offered a licence on fair, reasonable and non-discriminatory (FRAND) terms to a party that is willing to conclude a licence. 

In recent years and months the European Commission has continued to focus its antitrust interest on the so-called ‘patent wars’ between the mobile device companies.  These cases involve allegations that there is an abuse of dominance where (a) a dominant company seeks injunctive relief alleging infringement of its SEP; (b) in circumstances where the other party is willing to enter negotiations as to licensing on FRAND terms; and (c) which FRAND licensing the SEP owner had committed to respect. 

The judgment confirms the opinion of advocate general Wathelet that SEP owners must offer a licence of patents on FRAND terms before they are entitled to seek an injunction if the putative licensee is willing to enter into a licence. 

The court has gone some way to set out what SEP owners must do to avoid an abuse of dominance. They must inform the infringer of the prohibited use of the patent and, if the infringer expresses their willingness to conclude a licence, they must present an offer that complies with FRAND terms and set out specific royalty levels. If the infringer rejects the offer it must provide a counter-offer and, if it declines to do so, the SEP owner would be entitled to seek an injunction without that amounting to an abuse of dominance. 

The court said that the infringer must respond “diligently” to the offer.  Although the court did not give much guidance on what that means in practice, it seems that the infringer cannot play fast and loose in responding just to buy more time. Ultimately, it will be a test of good faith as to whether a licensee is a willing licensee. 

The judgment adds to the developing case law in this area but disappointingly it does not take further the question of whether and in what circumstances holding a SEP amounts to a dominant position.  That threshold issue will no doubt be a veritable source of future litigation. 

The judgment broadly follows the advocate general’s opinion but does deviate in an important respect.  The advocate general’s view was that a FRAND offer should be made whether or not the infringer has indicated that it is willing to enter into FRAND terms.  The court has not gone that far and said that the written offer should be made only where the infringer has expressed a willingness to enter FRAND terms.  This may not make much difference in practice since a court would want to be persuaded that the licensee was genuinely “willing” but it does rather shift the onus to the putative licensee to make clear that it is willing to enter a licence.

Source: Case C-170/13 - Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH (ECLI:EU:C:2015:477), judgment of 16 July 2015