A standard essential patent (“SEP”) is a patent deemed to be essential to a standard developed by a standardization body. When a patent is really essential to a standard, i.e. the patent actually covers aspects of the standard that are mandatory to the standard itself and for which no alternative exists, third parties cannot comply with that standard without infringing the SEP.
Based on current regulations, the SEP owner can notify the standardization body of the existence of the SEP, thereby committing to grant licenses to third parties at FRAND (fair, reasonable and non- discriminatory) terms.
Unfortunately, no actual guidelines or regulations exist on how FRAND royalties should be calculated in the real world.
Experience tells us (but common sense would suffice) that the terms proposed by a SEP owner are normally labeled as not FRAND and rejected by potential licensees (whom we will refer to as “infringers” for the reason mentioned above). For good measure, it is not rare to see an infringer contest the SEP status of a patent (and, many times, with reason).
Licenses on SEP patents thus become the subject-matter of negotiations. In such negotiations, SEP owners push hard for quickly obtaining a license, based on awareness that the patent is necessarily infringed; infringers, where they do not openly contest the SEP, try to make the most of the SEP owners’ commitment to grant licenses on FRAND terms.
More often than not, difficulties in finding an agreement lead SEP owners to start legal actions against infringers. Infringers, on the other hand, usually lament with the court (together with a number of conventional arguments, including the obvious argument that the patent is invalid, inessential to the standard or both) that licensing discussions were in progress. From the infringer’s standpoint, the SEP owner’s action, even where the patent should be valid and essential, constitutes an abuse of a dominant position, especially (but not exclusively) if the SEP owner has started injunction proceedings rather than an ordinary lawsuit on the merits.
In the past, the Court of Justice of the European Union (CJEU) had taken the position that injunction proceedings should not be an option for SEP owners in reaction to vague offers by infringers or to their unwillingness to accept all the proposes terms (acknowledgment of patent validity and essentiality). The most noteworthy cases had been the “Samsung” and the “Motorola” cases, decided by the CJEU in April 2014.
On the other hand, European national courts, and German courts in particular, have been willing to grant injunctions based on SEPs in the recent past.
In the new case now pending before the CJEU, namely the Huawei v ZTE case, the Advocate General Melchior Wathelet has now issued his opinion on 20 November 2014. In that opinion, he addresses whether an infringement action brought by a SEP owner represents an abuse of a dominant position under EU competition rules, in particular where the SEP owner has made a commitment to grant licenses on FRAND terms.
First, Mr. Wathelet correctly notes that SPC ownership does not necessarily imply that the SEP owner holds a dominant position: rather, this should be determined case-by-case by the national court.
Mr. Wathelet suggests that, where a SEP owner actually holds a dominant position and has committed to a standardization body to grant licenses on FRAND terms, a full license offer on the technology must be presented to the infringer. The offer should contain all the clauses that are normally included in licenses in that field.
The infringer is then required to reply promptly to the offer. If the offer is deemed to be unacceptable, the infringer must promptly present the SEP owner with a reasonable counter-offer.
If the infringer’s conduct is tactical, dilatory or not serious, a legal action brought by the SEP owner (including an injunction application) will not constitute an abuse of a dominant position.
Mr. Wathelet further suggests that unsuccessful negotiations or a request by the infringer that FRAND terms be fixed by a court should not be regarded as dilatory or not serious behavior.
Nor should reserving the right to challenge the validity or the essential nature of the patent after entering into a license agreement be interpreted as dilatory behavior.
Mr. Wathelet’s answer appears to be of the “solomonic” kind, with a clear attempt at finding a balance between the interests of the SEP owner and of the infringer.
Mr. Wathelet burdens the SEP owner with some sense of responsibility that derives from holding a dominant position, which translates into an obligation to submit a full written offer for a license
of the SEP on FRAND terms, the offer including actual figures for the calculation of royalties.
On the other hand, Mr. Wathelet imposes that infringers let go of any dilatory steps. A quick reaction is requested; if the terms proposed by the SEP owner are not accepted, a counter-proposal is mandatory.
The infringer’s vague response for a FRAND license offer is not sufficient to deprive the SEP owner of his basic right to stop infringement of his technology. Similarly, court actions brought by SEP owners to claim damages do not constitute an abuse of dominant position.
In sum, according to Mr. Wathelet SEP owners are entitled to seize the court, but only where actions are brought after real efforts to offer a FRAND license and upon refusal of the infringer to agree on that license, and only in the absence of a prompt and fully-fledged counter-proposal by the infringer.
Of course, while Attorney General opinions are not binding on the CJEU, they often carry a great deal of weight. Should the CJEU thus follow the Mr. Wathelet’s opinion, then surely continuing to file SEP patents will be a good way for protecting the research underlying the relevant technology, as it will still be possible to obtain an economic return on the basis of the FRAND licenses and to enforce the patent in the event that the infringers should not behave as suggested by the Attorney General
.


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