SEPs and Competition Law: an update
Technological standards have become part of our daily lives: from the connectors of any device to the 4G technology used in our smartphones. A standard is essentially a set of commonly-agreed specifications and criteria, intended to create a common design for a certain product or process, ensuring maximum throughput and efficiency and allowing the interoperability of devices originating from different manufacturers.
When it comes to understanding the role of industrial property in the standardisation process, we have to briefly refer to the standards’ creation process. Some of those standards are created within private organisations known as Standard Setting Organisations (hereafter, SSO’s). The members of the SSOs, most of whom are private companies, decide to contribute their most cutting-edge technology, resulting from their large investments in innovation. The best proposals are selected among the different contributions and integrated into the standard.
In the context of our (highly) competitive environment, it is not unusual for the companies to protect their above-mentioned investments in innovation by patenting the resulting technology. When such a patented technology is integrated into a standard, in the sense that in order to comply with such standard any third party must infringe the exclusive right granted by the patent, that patent becomes essential (Standard Essential Patent, hereafter SEP).
This situation raises concerns with regards the power of SEP holders, who can block third parties wishing to adopt the standard for example by denying the grant of licenses or demanding abusive royalties. Legally, this kind of third parties’ lockout, that generally entails injunctions before the Courts requesting the cessation of any activity that infringes the patent, might be understood as an abuse of dominant position within the meaning of art. 102 TFEU.
In order to avoid these situations, the SSO’s bylaws require the SEP holders to license their rights in Fair, Reasonable and Non-Discriminatory terms (FRAND), whose underlying purpose is to secure a proper reward for innovation whilst avoiding the “hold-up” problem.
Predictably, in most cases the negotiating parties have not the same view as to what should be considered fair, reasonable and non-discriminatory, and that has led to a high level of litigation, bringing up the debate as to which area of law is most appropriate to solve this kind of conflicts.
In its well-known ruling of July 16, 2015, C-170/13, Huawei vs. ZTE, the CJEU laid down the conditions that must prevail in order to consider that the bringing up of an injunction by a SEP holder is not an abusive behaviour in light of Competition law. By these means, the Court established a set of general principles seeking to ensure a proper balance between the SEP holder legitimate exclusive rights, the FRAND compromise assumed with the SDO and the maintaining of a healthy competition in the market. In very general terms, the ruling considered that the SEP holder must offer to the third party a license proposal in FRAND terms, and the third party must treat such proposal diligently, in accordance with recognised commercial practices in the field and in good faith.
It is clear that these general rules will now have to be interpreted and applied to the particular cases at issue by the national courts, which brings us to the recent ruling of the High court of Justice of the UK, dated April 4 2017, in the matter Unwired Planet c. Huawei.
In his ruling, which is over 160 pages long, Mr. Justice Birss established (among many other considerations that exceed by far the object of this post) that if the general conditions of Huawei vs. ZTE are met, the behaviour of the SEP holder cannot be qualified as abusive. However, this is a one-way rule that can’t be applied strictly in reverse: the absence of a license offer in FRAND terms does not necessarily implies the intervention of Competition Law. The general behaviour of the parties in the negotiations needs to be taken into account. Moreover, the judge considers that the compliance with the FRAND commitment assumed with the SSO is a matter of Contract Law, resorting to the doctrine of the “agreement for the benefit of third parties”, and thus the issue at hand could be resolved without the need of Competition Law.
This could be interpreted as another illustration of the general reluctance to bring Competition Law to these SEP conflicts. Indeed, practitioners and academics have pointed out that the self-evident pro-competitive effects of the collaboration under the wing of a SDO between different companies that are otherwise competing in the market could be jeopardized by the threat of the severe penalties and consequences deriving from Competition law.
The latest development in this proceeding is that Huawei has rejected the conditions considered FRAND by the Judge, opening the door to Unwired Planet’s injunction… More information here.
Related Posts:
- European Union Trademark Licenses do not Need to be Registered for Licensees to Pursue Infringers, Says CJEU, as Opposed to the Interpretation of the EU Trademark Court of Alicante
- The New Directive on Actions for Damages for Infringements of Competition Law
- The CJEU Rules on Legal Costs with Regard to IP Proceedings: Judgment of July 28th 2016, C-57/15, “United Video Properties Inc.”
- Four Recent Judgments of the Spanish Supreme Court relating to Trademarks (IV): “Masaltos II”