department of law spring term 2020 master programme in ...1440248/...department of law spring term...
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Department of Law
Spring Term 2020
Master Programme in Intellectual Property Law
Master’s Thesis 30 ECTS
Title: A critical analysis on the intersection of Competition law and Standard
Essential Patents in the EU.
Author: Hardlife Tsuro
Supervisor: Kacper Szkalej
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TABLE OF CONTENTS
ABSTRACT………………………………………………………………………………...4
PREFACE…………………………………………………………………………………...5
ABBREVIATIONS………………………………………………………………………....6
1.INTRODUCTION ……………………………………………………………………….7
1.1 Research Question……………………………………………………………………...8
1.2 Aims and Objectives……………………………………………………………………8
1.3 Delimitation…………………………………………………………………………….8
1.4 Materials and Methodology…………………………………………………………….9
1.5 Outline………………………………………………………………………………….9
2.Intersection of Standard Essential Patents and Antitrust Policies …………………..10
2.1 Introduction……………………………………………………………………………10
2.2 Standard Essential Patents……………………………………………………………..11
2.3 EU Competition law……………………………………………………….…………..12
2.3.1 Significance of Competition law……………………………………………………12
2.4 Competition law and patent law……………………………………………………….15
2.5 FRAND licensing……………………………………………………………………...18
3. Striking a balance ………………………………………………………………………21
3.1 Introduction…………………………………………………………………………….21
3.2 Essence of balancing the two policies………………………………………………….21
3.3 Orange Book Standard Case…………………………………………………………....23
3.4 Analysis………………………………………………………………………………...24
3.5 Commission Inquiry on Motorola and Samsung “Safe Habour Approach”……………26
3.5.1 Motorola………………………………………………………………………………26
3.5.2 Samsung……………………………………………………………………….……...27
3.8 Analysis………………………………………………………………………………...28
3.9 Huawei v ZTE “The Middle Approach”………………………………………………..29
3.10 Analysis of Advocate General Wethalet Opinion……………………………………..30
3.11Analysis of CJEU judgment…………………………………………………………...32
3.12 Commission “ Harmonising the two policies”………………………………………..35
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4. Does Application for Injunctions Constitute An Abuse of Dominance? ……………..39
4.1 Introduction……………………………………………………………………………..39
4.2 Abuse of Dominance……………………………………………………………………39
4.2.1 Abuse………………………………………………………………………………….40
4.2.2 Dominance…………………………………………………………………………….41
5. Conclusion ………………………………………………………………………………..43
Bibliography………………………………………………………………………………45
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ABSTRACT
The point of conflict between competition law and patent law is mainly on the objectives of these
two policies. Whereas competition law encourages market pluralism, patent law promotes exclusive
exploitation of patented-technology by patent holders. Despite this asymmetrical purposes both
policies compliment each in promoting innovation, dissemination of technology, and development
of a vibrant economy. The interface between these two should be treated cautiously since a
preferential treatment of one over the other can have adverse consequences in the development of
the economy. Admittedly competition law is very crucial in regulating anti-competitive conduct by
cartels and monopolies that will affect the interests of the society. On the flip side, the enforcement
of anti trust policies should not be overly applied to the extent of eroding the spirit of innovation
and investment in beneficial technology. In the face of this aggressive global market, promotion of
innovation and competition law are crucial in maintaining a competitive edge. Wherefore a
balance must be struck!
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PREFACE
I am deeply indebted to the Swedish Institute Scholarship for providing me with new wings in my
professional career, such an opportunity drastically changed my life! I am also thankful to my
Supervisor Dr Szkalej whose thoughtful insights and positive criticism during this arduous journey
made this project a success. To my wife, and my adorable babies, Tayana & Ishmael, your patience
was not in vain. To God be the Glory!
“Blessed are those with the power and soaring swiftness of an eagle, for in haste they have
climbed, let them go, I will journey softly, and I too will arrive” Ayi Kwei Armah
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ABBREVIATIONS
CJEU European Court of Justice
ETSI European Telecommunications Standards Institute
EU European Union
FRAND Fair, Reasonable And Non-Discriminatory
ICT Information and Communication Technology
IP Intellectual Property
IPR Intellectual Property Right
R&D Research and Development
SEP Standard Essential Patent
SSO Standard Setting Organisation
TEU Treaty on the European Union
TFEU Treaty on the Functioning of the European Union
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1 INTRODUCTION
The licensing process of Standard Essential Patents (SEP) in the Information and Communication
Technology (ICT) has been characterised by legal suits “smartphones war”1, due to the convergence
of patent law and competition law. These legal disputes have a negative impact towards economic
development of EU single market. It is maintained that a balanced system of patent law and
antitrust policies is quintessential in achieving rapid diffusion of technology, interoperability of
products on the market and development of a vibrant single market. The contentious issue has been
on the alleged abuse of dominant position by SEP holders through anti-competitive behaviour such
as charging of excessive licensing fees, refusing to license, unfair discrimination of patent
implementers, and unfair licensing terms. The issue of application for injunctions by SEP holders
against standard implementers during the licensing has been a dominant issue on the intersection of
competition law and SEP. The CJEU and Commission2 have been quite instrumental in harmonizing
these two policies. In 2014 the Commission in the Samsung and Motorola3 Inquiry took a “safe
habour approach” stating that application for injunctions contravenes Competition law in the
circumstances where the infringer has shown willingness to enter into a fair, reasonable and non-
discrimination (FRAND) licensing agreement. In 2015 the CJEU in the Huawei v ZTE4 took a
different approach from the Commission preferring a “middle path approach” stating that
applications for injunction is not prima facie a violation of Article 102 TFEU. In November 2017,
the Commission issued a Communication “Setting out EU approach to Standard Essential Patents”
in a manner to plug the loopholes which had been left by the CJEU in harmonizing these two
policies. However, as shall be fully canvassed as the paper unfolds the Communication does not
mitigate the differences that centers on the interface of competition law and SEPs5. The
1 This is in reference to cases in national courts for EU member states on the intersection of SEP and antitrust policies post Huawei case, these are few notable cases See English Courts Unwired Planet International Limited v Huawei Technologies Co. Limited [2018] EWCA Civ 2344, Apple v Qualcomm [2018] EWHC 1188(Pat), TQ Delta LLC v Zyxel Communications [2017] EWHC 3305 (Pat); Germany Higher Regional Court Sisvel v Haier 1-15 U66115, St Lawrence v Vodafone 1-15 U 35/16; Dutch Court decisions Philips v Wiko Court of Appeal of the Hague C/09/511922/HA ZA 16-623, Sisvel v Xiami Court of Hague C/09/573969/ KG ZA 19-462
2 The purpose of CJEU is to interpret the law and to ensure that EU member states abide by EU law, see https://europa.eu/european-union/about-eu/institutions-bodies/court-justice_en. Whereas the purpose of the Commission is to Promote the general interest of the EU by proposing and enforcing legislation as well as by implementing policies see https://europa.eu/european-union/about-eu/institutions-bodies/european-commission_en
3 The cases shall be amply discussed in the thesis.4 C-170/13 Huawei Technologies Co. Ltd v ZTE Corp5 Urška Petrovčič. “The unsettled role by EU Competition Law in addressing injunctions for Standard Essential
Patents” Page 1
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proliferation of lawsuits on this subject is a clear reflection that the legal impasse between SEP and
Competition law is yet to be resolved.
1.1 RESEARCH QUESTION
The purpose of this paper is to revisit the perennial debate in the academia on the interface of
competition law and patent law and address the following issues
a)Does the CJEU and Commission’s approach strike a balance between competition law and SEP?
b)Does the application for injunctions by SEP holders constitute an abuse of dominant position in
terms of Article 102 TFEU.
1.2 AIMS AND OBJECTIVES
This thesis is motivated by recent increase in civil litigation over licensing terms of SEP in the EU
member states6.The proliferation of civil litigation in the “smartphone industry" gives foresight that
the legal impasse on the intersection of SEP and antitrust policies is yet to be resolved. The paper
intends to give an in-depth analysis on the approach of the CJEU and Commission’s on the
interplay of these two policies. The paper will also critically analyse the Orange-Book Standard
case which set the stage on the negotiation process for FRAND encumbered SEP. Further, in tying
up the discussion the paper will give a critical analysis whether, application for injunctions against
unlicensed users of SEP by a FRAND encumbered SEP holder constitute an infringement of Article
102 TFEU. The paper will condense and analyze the various legal submissions which have been
made on this subject and come up with policy recommendations towards the legal impasse on the
interface of competition law and patent law.
1.3 DELIMINATION
In discussing the research questions, the paper will be limited to the decisions by the Commission in
the Samsung and Mototrola Inquiry, CJEU decision in the Huawei v ZTE case and the Orange Book
standard case. The paper will not discuss in detail the formation of standards and how SEP comes
into existence, there is a lot of literature on this area and writing about it will be mere repetition. On
the issue of injunctions, the paper does not seek to distinguish between interlocutory or permanent
injunctions. The paper will not discuss in detail Article 101 and 102 TFEU, the mention of these
Articles will be cursory simply to lay foundation for the discussion of EU competition law.
6 (n 1)
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1.4 MATERIALS AND METHODOLOGY
The paper will be based on a comparative analysis approach. The thesis will give an aerial view on
the subject of SEP and Antitrust policies and its components. The paper will constantly make
reference to Articles and debates in the academia as the basis to provide a critical analysis of the
EU legislative framework on the interface of competition law and patent law. Further, the paper will
give an analysis of the Commission Communications as a launchpad to provide policy
recommendations in the conclusion of the thesis.
1.5 OUTLINE
The thesis is divided into five chapters. Chapter one will constitute the structure of the thesis.
Chapter two will provide a cursory analysis on the significance of SEP and competition law in
contributing towards a vibrant EU single market. Thus it will give a comprehensive understanding
of the significance of patent law and competition law. Chapter three will provide an in-depth
analysis on the CJEU decision in the Huawei v ZTE case, and the Commission's decision in the
Samsung and Motorola case and also in its Communications. Chapter four will address the question
whether application for injunctions is an abuse of dominant position. Lastly, Chapter five will
constitute the conclusion and policy recommendations.
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2 Intersection of Patent Law and Antitrust Policies
2.1 Introduction
Competition law and IP law pursue a complimentary purpose in the development of a vibrant EU
single market. The fast-paced digital revolution of the EU can be highly attributed to the net effect
of these two polices. Developments in the internet of things (IoT) from Wifi to 5G technology to
the ubiquitous JPEG and MPEG file formats, and many of the benefits generated in the digital era
can be accredited to the compatibility standards and a competitive market7. However, there are
instances where these two policies are at cross-purposes. The licensing process for patents has been
associated with disputes between patent holders and implementers. Patent holders have been
accused of abusing their dominant position through demanding excessive licensing fees, refusing to
license, instituting injunctions for dilatory purposes, and other actions which distort competition on
the market. Anti-competitive behaviour has a negative effect on the diffusion of technology and
interoperability of products on the market. It kills the the momentum of a competitive market which
results in a stagnant economy, and high prices on the market which adversely affect consumer
welfare. It should be noted that one of the founding principles of EU Internal market is creation of a
competitive market8. It is very crucial that the licensing process for SEP be regulated to ensure that
SEP holders may not infringe Article 102 TFEU. On the flip side antitrust policies should not
encroach on the legitimate rights of SEP holders to the extend of removing incentives for
innovation. SEP are quite instrumental in shaping the digital revolution and also improving the
standard of life. A level playing field must be maintained between these two policies.
The purpose of this chapter is to provide a cursory summary of the significance of maintaining a
balanced system between these two policies. The writer will unpack the objectives of competition
law and SEP in the EU, and how an unfair balance of these policies adversely affects development
of a vibrant EU single market.
7 A . Douglas Melamed & Carl Shapiro page 18 See protocol no 27 on the Internal Market and Competition , also Article 3 TEU.
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2.2 Standard Essential Patents
Standard Setting Organizations (SSOs) plays a fundamental role in the setting up of standards in
particular industry9. Standards mainly consists of patented technology and such patents are termed
SEP10. Standards plays a significant role in the provision of incentives for innovation, and also
production of products in high volumes hence lowering the prices on the market11. Thus standards
increase competition and lower out put sales benefiting economies as a whole12. Arguably, SEPs
plays a fundamental role in the diffusion of technology, interoperability and compatibility of related
products on the market13 The telecommunications industry effectively functions on the
interoperability of SEP. Concisely, this has a net effect in promoting innovation and a thriving
economic development. Most companies would want to produce standard-compliant products, this
makes SEP to attract large volumes of standard implementers. The increased demand for such
technology makes the proprietors of SEP susceptible to abuse their dominant position by trying to
bargain during the licensing negotiations. SEP holders may demand high royalties and in the event
of a disagreement they seek and enforce injunctions14. On this basis proprietors of SEP are enjoined
by SSOs to make a commitment of licensing their technology on fair, reasonable and non
discriminatory manner (FRAND). Such an obligation is mainly to counteract incidences of anti-
competitive behaviour by the proprietors of SEP.
To some extent standards may impede competition through restricting price competition and
limiting or controlling production, market, innovation or technical development15. Thus, despite the
beneficial effect of standards, they have anti-competitive elements which must always be regulated.
The fact that SSOs may encourage implementers not to incorporate technologies which are not
standard-compliant intrinsically affect a competitive market16.
Generally SEPs are very crucial in the development of the digital revolution through dissemination
of technology and inter-connectivity of products on the market. The impact of the 5G technology
which has made a drastic change in the digital revolution should be heavily credited on the
promotion of innovative environment. In the face of the current global competitiveness, promotion
9 In EU the body responsible for producing standards and specifications in the telecommunications is the European Telecommunications Standard Institute (ETSI)
10 CASE AT.39985 - MOTOROLA - ENFORCEMENT OF GPRS STANDARD ESSENTIAL PATENTS 1011 ibid para 4612 Horizontal Guidelines para 26313 Intellectual Property and Standard Setting; DAF/COMP/WD(2014)113 page 214 Bradford Biddle & Jorge L Contreras, page 20915 (n12) para 26416 Horizontal Guidelines Para 267
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of innovations are crucial for economic development. For EU to remain competitive on the global
stage there must be effective protection of the legitimate rights of patent holders. However, the
protection of patents should not override the concept of creating a competitive market.
2.3 EU Competition law
The main objective of the EU competition rules is to enable the proper functioning of the Union’s
internal market as a key driver for the well-being of EU citizens, businesses and society as a
whole.17 Competition policies are governed by the TFEU. Articles 101 and 102 TFEU are the
central rules which govern antitrust activities in the EU. The Commission is entrusted with the task
of ensuring application of the principles laid down in Articles 101 and 102 TFEU of the Treaty, and
is responsible for defining and implementing the orientation of the Union's competition policy18.
Article 101 TFEU prohibits anti-competitive behaviour in horizontal agreements and vertical
agreements. Horizontal agreements consists of agreements between two or more undertakings
operating at the same level of chain supply. These undertakings have the potential to influence
market operations by either limiting production or unfairly increasing prices for goods. Vertical
agreements consists of firms operating on different levels of chain supply ( ie manufacturer and
distributor), these two entities may enter into agreements which may influence market forces. The
main purpose of Article 101TFEU is to regulate against cartels who enters into agreements that
affect competition on the market. Article 102 TFEU regulates against abuse of dominant position by
undertakings occupying the upstream position. Such undertakings may abuse dominant position by
either charging excessive licensing fees, refusing to license or engaging in actions which affect
competition on the Internal market19.
2.3.1 Significance of Competition Law
The aim of the EU antitrust policies are to establish an internal market which contributes towards
development of Europe based on economic growth, price stability and a highly competitive social
market which promotes scientific and technological advance20 .The fundamental purpose of EU
competition law is to protect the interests of consumers, structure of the market and in so doing
17 Fact Sheets on the European Union; Competition Policy, accessed on this link https://www.europarl.europa.eu/factsheets/en/sheet/82/competition-policy
18 CASE AT.39985 - MOTOROLA - ENFORCEMENT OF GPRS STANDARD ESSENTIAL PATENTS page 8219 See EC on Competition Policies see this article https://ec.europa.eu/competition/antitrust/overview_en.html20 Article 3 (3) Treaty on European Union (TEU)
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competition itself21. EU competitive policies embodies rules that aim to decentralize power, protect
decision of independent firms and maintain equal opportunities of competition for small
businesses22.To achieve this, competition law regulates the behaviour of entities or companies so
that they do not violate competition. The aims contributes in shaping the intersection of SEP and
competition law.
Competition law compliments SEP in the integration of the Internal market through diffusion of
technology and interoperability of products on the market. Thus a competitive market effectively
rewards innovations whilst at the same time ensuring fair prices for goods on the market. Article 3
(3) TEU illustrates that competition law creates an internal market where there is sustainable
development of economic growth and price stability based on a highly competitive social market
economy. This is further buttressed by Article 101 (1) TFEU which prohibits agreements between
undertakings which affect or prevent competition within the internal market. Thus agreements
which restricts dissemination of technology and interoperability of products flies in the face of
competition law. A hypothetical example can be observed in the smartphones, a SEP holder who
refuses to license its 4G technology to standard implementers adversely affects interconnectivity of
technology on the market. The competition authorities consider that an effective competitive
markets produce not only allocative efficiencies and productive efficiencies but also produce
innovative and dynamic efficiencies23
Competition law protects consumer welfare by ensuring that they are not exposed to excessive
pricing of goods on the market. The pricing activities of companies at the upstream of the market
(manufacturers and distributors) is passed on to an ordinary consumers who will purchase the
product on the shop. A hypothetical example in the licensing process of SEP, if a SEP holder
charges excessive licensing fees on its patented technology to the implementer, this will result in
high prices for goods on the market, and this adversely affects consumer welfare. This was amply
noted by the General court in the case of Österreichische Postsparkasse AG and another v
Commission24 when it stated that;“….the ultimate purpose of the rules that seek to ensure that
competition is not distorted in the internal market is to increase the well-being of
consumers...competition law and competition policy therefore have an undeniable impact on the
21 Case C-501/06 P GlaxoSmithKline Services Unlimited v Commission and Others [2009] ECR para 63.22 JF Brodley page 48.23 EU Competition Law and Intellectal Property Rights: Steven Anderman and Hedvig Schmidt page 11
24 Joined Cases T-213/01 and T-214/01 Österreichische Postsparkasse and Bank für Arbeit und Wirtschaft v Commission [2006] ECR II-1601
13
specific economic interests of final customers who purchase goods or services”25 This was alluded
to by the Commission in the Motorola v Apple26 case when it was discussing the adverse effect of
enforcing injunctions by SEP holders, it stated that“ the elimination of competing products from the
market may limit consumer choice and partially eliminate downstream competition27
In terms of Article 101 (3) TFEU any agreements between industrial undertakings must not affect
competition but contribute towards improving production, distribution of goods or promoting
technical or economic progress, allowing consumers a fair share of the resulting benefit. Article 102
TFEU guards against abuse of dominant position by upstream companies who may influence the
market structure through anti-competitive activities28. Thus competition policies seeks to protect
consumers at the down stream. Article 2 of the EC Treaty crisply expounds that there should be
establishment of a common market and a high degree of competitiveness and convergence of
economic performance.
Competition policies also seeks to protect the market structure so as to create a vibrant competitive
market. In the case T-Mobile Netherlands BV and Others v Raad van bestuur van de Nederlandse
Mededingingsautoriteit29, the court opined that “..competition rules are designed to protect not only
the immediate interests of individual competitors or consumers but also to protect the structure of
the market and thus competition as such..”30. The need to protect the market structure is the reason
why Article 101 TFEU sets out rules which comprehensively ban anti-competitive agreements.
Article 102 TFEU prohibits the abuse of dominant position on the Internal market. The protection
of market structure is also to protect other industrial players on the market against the abuses of
dominant position by fellow undertakings, or the influence of cartels who may impede a fair
business environment through anti-competitive agreements31. Companies with little financial
muscle should not be prevented from entering the market by the conduct of those with stronger
financial muscle. In the context of SEP, charging of excessive licensing fees, and unfairly enforcing
legal injunctions have the effect of closing out potential competitors from the market, hence
adversely affecting competition. Thus the market structure should be regulated by ensuring that
companies are competing with each other for the benefit of the Internal market.
25 Ibid see para 11526 CASE AT.39985 - MOTOROLA - ENFORCEMENT OF GPRS STANDARD ESSENTIAL PATENTS
27 ibid28 Article 102 TFEU provides anti-competitive activities which may influence the market structure.29 See C-8/08 T-Mobile Netherlands BV and Others v Raad van bestuur van de Nederlandse Mededingingsautoriteit
para 3830 ibid31 See Article 101 TFEU
14
In conclusion, it should be stated that a competitive market is cardinal in ensuring market
integration and sustainable development of the EU internal market, protection of consumers
through fair prices for goods, and a vibrant and sustainable economy. Admittedly competition law
has shaped the economy of the EU. The rapid growth in the digital-single-market can highly be
attributed to the creation of competitive market. Antitrust policies have also proved effective in the
diffusion of technology globally – 5G technology in mind. Thus abuse of market dominance should
be curtailed since it flies on the face of diffusing technology and inter-connectivity of products.
2.4 Competition law and patent law
After a cursory discussion on the significance of competition law and SEP in shaping a sustainable
EU Internal Market and protecting consumer welfare, the paper proceeds to unpack the interplay
between these two policies. The paper will highlight areas of divergence between these two policies
and its effect in developing a vibrant EU Internal market. The objective of this discussion is to
clearly highlight the significance of balancing these two policies.
The interface of competition law and patent law in the ICT sector “smartphone wars” has been
increasingly witnessed in the field of standards32. Legal disputes are mainly due to the fact that
licensing negotiations usually takes place after standard implementers have infringed the patented-
technology33. Thus beside negotiating a licensing agreement, they have to address a dispute of
infringement. From the onset standard implementers negotiating position is weak since they are
locked into the SEP, they have invested on that technology and the products are already on the
market34. Finding alternate technology in such a situation will be very costs35 Coupled to this, the
fact that there will be no alternate technology other than the SEP in dispute, standard implementer
are locked-up in that technology and a licensing agreement must be concluded with the proprietary
of the SEP36.The negotiation table is heavily influenced by negotiations for settling patent
infringement. It is during these circumstances where SEP holders are susceptible to abuse their
dominant position through excessive licensing prices.
32 Evidence on the smartphone patent wars can be seen from the Samsung and Motorola Inquiry by the Commission(n9)
33 A . Douglas Melamed & Carl Shapiro; How Antitrust Law Can Make FRAND Commitments More Effective page2113
34 ibid35 ibid36 ibid
15
Further due to the highest demand for the SEP technology, patent holders by default assumes
market power which may be abused through restricting competition on the market by refusing to
license, excessive pricing, unfair or discriminatory licensing terms, anti-competitive use of SEPs;
abuse of dominance and delaying market entry of competitors via misuse of patent/regulatory
process, excessive pricing, as well as concluding anti-competitive agreements37 The net effect of
such abuse of dominant position is that it may inhibit potential licensee from entering the market, it
affects inter-connectivity of products and also may result in exorbitant pricing of products on the
market thereby affecting consumer welfare. Such a conduct will definitely throw an effective
economy into turbulence, it affects innovation and also results in exorbitant prices for the products
to the detriment of consumers.
Application for injunctions is another form of anti-competitive behaviour by SEP holders. If an
injunction is granted it has the effect of barring the implementer from using the technology and also
removing products on the market. Thus prohibitory injunctions can be used as a bargaining tools
during licensing negotiations. SEP holders may apply for injunctions to holdup the implementer so
as to influence the licensing process. An Implementer faced with an option of a prohibitory
injunction or accepting excessive licensing fees may prefer the latter. If this arrangement between
the two is not regulated it will ultimately affect the market structure in the internal market and also
consumer welfare. This is aptly illustrated by the Commission when it opines that “by seeking and
enforcing an injunction, a SEP holder may be able to exclude even the most innovative standard-
compliant products from the market as, by definition, the patented technology cannot be worked
around. In turn, the elimination of competing products from the market may limit consumer choice
and partially eliminate downstream competition”38
This crisply illustrate the significance of competition law in regulating the conduct of abuse.
However application for injunctions should not be viewed solely as anti-competitive, there are
instances when the SEP holder approaches the court with a genuine concern to protect its patented
technology. Application for injunctions per se is not an abuse of dominant position but exercise of
legitimate right of access to justice. Challenges with application for injunctions is only when it is
done with intentions to influence the licensing process.
37 Ashish Bharadwaj · Vishwas H. Devaiah Indranath Gupta page 438 (n 9) page 312
16
Further, SEP holders may abuse their dominant position by refusing to license. There are instances
whereby SEP holder may be competing with an implementer on the same market level, and may
refuse to license its patented technology. This scenario is rife in the “smartphone industry” for
instance, the legal disputes between Samsung, Motorola and Apple over licensing processes. In the
case of Microsoft v Commission39 the General Court stated Microsoft’s refusal to license its patented
technology (windows media player) had the effect of foreclosing competition and the
interoperability of products on the market. Such an action weakens competition on the market.
There will be no dissemination of technology for the development of the Internal market and benefit
of the consumers.
It should be noted that this monopolistic abuse of the dominant position have serious ramifications
towards economy efficiency and welfare of consumers. In the case of SEP, an organization may be
completely shut out from doing business because it has been denied access to the essential technical
element, for instance LTE, 4G & 5G.The antitrust policies plays a critical role in ensuring fair
competition amongst companies in the relevant market. It enables small companies to enter the
market and do business. Concisely this encourages market growth and it improves the welfare of
consumers. Abuse of market dominance should be curtailed since it flies on the face of improving a
single market in the European Union. On the basis of reducing the anti-competitive behaviour by
SEP holders , SSOs makes it an obligation for SEP owners to commit to licensing their SEPs on
FRAND terms40.
Despite this developmental intention of competition law, the major concern is the overly
enforcement of antitrust policies to the extent of overriding incentives for innovations. There are
incidences wherein standard implementers may exploit the patented technology without intention to
pay the license fee. They may engage in license negotiations simply to buy time and frustrate the
SEP holder. Such conduct of reverse patent-holdup, if it is not regulated can affect incentives for
innovation. Thus standard implementers should not be overly protected at the expense of overriding
the legitimate rights of patent holders.
39 Case T-201/04 Microsoft Corp and Others v Commission, see para 103640 Ashish Bharadwaj, Vishwas H. Devaiah, Indranath Gupta page 5
17
2.5 Significance of FRAND licensing terms.
SSOs insists that proprietors of SEP, should make a commitment to license their technology to
implementers on FRAND terms41. The objective of such a requirement is to counteract anti-
competitive behaviour by SEP holders. The terms of FRAND are in sync with the objective of
Article 102 TFEU which prohibits the abuse of the dominant position. Concisely, FRAND
commitments are intended to strike a balance between the interests SEP holder and standard
implementers, by ensuring that the former recoups its investments in the R&D, whilst the latter
enjoys access to the essential technology42. FRAND encumbered SEP encourages interoperability
and compatibility between ICT products for the purposes of creating an integral internal market and
protecting consumer welfare. It recommends SEP holder to license its technology on fair royalty
licenses without discriminating against another party. The licensing of SEP based on FRAND terms
strike a balance between competition and patent policies. A FRAND requirement calls upon the
SEP holder to be more engaging and lean in favour of concluding a licensing agreement, than act in
an anti-competitive behaviour by enforcing injunctions and discriminating against implementers.
In particular, FRAND commitments can prevent IPR holders from making the implementation of a
standard difficult by refusing to license or by requesting unfair or unreasonable fees (in other words
excessive fees) after the industry has been locked-into the standard or by charging discriminatory
royalty fees43.
The Commission states that utmost good faith between negotiating parties is crucial in the
determination of what constitutes fair licensing condition and fair rates.44In 2017 the Commission
in its Communication45 stated the general principles which must be constituted in FRAND licensing
terms, these are as follows;
a)Licensing terms should be attentive to the economic value of the patented technology, there
should be focus on the technical function of the patent without factoring in the issue of standards,
which may affect the evaluation of the patent. However in circumstances where the technology has
41 See European Commission Commentary on Case AT39985 – Motorolla- Enforcement of GPRS Standard Essential Patents. Para 6242 Ibid para 7743 See Ashish Bharadwaj, Vishwas H. Devaiah, Indranath Gupta page 8244 EC :Setting out EU approach to Standard Essential Patents Brussels, 29.11.2017 COM(2017) 712 final45 ibid
18
little economic value outside the standards, stakeholders must device alternate evaluation methods,
such as the relative significance of the technical function in the standard46.
b) In the evaluation of FRAND, stakeholders should take into cognisance the present value added
on the patented technology. That value should not be based on the market success of the product
per se , which will have no relation to the patented technology47
c)FRAND evaluation should foster the principle and spirit behind IPRS, thus there should be an
incentive to SEP holders to enable them to contribute their best available technology to
standards48.
d) In the determination of FRAND value an individual SEP should not be considered in isolation ,
so as to avoid royalty stacking. Their should be measures to determine the value added by the
technology to a standard. This calls for transparency when creating SEP. The Commission
emphasized the need to set-up Industry licensing platforms and patent pools49.
Despite the significance of FRAND commitment in regulating the licensing process of SEP, there
are challenges in determining what constitutes a FRAND license. The term “fair and reasonable”
is a very subjective word which can be interpreted differently depending on the side of the
negotiating party. The courts have been efficient in guarding negotiating parties to a licensing
agreement on what constitute a “fair and reasonable licensing agreement”. Due to the complexities
in patent licensing there is no one set of FRAND terms and each case is determined on its facts and
circumstances50. This calls for the Commission and CJEU to best illustrate and define the terms of
FRAND licensing which has the flexibility to govern the licensing process for patents. Justice Birss
in the case of Unwired Planet v Huawei51 can be credited for going at length in defining the core
principles of a FRAND license.
46 Ibid 47 ibid48 ibid49 ibid50 See Unwired Planet International Limited v Huawei Technologies Co. Limited [2018] EWCA Civ 2344 para 119-
121.51 See Justice Birss discussion on FRAND in Unwired Planet International Limited v Huawei Technologies Co.
Limited [2017] EWHC 711 (Pat)
19
The recent increase in litigation over licensing terms for SEP is based on the divergent views by
negotiating parties as to the meaning of FRAND52. It has become increasingly challenging to
determine consensual interpretation of FRAND licensing principles53. The controversy has been
further enhanced by a number of economic arguments that put in doubt the ability of FRAND
commitment to ensure that royalty rates for SEPs are in fact “reasonable”54 These diverging views
and litigation flies in the face of competition law and hinders dissemination and embracing of
technologies by implementers, and this adversely affects innovation and consumer welfare. It delays
the uptake of new technologies, standardization processes and the roll-out of IoT in Europe55 It is
maintained that CJEU and Commission plays a critical role in defining the principles of FRAND so
as to curb the increase in patent litigation in ICT over licensing of SEP.
52 See EC JRC Science and Police Report: Fair, Reasonable and Non-Discriminatory licensing terms page 553 Ibid page 554 See Article from Commission “Setting out the EU approach to Standard Essential Patents” Brussels, 29.11.2017
COM(2017) 712 final, also the article by the European Commission https://publications.jrc.ec.europa.eu/repository/bitstream/JRC96258/jrc96258.pdf accessed on 5 April 2020
55 ibid
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3 STRIKING A BALANCE
3.1 Introduction
As canvassed in the previous chapter, a competitive market structure has many ripple effects
towards economic development. It encourages dissemination of technology which contributes to a
sustainable and vibrant Internal market. It increases production levels thereby creating an
environment where consumers can easily switch between products. It creates a fair environment for
new players to enter the market and compete effectively without hindrances from companies with
strong financial muscle, the list goes on. One may safely affirm that the impressive development of
EU internal market is strongly credited to an effective competitive market. However, it is argued
that the enforcement of antitrust policies should not be overly-enforced against SEP, a compromise
must be struck. The downplay of one policy against another affects development in the long term.
Both policies play a complimentary role towards development of a single market. On this basis
antitrust policies should not be overly-applied to the extent of removing incentives for innovation.
Does the EU legislative framework strike a balance on the intersection of SEP and competition law?
The purpose of this chapter is to critically analyse decisions taken by the CJEU and the Commission
in dealing with circumstances where there is an intersection of these two policies. The discussion
will highlight the position of these two, and how this has contributed to the current situation. In the
discussion the paper will also provide an analysis on the German Federal Supreme Court judgment
in Orange-Book Standard case. This was the first EU case which set the stage on the intersection of
essential patents under a de facto standard and antitrust policies56.
3.2 The essence of striking a balance.
The incentive for innovation is the exploitative rights given to the patent holder. Beside the right to
recoup investment in the R&D, patent holders must also have the sense of entitlement to their
intellectual work. The sense of entitlement is exercised through decisions made during the licensing
process. Therefore patent protection is very important in encouraging innovations and economic
growth. An overview of modern day digital technology can be attributed to the policies of patent
law. Any person operating a smartphone or laptop may have a clear understanding of how patent
law should be credited for contributing towards a digital society. This clearly illustrates the
56 Björn Lundqvist page 369
21
significance of patent law and why it should be guarded. On this basis enforcement of anti-trust
policies should not be overly done to the extent of removing incentives for innovations.
It is submitted that unrestrained intervention of competition policies on patent licensing system
might impact on the operation of the IP system, which would adversely affect innovation
incentives.57 The CJEU echoed similar sentiments in the Huawei v ZTE58 case when it opined that
“...intellectual-property rights must be enforced, in terms of Directive 2004/48, which in accordance
with Article 17(2) of the Charter provides for a range of legal remedies aimed at ensuring a high
level of protection for intellectual-property rights in the internal market..”59
The advocates for protection of IPRS maintains that monopoly should be allowed on human
inventions so as to give an incentive and encourage innovations. They further argue that IPR
legislation should be viewed as of equal weight and status under EU law, or that EU competition
law should defer to IPR legislation in the interests of innovation60. The basis of this argument being
that IPRs offer a major contribution to innovation owing to the reward /incentives to inventors and
creators provided by the grant of exclusive rights.61Competition law and patent policies are usually
at conflict, however both policies seek to promote consumer welfare, economic growth and
innovation.62 Some economists content that IPRs are the primary drivers of innovation and that
competition policy fails to give adequate recognition to the long term benefits of IPRs incentives to
innovation which they describe as dynamic efficiencies – the argument is that competition laws
stand in the way of innovation.63
Further patent law and competition law rules have similar objectives of promoting innovation and
enhancing consumer welfare64.
57 Organisation for Economic Co-operation and Development DAF/COMP/M(2019)1/ANN5/FINAL page 7 article can be accessed on this link https://one.oecd.org/document/DAF/COMP/M(2019)1/ANN5/FINAL/en/pdf
58 Huawei v ZTE C-170/1359 Ibid para 5760 See Article Competition Policy and Intellectual Property Rights
http://www.oecd.org/competition/abuse/1920398.pdf61 Steven Anderman and Hedvig Schmidt page 12
62 See this Article https://one.oecd.org/document/DAF/COMP(2019)3/en/pdf page 863 Christopher M. Kalanje :Role of Intellectual Property in Innovation and New Product Development64 Thorsten Käseberg page 33
22
3.3 The Orange Book Standard Case
This was a 2009 judgment by the Federal Court of Justice of German which sets the stage in the
EU on the intersection of competition law and SEP. The case consisted of a technical standard
which was essential for the production of record-able and rewrite-able optical data carriers65. Philips
(patent holder) granted many companies the license to its technical patent on the basis of a standard
license agreement. However there was a company which produced and marketed the CDR and
CDRWs without the consent of Phillips. When the company was sued it argued that Phillips was
abusing its dominant position by flouting the principles of FRAND, it alleged that it was being
discriminated against since the price for the license was exorbitant yet other companies had been
granted favorable conditions. Phillips sought an injunction which was granted.
The findings of the court are worthy a thorough analysis since this case was crucial in influencing
the EU position with regard to the interface of patent law and competition law. The question was
whether a SEP holder can obtain an injunction against an infringement in a situation where the
infringer had tried to obtain a license on commercial grounds but the SEP holder had refused. The
court made the following notable issues which the potential licensee must raise when faced with an
injunction lawsuit.
"(a) A defendant sued on the basis of a patent is able to defend himself against the claim for
injunctive relief asserted by the patent holder filing the action by pleading that the latter abuses a
dominant position on the market if he refuses to conclude a patent licence agreement with the
defendant on non-discriminatory and non-restrictive terms and conditions66.
(b) Yet the patent proprietor is only culpable of abusive behaviour if the defendant has made him an
unconditional offer to conclude a licence agreement which the patent proprietor cannot reject
without violating the prohibition of discrimination or anti-competitive behaviour, and if the
defendant, for the time that he is already using the subject matter of the patent, complies with the
obligations that the licence agreement yet to be concluded imposes in return for the use of the
licensed subject matter67.
65 For a full summary of the Orange Book Standard case refer to Article by Bjon Lundqvist ; The Interface of Competition law and Standard Essential patents; from orange book standard case to huawei case page 369
66 See DAF/COMP/WD(2014)113 Intellectual Property and Standard Setting , see also the Translated version of the
https://www.ie-forum.nl/backoffice/uploads/file/IEForum/IEForum%20Uitspraken/Octrooirecht/EN%20Translation
%20BGH%20Orange%20Book%20Standard%20-%20eng.pdf accessed on 20 April 2020
67 See DAF/COMP/WD(2014)113 Intellectual Property and Standard Setting , see also the Translated version of the Orange Book Standard case https://www.ie-forum.nl/backoffice/uploads/file/IEForum/IEForum%20Uitspraken/
23
(c) If the defendant considers the patent proprietor's licence demands to be excessive or if the
patent proprietor refuses to quantify the royalties, an offer to conclude a licence agreement in
which the licensor determines the amount of royalties according to its own reasonable discretion
meets the requirement of such an unconditional offer68."
3.4 Analysis of the Orange Book Case
This case brings into spotlight the intersection of competition and patent law. The court admitted
that a defendant faced with an injunction lawsuit can raise a plea of non- compliance with FRAND
terms by a SEP holder. However, an obligation was placed on the infringer to prove violation of
FRAND terms by the SEP holder. It should be noted that an infringer may face difficulties in
proving what constitutes a FRAND license. Concisely this creates a narrow defense and a heavy
burden on the potential licensee. The infringer in this scenario can not effectively contest the
prohibitory injunction.
The court’s reasoning was that since the infringer had brought the defense of anti-competitive
conduct by the SEP holder, it must have an idea of what is a FRAND agreement. To some extent
there is logic in the findings of the court since in some circumstances infringers may unreasonably
plead antitrust policies as a reverse-holdup. The court’s intention was to protect patent holders
against infringers who would use the standard technology without payment of license fee. However
such an approach penalises genuine potential licensee who would have been denied right to use the
patented technology.
The Orange-Book Standard case did not provide a definition of what constitute a FRAND license.
Since this term does not have a definite meaning, it was very crucial for the court to provide
guidelines on what constitutes a FRAND license, since this plays a fundamental role in bringing the
two policies into harmony. From the facts of this case, the potential licensee is faced with an
insurmountable obligation of proving what constitute a FRAND license. Court stated that the
infringer should present a license proposal containing the necessary terms and prove that the SEP
holder has refused to accept its reasonable terms and conditions. This constitutes a heavy burden for
the potential licensee who may fail to understand what constitute a FRAND license proposal69 On
Octrooirecht/EN%20Translation%20BGH%20Orange%20Book%20Standard%20-%20eng.pdf accessed on 20 April 2020
68 ibid69 Björn Lundqvist page 369
24
this basis the infringer may end up coming up with onerous license proposal which does not meet
the qualities of a FRAND license. This makes the negotiating position of the infringer very weak. In
clear terms its only the infringer who is faced with obligations before the patent holder is assessed.
The court’s position creates a fertile ground for abuse of dominant position by SEP holders who
may use threats of injunctions. It is maintained that such a defense against an injunction lawsuit
does not provide an equal footing between the parties, the infringer has a limited room for
navigation.
The option given to the alleged infringer in the Orange Standard Book case proved a bit
problematic in the Motorola vs Apple70 in which, despite Apple proving “willingness” to enter into
a license agreement, a prohibitory injunction was granted against it. The Commission in its
assessment of such a finding stated that Motorola’s injunction proceedings following Apple`s
Orange Book Offer and the enforcement of an injunction on the basis of a GPRs SEP was anti-
competitive, and had the effect of putting Apple's products off the market71. However in the case of
Phillips vs Sony Ericsson72 the District Court of Mannheim dismissed the injunction application
stating that the Defendant had fulfilled the requirements of Orange Book Standard case, since
defendant had offered to enter into a license agreement and also had deposited a fair royalty in the
escrow account73.
The findings in the Orange-Book case may result in the abuse of dominant by SEP holders, who
may use injunctions to increase their bargaining position during negotiations for the license fee. It
should be noted that the German approach on the application for injunctions was non restrictive
against potential licensee than the approach taken by the Commission in the Samsung74
and Motorola75 decision. The European Commission held that a a defense of anti-competitive
conduct by a patent holder was sufficient to protect the licensee from SEP injunction 76. It is
submitted that the Orange Book Standard case was tilted in favour of SEP holders.
70 For a clear understanding of this case see the Commission Inquiry on Motorola case (n10)71 See European Commission Commentary on Case AT39985 – Motorolla- Enforcement of GPRS Standard Essential
Patents. Alsohttps://ec.europa.eu/competition/antitrust/cases/dec_docs/39985/39985_928_16.pdf accessed on 1572 Phillips vs Sony Ericsson District Court of Mannheim (2011 No. 7 065/10)73 ibid74 The inquiry done by the Commission on the application for injunctions by Samsung as the SEP holder against
Apple, see the Commission findings on this Article https://ec.europa.eu/competition/antitrust/cases/dec_docs/39939/39939_1502_5.pdf accessed on 30 March 2020
75 Ibid, this consists of application for injunctions by Motorola against Apple see https://ec.europa.eu/competition/antitrust/cases/dec_docs/39985/39985_928_16.pdf accessed on 30 March 202076 https://www.concurrences.com/en/review/issues/no-3-2018/legal-practice/the-availability-of-injunctive-relief-
under-eu-and-us-law-for-frand-encumbered-87166-en accessed on 31 March 2020
25
In light of the above the writer maintains that when there is an intersection of patent law and
competition law, the conduct of each party in light of FRAND license should be thoroughly
investigated. Both parties should have the obligation to prove their commitment to conclude a
license on FRAND terms. This crisply resonates with the position that the determination for what
constitute a FRAND varies depending on the facts of each case. The Court of Appeal in the case of
Unwired Planet vs Huawei77 opined that “...there is no one-size-fits-all solution to what FRAND is
and that what can be considered fair varies from sector to sector and over time...78”
3.5 Motorola and Samsung Inquiry by the Commission; “Safe Habour Approach”
In April 2014 the Commission published its findings on the issues of abuse of dominant position
and application for prohibitory injunctions by Samsung79 and Motorola80 against apple. The lawsuits
consisted disputes on SEP on the GPRS and UMTS standards respectively. The fact that these were
FRAND encumbered SEPs brought into spotlight critical issues on the justifications for seeking
and enforcing FRAND encumbered injunctions vis a` viz antitrust policies. The crucial question
being, did the Commission’s Inquiry strike a balance?
3.5.1 Motorola Case
There was licensing dispute between Motorola and Apple over a GSM patent (EP 1010336). In
2011 Motorola instituted legal proceedings in the German Court for an injunction against Apple. In
terms of ETSI standard setting process Motorola had declared its patent as essential and had made a
commitment to grant license to third parties on FRAND terms81. Subsequent to this litigation Apple
had made negotiations on the licensing terms to meet the “ willing licensee” criterion, despite all the
strenuous efforts to engage, Motorola declined to license and proceeded to seek and enforce an
injunction prohibiting online sales Apple mobile products82. However the litigation process was
later abandoned when the parties entered into a licensing agreement, which amongst its terms and
conditions, prohibited Apple to challenge the validity of Motorola SEPs. The Commission held that
application for a prohibitory injunction by Motorola violated Article 102 TFEU. The Commission
crisply stated that, the seeking and enforcement of injunctions against a “willing implementer”
77 See Unwired Planet International Limited v Huawei Technologies Co. Limited [2018] EWCA Civ 2344; [2018] R.P.C. 20
78 Ibid para 78479 Case COMP/C-3/39.939 Samsung Electronics Enforcement of UMTS Standard Essential Patents.See full report on
this link https://ec.europa.eu/competition/antitrust/cases/dec_docs/39939/39939_1502_5.pdf80 Case COMP/C-3/39.939 Samsung Electronics Enforcement of UMTS Standard Essential Patents.81 Case COMP/C-3/39.939 Samsung Electronics Enforcement of UMTS Standard Essential Patents.82 Ibid
26
constituted an abuse of dominant position in terms of Article 102 TFEU83. It stated that recourse to
injunctions in cases of FRAND encumbered SEP distorted the negotiation processes with the
willing licensee, and was anti-competitive84. The aims and objective of FRAND commitment is to
ensure effective access to the essential patents without hindrances of hold up by SEP holder85.
The Commission implicitly took a different approach from the German Orange Book Standard case
which propounded that instead of showing “mere willingness”, the Infringer must make a provision
for a royalty which must be paid in the escrow account86. On the definition of a “willing licensee”
the Commission stated that bilateral negotiations between parties even if the negotiations process
does not result in positive results is a clear indication of willingness by the potential licensee87.
Wherefore a passive and unresponsive attitude by a potential licensee does not confirm to
willingness88. It further expounded that the challenging of the validity of a SEP by the potential
licensee does not ipso facto render the licensee “unwilling part to the negotiations”.
3.5.2 Samsung Case
In 2011 Samsung instituted injunction proceedings against Apple for infringement of its SEP (3G
UMTS) in various national EU courts89. However, Samsung had instituted these proceeding despite
the fact that it had made a commitment to ETSI that it would grant its license to third parties on
FRAND terms. However Samsung later on withdrew all its applications or injunctions. The
Commission ruled that Samsung's conduct for seeking permanent injunctions against Apple had the
effects of excluding the latter, a rival manufacturer of UMTS-compliant mobile devices from the
market, and also affected the negotiating powers of Apple and that had consequences of higher
royalties different with a situation where there was no injunction in place90. On face value
Samsung's conduct was an abuse of dominant position in terms of Article 102 TFEU. Further, the
Commission reiterated the principle in Motorola case that, injunctions are not justified in situations
where the potential licensee has shown willingness to enter into a license agreement on FRAND
terms.
83 In this case, the Commission position was that the very nature of applying for injunction triggered a violation of Article 102 TFEU
84 (n 77)85 See https://ec.europa.eu/commission/presscorner/detail/en/IP_14_489 accessed on 10 April 202086 See Article by Bjon Lundqvist The Interface between EU Competition Law and Standards Essential Patents – from
Orange Book Standard to Huawei case.87 Ibid (n 77)88 (n 77)89 Case COMP/C-3/39.939 Samsung Electronics Enforcement of UMTS Standard Essential Patents.90 ibid
27
The Commission stated a similar position in Motorola, that injunctions are justifiable in the
circumstances where the infringer is unwilling to conclude a licence agreement with the SEP holder.
The fact that injunctions are prohibitory in nature they have the effects of excluding competing
products on the market. Also it affects the negotiating processes which may result in potential
licencee being charged excessive and onerous terms and conditions. The Commission accepted a
five year commitment by Samsung that it would not seek and enforce injunctions against potential
licensee in the case of FRAND encumbered SEP on smart phones in the EU91.
3.6 Analysis of the Commission’s findings in the Motola and Samsung case
The Commission` findings and recommendations in both cases provided a “safe harbour” to the
infringer at the expense of antitrust policies. Arguably, the Commission in its obiter highlighted the
significance of striking a balance on these two policies by admitting that SEP holders should not be
denied their right of access to justice, and also that an injunction should not be enforced against a
willing infringer. The Commission noted the effect of unfairly enforcement of injunctions against
infringers. It aptly stated that “by seeking and enforcing an injunction, a SEP holder may be able to
exclude even the most innovative standard-compliant products from the market as, by definition,
the patented technology cannot be worked around. In turn, the elimination of competing products
from the market may limit consumer choice and partially eliminate downstream competition”.92The
Commission’s obiter aptly resonates with the importance of balancing the two policies for purposes
of encouraging Patent holders to be innovative, whilst simultaneously promoting the dissemination
of technology on the Internal market.
However in its final judgment, the Commission implicitly departed from the Orange Book
interpretation stating that enforcement of injunctions against a “willing” infringer constitute an
abuse of dominant position. The challenge with such a position is that the concept of willingness
was not exhaustively discussed so as to avoid instances of its abuse. The onus was placed on the
SEP holder to prove that the infringer was an unwilling part to conclude a FRAND license 93. In this
instance one should take note that the infringer may come with a flimsy attempt to negotiate simply
to satisfy the requirement of “willingness”. Such an obligation makes it difficult for SEP holders to
protect their patented technology from acts of reverse patent-holdup by Infringers.
91 ibid92 CASE AT.39985 - MOTOROLA - ENFORCEMENT OF GPRS STANDARD ESSENTIAL PATENTS para 31293 ibid
28
The Commission’s approach had the net effect of discouraging SEP holders to approach courts and
seek injunctions against infringers. Such findings were inconsistent with Article 47 of the EU
Charter of Fundamental Rights, which promotes rights of access to justice. Further it weakened the
SEP holder to enforce their legitimate rights against unlicensed use of their patented technology. For
instance, a SEP holder would not effectively protect its patents in fear of heavy fines which comes
in the event of being fund to have abused the dominant position. Precisely the Commission’s
findings had the cumulative effect of eliminating incentives for innovation.
Further, an analysis of the Commission’s Inquiry shows a determination to reverse the adverse
effect of the Orange-Book Standard case, however in doing so, the scales were tilted more in favour
of Infringers. The Commission opined that “...the mere holding of IP rights cannot constitute an
objective justification for the seeking and enforcement of an injunction by a SEP holder against a
potential license...”94 Such a reasoning precisely creates a “safe habour” for the Infringer whilst
leaving the SEP holder with no power to enforce its right. On this basis one can safely conclude that
the Commission’s approach in trying to reduce the impact of Orange-Book Standard case went
further to lean in favor of the infringer leaving the SEP holder with a very weaker position.
3.7 HUAWEI v ZTE “The Middle Approach”
The Huawei v ZTE95 case was referred to the CJEU by the Dusseldorf Regional Court. The facts
of the matter are that, Huawei had registered a patent in the telecommunication sector of Germany
under the European Patent (EP 2090 050 B1)96. Huawei had apprised the European
Telecommunications Standards Institute (ETSI) that its patent was essential to the Long Term
Evolution (LTE). Further Huawe made a commitment to grant the license to third parties on
FRAND terms. Between May 2010 and March 2011 Huawei and ZTE had engaged in negotiations
concerning , inter alia, the infringement of the said patent by ZTE, and also the possibility of
concluding a license agreement on FRAND terms97. Huawei proposed an amount which was to be
paid, and ZTE counter-offered proposing a cross-licensing agreement and a top up amount.
Ultimately the parties failed to reach a resolution. In light of this, ZTE continued marketing its
products in Germany, using the technology covered by the patent without paying the royalty.
Huawei instituted action proceedings against ZTE for infringing its SEP and sought a prohibitory
injunction against such conduct.
94 Ibid para 42395 Huawei Technologies Co. Ltd v ZTE Corp, ZTE Deutschland GmbH C-170/13
96 Ibid97 ibid
29
3.8 Analysis of Advocate General Wathelet Opinion
Before the CJEU passed its judgment the Advocate General (AG) was given an opportunity to issue
his opinion on the matter. The AG was tasked to make a determination on the approach to take
between the Orange Book Standard case and the Commission approach in the Samsung case. The
AG confirmed the legitimate right of SEP holders to institute legal action to protect their IPR rights
“any restriction of the right to bring those actions necessarily constitutes a significant limitation of
intellectual property rights and can therefore be permitted only in exceptional and clearly defined
circumstances”98. The AG emphasized on the right of access to justice. He further opined that
despite Huawei’s commitment to ETSI that it would grant license to third parties on FRAND terms,
Huawei did not waive its right to bring actions for prohibitory injunctions against persons using the
teaching protected by the patent at issue without its consent99. The AG was stressing the
significance of protecting the legitimate rights of the SEP holder. He was encouraging an assertive
approach on the intersection of SEP and competition law. The reasoning of the AG was to denounce
the presumption that a SEP holder who approaches the court to enforce a prohibitory injunction is
abusing the dominant position. Such a finding encourages a balanced approach on the interface of
SEP and competition law.
The AG further stated that application for injunctions is not an abuse of dominant position, stating
that recourse to justice to enforce IPRs is the legitimate right of SEP holder. He crisply expounded
that “the right of access to the courts and the possibility of asserting rights before a court are
recognised by Article 47 of the Charter, and any limitations to such right in terms of Article 52(1)
of the Charter must in particular respect the essence of the fundamental right in question and
requires, in addition, that, subject to the principle of proportionality, the limitation must be
necessary and must genuinely meet objectives of general interest recognised by the European
Union”100.It should be noted that, AG opinion is fully cognisant of the SEP holder legitimate right.
The findings herein creates room for SEP holder to protect their IPRs from unfair exploitation by
infringers, whilst at the same time ensuring that the right to protect the patented technology is not
abused to the detriment of the potential licensee. The reasoning here amply resonates with the spirit
of creating a vibrant EU internal market. Its a call to both the SEP holder and Implementer to act
responsibly in the exercise of their legitimate rights. It encourages SEP holders to be more
98 Opinion of AG Wathelet Huawei Technologies Co. Ltd v ZTE Corp, ZTE Deutschland GmbH C-170/13. 99 ibid100 ibid
30
innovative whilst at the same time encouraging dissemination of technology for the benefit of
consumer welfare.
The AG further articulated the factual differences between the Orange Book Standard and the
Motorola and Samsung cases. In the former there was no FRAND commitment, whereas in the
latter the SEP holder had a commitment to license its patent on FRAND terms. According to the
AG, in these two cases the obligations of the SEP holder were apparently different. The negotiating
powers of the FRAND encumbered SEP holder should be more engaging than in the later where
there is no FRAND commitment. The writer maintains that such a position makes FRAND
encumbered SEP more onerous than general patents, this makes SEP less attractive.
In addressing the issue of a “willing-licensee”, the AG called for a more pragmatic approach than
theoretical “…. the infringer must show itself to be objectively ready, willing and able to conclude
such a licensing agreement..”101. Thus an infringer who is not assertive towards concluding a license
agreement cannot have a formidable defense to stop the SEP holder's to seek and enforce
injunctions. Faced with such a plea, the presiding court must assess the genuineness of the
infringer`s counter offer, or attitude towards concluding the agreement on FRAND terms, to
evaluate whether its conduct was not a mere pretense to satisfy the concept of a “willing potential
licensee”. Such a finding by the AG balances the rights of SEP holder and the implementer, it
places obligation on both parties to have bonafide licensing negotiations.
The AG criticized both cases, firstly stating that the approach used in the Orange-Book Standard
case was over protecting the SEP holder, and the Commission's approach in the Samsung and
Motorola case over protected the potential licensee102. He further expatiated that the concept of
presuming SEP holder to be the dominant party without an analysis of the facts and circumstances
of the case affected a fair and balanced reasoning103. The determination for dominance must be
based on the factual finding and detailed evidence. Wherefore when there are exceptional
circumstances the right to conduct business overrides the right to court and even to property. The
AG preferred a legalistic approach rather than the economic theories of effect and efficiencies104.
The writer maintains that a legalistic approach may have dire effects in striking a balance between
the two policies, economic theories must be taken into cognisance in balancing these two policies.
101 Opinion of AG Wathelet Huawei Technologies Co. Ltd v ZTE Corp, ZTE Deutschland GmbH C-170/13102 ibid103 ibid104 ibid
31
For instance in the determination whether there is abuse of dominant position, there must be a
general assessment of the market shares of each party with respect to the patented technology under
dispute. In light of the above, the writer maintains that the uneven balancing of these two policies
has adverse consequences on innovation and development of a competitive market structure. These
two policies must be harmonized so as to promote an efficient and vibrant EU single market.
It should be noted that the AG did not specify the time specific for negotiations, but hinted that it
must be assessed on the basis of the commercial window available to the SEP holder. The AG
crisply stated that the the request to refer contentious issues to court or arbitration tribunal cannot be
regarded as a dilatory attitude on the part of the infringer. On this basis, the SEP holder cannot
institute a prohibitory injunction until the court has made a determination. However such a position
may be subject to abuse if no proper time limitations are put in place, the infringer may resort to
arbitration simply to frustrate the SEP holder. A litigious process may be very costs which tends also
to affect the pricing of the goods since parties may attempt to factor in such loses in their pricing of
goods. However, the findings of the AG are quite effective in striking a balance between the two
policies.
In light of the AG opinion, it is maintained that a precise definition of what constitute a FRAND
license could have clarified the balancing of these two policies. Further, a proper guidance should
have been provided on the time frame for engaging arbitration proceedings, since unnecessary
delays affects the dissemination of technology for the benefit of consumers. Conclusively one may
assert that the AG opinion set a good precedent in the harmonization of competition law and patent
law.
3.9 Analysis of CJEU approach
The findings of the court was mainly influenced by the reasoning of the AG. The CJEU provided
fundamental guidelines for the licensing and enforcement of FRAND encumbered SEP. The court
emphasized that national courts must strike a balance between maintaining competition on EU
internal market, (Article 102 TFEU which prohibits abuse of the dominant position) and also the
crucial requirement to protect the proprietor's intellectual property rights and its right to effective
judicial protection guaranteed by Article 17 (2) and 47 of the Charter105. The Court reiterated the
reasoning of Advocate General Wathelet, which stated that, exercise of an exclusive right to bring
an action of prohibitory injunction for protection of IPR, can only be regarded abusive under
105Huawei Technologies Co. Ltd v ZTE Corp, ZTE Deutschland GmbH C-170/13
32
exceptional circumstances. The court emphasized the specific requirements which the SEP holder
must prove in order to avoid the issue of abuse of dominance, this equally applies to the
Implementer steps its should follow in order to successfully raise a defense of anti-competitive by
the SEP holder. These are as follows;
a) Before instituting an injunction lawsuit, the SEP holder must give notice to the alleged infringer
concerning the infringement and must specifically state the circumstances in which the infringement
has been done106.
b) The alleged infringer must show genuine willingness to enter into a license agreement on
FRAND terms.107
c)The SEP holder must proceed to offer a written license agreement on FRAND terms stating the
royalty fee and the calculation method therein.108
d)The alleged infringer must respond diligently to the offer by the SEP holder, and the response
should be in conformity with the commercial in terms ETSI standards. In the event of negotiations
about the offer the infringer must show utmost good faith to bring a counter offer on FRAND
terms.109
e) During negotiations the alleged infringer must provide security by creating an escrow account
and deposit the security.
A closer examination of the guidelines stated by the CJEU clearly shows a concerted effort to strike
a balance between the two policies. The CJEU intends to close up the gap which may be abused by
either of the party to the negotiating agreement. A malafide SEP holder in defending its application
for injunction may argue to have offered a FRAND license without clear intention for that. Same
applies with an Implementer it may allege mere “willingness” for purposes of satisfying that
requirement. It is important to clarify how the guidelines strikes a balance, the guidelines shall be
addressed as hurdles which must be addressed by each party;
106 Huawei Technologies Co. Ltd v ZTE Corp, ZTE Deutschland GmbH C-170/13
107 ibid108 ibid109 ibid
33
First hurdle - The notification by SEP holder in written form specifying the terms of the alleged
infringement is intended to set the stage for parties to start engagement processes for a FRAND
license. The intention is to clearly alert the infringer about the terms of infringement.
Second hurdle -The requirement is meant to guard against a malafide standard implementer who
may engage in the negotiations for dilatory purposes simply to fulfill the concept of willingness.
The implementer is called upon to show clear intention to conclude a license on fair terms.
Third hurdle - This hurdle is a complimentary of the second hurdle. A written FRAND license
agreement stating the royalty fee and the calculation process, clearly shows the intention by the SEP
holder to conclude a license agreement on FRAND terms.
Fourth hurdle – On this stage the Infringer after receiving the notice is called upon to act diligently
to eliminate circumstances whereby it continues to benefit from the SEP without payment of royalty
fee. This requirement exposes a malafide infringer with intention to abuse test of “willing-
licensee”. The Infringer is required to show utmost good faith during the negotiations, this is mainly
to guard against actions of reverse-holdup by the infringer.
Fifth hurdle- The requirement that Infringer provides security during negotiations is meant to show
the “willingness” of the infringer to conclude a license agreement on FRAND terms, and not engage
in negotiations for dilatory purposes. (patent reverse-holdup)
The Huawei case plays a crucial role in balancing the interests of SEP holders and implementers.
The court echoed the similar sentiments by AG that a genuine legal action for a prohibitory
injunction is not an abuse of a dominant position. Enforcement of an injunction is an exercise
legitimate right of access to justice. The court's middle approach has set a new trajectory in the
determination of cases where there in an intersection of SEP and antitrust policies. The step-by-step
structure creates a safe habour for both parties. However, despite the significant contribution of the
of Huawei case, there are a lot of uncertainties left unresolved in the licensing process of SEP.110
110 Sophie Lawrance, Noel Watson-Doig, Edwin Bond, and Matthew Hunt page 253
34
The CJEU did not provide guidance on the determination of what constitutes FRAND offer, and
who should bear the risk to define it, the patentee or the implementer111. Even though this issue had
not been placed before the Court for determination, considering the controversy surrounding this
topic, an articulate guidance was fundamental. It is difficult to understand what happens in
circumstances where neither of the parties offers a license agreement corresponding to FRAND112.
The court stated that parties failing to agree on what constitute a FRAND may engage an
arbitrator.113It should be noted that the input of an arbitrator since it lacks legal enforcement may not
serve any purpose. The term FRAND must be precisely defined so that both parties will not counter
accuse each of flouting Article 102 TFEU. In the absence of a clear explanation of the principles of
FRAND, application for injunctions can not be regarded as an abuse of dominant position, since
there will be no criterion to rule as such. Further what will be the recourse where both parties
purport to offer a FRAND license and yet fail to reach consensus? Or what will be the position if
neither of the parties offers a FRAND license? These issues creates problems during the licensing
process.
Another issue which was left unanswered was whether these step-by-step guidelines provided for
by the CJEU are sacrosanct principles or are mere guidelines which must be followed stringently in
order to avoid infringement of Article 102 TFEU. If the application of these guidelines is
discretionary, they may be interpreted differently depending on the opinion of the court presiding
over the matter, this may result in variances in the interpretation of the CJEU guidelines.
3.10 Commission ; “ Setting out EU approach to Standard Essential Patents”
After the CJEU judgment in the Huawei case, SEP holders have continued to institute legal action
for injunctions against infringers114.There has been legal uncertainty surrounding FRAND
encumbered SEPs and injunctions. In November 2017 the Commission issued a Communication on
the “Setting out EU approach to SEPs”115 - this provides guidance in relation to the CJEU ruling in
the Huawei case. The Commission admitted that post Huawei case, the licensing and enforcement
of SEP is not seamless and has resulted in many conflicts116 Unjunstified enforcement of injunctions
by SEP holder has the effect of preventing potential competitors on the market . Commission further
111 Björn Lundqvist page 392112 ibid113 Huawei Technologies Co. Ltd v ZTE Corp, ZTE Deutschland GmbH C-170/13 para 61114 (n1)115 See Article from Commission “Setting out the EU approach to Standard Essential Patents” Brussels, 29.11.2017
COM(2017) 712 final116 ibid
35
confirms that the disputes and delays in negotiations between patentee and implementer, negatively
affects the wide spread use of key standardized technologies117. This affects the rapid diffusion of
technology and interoperability of products on the EU single market. Despite the Commission
admitting the need for faster method to resolve dispute resolution, it did not provide guidance on
what should be done to resolve disputes efficiently.
The Commission reiterated the urgent need to set key principles that fosters a balanced, efficient
and reliable framework for SEPs. Thus the two important factors should be well articulated, which
consists of incentivising the development and inclusion of top technologies in standard , and
ensuring an efficienty and interoperability of standardized technology based on fair access
conditions.118 Admittedly, this is an efficient process to assist standard implementers to
understanding SEP.
The Commission emphasized the significance of increasing transparency on SEP exposure119, thus
new players and potential licensees should have access to information concerning licensing
negotiations of SEP. The Commission took note that relevant information has only been maintained
in databases of SDOs and this clearly makes it difficult for start-ups and SMEs to easily adapt120
Thus the Commission position is that disputes which have arisen on the issue of FRAND
encumbered SEP and injunctions can be attributed to lack of knowledge by potential licensee, the
Commission therefore encouraged SDOs to provide detailed information in their databases to
support the SEP licensing framework121 Arguably, civil disputes on the intersection of competition
law and patent law cannot be heavily attributed to the lack of knowledge, but failure to reach
consensus by both parties on a FRAND license. How should parties conclude a FRAND license
without resorting to courts? This issue should be properly regulated.
The Commission further stated that SDOs should come up with mechanisms to assist licensing
negotiations this will eliminate possible conflict between SEP holder and infringer122. The intention
117 ibid118 See Article from Commission “Setting out the EU approach to Standard Essential Patents” Brussels, 29.11.2017
COM(2017) 712 final119 ibid120 ibid121 ibid122 ibid
36
of the Commission is to strike a balance between two negotiating parties. Thus,where there is
incremental improvement with controlled costs, this can reduce disputes in licensing negotiations as
well as infringement risks123 This duty equally applies to the Commission. Taking into cognizance
increased litigation on the interplay of these two policies the Commission and CJEU should lay out
fundamental procedures to regulate the relation of the SEP holder and implementer. Making the
process more discretionary will always result in its manipulation or abuse by a bonafide party. The
fact that a party found infringing competition law will be punished, there must be clear principles to
guide the parties.
Furthermore, the Commission listed the IP valuation principles which negotiating parties should
take into cognisance as follows; licensing negotiations should factor in the value of the patented
technology; thus during the determination of the FRAND licensing, parties should take into
cognisance the value added to the patented technology124Also the evaluation of FRAND license
should protect the incentives of SEP holder so that they continue to disseminate best technologies to
standards125. Lastly the Commission stated that SEP holders should avoid royalty stacking which
may cause excessive royalty fees, though in the determination of FRAND value, an individual SEP
should not be assessed in isolation but there should be aggregate rating for the standard, assessing
the overage added value of the technology.126
The Commission took a milestone in striking a balance between the differing interests of SEP
holders and patent implementers and also addressing some of the gaps left by the CJEU in the
Huawei case.127However, the Commission did not provide guidance in circumstances where SEP
holder abuse dominant position through application for injunctions128. The Communication does not
provide clear answers on whether failure to comply with Huawei case by SEP holder result in a
liability under Article 102 TFEU or whether there should be a flexible approach as enunciated in the
Unwired Planet v Huawei case129. In the entire report there is no reference to principles of abuse of
dominant position. It is maintained that a clear analysis on the application for injunctions,
particularly the import of Article 102TFEU in the licensing process of SEP is quite significant in
123 ibid124 See Article from Commission “Setting out the EU approach to Standard Essential Patents” Brussels, 29.11.2017
COM(2017) 712 final125 ibid126 ibid127 Sophie Lawrance, Noel Watson-Doig, Edwin Bond, and Matthew Hunt page 256128 See also article by Urška Petrovčič * “The unsettled role of competition law in addressing injunctions for Standard
Essential Patents” page 18129 Insight on this issue was from Urška Petrovčič ibid.
37
striking a balance between these two policies. However, the Commission should be accredited for
its efforts in providing guidance on the principles of FRAND.
38
4. Does application for injunctions by SEP holders constitute an abuse of dominant position?
4.1 Introduction
The question whether application for injunctions by SEP holders is an abuse of dominant position is
a controversial topic has been answered literally by the Commission and CJEU, that prima facie it
is not an abuse of dominant position, but a legitimate right which entitles access to justice.
However, a closer examination on the recent legal disputes on the enforcement of injunctions, SEP
holders with intention to enforce their legitimate right are faced with a hurdle of “abuse of
dominant position” which is explained in the context SEP. There is a generalised misconception that
SEP confer a monopoly power on SEP holders. This is quite apparent in the sense that every
“unlicensed user” faced with an injunction law suit raises a plea of abuse of dominance. The
purpose of this chapter is to unpack issues surrounding the plea of abuse of dominance when there
is an injunction law suit.
4.2 Abuse of dominance
The above question should be rephrased to say does a SEP holder who institute an injunction
proceeding against an unlicensed user, be regarded as abusing the dominant position. On a
competition law perspectives this may sound as a rhetoric question which has been answered by the
CJEU and the Commtttission.
An understanding of the principle of abuse of dominant position can be assessed from the CJEU
and Commission disposition130. A determination whether there has been an abuse of dominant
position plays a significant role in assessing the intersection of patent law and competition law. The
decision to rule that there has been an abuse of dominant position must be approached without bias
but with clear purpose to strike a balance between the interests of SEP holder and patent
implementer. The definition of what constitute abuse of dominant position can be gleaned from the
CJEU and Commission's guidance. The Commission defines abuse of dominance as;"a position of
economic strength enjoyed by an undertaking, which enables it to prevent effective competition
being maintained on the relevant market by affording it the power to behave to an appreciable
130 In reference to the discussion in chapter 3 on the definitions provided by the CJEU and the Commission
39
extent independently of its competitors, its customers and ultimately of its consumer...”131The CJEU
defines it as; “…..the concept of an abuse of a dominant position in terms of Article 102 TFEU is
an objective concept which relates to the conduct of a dominant undertaking which, on a market
where the degree of competition is already weakened precisely because of the presence of the
undertaking concerned, through recourse to methods different from those governing normal
competition in products or services on the basis of the transactions of commercial operators, has the
effect of hindering the maintenance of the degree of competition still existing in the market or the
growth of that competition”132.
Understandably, from these two assessments, abuse of dominant position consists of a market
power enjoyed by a SEP holder which may be used to distort or prevent competition on the market.
It is critical to discern what elements constitute “abuse” and “market power”. The CJEU in the
Huawei did not provide a comprehensive analysis of the determination of dominant position, save
only by giving a definition of abuse of dominant position. The Commission provided a guidance in
the Motorola v Apple133 inquiry on factors which determines a dominant position. However
Commission's position has been criticised for lacking particularity134. A revisit to the Commission’s
determination of dominant position is worthwhile.
4.2.1 Abuse
The definition of “abuse” can be gleaned from Article 101 (3) TFEU which means any conduct that
may prevent, restrict or distort competition and impair consumers’ interests135. In the context of SEP
abusive conduct constitute exclusionary or restrictive behaviour by SEP holders against
implementers. The Commission held that “the concept of abuse is an objective concept relating to
the behaviour of an undertaking in a dominant position which influences the structure of a market
where, as a result of the very presence of the undertaking in question, the degree of competition is
weakened...”136 The Commission further stated that the application of an injunction on its own is
not an abuse of dominant position, but abuse may be committed during the exercise of their (SEP
holders) exclusive rights. Such a position creates legal uncertainty as to what constitute abuse in the
131 CASE AT.39985 - MOTOROLA - ENFORCEMENT OF GPRS STANDARD ESSENTIAL PATENTS page 43132 See C 170/13 Huawei v ZTE paragraph 45133 (n127)134 Prof. Koren Wong-Ervin whilst indirectly responding to the steps provided by the Commission in determining
dominant position stated that the determination of market monopoly based on economics is a generalised misconception. She further stated that the issue whether there is no substitute for the technology is question is mainly determined by standardization bodies and not SEP holder. See DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE DAF/COMP/M(2019)1/ANN5/FINAL page 4
135 Article 101 TFEU, see also P. Akman page 11136 (n127)para 271
40
context of SEP. There is need to clearly state specific actions in the application for injunctions
which should be regarded as abusive. The definition of abuse in the context of SEP is a bit vague
and will always cause challenges between a SEP holder and standard implementer. The CJEU in
the case of Konkurrensverket v TeliaSonera Sverige crisply stated that in the determination of what
constitutes abusive conduct all the circumstances must be investigate to ascertain whether the
practice tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar
competitors from access to the market, to apply dissimilar conditions to equivalent transactions with
other trading parties, or to strengthen the dominant position by distorting competition137Thus there
is need of legal certainty in the determination of “abusive conduct” in the context of SEP.
4.2.2 Dominance. “Market monopoly”
The Commission stated that there are several factors which should be taken into cognisance to
determine whether a SEP holder possesses market monopoly “dominance”.138 It opined that two
crucial factors to be considered is the market shares of the SEP holder139, and barriers that prevent
potential competitors form having access to the market140 Thus a determination of dominance is
based on the economic position enjoyed by a SEP holder specifically on the SEP in dispute141.
Dominance is not on the basis of the overall bargaining powers of the parties but the SEP required
by the potential licensee.
Arguably, such an assessment poses no challenge when the aspect of dominant position is not being
disputed142. Dominant position is analysed from the position of economic strength, thus market
shares held by an entity. The Commission stated that the market share should be limited to the
specific SEP in dispute and not the overall market share of an undertaking. It should be noted that
the classification of market dominance as alluded by the Commission literally translate to the
general presumption that ownership of a SEP confers dominant position. If the assessment is
specifically limited to the SEP in dispute, prima facie the SEP holder will be held to be a dominant
137 Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB para 28
138 The Commission takes several factors into account in its assessment of dominance, this constists of market shares, including the ease with which other companies can enter the market – whether there are any barriers to this; the existence of countervailing buyer power; the overall size and strength of the company and its resources and the extent to which it is present at several levels of the supply chain. See EC on : Antitrust procedure in abuse of dominance (Article 102 TFEU) also accessed on this link https://ec.europa.eu/competition/antitrust/procedures_102_en.html
139 Ibid para 223140 ibid141 Commission held that an assessment whether Motorola enjoys a dominant position is based on the economic
strength Motorola enjoys as the holder of the Cudak GPRS SEP vis-à-vis the market as a whole, and not on the basis of its negotiating position vis-à-vis one or more customers such as Apple. Para 241-242
142 Motorola argued that it did not enjoy dominant position due Apple countervailing bargaining power para 237
41
party. Calculation of market share limiting to the specific SEP creates a predetermined position to
confer dominance on the SEP holder. Such a formalistic assessment, where presumptions substitute
economics-based market analysis, makes it easier for competition authorities to draw a wrong
conclusion from the case, leading to misconstrued outcomes143It is maintained that the concept of
what constitute dominance should be focused on the overall assessment of both parties’ shares on
the specific market and not single SEP. The AG hinted that in assessing dominance all the
circumstances and specific context of the case should be properly ventilated since if SEP holder is
found to be a dominant party it will have a special responsibility144. The clarion call is that the
bargaining position of the patent implementer should be thoroughly assessed to rule out instances of
joint- dominance. Further, the Commission implicitly declined the concept that there can be equal
dominance power145stating that “….it would be impossible to establish the existence of a dominant
position in cases where the conduct is directed against a purchaser that is economically strong on a
market….”146 This smacks of a predetermined position to find the fault party at all cost.
Subsequently, what should be placed in the center of the assessment is ‘market power’—namely,
the ability to profitably raise price or reduce output—rather than ‘market shares’ as such147. It is
argued that not all situations where there is an allegation of abuse of dominant position should the
SEP holder be found on the faulty side. In circumstances where both parties are found to share
dominant position in terms of Article 102 TFEU, an amicable balanced position should be reached.
It should be noted that the criterion implemented to determine whether there has been an abuse of
dominant position adversely operates against a SEP holder. The assessment of dominance based on
market shares should further be clarified. How will the issue be assessed in a situation where both
parties have equal market shares? Literally it may be confirmed that application for prohibitory
injunctions is not an abuse of dominant position but the assessment criterion crisply shows that
every SEP holder who approaches the court to enforce a legitimate right is presumed to be abusing
the dominant position.
143 Mark-Oliver Mackenrodt, Beatriz Conde Gallego, Stefan Enchelmaier page 27144 Opinion of AG Wathelet in the case of C-170/13Huawei v ZTE see para 57-58145 CASE AT.39985 - MOTOROLA - ENFORCEMENT OF GPRS STANDARD ESSENTIAL PATENTS para 246146 ibid147 P. Akman page 8
42
5 CONCLUSION
After a closer examination on the CJEU and Commission’s approach on the intersection of SEP and
antitrust policies, notably there are developments in the harmonization of these two policies. The
CJEU guidelines in the Huawei v ZTE set a new trajectory in the licensing process for SEP, which
has been followed by EU member states. The Commission implicitly seems to have retracted from
its earlier position in the Samsung and Motorola Inquiry that prima facie application for injunctions
is an abuse of dominant position, mainly by taking a middle path approach. In its Communication148
of 2017 the purpose is to close the gaps left by the CJEU in the Huawei case by guiding parties on
how to conclude a FRAND license. There is a clear purpose to balance the two policies. However
there are salient issues which the writer thinks are critical in addressing the intersection of
competition law and patent law;
a) Mechanisms should be put in place to reduce litigation in the licensing of SEP
Whereas resorting to courts when there is civil dispute is a fundamental right protected by the
Charter149, civil litigation in the licensing of SEP has negative effect on the SEP holder and standard
Implementer. Depending on who wins the case, the loosing party is faced with serious ramifications
such as payment of heavy fines, products being removed on the market and financial loss, this kills
the momentum of a competitive market. Further, the increase in civil litigation in the licensing
process for SEP in ICT “smartphone wars” is a clear manifestation of how complicated and difficult
the terrain is for new undertakings with intention to enter the market. It is quite deterrent against
new players with intention to venture in the market taking into consideration the high costs in civil
litigation, precisely this affects competition on the market, leaving only the strong companies to
remain on the market (samsung, huawei, apple, nokia, motorola). The higher costs associated with
litigation also have a negative impact on the consumers who will purchase the end products on the
market. The writer is of the opinion that there must be Directives or Regulations put in place to
govern the intersection of patent law and competition law. With clear policies in place parties will
have a clear obligation to conform to the set up standards and rules in the licensing process,
148 (n 121)149 Article 47 of the Charter
43
therefore reducing uncertainties. Understandably, leaving the obligation on SSOs to regulate the
process will still expose it to manipulation.
b) There must be clarity on what constitutes FRAND in line with Article 102 TFEU
Whereas the Commission in its Communication should be accredited for setting up process for
negotiating a FRAND license, there was little discussion on this term with reference to Article 102
TFEU. The term FRAND poses great challenge in harmonizing the two policies. The fact that there
is no one set of principles to determine what constitute a FRAND , parties negotiating for a
licensing agreement always faces difficulties in reaching a consensus on the term. The definition of
what constitute a FRAND license agreement is very controversial, yet it is pivotal in striking a
balance during the licensing process. These challenges results in parties resorting to courts for
guidance, by default courts takes the role of determining prices for licensing of SEP. This negatively
affects the dissemination technology and inter-connectivity of products on the EU single market,
since legal lawsuits come at a heavy cost. Wherefore, a well defined process to determine a FRAND
license whilst encompassing the principles of Article 102 TFEU will be quintessential in striking a
balance between these two policies. The CJEU and Commission should aptly state whats the
obligation of each party on the concept of FRAND, which conduct specifically should be regarded
as infringement of Article 102 TFEU.
c) Reconciliation of competition law and SEP.
Taking into cognisance net effect of these two policies in contributing towards innovation, diffusion
of technology and creation of a vibrant single market, policies should be effectively put in a place to
bring these two polices into harmony. The judicial dialogue and cooperation has been very
instrumental in fostering harmonization of patent law150. However it should be noted that there is a
little that can be achieved through judicial dialogue151. The increase in civil litigation is a clear
manifestation that the issue be addressed with a different approach. There should be policies put in
place and Commission should play an instrumental role in in striking a balance between patent law
and competition law.
150 Journal of Intellectual Property Law & Practice, 2019, Vol. 14, No. 9; Harmonization of European Patent Law page 657
151 ibid
44
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48