On 16 July 2015, the Court of Justice of the European Union ("ECJ") answered a request for a preliminary ruling from the German Regional Court of Düsseldorf. In its judgment in Case C-170/13 Huawei Technologies v ZTE, the ECJ clarified the circumstances in which the holder of a standard essential patent ("SEP") that has a dominant position within the meaning of Article 102 TFEU abuses that position by seeking an injunction prohibiting the alleged infringement of its patent rights.

The underlying national proceedings pitted two Chinese telecommunications firms, Huawei and ZTE, against each other. Huawei is the owner of patents that had been designated as essential to the Long Term Evolution (LTE) standard, which was developed under the aegis of the European Telecommunications Standards Institute ("ETSI"). Huawei notified the patents to ETSI and committed to grant licences to third parties on fair, reasonable and non-discriminatory ("FRAND") terms.

Following a breakdown of negotiations between Huawei and ZTE of a licensing agreement on FRAND terms, Huawei brought an action for patent infringement against ZTE before the Regional Court of Düsseldorf, seeking an injunction prohibiting the alleged infringement. In its request for a preliminary ruling, the German Court in turn sought guidance from the ECJ on the circumstances under which pursuing an injunction may constitute an abuse of a dominant position under Article 102 TFEU.

On 20 November 2014, Advocate General Wathelet issued an opinion on this question outlining the circumstances which in his view would permit the SEP-holder to apply for an injunction without running afoul of Article 102 TFEU. According to the Advocate General, the SEP-holder must present the allegedly offending company with a detailed written offer of a licence on FRAND terms. If the offending company does not react with a serious response, the SEP-holder has the right to sue. The Advocate General specified that the offending company has the right to have the FRAND terms determined in court or in arbitral proceedings and may also reserve the right to challenge the validity, use or essential nature of the patent (See VBB on Competition Law, Volume 2014 No. 11, available at www.vbb.com).

From the outset, the ECJ considered that a balance had to be struck between maintaining competition, on the one hand, and the requirement to safeguard the holder's intellectual property rights and its right to effective judicial protection, on the other hand. Significantly, the ECJ also noted that the existence of Huawei's dominant position had not been contested before it by the parties. As a result, the ECJ's analysis was confined solely to whether Huawei's claim constituted an abuse of its dominant position.

In its judgment, the ECJ clarified the steps for parties to take in order for an action for an injunction not to be regarded as abusive. This clarification applies to a situation in which an SEP-holder has given an irrevocable commitment to a standardisation body to grant a license to third parties on FRAND terms.

First, prior to bringing an action for infringement of its patent rights, the SEP-proprietor must alert the alleged infringer to the infringement complained about by identifying the specific patent(s) and specifying the way in which that patent has been infringed. The ECJ considers that such a notice is needed because, in view of the large number of SEPs composing a standard, the infringer might not necessarily be aware that it is using an SEP that is both valid and essential to a standard.

Second, if the alleged infringer shows willingness to conclude a licensing agreement on FRAND terms, the SEP-holder must present to that infringer a specific and written offer for a license on FRAND terms. This offer must detail the amount of the royalty and the way in which it is to be calculated. The alleged infringer has the duty to diligently respond to that offer, in accordance with recognised commercial practices in the field and in good faith. In the event the alleged infringer does not accept the SEP-holder's offer, the alleged infringer must submit, promptly and in writing, a specific counter-offer that corresponds to FRAND terms. Where no agreement is reached, the parties may, by common agreement, request that the amount of royalty be determined by an independent third party.

The ECJ considered that it is only where the notified alleged infringer does not accept the offer made it to it that corresponds to FRAND terms, and does not submit a counter-offer, that the SEP-holder will be entitled to seek injunctive relief without breaching the provisions of Article 102 TFEU.

In any event, the alleged infringer has a right to challenge, in parallel to the negotiations for a FRAND license, the validity of the patents and/or the essential nature of those patents to the standard.

The ECJ also ruled on a separate question involving legal proceedings brought with a view of gathering evidence. At issue was whether the criteria for finding an abuse on the part of an SEP-holder also applies to actions on other grounds, such as the rendering of accounts, the recall of products or damages, each involving past acts of use. The ECJ held that, in the specific circumstances of the main proceedings, such actions cannot be regarded as an abuse under Article 102 TFEU because, unlike an injunction stopping for the future the commercialisation of an allegedly offending product, these proceedings do not have a direct impact on the presence or emergence on the market of standard-compliant products manufactured by competitors.

The guidance provided by the ECJ, while informative, was specific to the situation at issue. Importantly, in the case before the ECJ it was assumed that Huawei held a dominant position. The judgment therefore does not provide any guidance on whether the mere ownership of an SEP confers a dominant position on the owner.

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