30 April 2014
Practice Group(s):
Antitrust,
Competition and
Trade Regulation
European Commission limits Ability to seek
Injunctions relating to Standard Essential Patents
By Scott S. Megregian and Jennifer P. M. Marsh
On 29 April 2014, the European Commission ("Commission") issued two decisions
clarifying its approach where holders of standard essential patents (“SEPs”) seek
injunctions against their prospective licensees, in particular as to when such an action
may constitute an abuse of an SEP holder’s dominant position in breach of Article 102 of
the Treaty on the functioning of the European Union (“TFEU”).
Background
SEPs are patents essential to implement a specific industry standard. It is not possible to
manufacture products, in this case smartphones and tablets, that comply with a certain
standard without accessing these patents by obtaining a licence. This may give
companies owning SEPs significant market power. As a result, standards bodies often
require their members to commit to license SEPs on fair, reasonable and nondiscriminatory (“FRAND”) terms, ensuring effective access to the standard by market
players and ultimately leading to a broader choice of interoperable products for
consumers while ensuring adequate remuneration to the SEP holder.
Seeking injunctions (which is likely to entail the exclusion of the infringing product from
the market) is generally considered a legitimate remedy for patent infringements.
However, the Commission has now clarified that the seeking of an injunction based on
SEPs may constitute an abuse of a dominant position if an SEP holder has given a
voluntary commitment to license its SEPs on FRAND terms and the company against
which an injunction is sought is willing to enter into a licence agreement on such terms.
Commission’s Decisions
The Commission has been pursuing two cases against SEP holders who had committed
to the European Telecommunications Standardisation Institute to license on FRAND
terms their patents relating to key industry standards for mobile and wireless
communications. The Commission has now concluded the first case on the basis of
binding commitments which had been put forward and has reached a finding of
infringement in the second case.
The commitments involve a requirement not for the next five years to seek any
injunctions in the European Economic Area on the basis of any SEPs, present or future,
relating to technologies implemented in smartphones and tablets against any company
that agrees to a particular licensing framework. The stipulated framework permits a
negotiation period of up to 12 months and provides that if no agreement is reached, there
will be a third party determination of FRAND terms by an arbitrator if both parties agree
or otherwise by a court. This effectively creates a safe harbour for potential licensees of
the relevant SEPs such that if they agree to the licensing framework, they can be
confident that they will not face an injunction for infringement of the SEP.
The acceptance of commitments does not involve any finding of infringement and cannot
therefore be relied on in any follow-on damages actions.
European Commission limits Ability to seek Injunctions
relating to Standard Essential Patents
In the second case, the Commission reached a finding that Article 102 TFEU prohibiting
the abuse of a dominant position had been breached by the SEP holder seeking and
enforcing an injunction against its prospective licensee, which had agreed to a licence
and to be bound by a determination of the FRAND royalties by the relevant German
court. The Commission also considered to be anti-competitive the SEP holder’s
insistence that the licensee give up its rights to challenge the validity of the SEPs or the
licensee’s infringement of them. Nevertheless, the Commission decided not to impose a
fine on the SEP holder in view of the legal uncertainty regarding the disputed conduct but
only to require that the negative effects of the infringing conduct must be eliminated.
Impact
In light of the Commission’s decisions, SEP holders looking to enforce their patents
should be mindful of the obligation to offer FRAND terms to prospective licensees.
Likewise those seeking to benefit from SEPs need to be willing to enter into licences on
FRAND terms. If agreement cannot be reached, in particular regarding royalty rates,
both parties should consider third party mediation, arbitration or court processes.
It is worth bearing in mind that the Court of Justice of the European Union (“CJEU”) is
due to rule on similar issues in the next 12 months following a referral from the German
courts and the formal precedential value of the Commission’s decisions therefore
remains subject to the CJEU’s confirmation.
Authors:
Scott S. Megregian
scott.megregian@klgates.com
+44.(0).20.7360.8110
Jennifer P. M. Marsh
jennifer.marsh@klgates.com
+44.(0)20.7360.8223
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