On 29th April 2014, the European Commission issued two landmark competition Decisions relating to a series of disputes that have commonly become known as “patent wars”. The Decisions are important because they clarify for the first time whether, and in what circumstances, a patent holder seeking to enforce Standard Essential Patents through litigation (and more particularly injunctive relief) can be guilty of an abuse of a dominant position under the EU competition rules (namely Article 102 of the Treaty for the Functioning of the European Union (“TFEU”)).
These cases involved litigation taken by Motorola Mobility and Samsung to obtain injunctions against Apple, a competing manufacturer of smartphones and tablets to restrain its use of certain of their patents.
Motorola Mobility and Samsung were patent holders of certain essential patents, licences of which were needed to allow competing manufacturers to observe and implement a European Telecommunications Standardisation Institute’s (“ETSI“) GPRS standard which is a key standard for mobile and wireless communications. Complying with these Standard Essential Patents (“SEPs”) was necessary when manufacturers of smartphones and tablets wanted to market them legally in the EEA (the 28 EU countries plus Norway, Liechtenstein & Iceland.
Both Motorola Mobility and Samsung declared some of their patents as being essential to the GPRS standard and offered to licence those patents on fair, reasonable and non-discriminatory terms (“FRAND terms”).
Motorola stated litigation before the German Courts to seek and enforce an injunction against Apple notwithstanding the fact that Apple had agreed to take a licence and be bound by a determination of FRAND royalties by the German Court. Apple was alleged to have broken the terms of the SEP. Motorola insisted under the threat of the injunction that Apple give up its rights to challenge the validity of Motorola’s SEPs when it entered into the SEP.
The Commission found in its Decision that Motorola had abused its dominant position contrary to Article 102 TFEU by seeking an injunction against Apple despite Apple freely agreeing to licence on FRAND terms. The seeking of an injunction, in general terms, in patent infringement cases is a legitimate remedy. However this is not the case in situations involving the seeking of an injunction based on SEPs where the licensee is willing to enter into a licence on FRAND terms. Seeking SEP-based injunctions against a willing licensee could risk excluding products from the market which would be detrimental and harmful to both innovation and consumers. In addition the Commission took exception to Motorola’s effort to stifle Apple challenging the validity of its SEPs. The Commission took the view that implementers and consumers should not have to pay for invalid or non-infringed patents and these types of non-challenge obligations were anti-competitive as they stopped implementers from challenging the validity of patents and contesting alleged infringements.
As this was the first time the legality of SEP-based injunctions had been considered and there was no case law before the EU Courts in relation to this issue, the Commission decided not to impose a fine for Motorola’s conduct although it made it clear that Motorola had to eliminate the negative effects resulting from its conduct.
Samsung Commitments Decision
The EU Commission entered into a Commitments Decision with Samsung under Article 9 of Commission Regulation 1/2003, the EU’s procedural Antitrust Regulation. The Decision is without prejudice to Samsung’s liability under the EU competition rules but it is legally binding as to the Commitments given under EU competition law.
Under the Commitments, Samsung agrees not to seek injunctions in Europe on the basis of its SEPs for smartphones and tablets against licensees who sign up to a specified licence framework. Under the special framework any dispute over FRAND terms for the SEPs in question will be determined by the Court or if both parties agree by an arbitrator. Therefore the Samsung licensing framework will give potential licensees a safe harbour for the licensing of Samsung SEP and will relieve them of the threat of being injuncted.
In April 2011 Samsung started to seek injunctions against Apple on the basis of Samsung’s SEPs. In December 2012, the Commission informed Samsung of its preliminary view that it considered Apple a willing licensee on FRAND terms for Samsung’s SEPs and that against this background seeking injunctions against Apple based on Samsung’s SEPs in several Member States was likely to constitute an abuse of a dominant position contrary to Article 102 TFEU.
In light of this, Samsung agreed to enter into Commitments. Samsung agreed that for a period of five years not to seek any injunctions in the EEA on the basis of any of its relevant SEPs, present or future. Furthermore it agreed to a specified licence framework as follows:-.
– a negotiation period of 12 months; and
– if no agreement is reached a third party determination of FRAND terms by a Court if either party chooses or by an arbitrator, if both parties agree.
An independent monitoring trustee will advise the Commission in overseeing the proper implementation of the commitments.
With these Decisions, the Commission has signalled clearly that patent wars should not be waged at the expense of the consumers and all parties have an obligation to act within the competition rules.
These Decisions bring much needed legal clarity to circumstances in which patent holders can be guilty of an abuse of a dominant position contrary to Article 102 TFEU. Patent holders of SEPs have a special duty to act reasonably towards competitors or other third parties that want to have access to standardized technology through SEPs on FRAND terms. As long as patent holders are fairly remunerated for the use of their intellectual property within the FRAND system, it is abusive for patent holders to resort to injunctions in Court proceedings to enforce their standard essential patents.