A riddle, wrapped in a mystery, inside an enigma – Churchill may have been talking about Russia, but when I hear this phrase FRAND licensing is more likely to come to mind, and more particularly, FRAND licensing for standards essential patents (SEPs). It must have all sounded so straightforward once – all the standards bodies agreed that you could bring your patents to the party, you would license them to all your competitors, you’d get a royalty back to compensate you for your R&D efforts, and it would all be fair, reasonable… and nice – well, technically “non-discriminatory”, but “nice” seems to get the wooliness of the intention over better – with the end result of a collection of patents all licensed to the rest of the industry under FRAND terms. It all seemed so reasonable that an engineer at the standards meeting could concentrate on reaching the best technical solution (his or hers, obviously…) without any thought to yucky patent stuff.
Yeah, right. It hasn’t been nice for a while – not a surprise, as a requirement to license SEPs on FRAND terms is little more than an agreement to make SEPs Someone Else’s Problem and not an issue for the standards body concerned. Despite a good twenty years of fractious patent disputes about SEPs and FRAND licensing absorbing vast quantities of legal effort – I’ve spent many hours on the DRAM and 802.11a patent sagas alone, and I was barely on the fringes of both – many key questions, such as how FRAND license royalties should be calculated and just what a patent proprietor is entitled to do up to the point where a licensing target becomes a paid-up licensee, have nebulous answers at best.
The EU Commission has now decided that while the calculation of FRAND royalties may remain an arcane mystery, it is nonetheless in a position to do something about patentee conduct. The Commission has long been concerned about the possibilities for competition law abuses in patent licensing, on FRAND terms or otherwise. This risk of abuse is compounded by the differences between the many national jurisdictions in the EU. While the Dutch courts have found an unreasonable royalty rate in a FRAND offer key to denying an injunction to a patentee (Samsung v. Apple), the German courts have produced a somewhat patentee-friendly regime in the Orange-Book-Standard case, which arguably allows for patentee injunctions where the potential licensee does anything other than proposing terms for a FRAND license and honour its proposal as if it were in place, as only by rejecting a legitimate offer can a patentee be barred from an injunction. This approach is soon to be tested by the CJEU in Huawei v. ZTT on a reference from the Düsseldorf Regional Court (Landesgericht) asking for the answer to a series of questions (as reported by FOSS patent, generally the first source with both news and analysis of any significant developments in Europe for IT patents, particular for smartphone and other telecoms issues).
Before this reference was made, the EU Commission had already opened investigations into the SEP licensing strategies of Samsung and (following a complaint by Apple) Motorola Mobility, the mobile phone part of demerged Motorola, now acquired by Google. Both companies had sought patent injunctions against potential licensees of SEPs consequently entitled to a FRAND license. As reported here by FOSS patent, the EU Commission has not waited for the CJEU but has accepted commitments from Samsung on SEP injunctions and has found that Motorola Mobility has infringed EU competition rules.
Samsung has been negotiating with the EU Commission for some while over a framework for FRAND licensing of SEPs. According to the Commission, the consequences are as follows.
“According to these commitments, Samsung will not seek injunctions in Europe on the basis of its standard essential patents (SEPs) for smartphones and tablets against licensees who sign up to a specified licensing framework. Under this framework, any dispute over what are fair, reasonable and non-discriminatory (so-called “FRAND”) terms for the SEPs in question will be determined by a court, or if both parties agree, by an arbitrator. The commitments therefore provide a “safe harbour” for all potential licensees of the relevant Samsung SEPs.”
For Motorola Mobility, the spark point was an attempt to injunct Apple in German for infringement of an SEP. The Commission’s finding was that in the circumstances, obtaining and seeking to enforce such an injunction was an abuse of a dominant position and that Motorola Mobility should act to mitigate its effect. The Commission found that this was abusive as Apple had agreed to accept a German court’s determination of the appropriate FRAND royalty and that the license on offer required Apple not to challenge validity of the rights at issue. The Commission decided not to fine Motorola Mobility “in view of the fact that there is no case-law by the European Union Courts dealing with the legality under Article 102 TFEU of SEP-based injunctions and that national courts have so far reached diverging conclusions on this question” – as it is rare for the Commission not to fine companies deemed to have abused a dominant position, this suggests that when such case law exists (as may be the case when the CJEU has opined on Huawei v. ZTT), fines are to be expected.
At the same time as publishing the Samsung and Motorola Mobility decisions, the EU Commission also published an FAQ on antitrust decisions on SEPs. This FAQ sets out the Commission’s thinking in more detail, and will undoubtedly be considered very carefully by any SEP licensor (and my advice would be that if you are going to read one more document on this issue, read this FAQ). The key considerations that I took from it were the following:
– For the Commission, the key outcome of the Samsung and Motorola Mobility decisions is to establish a “safe harbour” for a “willing licensee” where it will not be exposed to injunctions for SEPs;
– The patent system is a good thing and the Commission supports it, and patentees are perfectly entitled to seek injunctions outside of the safe harbour;
– Potential licensees should be entitled to challenge validity of IP rights;
– Courts and arbitrators are capable of setting FRAND royalty rates and this should not generally be a job for the Commission (though the courts can ask the Commission for guidance);
– National courts can make their own decisions but “need to respect EU law” – and this may include ensuring that they do not contradict a Commission ruling on a practice ruled on by the Commission;
– These decisions do not conflict with Orange-Book-Standard because this decision did not specifically relate to SEPs – though an attempt to apply Orange-Book-Standard to SEPs may create a conflict;
– The Commission is waiting for the CJEU to answer the questions in Huawei v. ZTT too and may change its position then.
For the time being, the position of both patentee and licensee (provided that it is a “willing licensee”) has become a little clearer – but perhaps only until the CJEU has given an answer on Huawei v. ZTT.
Richard Lawrence 21 May 2014
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