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Updated 10 April 2019

Huawei v ZTE

CJEU decisions
16 July 2015 - Case No. C-170/13

A. Facts

The Claimant, Huawei Technologies Co. Ltd., holds a patent declared as essential to the practice of the LTE wireless telecommunication standard (Standard Essential Patent, or SEP) developed by the European Telecommunications Standards Institute (ETSI) [33] . In March 2009, the Claimant committed towards ETSI to make the patent in question accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions [34] .

The Defendants, ZTE Corp. and ZTE Deutschland GmbH, hold themselves several SEPs relating to the LTE standard [35] and also market, inter alia in Germany, LTE-compliant products [36] .

Between November 2010 and March 2011, the parties engaged into discussions concerning the licensing of the Claimant’s portfolio of SEPs [36] . The Claimant indicated the amount it considered as a reasonable royalty; the Defendants, on the other hand, sought to conclude a cross-licence [37] . An offer for a licensing agreement was, however, not finalized [37] .

In April 2011, the Claimant brought an action against the Defendants before the District Court (Landgericht) of Düsseldorf (District Court), seeking for injunctive relief, the rendering of accounts for past uses, the recall of products and an award for damages for patent infringement [38] .

The District Court stayed its proceedings and submitted a reference for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union (TFEU) to the Court of Justice of the European Union (CJEU). In brief, the District Court noted that the German Federal Court of Justice (Bundesgerichtshof) and the European Commission appeared to have adopted conflicting positions on the question under which conditions an action for a prohibitory injunction brought by a SEP holder against a SEP user constitutes an abuse of dominant position in violation of Article 102 TFEU [39] : In its Orange Book ruling, the German Federal Court of Justice held that, in infringement proceedings concerning SEPs, the defendant is entitled to raise a defence under Article 102 TFEU (and thus avoid an injunction), only and insofar as it submits an unconditional, fair offer to conclude a licence to the patent holder, accounts for past acts of use and also makes a deposit on the royalty payments resulting thereof [40] . The European Commission, on the other hand, in proceedings relating to enforcement actions taken by Samsung against Apple in a number of EU member states, took the view that an action for injunctive relief concerning a SEP may, in principle, infringe Article 102 TFEU to the extent to which the defendant has demonstrated his willingness to negotiate a licence on FRAND terms in accordance with the patent holder’s FRAND commitments [41] .

With the present judgment, the CJEU established the conditions under which a SEP holder can file an action for a prohibitory injunction against a patent user, without violating Article 102 TFEU. In particular, the CJEU ruled that a SEP holder which has given an irrevocable undertaking to make its patents accessible on FRAND terms, does not abuse its dominant position by seeking an injunction and/or the recall of infringing products, as long as – prior to bringing a respective court action – it has

  • firstly, notified the user about the infringement of its patent ‘by designating that patent and specifying the way in which it has been infringed’, and
  • secondly, if the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated[42] .

By contrast, the SEP user may invoke the abusive nature of a patent holder’s action for a prohibitory injunction and/or for the recall of products, only if it responds to SEP holder’s offer without delay [43] . In case that the patent user rejects that offer, it has to

  • submit ‘promptly and in writing, a specific counter-offer that corresponds to FRAND terms’ to the patent holder [44] and
  • if its counter-offer is rejected, provide appropriate security for the use of the patent(s), ‘for example by providing a bank guarantee or by placing the amounts necessary on deposit[45] .

The CJEU made clear that the above framework does not apply to SEP holders’ claims for damages and/or the rendering of accounts in relation to past acts of use; actions concerning these claims cannot infringe Article 102 TFEU, since they have no impact on whether standard compliant products can appear or remain on the market [46] .

B. Court’s Reasoning

The CJEU stressed the need to balance, on the one hand, the effective judicial protection of SEP holders’ fundamental intellectual property rights (IPRs) and, on the other hand, the public interest in free undistorted competition [47] .

Since the parties had not contested that the Claimant held a dominant market position, the Court’s analysis focused on the existence of an ‘abuse’ in terms of Article 102 TFEU [48] . According to the CJEU, the exercise of an IPR cannot ‘in itself’ be abusive, even if it is the act of an undertaking holding a dominant position [49] . Moreover, an action for the enforcement of an IPR can constitute an abuse of dominant position only in “exceptional circumstances[50] .

Cases, in which SEPs are involved, distinguish themselves from other IPR-related cases: First, the fact that the patent has obtained SEP status means that the patent holder can ‘prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question[51] . Besides that, by making a FRAND commitment, the patent holder has created ‘legitimate expectations’ to third parties implementing the standard that the SEP will be accessible on FRAND terms [51] . Having regard to the ‘legitimate expectations’ created, the patent user sued in infringement proceedings can, in principle, defend himself by invoking Article 102 TFEU, in case that the SEP holder refused to grant him a FRAND licence [52] .

Although the SEP holder cannot be deprived of its rights to have recourse to legal proceedings for the protection of its IPRs, the CJEU found that the FRAND undertaking justifies the imposition of an obligation on the SEP holder to comply with specific requirements, when seeking for injunctive relief [53] . In particular, in order to avoid a violation of Article 102 TFEU, the SEP holder should meet the following conditions: (a) prior to the filing of an action for a prohibitory injunction, it must notify the user about the infringement ‘by designating that SEP and specifying the way in which it has been infringed[54] , and (b) submit a specific written offer for a licence on FRAND terms to the user, particularly specifying ‘the royalty and the way in which it is to be calculated’, if the latter has expressed its willingness to enter into such a licence [55] . In this context, the CJEU observed that the SEP holder can be expected to make such an offer, since it is ‘better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer’, because, as a rule, no public standard licensing agreement exists and the terms of existing agreements entered by the SEP holder with third parties are not made public [56] .

On the other hand, the (alleged) infringer must diligently respond to the SEP holder’s offer, ‘in accordance with recognised commercial practices in the field and in good faith’ [43] . Whether this is the case must be established on the basis of ‘objective factors’, which implies, in particular, that there are no ‘delaying tactics[43] .

In case that the infringer finds the proposed terms as falling short of the patent holder’s FRAND commitment and chooses to reject the SEP holder’s licensing offer, it must submit a specific written counter-offer on FRAND terms to the SEP holder [44] . If the counter-offer is rejected and the (alleged) infringer already used the SEP in question without a licence, it is obliged to provide ‘appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit[45] . The calculation of that security must include, inter alia, ‘the number of the past acts of use of the SEP’, and the alleged infringer must be able to render accounts in respect of those acts of use [45] .

When no agreement is reached following the counter-offer by the (alleged) infringer, the CJEU pointed out that the parties have the option, to request ‘by common agreement’ that the amount of the royalty be determined ‘by an independent third party, by decision without delay[57] .

Finally, the CJEU made clear that the (alleged) infringer is allowed to challenge the validity and/or the essentiality and/or the actual use of SEP holder’s patents in parallel to the licensing negotiations, or to reserve the right to do so in the future [58] .

  • [33] Huawei v ZTE, Court of Justice of the European Union, judgment dated 6 July 2015, para. 22.
  • [34] Ibid, para. 22.
  • [35] Ibid, para. 40.
  • [36] Ibid, para. 24.
  • [37] Ibid, para. 25.
  • [38] Ibid, para. 27.
  • [39] Ibid, paras. 29 et seqq.
  • [40] Ibid, paras. 30 et seqq
  • [41] Ibid, paras. 34 et seqq
  • [42] Ibid, para. 77.
  • [43] Ibid, para. 65.
  • [44] Ibid, para. 66.
  • [45] Ibid, para. 67.
  • [46] Ibid, paras. 72 et seqq
  • [47] Ibid, para. 42.
  • [48] Ibid, para. 43.
  • [49] Ibid, para. 46.
  • [50] Ibid, para. 47.
  • [51] Ibid, para. 53.
  • [52] Ibid, paras. 53 et seqq
  • [53] Ibid, paras. 58 et seqq
  • [54] Ibid, para. 61.
  • [55] Ibid, para. 63.
  • [56] Ibid, para. 64.
  • [57] Ibid, para. 68.
  • [58] Ibid, para. 69.

Updated 6 June 2019

Conversant v LG, Court of Appeal of Paris

French court decisions
16 April 2019 - Case No. 061/2019, RG 15/17037

A. Facts

On 1 September 2011, the Claimant, Conversant Wireless Licensing SARL (Conversant; previously named Core Wireless Licensing SARL), acquired from Nokia more than 2,000 patents declared essential to the GSM, UMTS or LTE standards (Standard Essential Patents, or SEPs) towards ETSI [252] .

Conversant contacted the Defendants, LG Electronics France SAS and LG Electronics Inc. (LG) for a licence under the patents in March 2012. The parties held a few meetings to find an agreement on a Fair, Reasonable and Non-Discriminatory (FRAND) rate for a global license under Conversant’s essential patents [253] .

On 30 September 2014, Conversant brought an infringement action against LG based on five patents before the Paris Court (Court), asking inter alia for a FRAND rate determination [254] .

In first instance, the Court rejected Conversant’s claims, as it held that Conversant had not demonstrated the essentiality of the patents in suit [255] .

On appeal, Conversant solely asserted two out of the five patents asserted in first instance [256] . With the present judgment, the Court of Appeal of Paris (Court of Appeal) confirmed the first instance decision, finding the patents in suit valid but not essential [257] .

B. Court’s reasoning

Validity, Essentiality and Infringement

In first instance, Conversant alleged five patents to be essential and infringed by LG [252] . On appeal, both parties acknowledged that, for three of them, the essentiality was not sufficiently supported [258] .

Therefore, the Court of Appeal limited the analysis of validity, essentiality and infringement to the two other patents, EP 978 210 (EP 210) and EP 950 330 (EP 330) [254] . LG raised prior art documents to challenge the validity, novelty and inventive steps of the patents. The Court of Appeal analysed those documents to determine that none was destroying the validity of the patents [259] .

Regarding the essentiality, Conversant had alleged that EP 210 was essential to both UMTS and LTE standards [260] and EP 330 was essential to the LTE standard [261] . The Court of Appeal rejected those claims by comparing the patent specifications to the technical specifications of the relevant standards [262] and found hold that standard compliant devices do not necessarily have to use the patents in suit. The Court considered that it is possible to comply with the UMTS and LTE standards without implementing said patents. The Court, therefore, found that the patents are not essential [254] .

FRAND determination

Conversant and LG both had requested the Court to make a FRAND determination. However, as Conversant’s infringement claim was based on the essentiality of the patents, the Court of Appeal declared any request concerning a FRAND rate determination, past damages and the nomination of an expert without object [263] .

FRAND duties and abuse of a dominant position

In its decision, the Court of Appeal also briefly summarized two points addressed by the first instance Court regarding parties’ duties in negotiation and a potential abuse of dominant position without any further analysis.

One of them is the determination of bad faith of the parties in the negotiations. In first instance, the Court stated that it was difficult to assess bad faith in view of the history of the negotiations. The Court had underlined that the fact that the parties negotiated for more than two years tended to demonstrate that none of them was of particularly bad faith to push the other not to further pursue the negotiations [256] . The Court had further stressed that as each company passed the buck to the other, it was difficult to declare that bad faith lied more on one side than the other [254] .

Regarding a potential abuse of dominant position through the filing of an action based on SEPs by Conversant, the Court had stated that filing a judicial complaint to have a FRAND rate determined that could not be amicably fixed, without any other circumstance demonstrating among others the express willingness to deprive LG of its rights to exploit the patents against a fair and proportionate compensation, could not constitute an abuse of a dominant position [254] .

Confidentiality and Trade Secret Protection

The Court of Appeals also briefly referred to the rules for the protection of trade secrets that had been agreed upon by the parties and accepted by the Court of Appeal.

In application of Article L153-1 of French Commercial Code, the parties had set up a protection mechanism for confidential documents, which included the following steps [264] : (1) access to some licensing agreements from Nokia and Conversant would be restricted to the parties’ legal representatives, the court and persons (translators or experts) obliged to confidentiality by a Non-Disclosure Agreement, (2) the parties would submit two versions of each party’s written conclusions to the Court of Appeal, one with a reference to all disclosed agreements in full with confidential information highlighted and one without any reference to any confidential information [265] .

  • [252] Court of Appeal of Paris, judgement dated 16 April 2019, page 3.
  • [253] Ibidem.
  • [254] Ibid.
  • [255] Court of Appeal of Paris, judgement dated 16 April 2019, pages 5-6.
  • [256] Court of Appeal of Paris, judgement dated 16 April 2019, page 6.
  • [257] Court of Appeal of Paris, judgement dated 16 April 2019, pages 15-24.
  • [258] Court of Appeal of Paris, judgement dated 16 April 2019, page 15.
  • [259] Court of Appeal of Paris, judgement dated 16 April 2019, pages 15 and subsequent.
  • [260] Court of Appeal of Paris, judgement dated 16 April 2019, pages 19-21.
  • [261] Court of Appeal of Paris, judgement dated 16 April 2019, pages 23-24.
  • [262] Court of Appeal of Paris, judgement dated 16 April 2019, pages 19-21 and 23-24.
  • [263] Court of Appeal of Paris, judgement dated 16 April 2019, pages 24-25.
  • [264] Court of Appeal of Paris, judgement dated 16 April 2019, page 13
  • [265] Court of Appeal of Paris, judgement dated 16 April 2019, page 14

Updated 6 June 2019

Koninklijke Philips N.V. v Asustek Computers INC., Court of Appeal of The Hague

Dutch court decisions
7 May 2019 - Case No. 200.221.250/01

A. Facts

The present case concerns a dispute between Philips—a consumer electronics manufacturer and holder of a portfolio of patents declared potentially essential to the practice of various standards (Standard Essential Patents or SEPs) developed by the European Telecommunications Standards Institute (ETSI)—and Asus—a manufacturer of wireless devices, such as laptops, tablets and smartphones.

Philips had committed towards ETSI to make its SEPs accessible to users on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. In particular, in 1998 Philips had provided ETSI with a general (blanket) commitment to offer access to its SEPs on FRAND terms.

In 2013, Philips notified Asus of its portfolio reading on the 3G-UMTS and 4G-LTE wireless telecommunications standards and proposed a licensing agreement. In subsequent meetings between the parties, Philips provided further details on its patents, as well as claim charts mapping its patents on the standards on which they were reading. Philips also submitted to Asus its standard licensing agreement, which included the standard royalty rate in Philips’s licensing program and the way it is calculated.

In 2015, negotiations fell apart and Philips initiated infringement proceedings based, among others, on its European Patent 1 623 511 (EP 511) in various European jurisdictions, namely England, France, Germany. The EP 511 patent was declared by Philips to be potentially essential to the 3G-UMTS and 4G-LTE standards. The High Court of Justice of England and Wales delivered a preliminary verdict, upholding the validity of the EP 511 patent.

In the Netherlands, Philips had brought an action against Asus before the District Court of The Hague (District Court), requesting inter alia for an injunction. The District Court dismissed Philips’s request for an injunction based on the EP 511 patent. [455] Philips appealed before the Court of Appeal of The Hague (Court of Appeal).

With the present judgment, the Court of Appeal upheld the validity and essentiality of the EP 511, rejected Asus’s FRAND defence based on Article 102 TFEU, and entered an injunction against Asus for its products infringing the patent in suit. [456]

B. Court’s Reasoning

The Court of Appeal dismissed Asus’s invalidity challenge, upholding the novelty and inventiveness of the EP 511 patent. [457] Moreover, the Court of Appeal found the patent essential and infringed. [458]

The Court of Appeal went on to examine the claims put forward by Asus, namely that Philips, in initiating infringement proceedings requesting injunctive relief, had violated its contractual FRAND obligations towards ETSI and infringed Article 102 TFEU, by failing to meet the requirements set forth in the decision of the Court of Justice of the EU (CJEU) in the matter Huawei v ZTE (Huawei requirements) [459] . In particular, Asus argued that Philips (a) failed to properly and timely disclose the EP 511 in accordance with ETSI IPR Policy, and (b) that Philips failed to comply with the Huawei requirements, because it did not clarify why its proposed terms were FRAND.

With regard to the former, the Court of Appeal found that, in declaring EP 511 as potentially essential two years after it was granted, Philips had not breached its contractual obligations under Article 4.1 ETSI IPR Policy which requires ‘timely disclosure’ of SEPs.

Starting with the general purpose underlying the ETSI disclosure obligation, the Court of Appeal found that it was not—as Asus maintained—to allow ETSI participants to choose the technical solutions with the lowest cost, since ETSI standards seek to incorporate the best available technologies. [460] Rather, the purpose of the declaration obligation was to reduce the risk of SEPs being ex post unavailable to users. [461]

Having said that, the Court of Appeal found that the general blanket declaration by Philips was sufficient to fulfil its obligations under the ETSI IPR Policy. In this regard, the Court of Appeal dismissed the argument raised by Asus that Philips’s late declaration of specific SEPs would result in over-declaration: on the contrary, the Court of Appeal held, early disclosure is more likely to include patents that are not in fact essential to ETSI standards. [462] Moreover, the Court of Appeal pointed out that Philips’s blanket declaration did not infringe Article 101 TFEU, as per the Horizontal Guidelines by the EU Commission, blanket declarations are also an acceptable form of declaration of SEPs for the purposes of EU competition law. [463]

Having dismissed Asus’s first ground for a FRAND defence, the Court of Appeal assessed the compliance of both parties with the Huawei requirements in their negotiations. The Court of Appeal noted, as a preliminary point, that the decision of the CJEU in Huawei did not develop a strict set of requirements such that patent holders that failed to abide by they would automatically infringe Article 102 TFEU. [464] For such a finding an overall assessment of the particular circumstances of the case and the parties’ conduct is necessary.

The Court of Appeal then examined Philips’s compliance with the first Huawei requirement, the proper notification to the infringer. According to the Court of Appeal, the case record showed that Philips had clearly discharged its burden to notify Asus, by submitting a list of patents that were allegedly infringed, the standards to which they were essential, and by declaring its willingness to offer a licence on FRAND terms. [465] Moreover, in further technical discussions, Philips provided more technical details on its portfolio and licensing program, including claim charts and its standard licensing royalty rate. [466] However, Asus failed to demonstrate its willingness to obtain a licence on FRAND terms. The Court of Appeal found that talks commenced always at Philips’s initiative, and that Asus was not represented in these talks by technical experts able to evaluate Philips’s portfolio. [467] The technical issues raised by Asus in negotiations were merely pretextual with a view to stall the process, or as the Court of Appeal put it a ‘behaviour also referred to as “hold-out.”’ [468]

Although the Court of Appeal held that at this point Asus was already in breach of its obligations under Huawei and thus Philips was entitled to seek an injunction, the Court went on to discuss compliance with the further steps in the Huawei framework. The Court of Appeal found that Philips’s proposal of its standard licensing agreement fully satisfied the CJEU requirements in that it was specific and explained how the how the proposed rate was calculated. [469] Moreover, the Court of Appeal held that the counteroffer submitted by Asus after the initiation of proceedings in Germany did not in itself alter the conclusion that Philips was compliant with Huawei, and thus entitled to seek an injunction. [470] Finally, the Court rejected the request on behalf of Asus to access comparable licences signed by Philips to assess the latter’s FRAND compliance. According the Court, neither the ETSI IPR Policy nor Article 102 TFEU and the Huawei framework provide a basis for such a request. [471]

  • [455] Koninklijke Philips N.V. v. Asustek Computers INC, District Court of the Hague, 2017, Case No. C 09 512839 /HA ZA 16-712.
  • [456] Koninklijke Philips N.V. v. Asustek Computers INC, Court of Appeal of The Hague, judgment 7 May 2019, dated Case No. 200.221.250/01.
  • [457] ibid, paras 4.63, 4.68, 4.75, 4.80, 4.82, 4.93, 4.100, and 4.117.
  • [458] ibid, paras 4.118 et seq.
  • [459] Huawei v ZTE, Court of Justice of the European Union, judgment dated 16 July 2015, Case-No. C-170/13.
  • [460] Koninklijke Philips N.V. v. Asustek Computers INC, Court of Appeal of The Hague, judgment 7 May 2019, dated Case No. 200.221.250/01, paras 4.153 et seq.
  • [461] ibid, paras 4.155 and 4.157.
  • [462] ibid, para 4.159.
  • [463] ibid, para 4.164.
  • [464] ibid, para 4.171.
  • [465] ibid, para 4.172.
  • [466] ibid.
  • [467] ibid, paras 4.172-4.179.
  • [468] ibid, para 4.179.
  • [469] ibid, para 4.183.
  • [470] ibid, para 4.185.
  • [471] ibid, paras 4.202 et seq.