Companies With Standard-Essential Patents Should Think License First, ECJ Adviser Says

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By Joe Kirwin

Nov. 20 — A company holding a patent that has been used as the basis for industry standard should make a licensing offer to a competitor before seeking a legal injunction against alleged infringement, the European Court of Justice's top legal adviser said Nov. 20.

ECJ Advocate General Melchior Wathelet said the principle of making a licensing offer applies in a legal clash in Germany between the two leading Chinese telecom hardware companies Huawei Technologies Co. Ltd and ZTE Corp.

The opinion is in line with an EU antitrust authority ruling earlier in 2014 concerning patent disputes involving Apple Inc., Motorola Inc. and Samsung Electronics Ltd.

The ECJ advocate general opinion is not legally binding but it is adhered to in 80 percent of final rulings by the EU high court.

The EU authority “very quickly came to the conclusion that if you own a standard-essential patent, then it would be wrong to seek an injunction in some fairly clear circumstances,” Pat Treacy, a competition lawyer and intellectual property law specialist at Bristows LLP in London, told Bloomberg News.

A company holding a key patent may violate EU antitrust law if it seeks an injunction against a company that is “willing and able to enter into” a licensing deal that the patent owner earlier committed to, Wathelet said in the opinion.

The advisory opinion “makes it very clear that it's not good enough for a patentee to simply rush to court and ask for an injunction,” Treacy said.

Mobile Phone Dispute in Germany

In this case, Huawei, which has a standard-essential patent set by the European Telecommunications Standards Institute for fourth-generation mobile phone technology, sought an injunction against ZTE in Germany to force it to withdraw its products from the German market and requested damages.

ZTE, which was willing to negotiate a license, filed a counter suit claiming Huawei's action constituted an abuse of dominant position.

“Where the proprietor of a standard-essential patent (SEP) has made a commitment to a standards body to grant third parties a license on fair, reasonable and non-discriminatory (FRAND) terms, it constitutes an abuse of a dominant position for the proprietor to request corrective measures or to seek an injunction against a company that has infringed the SEP,” the ECJ advocate general said.

He added that this was the case if “the offending company has shown itself to be objectively ready, willing and able to enter into such a licensing agreement.”

Furthermore the ECJ advocate general said that the SEP holder must alert the alleged infringer in writing as to the reasons and the way the SEP has been violated unless it has been established that the alleged infringer is fully aware of the patent infringement.

“The SEP holder must, in any event, present the alleged infringer with a written offer of a license on FRAND terms and that offer must contain all the terms normally included in a license in the sector in question, including the precise amount of the royalty and the way in which that amount is calculated,” the ECJ advocate general said.

‘Diligent and Serious Manner.'

At the same time, and infringer must respond to an offer “in a diligent and serious manner.” If it does not accept the SEP holders offer, it must promptly present the latter with a reasonable counter offer, in writing, in relation to the clauses with which it disagrees.

“An application for corrective measures or for an injunction does not constitute an abuse of a dominant position if the conduct of the infringer is purely tactical and/or dilatory and/or not serious,” the ECJ legal adviser said.

In April former European Competition Commissioner Joaquin Almunia issued decisions based on the same principle in order to resolve the disputes that erupted after Motorola, which has since changed ownership hands twice, sued Apple claiming it was infringing its patent rights. Noting that there was no ECJ precedent to base a decision on, Almunia reached an agreement between the two companies that provides what he called a “safe harbor.”

The EU high court is expected to rule on the case in early 2015

With assistance from Stephanie Bodoni in Luxembourg and Aoife White in Brussels.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Tom P. Taylor at ttaylor@bna.com

To view the full contents of the ECJ legal adviser opinion log onto the ECJ web site at http://www.curia.europa.eu/ and click on the Search Form and submit the case number C-170/13.