injunctive relief in frand disputes in the eu...

TILBURG LAW SCHOOL

LEGAL STUDIES RESEARCH PAPER SERIES

Injunctive Relief in FRAND Disputes in the EU? Intellectual Property and Competition Law at the

Remedies Stage

Pierre Larouche & Nicolo Zingales Tilburg University

[email protected] [email protected]

Tilburg Law School Legal Studies Research Paper Series No. 01/2017

This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection

http://ssrn.com/abstract=2909708

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http://ssrn.com/abstract%3D2909708

Electronic copy available at: https://ssrn.com/abstract=2909708

TILEC Discussion Paper

TILEC


INJUNCTIVE RELIEF IN FRAND DISPUTES IN THE EU – INTELLECTUAL

PROPERTY AND COMPETITION LAW AT THE REMEDIES STAGE

Pierre Larouche*

Nicolo Zingales**

Abstract

In dealing with applications for injunctive relief by the holders of FRAND-encumbered

SEPs in the course of protracted licensing negotiations, any legal system faces the

challenge of reaching the proper balance between predictability for stakeholders and

differentiation between possible scenarios (tough negotiations, holdup, holdout or

exclusion). In the EU, that challenge fell to be addressed first under the various national

laws concerning remedies for intellectual property violations, as partially harmonized

by Directive 2004/48. The outcome was not optimal. After German courts introduced

competition law in the equation in Orange Book, the European Commission felt

compelled to intervene with a different approach in Motorola and Samsung, leading to

a reference to the CJEU in Huawei v ZTE. That ruling sets out an elaborate

choreography that SEP holder and implementer must respect, in order to avoid

breaching Article 102 TFEU or avert injunctive relief, respectively. Huawei represents

a satisfactory compromise in practice, but its theoretical foundation in competition law

is not solid. Subsequent case-law has unmoored Huawei from competition law and is

turning it into a stand-alone lex specialis for injunctions in FRAND cases. In the longer

run, legislative intervention might be preferable to de facto harmonization via

competition law.

Keywords

Competition law; Injunctive relief; Licensing negotiations; Europe; Harmonization;

Holdup; Holdout; Exclusion; France; Germany; United Kingdom; Italy; Netherlands

JEL Codes

K21, L40, O32, O34, O38.

* Professor of Competition Law, Tilburg Law and Economics Center (TILEC), Tilburg Law School,

Tilburg University; Visiting Professor, Northwestern Pritzker School of Law. SSRN Author page:

http://ssrn.com/author=537158. ** Lecturer, Sussex University Law School; Extramural Fellow, TILEC; Research Associate, Tilburg

Institute for Law, Technology and Society (TILT); Affiliate Scholar, Stanford Center for Internet and

Society. SSRN Author page: http://papers.ssrn.com/author =962082.

The authors have benefitted from the financial support of Qualcomm in the preparation of this paper, but

the opinions expressed therein are theirs alone.

http://ssrn.com/author=537158

http://papers.ssrn.com/author%20=962082


Injunctive relief in FRAND disputes in the EU Larouche/Zingales

2

Europe has been a theater in the FRAND litigation conflicts that have played out

worldwide in recent years. Cases have arisen in many EU jurisdictions, in particular in

Germany. The European Commission also intervened in some cases, and matters went

up to the Court of Justice of the European Union.

At the same time and conversely, litigation relating to FRAND commitments itself

offered a showplace for another ongoing clash, this time between intellectual property

law and competition law in the EU.

This Chapter provides a reasoned and critical account of the use of injunctive relief in

standards-related litigation in the EU. Part A provides background information and

sketches a basic model of standards-related IP licensing negotiations, and related

litigation. Part B shows how intellectual property law – including the law concerning

the use of injunctions for the enforcement of IP rights – can be, and has been used, to

deal with that litigation in Europe, with specific attention to five jurisdictions, namely

England, France, Germany, Italy and the Netherlands. Part C builds on Part B and

explains how EU competition law was brought to bear on these disputes, culminating

(for now) in the Huawei v. ZTE ruling of the Court of Justice of the European Union.1

Part D looks at the developments following Huawei. Part E completes the analysis with

a critical examination of the current state of the law.

A. A basic model of IP negotiations in a FRAND setting

For the purposes of this model, we assume that, following the establishment of a

standard, two parties are negotiating over the licensing of a Standard-Essential Patent

(SEP) encumbered with a commitment by the SEP holder to grant licenses on fair,

reasonable and non-discriminatory (FRAND) terms. One party is the SEP holder, the

other is an implementer that wants to practice the standard in question in its products.2

Realistically, in contemporary cases, the SEP holder typically holds a significant

portfolio of SEPs, and negotiations are conducted over the licensing of the entire

portfolio. Furthermore, as is recognized in the literature, patents are probabilistic in

nature (Lemley and Shapiro, 2005). This means that the patent office has deployed a

specific amount of effort to ascertaining whether the patents are valid; for reasons of

efficiency and proportionality, such effort is less what would bring iron-clad certainty

regarding validity. Validity is therefore affected by a discount factor: there is a

likelihood that, upon further examination, the patent would be found invalid. By the

same token, whether the patent is actually infringed when the standard is implemented

– i.e. whether the patent is truly standard-essential3 – has not been tested; typically, the

SEP holder has claimed essentiality, and that claim is also affected by the probability

that it could be found wrong, upon closer examination. Aggregating to whole portfolio

of SEPs, both parties know that, should validity and infringement/essentiality be

1 CJEU, 16 July 2015, Case C-170/13, Huawei v. ZTE ECLI:EU:C:2015:477. 2 We leave it open for now whether the SEP holder is also implementing the standard in its own

products, and whether the implementer also holds SEPs of its own for which the SEP holder might

want a cross-license; we will take these possibilities into account when warranted. 3 If the SEP has not been infringed by implementing the standard, then it is not essential. A finding of

non-infringement therefore has much wider-ranging consequences for an SEP than for other non-

essential patents.


3

conclusively tested for all SEPs, some of them would fall, but others would survive

with greater force, since the probabilistic factor would have been removed.

In order to have a complete picture of the parties’ negotiation over a FRAND license,

one needs to consider the outside options of each party. In essence, each party has the

option of escaping the probabilistic realm and forcing a conclusive examination of

validity and infringement/essentiality, in the hope of prevailing in that examination and

achieving a more favorable outcome on the royalty rate. That option exists for each

SEP in the portfolio. For the implementer, this outside option involves a direct

challenge to validity or infringement/essentiality. For the SEP holder, the outside option

is to request injunctive relief against the implementer, and thereby force the

implementer to defend itself against the injunction, among others by arguing invalidity

or non-infringement. Given that the negotiations bear on a broad portfolio, should the

SEP holder exercise its outside option, it will probably pick a SEP that it thinks is very

likely to be found valid and essential.4 On the other side, in order to try to rein in the

SEP holder, the implementer might want to use its outside option and challenge the

validity or essentiality of a weaker SEP. Accordingly, it is quite likely that both outside

options can be validly exercised on different SEPs within the portfolio.

In an ideal world, the SEP holder and the implementer should possess enough

information about the SEPs, the market and their respective positions that they can

come to an agreement. Unfortunately, we do not live in a perfect world. SEP portfolios

are complex and views on their valuation can easily differ. The legal meaning of

FRAND is itself affected by uncertainty. In the ICT sector, the stakes are often massive,

which makes parties defend their interests aggressively. Finally, not all parties can be

assumed to act in good faith at all times.

Taking the above into account, four scenarios are conceivable, broadly speaking:

1. Negotiation. The parties are locked in difficult negotiations to conclude a

FRAND-compliant license. These negotiations might be stalled, and parties might want

to use various negotiation tactics to influence the course of negotiations. Yet parties

have no obvious interest to derail the negotiations by having recourse to outside options.

The threat of the outside option remains hanging, of course. But it would seem more

natural to refer their dispute to a third-party for adjudication (court or arbitrator).

2. Holdup. The SEP holder wants to holdup the implementer, and to rely on its

market power to obtain exorbitant royalties, despite the FRAND commitment. Note

that, in competition policy terms, this represents the exploitation of market power. The

SEP holder would not normally seek to exclude the implementer from the market; that

would result in no royalties at all and would be counter-productive. However, the threat

of injunction might be used to try to force the reluctant implementer to accept a higher

royalty.

3. Holdout. The implementer does not want to conclude a license agreement with

the SEP holder on FRAND terms and intends to practice the standard without such a

license (or with an unreasonably low royalty). Presumably, the SEP holder will want to

use its outside option – threaten an injunction, and even request one – in order to force

the implementer to at least post some security whilst negotiations are underway.

4 As a result, since the implementation of the standard requires the use of SEPs, even if the injunction

only bears on one or a few SEPs, the implementer is in fact prevented from using the standard.


4

4. Exclusion. Should the SEP holder also be competing with the implementer on

the downstream market for products conforming to the standard, a fourth scenario

arises. Despite the willingness of the implementer to license the SEP, the SEP holder is

trying to use its SEP to exclude the implementer from that market. Here, the SEP holder

should have no hesitation to use injunctions to exclude the implementer. The

implementer can counter with a challenge to a weaker SEP, but that provides little help,

since fundamentally there is no mutual interest in concluding a license (contrary to the

first three scenarios). The implementer is best positioned if it also happens to hold SEPs

of its own and can threaten its counterpart with exclusion as well.

At first sight, from a policy perspective, Scenario 1 does not warrant intervention. The parties are managing a difficult negotiation over FRAND licenses, and absent evidence that such negotiations systematically result in welfare losses, it is better to leave the parties to negotiate. What is more, within scenario 1, any policy intervention that would affect the incentives of the parties and push them to litigate more often should be viewed with suspicion, since it generates significant transaction costs over and above an entirely negotiated outcome (Larouche, Padilla and Taffett, 2014). Scenarios 2 and 3 can be seen as pathological cases of Scenario 1, where one party is reneging on its FRAND commitment (SEP holder in Scenario 2) or on the legal requirement to obtain a license, and expectations as to business conduct (implementer in Scenario 3). In Scenario 2, it is not desirable that the SEP holder should be able to obtain, or even seek, injunctive relief. In Scenario 3, on the other hand, the SEP holder should be allowed to seek and maybe even obtain injunctive relief, if the threat thereof does not suffice to discipline the runaway implementer (or at least force the implementer to post security whilst negotiations are ongoing). Finally, in Scenario 4, welfare is adversely affected if the SEP holder moves for injunctive relief. Accordingly, from a public policy perspective, a proper assessment of the use of injunctive relief – or the threat thereof – crucially depends on the ability to ascertain which of these four scenarios apply. Unfortunately, such an inquiry is not simple: it involves looking into how parties behave, how serious their offers are (including whether proposed royalties would qualify as FRAND) and ultimately what their intent is. None of these matters are easy to find out or to judge. Any legal system therefore faces a daunting task in trying to police the use of injunctive relief in SEP-related licensing disputes. Every case requires careful scrutiny. If litigation increases and cases start to pile up, it is difficult to improve the efficiency of decision-making or provide guidelines to prevent disputes. Indeed there are few simple proxies available: at most, one can consider that Scenario 4 is not likely if the SEP holder is not also competing with the implementer on the downstream market. It is against that background that we now proceed to examine how such disputes are handled in Europe. B. IP law and injunctive relief in SEP-related disputes


5

A first and natural port of call has been IP law, given that the subject-matter of the

discussions is a set of patents: SEP holders can ask for injunctions in order to enforce

their rights, whilst implementers can challenge the validity, infringement or essentiality

of a SEP.

Since in the EU the remedies available for enforcement of IP law are harmonized by an

EU directive, Directive 2004/48,5 it is useful to review its basic principles, in particular

with regard to the issuance of injunctions.

Directive 2004/48 must be seen against the backdrop of fragmented IP enforcement in

the EU. Indeed the starting point is that, while the substance of IP rights has been

harmonized to an extent that varies depending on the type of IP right (Seville, 2015),

EU law does not provide exhaustive rules on the enforcement of IP rights. In line with

the general principles of national procedural autonomy in EU law, enforcement is left

to the laws and institutions of the Member States.6

Mounting concerns about the effectiveness of that fragmented system IP enforcement

led to the enactment of Directive 2004/48.7 The Directive defines a general framework

and sets minimum standards by imposing the obligation to make certain measures,

procedures and remedies available to secure effective IPR enforcement.8 This minimal

harmonization approach, which is not unusual in EU law, especially on substantive

matters, can be more problematic in the context of enforcement procedures. Indeed, to

the extent Member States avail themselves of the possibility to retain enforcement

means that are more favorable to rightholders,9 fragmentation will remain, and with it

the potential for inconsistencies and forum shopping.

Directive 2004/48 was also conceived primarily as an instrument to strengthen the

protection of intellectual property rights. As the explanatory notes to the Directive

suggest, the main focus of the legislative exercise was to improve the effectiveness of

the fight against counterfeiting and piracy.10 The Directive was therefore not conceived

with complex IP licensing disputes in mind, but rather simpler, almost one-sided

enforcement actions. Accordingly, the Directive aims to make it easier for rightholders

to enforce their IP rights. By and large, Directive 2004/48 strengthens the hand of

rightholders and only marginally addresses limitations to IP enforcement. Article 3

establishes that means of enforcement provided by the Directive “shall be fair and

equitable” and “shall be applied in such a manner as to avoid the creation of barriers to

legitimate trade and to provide for safeguards against their abuse”. 11 It is only later, in

5 Directive 2004/48 of 29 April 2004 on the enforcement of intellectual property rights [2004] OJ L

157/45, as corrected at [2004] OJ L 195/16 [hereinafter Directive 2004/48]. 6 The doctrine of national procedural autonomy recognizes the power of States to regulate above and

beyond the reach of EU law, provided that such regulation does not compromise the effectiveness the

rights conferred under EU law (principle of effectiveness) and does not discriminate between claims of

national law and claims of EU law (principle of equivalence or non-discrimination). See CJEU, 14

December 1995, C-312/93, Peterbroeck [1995] ECR I-4599. 7 As is explained in the recitals to Directive 2004/48 itself, Rec. 7-9. 8 Ibid., Article 2 (1), containing the explicit acknowledgement that it does not prevent Member States

from providing more favorable means for the protection of rightholders. 9 Ibid. 10 See the Commission proposal which led to Directive 2004/48, COM(2003)46 (30 January 2003) at

pp. 3-12. 11 Directive 2004/48, Art. 3. See ibid., p. 7 for a lone paragraph alluding to the risk that IP enforcement

would affect legitimate competition, carried over in Directive 2004/48, Rec. 12 and Art. 3.


6

2011, that the CJEU began to see that IP protection must sometimes be balanced with

fundamental rights, including the freedom to conduct a business pursuant to art. 16 of

the EU Charter of Fundamental Rights, and must also be proportionate.12

As can be expected, Directive 20004/48 deals with injunctions, one of the main

remedies for IP infringements, both as provisional and precautionary measures

(interlocutory injunctions) and as permanent measures. The former are most interesting

here since, as pointed out in the literature (European Observatory on Counterfeiting and

Piracy, 2011), interlocutory injunctions are the primary or the most effective

enforcement remedy in most Member States, often inducing the parties to reach a

settlement before any consideration of the merits. There is therefore more than meets

the eye in interlocutory injunctions, since they condition the power relationship

between the parties during a crucial period of time (pre-trial discussions); their impact

is difficult to undo afterwards.

As regards interlocutory injunctions, Article 9(1) and (3) of Directive 2004/48 provide

that such injunctions must be available under national law, with a view to prevent any

imminent infringement and or forbid the continuation of an alleged infringement. In

addition, Article 9(4) creates the obligation for Member States to ensure that

provisional measures can also be taken ex parte (subject to subsequent review) where

any delay would cause irreparable harm to the rightholder.

Article 9(5) to (7) establish safeguards for the defendant. The defendant must be entitled

to compensation for any injury caused by the issuance of an interlocutory injunction, in

cases where the injunction is revoked, the rightholder causes it to lapse or the defendant

wins on the merits. In order to ensure that such compensation is available, national

courts must be able to subordinate the issuance of an interlocutory injunction to the

lodging of security by the rightholder. Finally, the defendant must be able to lift the

injunction if the rightholder has not instituted proceedings on the merits within a

reasonable time.

Despite these safeguards, Directive 2004/48 does not clearly set out the test for the

issuance of an interlocutory injunction. At best, Article 9(3) implies that the competent

court must be satisfied that the applicant has proven the existence and the infringement

(real or imminent) of the IP right at stake. The Directive does not mention any further

condition, such as a requirement of irreparable harm, a balance of inconvenience test

or a public interest requirement. In some Member States courts have read an ‘urgency’

condition into the concept of ‘imminent infringement’, whereby rightholders need to

show that their rights cannot be adequately protected unless they obtain an interlocutory

injunction; Other Member States, like Italy, have legislated to counter such case law,

by specifying that urgency is given as soon as there is a real or imminent infringement

(European Observatory on Counterfeiting and Piracy, 2011).13 Leaving that interpretive

feat aside, Directive 2004/48 remains silent, neither requiring nor forbidding the

imposition of further conditions for the grant of interlocutory relief, beyond the

existence of the right and its infringement. This would imply that, on the sole basis of

Directive 2004/48, the laws of the EU Member State would not allow for the kind of

differentiated assessment that the model sketched out above would require, in order for

12 CJEU, 24 November 2011, Case C-70/10, Scarlet [2011] ECR I-11959, at 41-50. 13 The study brings the example of Slovakia, where the law sets the limit of 14 days from the awareness

of the actual or threatened infringement, at 7. The Italian solution is presented as the best practice, at 8.


7

the use of injunctive relief in SEP-related disputes to be properly policed.

The inquiry does not stop at Directive 2004/48, however. In line with general principles

of EU law, if Directive 2004/48 is silent and does not effect full harmonization, any

such further conditions, if any, can emanate from the various national laws, as long as

these further conditions do not infringe EU law.14

Accordingly, even if Directive 2004/48 would signal a policy choice to make injunctive

relief easily and readily available to rightholders, it is necessary to survey national laws

to get a full picture of the legal situation, especially when the law, as Directive 2004/48

intended to frame it, is applied to other types of cases (SEP-related disputes) than the

Directive envisaged. In this contribution, we survey what appear to be the 5 most

frequent fora for patent infringement cases in the EU: France, Italy, Germany, the

Netherlands and England. Because of the changes brought about in the wake of Huawei

v. ZTE,15 this survey is limited to case law up to 2014. Subsequent case law is discussed

later, in Part IV.

1. England

England is where the concept of injunctive relief was born. As the framework for

granting injunctions was well developed by the time of the introduction of Directive

2004/48, only minimal change was made to implement Article 9 of the Directive.16

In order to fully understand the situation in England, some historical depth is needed.

Injunction is an equitable remedy (Raack, 1986). In earlier centuries, injunctions –

mostly interlocutory (Leubsdorf, 1978) – were granted without a full assessment of the

merits (Kerr, 1867). As injunctive relief became more widespread, however, courts

began to look into the relative merits of the claims, in order to constrain possible misuse.

A balance of convenience test arose, focusing on the risk of irreparable damage absent

the grant of an injunction, as compared to the harm that would be suffered by the

enjoined party. Among other relevant factors, the protection of the status quo, i.e. the

need to preserve the current state of affairs, plays a role. In cases concerning

longstanding property or patent rights, it was deemed that denying relief would cause

more inconvenience than protecting the right until the decision on the merits

(Leubsdorf, 1978; Evans, 1817).

The current Patents Act 1977 endorsed the existing framework by establishing the

availability of permanent17 and interim injunctions,18 without however attempting to

constrain the discretion of the courts concerning the conditions for relief to be granted.

14 Supra, note 6. Given that Directive 2004/48 is already concerned with enforcement and introduces

minimal harmonization of enforcement mechanisms with a view to improving the position of

rightholders, additional conditions that would add significantly to the substantive or evidentiary burden

of the rightholder might run counter to the principle of effectiveness and thus be in breach of EU law. 15 Supra, note 1. 16 The only change brought about by implementing legislation with respect to injunctive relief was the

introduction of court orders making continuation of an alleged infringement subject to the lodging of

guarantees, intended to ensure compensation of the rightholder (as required by Article 9(1)(a) of

Directive 2004/48). See Intellectual Property (Enforcement, etc.) Regulations 2006 of 29 April 2006,

Statutory Instrument 2006 No.1028. 17 Patents Act 1977, c. 37, s. 61 (1). 18 Ibid., s. 25 (1).


8

After an unsuccessful attempt to limit the depth of the inquiry in preliminary injunction

cases, in American Cyanamid, 19 the law was summarized as follows in Series 5

Software v. Clarke:20

[I]n deciding whether to grant interlocutory relief, the court should bear the following matters in mind:(1) The grant of a preliminary injunction is a matter of discretion and depends on all the facts of the

case.(2) There are no fixed rules as to when an injunction should or should not be granted. The relief

must be kept flexible. (3) Because of the practice adopted on the hearing of applications for interlocutory

relief, the court should rarely attempt to resolve complex issues of disputed fact or law. (4) Major factors

the court can bear in mind are (a) the extent to which damages are likely to be an adequate remedy for

each party and the ability of the other party to pay (b) the balance of convenience (c) the maintenance of

the status quo [and] (d) any clear view the court may reach as to the relative strength of the parties’ cases

In other words, balance of convenience, status quo and relative merits of prima facie

claims are important guiding factors, but the courts will retain significant discretion in

granting this type of remedies.

Next to the discretion of the court in awarding relief, it is worth noting that a defendant

can defeat a request for injunction if it elects to pay damages, under the following

conditions:21

“(1) If the injury to the plaintiff’s legal rights is small, (2) And is one which is capable of being estimated

in money, (3) And is one which can be adequately compensated by a small money payment, (4) And the

case is one in which it would be oppressive to the defendant to grant an injunction.”

Practitioners note that requests for conversion – and in particular the argument that

enforcement would be “grossly disproportionate”22 – rarely succeed in litigation (Dagg,

2010). Indeed, in the recent case of HTC v Nokia,23 the court concluded that the burden

borne by defendants when claiming gross disproportionality should be a heavy one,

therefore significantly limiting the ambit of that defence against injunctions in patent

cases (Moss, 2014).24

All in all, it is fair to say that the flexibility and discretion built into decision whether

to grant of injunctive relief in England distinguish it from other jurisdictions. 25

Moreover, practitioners point out that the UK is an expensive forum for patent

litigation, and arguably because of the discretionary nature of injunction as an equitable

remedy, does not offer high rate of success to patent holders (Mueller, 2012).

2. Italy

Italy implemented Directive 2004/48 with Legislative Decree 140/2006, which resulted

in some amendments to the provisions of the Intellectual Property Code. On the specific

aspect of injunctions, the former Article 124 of the Intellectual Property Code was

19 American Cyanamid v. Ethicon Ltd [1975] AC 396 (HL). 20 Series 5 Software Ltd v Clarke [1996] 1 All ER 853 (Ch.). 21 Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287 (CA). 22 The meaning of oppression was clarified in 2004 referring to when an injunction would be “grossly

disproportionate” to the right protected. See Navitaire Inc v Easyjet Airline Co [2004] EWHC 1725 (Ch). 23 HTC Corporation v Nokia Corporation [2013] EWHC 3778 (Pat). 24 See also Pumfrey J’s formulation in Navitaire Inc v EasyJet Airline Co Ltd (No 2) [2004] EWHC 2271

(Ch), repeated with approval by Jacob LJ in Virgin Atlantic Airways Ltd v Premium Aircraft Interiors

UK Ltd [2011] EWCA Civ 163. 25 We leave it open whether English law correctly implements Directive 2004/48 on these issues.


9

replaced by Article 131, which extended the possibility of injunctive relief to cases of

imminent harm (in line with the wording of the directive) and introduced the possibility

of ex parte orders. As to the conditions for the grant of an injunction, the provision

refers to the rules in the Code of Civil Procedure. Article 700 of that Code provides that

preliminary injunctions can be granted only if the applicant has legitimate ground to

fear that “during the time necessary for the completion of ordinary proceedings, the

exercise of his right is threatened by an imminent and irreparable harm”. The same

requirements, but to a higher degree of stringency, apply to the issuance of ex parte

injunctions. In both cases the patentee must show good cause and a reasonable

likelihood of success on its claims of validity and of infringement (Jacobacci, 1976).

Hence the existence of a validity challenge makes it more difficult for a court to issue

a preliminary injunction.26 As briefly mentioned above, there is a presumption of

irreparable harm in cases of patent infringement, on the assumption that replication of

the invention will lead to a diversion of sales from the rightholder’s product, which is

hard to quantify and will tend to increase with the passing of time.27

There have been four Italian rulings worth mentioning in SEP cases so far. In 2004, the

District Court of Genoa dismissed the FRAND defense 28 of the implementer and

granted the injunction, because it considered that FRAND terms ought to be assessed

with reference to the common practice of the patentee, and that for a successful FRAND

defense, the burden lies upon the defendant to identify a prejudice in terms of unequal

access to the market relative to its competitors.29 More recently, in 2012, the Court of

Appeal of Milan rejected Samsung’s request for injunctive relief against Apple because

of the prior attempt by Samsung to reach an agreement on FRAND, which the court

took as evidence that monetary compensation would be adequate to repair the potential

harm from a continuation of the infringement.30 In a third case, Ericsson was denied an

injunction against Onda, on grounds that the latter had made an offer for the renewal of

its existing license for GSM/EDGE technology.31 In its assessment of the likelihood of

irreparable damage, the court also recognized “the reduced attractiveness of the patent

for all the other licensees, with the consequent possibility that the companies which

already signed licenses refuse to renew them or request a reduction of the amount of

due royalties, causing therefore a general hollowing of the licensed patent”. This

contrasts with the approach taken by the Court of Rome in 2011 in Ericsson v ZTE,

where a preliminary injunction was denied on grounds that the harm was pure economic

loss.32 In summary, Italian courts are divided on the conditions for injunctive relief.

3. France

26 See Tribunale di Bologna, 3.1.2005, 4847/1, Soc. Sig Alfa/Soc. Sacmi Labelling. Giur. dir. ind., 2005,

625. 27 See in this sense Tribunale di Lodi, 9 giugno 2003, Misal Arexons/Mitam; and more generally,

Tribunale di Milano 23.4.1979. Giur. Dir. Ind. 1979, 528. 28 The FRAND defence would entail that no injunction should be granted, given that the subject-matter

is a FRAND-encumbered SEP (which can be seen as an essential facility) and the parties are in the

process of negotiating a FRAND license. 29 Tribunale di Genova, 8.5.2004, 2521/0-2538/04, Philips/Italcard. Giur. dir. ind., 2006, 175 30 Tribunale di Milano, 5.1.2012, 45629-1-2011 and 59734-2011, Samsung/Apple. Giur. dir. ind., 2014,

51. 31 Tribunale di Trieste, 29.7.2011, Ericsson/Onda. Giur. dir. ind., 2013, 245. 32 Tribunale di Roma, 11.7.2011, Ericsson/ZTE. Giur. dir. ind., 2013, 211.


10

In France, implementation of Directive 2004/48 came in 2007 through the Act on

Fighting Counterfeiting. 33 With respect to injunctions, this legislation effected a

number of changes in the French Intellectual Property Code:34 the most notable is the

elimination of the need for urgency (Coury, 2003). Rightholders are also entitled to

obtain an injunction in case of imminent infringement – that is, before the infringement

takes place – even pursuant to an ex parte proceeding, if the delay would cause an

irreparable harm (although ex parte injunctions remain a rare occurrence) (May and

Liens, 2014).

In a subtle deviation from the Directive, the French IP Code requires that the rightholder

provide sufficient evidence – as may reasonably be available – to show the likelihood

of an infringement, real or imminent. At the same time, irreparable harm seems

presumed once the likelihood of infringement is established. Contrary to other

jurisdictions, a separate showing of irreparable harm is only required in order to obtain

an injunction ex parte.

The presence of a challenge to the validity of the patent could of course affect the

reasoning of the court on whether infringement, real or imminent, is likely. On that

issue, French case law has evolved. Earlier cases did not consider validity challenges

in the assessment of the likelihood of infringement.35 In more recent cases,36 courts

took the opposite stance, ruling that the judge should always examine arguments as to

validity, so as to avoid that the assertion of an invalid patent would affect competition

unduly.37 The case law now seems to have settled on a middle position, whereby the

court will ascertain whether there is a serious validity issue to be tried (i.e. a facially

valid challenge). 38 All in all, the formulation of Article 615-3, with its focus on

likelihood (as opposed to the “serious character of the action” prior to the

implementation of Directive 2004-48), suggests that invalidity questions should be

considered before granting injunctive relief.

There have been almost no reported SEP disputes in France over the last few years. In

a French variant of the Samsung v. Apple litigation, where Samsung was seeking an

interlocutory injunction against Apple for an infringement of SEPs in the iPhone 4S,

Apple argued in its defense that the SEPs were implemented in the Qualcomm chips

that it used, and for which Qualcomm had a valid license from Samsung. The court

sided with Apple and denied the injunction, adding in passim that the application for

injunctive relief was patently disproportionate.39 Similarly, in Ericsson v TCT Mobile,

the court denied injunctive relief because license negotiations were ongoing and the

parties disagreed only on the royalty rate, while agreeing on the geographical extent

and technological scope of the agreement.40 The court noted that granting the injunction

33 Loi n° 2007-1544 du 29 octobre 2007 de lutte contre la contrefaçon, JORF 2007.17775. The title of

that legislation is reflective of the context within which Directive 2004/48 was enacted. 34 CODE DE LA PROPRIÉTÉ INTELLECTUELLE, see in particular Article L. 615-3. 35 See Cour d’appel Lyon, 20 October 2009, 2008/06216, Mundipharma v. Mylan and Tribunal de grande

instance Strasbourg, 10 March 2009, PIBD 2009, 899, Laboratoires Negma v. Biogaran. 36 It should be noted that since 1 November 2009, the Paris courts have exclusive jurisdiction for patent

and other intellectual property matters. These cases are assigned to chambers of specialized judges,

which might explain the evolution in the case law. 37 Tribunal de grande instance Paris, 15 September 2009, PIBD 2010, 913, Radiante v. Medi. 38 Cour d’appel Paris, 21 March 2012, PIBD 2012, 963, Novartis v Mylan. 39 Tribunal de grande instance Paris, 8 December 2011, PIBD 2012, 956, Samsung v. Apple. 40 Tribunal de grande instance Paris, 29 November 2013, 2012/14922, Ericsson v. TCT Mobile Europe.


11

in such circumstances would unduly favor the patentee and distort the principle of

FRAND licences, by putting unjustified pressure on the future licensee. Perhaps the

scarcity of SEP disputes comes from the fact that, according to patent law practitioners,

French courts have started to conduct a balance of interest test when ruling on

interlocutory injunctions, much like in the common law (Véron and Romet, 2011). That

test has sometimes favored the applicant,41 sometimes the defendant;42 in any event it

introduced an element of uncertainty that makes France less attractive to patent owners

than jurisdictions where injunctions are granted as a matter of right.

4. Germany

Directive 2004/48 was implemented in Germany through the Act on Improving

Enforcement of Intellectual Property Rights, 43 which aligned § 139 of the Patent Act –

concerning interlocutory injunctions in patent cases – with the Directive. In general,

such injunctions can be granted on the basis of § 935 of the German Code of Civil

Procedure, which provides that injunctions are available “when there is a concern that

a change in the status quo could frustrate, or make significantly more difficult, the

realization of the rights enjoyed by a party”.

The first condition under § 935 is the existence of a fumus boni iuris, which depends

among others on the defenses raised by the other party. In patent cases, for example,

interlocutory injunctions are typically not granted if the allegation of infringement is

likely to be defeated by a prior finding of invalidity.44 As a result, such injunctions are

only granted if the validity of the patent is not in doubt, typically because it has already

withstood a validity challenge or no such challenge was ever brought because the patent

is commonly perceived as valid.45

As a second condition under § 935, irreparability must be shown. This translates into a

balance of convenience test that, according to some, is not very different from that

occurring in common law jurisdictions (Perkins and Mills, 1996). However, it seems

that German law is more stringent than US law, since interlocutory injunctions are

barred where the decision on the merits appears complex (e.g. an expert must be

consulted) or concerns an “equivalent” infringement (Shimada et al, 2007). 46 In

contrast, German law is rather permissive when it comes to permanent injunctions,

since a permanent injunction will be issued upon a showing of infringement, absent an

41 Tribunal de grande instance Paris, 12 February 2010, 2010/51453, DuPont v. Mylan (Losartan) and 28

January 2011, 2011/50892, Novartis v. Actavis (Diovan). 42 Tribunal de grande instance Paris, 19 August 2010, 2010/56889, Aventis v. Teva (Taxotere). 43 Gesetz zur Verbesserung der Durchsetzung von Rechten des Geistigen Eigentums, BGBL.

2008.I.1191. The Act entered into force on 1 September 2008. The Act made parallel modifications to

the remedial provisions of the various pieces of legislation dealing with specific intellectual property

rights. For the purposes of this contribution, only the modifications to the Patent Act (Patentgesetz,

BGBL. 1981.I.1) are considered. 44 See e.g. the denial of injunctive relief by the Düsseldorf Oberlandesgericht in the Olanzapine litigation,

which was reversed on appeal because the validity decision on which the denial was grounded was

“clearly erroneous” in light of the parties’ statement of facts and the infringement court’s own expertise.

Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf 29 May 2008, GRUR-RR 2008, 329

(Olanzapine). 45 Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf 29 April 2010, BeckRS 2010, 15862

(Harnkatheterset). 46 An equivalent infringement is a functional type of infringement, where the infringing product is not

identical on its face, but achieves the same function or result, or operates in the same way.


12

extreme likelihood of invalidity or a violation of competition law (Jones, 2014; Korber,

2013).

Thirdly, under § 935, urgency needs to be proven. Courts differ on how quickly the

applicant must have come to the court (IPEG). Besides timing, there is a need to show

imminent harm, to be balanced against the interests of the defendant (Cotter, 2014;

Kühnen, 2013). In cases of extreme urgency, an injunction can also be entered ex parte.

Germany is a peculiar jurisdiction among those mentioned, however, because of

bifurcation: patent validity and patent infringement are heard by two distinct courts.

The Federal Patent Court, in Munich, is competent for validity challenges, whereas

infringement proceedings – and interlocutory injunctions – are handled by the local

district courts (Landgericht).47 Accordingly, if the applicant shows fumus boni juris, as

mentioned above, it will not possible for the defendant to raise invalidity as a defense

in an infringement proceeding (de Coster, 2002).48 As a consequence, Germany has a

high concentration of patent infringement suits.

It should come as no surprise, then, that the German Supreme Court was the first to rule

on the availability and use of injunctive relief in SEP-related litigation, in 2004, in the

now famous Orange Book case.49 In Orange Book, the plaintiff, Philips, was seeking a

permanent injunction against the defendant for infringement of Philips’s patents

concerning CD-R/CD-RW supports. The defendant was producing CD-R/CD-RWs

without a license for these patents, and these patents were de facto essential (there was

no formal standard involved). The Supreme Court found in favor of the plaintiff. As a

starting point for its reasoning, the Court notes that while a license-seeker cannot

implement the patent unless and until it has a license from the patent holder, the patent

holder can be estopped from seeking injunctive relief against the license-seeker. This

is the case, holds the Court, in line with case law concerning patent damage cases,50

where the license is indispensable to enter a market, and the patent holder cannot refuse

to grant a license without breaching competition law.51 The Court adds, however, that

a breach of competition law would only occur if the patent holder sought injunctive

relief against a “willing licensee”, i.e. a license-seeker that complies with two

conditions:

47 The same division applies to European patents protected in Germany, where revocation proceedings

are governed by German procedural rules and European substantive law: See Art. 138(1) of the European

Patent Convention. 48 However, should the district court estimate that there is high probability of invalidation, it may decide

to stay the proceedings to wait for the outcome of a pending opposition or nullity action. In practice, this

occurs in the presence of novelty-disproving prior art that was not considered during patent examination. 49 Bundesgerichtshof [BGH] [Federal Court of Justice], 6 May 2009, BGHZ 180, 312, NJW-RR 2009,

1047, GRUR 2009, 694, WuW 2009,773 (Orange Book Standard). 50 See Bundesgerichtshof [BGH] [Federal Court of Justice], 13 July 2004, BGHZ 160,167, IIC 2005,

741 (Standard-Spundfass); Landgericht [LG] [District Court] Düsseldorf, 30 November 2006, BeckRS

2011, 06018 (Video Signal Encoding I); Landgericht [LG] [District Court] Düsseldorf, 30 November

2006, NJOZ 2007, 2100, BeckRS 2007,06067, WuW 2007, 1278 (MPEG2); Landgericht [LG] [District

Court] Düsseldorf, 13 February 2007, BeckRS 2008,07732 (GPRS); Landgericht [LG] [District Court]

Düsseldorf, 17 April 2007, BeckRS 2007, 15905 (White Light LED II). 51 As the Court notes, a patent holder would be in bad faith if it calls on the coercive power of the State

to support it in its refusal to do something that it is legally bound to do in any event.


13

1) The license-seeker made, and remains bound by, an unconditional offer to

conclude a license, which cannot in good faith be rejected by the patentee.52

2) The license-seeker is already behaving as if the licence had been granted, i.e. it

is paying the royalty that it offered to pay or it is putting in escrow an amount

equivalent to such royalty.

Since then, significant controversy arose with respect to these two “willing licensee”

conditions. For example, lower courts have gone as far as finding that, in order to be

considered a “willing licensee”, a license-seeker must accept to forego the right to

challenge the validity of the patent,53 agree to FRAND terms specified by the owner,

subject to court review, accept liability for past infringements54 or even pay damages

outright (if necessary, in an escrow account) upon entry in the market. Even more

strikingly, a German court held that answering the patent holder with a full counter-

offer, as opposed to proposing mere adjustments to the initial offer, denotes

“unwillingness” on the part of the license-seeker, unless the initial offer was an

“obvious violation” of competition law.55 As a result of Orange Book and its progeny,

Germany rose to become the preferred litigation venue for SEP holders, as much as for

patent holders more generally.

5. Netherlands

The Netherlands is a famous forum for patent disputes, because of the availability of a

summary procedure (kort geding) that does not follow the traditional rules of evidence

and is not subject to appeal. Kort geding takes place before a single judge, with a

judgment in 6 to 8 months, making it one of the fastest procedures in Europe.56 In

addition, patent litigation takes place before specialized courts, namely the Hague

District Court and the Hague Court of Appeal, which have exclusive jurisdiction over

issues of patent validity and infringement. Directive 2004/48 was implemented in

Dutch law through amendments to the Code of Civil Procedure, adding provisions on

ex parte injunctions57 and the lodging of guarantees as an alternative to an interlocutory

injunction.58

The conditions for the issuance of an interlocutory injunction closely resemble those of

German law, the primary element being a strong prima facie case with no material

52 However, the Court also considers that a clause that leaves the royalty determination to the equitable

discretion of the patentee (potentially subject to subsequent judicial review) is acceptable within this

framework. 53 Oberlandesgericht [OLG] [Court of Appeal] Karlsruhe, 27 February 2012, WuW 2012, 508, GRUR

2012, 736 (Motorola v. Apple). 54 Landgericht [LG] [District Court] Mannheim, 9 December 2011, BeckRS 2011, 29013, MittdtPatA

2012, 120 (Motorola v Apple). 55 Landgericht [LG] [District Court] Mannheim, 2 May 2012, BeckRS 2012, 11804 (Motorola v.

Microsoft). 56 Following CJEU, 14 December 2000, Joined Cases C-300/98 and C-392/98, Christian Dior [2000]

ECR I-11307, the Wetboek van Burgerlijke Rechtsvordering [Rv] [Code of Civil Procedure] was

amended to clarify that, in patent cases, the kort geding measures are interlocutory and must be followed

by a claim on the merits within a reasonable period, failing which these measures expire. 57 Art. 1019e Rv. However, practitioners report that such injunctions are rarely granted: Hooneman

(2013). 58 Art. 1019g Rv.


14

doubts regarding patent infringement or validity.59 Usually, it is not necessary to show

irreparable harm, as this is generally presumed from the ongoing infringement;

however, an interlocutory injunction can normally be obtained only by if the patent

holder acted within two to ten weeks from gaining knowledge of the infringement.

In addition, courts take into account all relevant interests and circumstances, through a

balancing exercise, before issuing an injunction.60 This balancing exercise can be

consequential in SEP-related cases. For example, in two cases the court denied

injunctive relief, because the license-seeker had initiated good faith negotiations61 or

the patent holder had failed to disclose the patent to the SSO before the standard was

set.62 Furthermore, in Samsung v. Apple, in 2011, the court found against the patent

holder for having requested a disproportionate royalty, even though on its side the

implementer had not offered to take a license for all patents of the SEP portfolio

(considering some of those as non-essential). 63 In a subsequent case between the same

parties, the court refused to grant an injunction, finding that the patent holder had failed

to respond to a counter-offer of the implementer before starting litigation.64

As against this line of case law, a famous decision, Philips v. SK-Kassetten, took a more

patent holder-friendly stance, with the court holding that injunctions are by default

granted if infringement is proven, except in case of unspecified “special

circumstances”.65 In that case, the court dismissed the FRAND defense raised by the

implementer, on the ground that no offer had been made by the implementer. The court

added that, even if an offer had been made but not accepted, the implementer would

still not be entitled to operate on the market on the basis of an implied license; in order

to escape a finding of infringement, the implementer would need to obtain a license on

the terms and conditions offered by the patent holder (and then possibly recover excess

royalties through a restitution claim) or a court decision substituting for the patent

holder’s consent. SK-Kassetten is particularly controversial because it is even more

demanding than the German Orange Book case.

6. Conclusions from the comparative overview

A number of points emerge from the preceding survey.

First, in practice, Directive 2004/48 does not prejudge the outcome of applications for

interlocutory injunctive relief in SEP-related cases. On its face, the Directive aims at

strengthening the position of rightholders, as part of the fight against counterfeiting and

piracy; yet its scope is broad, since it extends to IP enforcement overall, including less

one-sided matters such as SEP-related cases. Directive 2004/48, if applied in SEP cases

with the same intent as in counterfeiting and piracy cases, could have led to a system

59 For instance, when the applicant can show that there is repeat infringement or that the patent has

successfully withstood challenge in other cases. 60 Hooneman (2013). 61 Rechtbank [Rb] [District Court] Den Haag 10 maart 2011, IEPT 2011031, IEF 9463 (Sony/LG). 62 Rechtbank [Rb] [District Court] Den Haag 25 april 2007, IEPT 20070425, IEF 3891 (Philips/LG). 63 Rechtbank [Rb] [District Court] Den Haag 14 oktober 2011, ECLI:NL:RBSGR:2011:BT7610

(Samsung/Apple). 64 Rechtbank [Rb] [District Court] Den Haag 14 maart 2012, ECLI:NL:RBSGR:2012:BV8871

(Samsung/Apple). 65 Rechtbank [Rb] [District Court] Den Haag 17 maart 2010, IEPT 20100317, IEF 8682 (Philips/SK-

Kassetten).


15

where injunctive relief was easily available to SEP holders, upon a showing of

infringement. This would not be in line with the model sketched out above, where the

availability of injunctive relief should depend on whether the parties are in a

Negotiation, Holdup, Holdout or Exclusion scenario, a matter which can only be judged

by reference to the conduct and motivation of the parties.

Indeed, in all the jurisdictions surveyed, courts have found means to factor in the

conduct of the parties in their decisions on injunctive relief in SEP-related cases.

English courts might have had the easiest task, given the equitable nature of injunctive

relief under English law, which endows the court with considerable discretion. Italian

courts have relied on the requirement to show a prima facie case and the requirement

of irreparable harm (even if presumed). French courts have introduced a form of

balance of convenience test in the case law on injunctive relief in SEP cases. Dutch

courts have also sought to work with a balance of convenience test. As for German

courts – albeit in a permanent injunction setting where relief follows from infringement

– competition law was brought into the picture in order to offer a mechanism by which

the conduct of the parties could influence the outcome of the case.

Secondly, while as stated in the previous paragraph, courts appear to recognize the need

to take the conduct of the parties into account, they do so through various means and

with varying results, not only as between the five jurisdictions surveyed, but also within

those jurisdictions. Case law is often not settled. Accordingly, there is no uniform

treatment of applications for injunctive in SEP-related cases across the EU, and in that

sense the harmonizing effect of Directive 2004/48 is not felt. As always, there are some

merits to diverging solutions across the EU, not the least of which is the ability to

experiment with various solutions on complex issues that have no obvious answer

(Larouche and Chirico, 2008). Nevertheless, in the case of SEP-related litigation,

almost every other element in the dispute is global or at least regional, save for the

forum and the applicable law: the standards are global, the industry players operate

globally, product are developed and marketed globally, and to some extent the demand

is also global.66 It is incongruous than that, for an integrated region like the EU,

injunctive relief would be decided at national level without much coordination,

resulting in a patchwork of remedies. Beyond the transaction costs involved, this might

give rise to externalities, inasmuch as firms would be hampered from pursuing EU-

wide strategies because of the decisions in one or the other jurisdiction. Furthermore,

fragmentation opens the door to forum shopping.

In the absence of any indication that courts try to learn from each other across

jurisdictions, and in the absence of any EU-level legislative initiative to harmonize

national laws beyond Directive 2004/48 on this point, it is unlikely that applications for

injunctive relief in SEP-related cases will be treated in line with the model outlined

above across the EU.

C. Use of competition law to bring about convergence

1. Decision practice of the European Commission

66 Witness the worldwide excitement that precedes every product announcement by a firm like Apple.


16

The discussion of German law, above, has made clear that competition law could be

invoked by the defendant in claims for injunctive relief to enforce a SEP. Competition

law would then apply to prevent the claimant – the SEP holder – from obtaining

injunctive relief, on the grounds that obtaining an injunction against the implementer

would constitute an abuse of a dominant position (Article 102 TFEU).

Considering the differences between the various jurisdictions when it comes to granting

injunctive relief in IP matters, the application of competition law gains even more

salience. It can be used not just to ‘correct’ IP law in a given jurisdiction, but also to

ensure a given level of harmonization as between jurisdictions. Either the law of a

jurisdiction allows the court to take into account the conduct of the parties when

deciding whether to grant injunctive relief for a violation of IP rights, or EU

competition law intervenes to enable the court to do so. It should come as no surprise,

then, that EU institutions, building on the approach of the German Supreme Court,

turned to EU competition law to correct or refine IP law, and to lead to some measure

of convergence across the EU.

In 2014, the Commission set out its views as regards the availability of injunctive relief

in SEP-related cases in two companion cases: an infringement decision in Motorola,67

and a commitment decision in Samsung.68 In both cases, the implementer seeking a

license was Apple, well known as a manufacturer of mobile devices (iPhone). At the

relevant time both SEP holders (Motorola and Samsung) were also competing with

Apple, as device manufacturers.69 In terms of the model set out above, this could

indicate Scenario 4 (Exclusion).

In Motorola, Motorola was locked into a protracted battle with Apple over the terms

and conditions for Apple’s license of Motorola SEPs reading on the GPRS standard

(used in every iPhone).70 Motorola had given a FRAND commitment to ETSI regarding

these SEPs. Starting in April 2011, Motorola sought an injunction against Apple before

the Mannheim District Court for patent infringement, in order to prevent the sale of

iPhones in Germany.71 In the course of that case, Apple made a series of offers to

Motorola, so that at least it could qualify as a ‘willing licensee’ and invoke Orange

Book against Motorola to defeat the injunction claim. A first Apple offer was rejected

by Motorola as insufficient. A second offer left the determination of the royalty rate to

Motorola’s equitable discretion, provided for the payment of a provisional royalty into

an escrow account, and included a withdrawal of any pending validity challenges to

Motorola’s SEPs. That offer was also rejected by Motorola, and the Mannheim District

Court sided with Motorola in a judgment of 9 December 2011, finding that the offer

did not meet the requirements of Orange Book, thereby granting Motorola the

injunction against Apple. Apple continued to make changes to its offer, until a sixth

version was found by the Karlsruhe Appeal Court to comply with Orange Book, leading

to a stay of the injunction order. The injunction proceedings were thereafter abandoned.

67 European Commission, 29 April 2014, AT.39985, Motorola - Enforcement of GPRS standard essential

patents [2014] OJ C 344/6. 68 European Commission, 29 April 2014, AT.39939, Samsung - Enforcement of UMTS standard essential

patents [2014] OJ C 350/8. 69 The mobile device business of Motorola was sold to Google in 2012, and subsequently sold by Google

to Lenovo in 2014. Google kept to itself the majority of Motorola’s patent portfolio, however. 70 The summary of the facts is derived from para. 110-176 of Motorola, supra note 67. 71 Apple replicated by asserting non-SEPs against Motorola.


17

It is against that background that the Commission ruled on Apple’s complaint that

Motorola’s course of conduct violated Article 102 TFEU. The Commission found that

the licensing of GPRS technologies was a separate relevant market, 72 on which

Motorola held a dominant position, because there is no alternative to licensing its

SEPs.73

The most interesting part of the Commission decision concerns the abuse by Motorola.

There the Commission chose to follow the line of case law on “exceptional

circumstances” under which the decisions of IP rightholders can be overridden by

competition law. 74 So far these cases concerned refusals to license IP, 75 but the

decision of the Commission in Motorola extended the case law to the use of injunctions

to enforce IP rights. According to the Commission, while SEP holders – like any patent

holder – can in principle seek and enforce injunctions, such a course of conduct can be

abusive under “exceptional circumstances”. What is more, in line with the position it

took in Microsoft,76 the Commission stated that the list of “exceptional circumstances”

is open-ended. In Motorola, instead of the well-known set of “exceptional

circumstances” arising out of the case law,77 the Commission emphasized two novel

circumstances, namely (i) the standard-setting context and (ii) the FRAND commitment

given by Motorola.78 The Commission considers that Apple’s second offer – in contrast

with the finding of the Mannheim District Court under the Orange Book case law – did

make Apple a willing licensee, and that from that point on Motorola’s continued pursuit

of injunctive relief was abusive.79

In Motorola, the Commission did not indicate, however, what the proper course of

conduct would have been in Motorola. That answer is to be found in Samsung. The

substantive analysis in Samsung is largely in line with Motorola, so we will focus only

on the main elements of the commitment given by Samsung in order to avoid a finding

of infringement.80 Samsung undertook to refrain from seeking injunctive relief against

any implementer that complies with a ‘Licensing Framework’ for the determination of

FRAND terms and conditions. That Licensing Framework includes an invitation to

72 Motorola, supra note 67, at para. 179-213. 73 Id. at para. 221-236. The Commission also rejected Motorola’s submission that Apple had

countervailing buyer power: at para. 237-268. 74 Id. at para. 271-278. 75 As in CJEU, 6 April 1995, Joined Cases C-241 and C-242/91 P, Magill [1995] ECR 1-743; CJEU, 29

April 2004, Case C-418/01, IMS Health [2004] ECR I-5039; General Court, 17 September 2007, Case

T-201/04, Microsoft [2004] ECR II-3601. 76 Id. at para. 303. The General Court did not reject the Commission position out of hand, but it was

clearly uncomfortable with it, since it chose to uphold the Commission decision on the basis that it fitted

squarely within the established list of ‘exceptional circumstances’ in the case law mentioned supra. This

made the case weaker: see Larouche (2008). 77 These are, in the formulation of Microsoft, id. at para. 332-333: (i) the refusal relates to a product or

service indispensable to the exercise of a particular activity on a neighboring market; (ii) the refusal is

of such a kind as to exclude any effective competition on that neighboring market; (iii) the refusal

prevents the appearance of a new product for which there is potential consumer demand; and (iv) there

is no objective justification for the refusal. See also Guidance on the Commission's enforcement priorities

in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings

[2008] OJ C 45, 24.2.2009, p. 7–20, para. 75-90. 78 Motorola, supra note 67, at para. 281. 79 Id. at para. 301-307. 80 Samsung, supra note 68, at para. 75 and ff.


18

negotiate issued by Samsung, a 12-month negotiation period followed by third-party

determination of FRAND terms and conditions if no agreement could be reached. That

determination is carried out by a court, by default, unless the parties agree to arbitration.

The third-party adjudicator is able to consider issues of validity, infringement and

essentiality in the course of the ruling; that ruling is made public. Licensing cannot be

made conditional upon cross-licensing on the part of the implementer. Furthermore, it

is implicit in the commitments that the implementer cannot be required to waive its

right to challenge validity or infringement, or to put sums in escrow, 81 as a pre-

condition for negotiation.

Under the Samsung commitments, during the negotiation period, implementers may

practice the standard without fear of injunctive relief and without obligation to put

funds in escrow.

At the same time, Motorola and Samsung change the standard for competition law

liability in SEP disputes in Europe, as reflected at the time in Orange Book. Whereas

Orange Book put the onus on the implementer to act in order to be able to raise a

‘competition law defence’, under Motorola and Samsung it is the SEP holder that must

be pro-active if it is to retain some hope of escaping Article 102 TFEU and availing

itself of injunctive relief. The starting presumption in Orange Book is ‘injunctive relief

is available unless…’, whereas in Motorola and Samsung it is ‘injunctive relief is an

abuse of dominant position unless…’.82 Of course, as the Commission explains in both

cases, the standard-setting context and the FRAND commitment are the two

exceptional circumstances that justify this presumption; neither of these was present in

Orange Book (which nonetheless involved a de facto standard). From a monitoring and

enforcement perspective, under Orange Book, it is up to the implementer to come out

of the woods, so to say, and address an offer to the SEP holder, whereas under Motorola

and Samsung, the SEP holder must actively monitor the use of its technology and

immediately address invitations to negotiate to apparent implementers in order to

preserve its legal position.83

The reversal of Orange Book is not lost on the Commission. In Motorola, the

Commission relies on Deutsche Telekom84 to dismiss Motorola’s argument that it was

entitled to rely on Orange Book to guide its conduct.85 According to the Commission,

it was always within Motorola’s control to seek injunctive relief or not, and reliance on

Orange Book did not relieve it from the need to comply with Article 102 TFEU (and

its special responsibility under that provision). This allows the Commission to avoid

explicitly stating that it disagrees with the German Supreme Court’s interpretation of

Article 102 TFEU in Orange Book. The Commission acknowledges that such an

overruling can create legal uncertainty, but it puts forward its role as guardian of the

uniform interpretation of EU competition law in order to justify its departure from

81 Escrow can be required by the court or arbitration tribunal, if and when the parties end up before a

third-party adjudicator: id. at para. 117. 82 As the Commission indicates in Motorola, supra note 67, at para. 434, the abuse is made out already

by the mere recourse to injunctive relief, and the conduct of the implementer can be raised as a defence. 83 While this might not seem too heavy a burden in the case of mobile communications devices, where

the number of manufacturers is limited, the use of other standards might be harder to police. 84 CJEU, 14 October 2010, Case C-280/08, Deutsche Telekom [2010] ECR I-9555. 85 Motorola, supra note 67, at para. 467-468.


19

Orange Book.86 The Commission is therefore not only fully aware of the harmonizing

effect of its Motorola and Samsung decisions, it even embraces such effect as a

justification for its intervention in these cases.

2. The CJEU steps in: Huawei v. ZTE

In view of the tension between Samsung/Motorola and Orange Book, the Landgericht

[District Court] Düsseldorf submitted a preliminary reference to the CJEU in Huawei

v. ZTE, asking clarifications concerning the conditions for “safe harbor” in SEP

disputes.87 Through its questions, the Düsseldorf court tried to force the CJEU to

commit to one or the other of the two approaches.

In a judgment delivered on 16 July 2015, the Court aims to find a middle path between

Orange Book and Motorola/Samsung, without mentioning either precedent.88 First of

all, much like the Commission, the Court frames the case within the case law on

‘exceptional circumstances’ under which the exercise of an IP right can breach Article

102 TFEU. In Huawei, these exceptional circumstances are that (i) the patent is a SEP

and (ii) the SEP holder has given a FRAND commitment.89 Given that a SEP can

prevent the commercialization of products manufactured by competitors, that

commitment creates ‘legitimate expectations on the part of third parties that the

proprietor of the SEP will in fact grant licenses on such terms’, and therefore, refusal

to do so may constitute abuse of a dominant position.90

Yet the Court is mindful that, in situations where parties have not been able to reach an

agreement, patent holders must be able to protect their rights. This includes the right to

seek injunctive relief to prevent the unlicensed use of the patent.91 Hence the Court

proceeds to delineate more precisely the conditions under which the SEP holder can

apply for injunctive relief without breaching Article 102 TFEU: they take the form of

a set of prior steps – almost a choreography – that must have taken place ahead of any

application for relief.92 These steps are as follows:

(i) the SEP holder specifically alerted the implementer to the infringement of the SEP;93

(ii) the implementer indicated its willingness to conclude a FRAND license;94

(iii) following (ii), the SEP holder made a specific, written offer to the implementer for

a license on FRAND terms, including all the terms and conditions normally found in a

license, and in particular the amount of royalty and its method of calculation; 95

86 Id. at para. 470-71. 87 See the summary of the request at [2013] OJ C 215/5. 88 AG Wathelet was more explicit on this point in his Opinion of 20 November 2014,

ECLI:EU:C:2104:2391 at para. 47-51. 89 Huawei v. ZTE, supra note 1, at para. 48-53 90 Id. at para. 53. The Court specifies that this may “in principle” be an abuse, suggesting that there may

be exculpatory circumstances for this conduct. However, the judgment does not elaborate on this point. 91 Id. at para. 54-59. 92 Id. at para. 60. 93 Id. at para. 61-62. Note that, in contrast with the Opinion of the Advocate-General, the requirement of

notification is now a separate step from the submission of a concrete invitation to license, which is

triggered only once the prospective licensee expresses his willingness (in the abstract) to enter into a

licensing agreement. 94 Id. at para. 63. The Court does not explicitly set the reply of the implementer as a separate step. 95 Id.


20

(iv) the implementer responded in a serious manner to the offer, ‘in accordance with

recognized commercial practices in the field and in good faith’, and particularly without

delaying tactics. If it did not accept it, it submitted a written and specific counter-offer

that corresponds to FRAND terms; 96

(v) if the SEP holder did not accept the counter-offer, the implementer provided

appropriate security for the payment of royalties in case it decided to proceed to use the

SEP ahead of the conclusion of a license agreement.97

Only if and when the SEP holder has complied with its duties above, and the

implementer failed to do so, can the SEP holder seek injunctive relief without breaching

Article 102 TFEU. The implementer would then be an ‘unwilling licensee’.

The Court then adds an important remark: the SEP holder cannot object that the

implementer is challenging the validity or infringement of the SEP, or is insisting to

reserve the right to do so.98

D. Discussion of Huawei in the light of subsequent cases

Huawei brought about important clarifications on the applicability – and the application

– of Article 102 TFEU to SEP-related disputes. Despite the apparent care with which

the CJEU tried to frame its ruling, one could not really expect the matter to be settled.

Indeed a number of issues arise from subsequent case law and commentary on the

judgment (Rato and English, 2016; Petit, 2015; Brankin et al., 2016). Next to a handful

of cases in the UK, Italy and France,99 Huawei has been applied in some 15 decisions

in Germany in the year following its issuance. These judgments will inform the

following discussion.

First of all, the theory of harm underpinning the Court’s analysis is not clearly set out,

giving rise to a number of questions about the scope of application of the ruling.

Secondly, even if the ruling spells out a choreography of licensing negotiations, each

of the various steps have given rise to further questions, some practical, some more

fundamental. Thirdly and more speculatively, the judgment could have implications for

FRAND-unencumbered SEPs or de facto essential patents.

1. Theory of harm

Much like Motorola and Samsung, Huawei involves two parties that compete in the

same downstream market; as such, it could fall under Scenario 4, i.e. Exclusion, where

the SEP holder seeks to obtain an injunction to exclude the implementer from the

downstream market. 100 Indeed the reasoning of the CJEU appears to rest on an

exclusionary theory of harm. In particular, the two ‘exceptional circumstances’

justifying the override of IP law reflect a concern for exclusion. A SEP is presented by

the Court as “indispensable to all competitors which envisage manufacturing products

96 Id. at para. 65-66. 97 Id. at para. 66-67. 98 Id. at para. 69. 99 See Unwired Planet v. Samsung [2016] EWCA (Civ) 489; Tribunale di Torino, 18 gennaio 2016,

30308/2015, Sisvel/ZTE; Tribunal de commerce Marseille, 20 September 2016, 2016F01637, Wiko v

Sisvel. 100 The facts, as stated in the CJEU judgment or in the Opinion of the Advocate General, do not shed

light on the true motivation of Huawei.


21

that comply with the standard to which it is linked”.101 SEP status is only granted

because of the FRAND commitment, or otherwise, in the eyes of the Court, the SEP

holder could “prevent products manufactured by competitors from appearing or

remaining on the market and thereby reserve to itself the manufacture of the products

in question”.102 According to that reading of Huawei,103 an abuse would occur only

where leveraging is likely, and the SEP holder would aim for exclusion on the

downstream market.104

Yet shortly after the passages quoted above, the Court seems to envisage that its

reasoning applies more generally than as between competitors, since it finds that a

commitment “to grant licences on FRAND terms creates legitimate expectations that

the SEP holder will in fact grant those licenses”. 105 This suggests that everyone is

entitled to FRAND licenses, and thus any denial may constitute an abuse. In the absence

of a competitive relationship between the SEP holder and the implementer, however,

the abuse would have to be exploitative in nature, which is not covered by the theory

of harm of the Court under the ‘exceptional circumstances’. The Commission seems to

support this expansive reading.106

National courts are divided on how to read Huawei as regards the theory of harm. Only

in one single case has a court of appeal looked directly into this issue; it did find that

the CJEU in Huawei chose to limit its theory of harm to exclusion, in a situation where

it would have been open to the CJEU to expressly extend the theory of harm to

exploitation as well.107 In another judgment, a lower court read Huawei as not implying

that licensing terms and conditions (including royalties) always constitute an

exploitative abuse when they were agreed to by the implementer under threat of

injunction from the SEP holder.108

Against that narrow and prudent reading of Huawei, one finds a larger number of cases

where courts, without too much discussion of principle, apply Huawei to cases that do

101 Huawei, supra note 1, at para. 49 [emphasis added]. 102 Id. at para 52 [emphasis added]. 103 Id. This reading relies on the words “in those circumstances” used at the beginning of para. 53 to tie

the notion of abuse with the theory of leveraging detailed in para. 52. See in this sense also Petit (2015). 104 This would explain the words “may, in principle” that qualify the definition of such conduct as

abusive. 105 Huawei, supra note 1, at para. 53 106 Commissioner Verstager (2015) indicated that she prefers the more generalized reading relying on

legitimate expectations, where a SEP holder can abuse its dominant position once it “commit[s] in

advance to license [the SEP] to all third parties on fair, reasonable and non-discriminatory terms”. The

Commissioner explained the rationale of this obligation, which is to guarantee that standards “are open

to all”. However, she did not explicitly state whether, in the eyes of the Commission, the failure to grant

a FRAND license to a non-competitor entails a violation of Article 102 TFEU. 107 Oberlandesgericht [OLG] [Court of Appeal] Karlsruhe 31 May 2016, GRUR-RS 2016, 10660, at

para. 23. 108 Landgericht [LG] [District Court] Düsseldorf 31 March 2016,

ECLI:DE:LGD:2016:0331.4A.O126.14.00, BeckRS 2016,08040 (Saint Lawrence v. Vodafone), at

para. 281-283 (a largely identical judgment has been rendered in a case between the same parties,

concerning another SEP: Landgericht [LG] [District Court] Düsseldorf 31 March 2016,

ECLI:DE:LGD:2016:0331.4A.O73.14.00 (Saint Lawrence v. Vodafone); reference will be made to the

first judgment, docket no 4a O126/14). See also the tentative analysis of the Landgericht [LG] [District

Court] Mannheim 27 November 2015, GRUR-RS 2015, 20077 (Saint Lawrence v. Deutsche Telekom)

at para. 140 and 160.


22

not fall within an exclusionary theory of harm. For one, in most post-Huawei cases, the

plaintiff is a patent assertion entity, which is by definition not competing with the

defendant.109 The theory of harm cannot then be exclusionary; as courts have noted in

some cases, the parties are in principle aiming to conclude a license agreement on

FRAND terms, but cannot agree on those terms.110 In terms of our model, this means

that the parties are in Scenario 1 (Negotiation), 2 (Holdup) or 3 (Holdout), and

accordingly that the only relevant theory of harm for Article 102 TFEU purposes is

exploitation through Holdup (Scenario 2).

What is more, on the defendant side, courts have also found that any third party can

signal its willingness to obtain a SEP license on FRAND terms and, as the case may

be, avail itself of Huawei in defense to a claim for injunctive relief, even if that third

party is not a competitor of the SEP holder. 111 In the words of one court, “[t]he

limitations imposed by competition law in relation to SEPs benefit all market parties,

so that every interested party is entitled to a FRAND license.”112

One way to reconcile these interpretations could be to consider that, in light of the

importance of EU policy to ensure openness of the standards adopted by SSOs, a SEP

holder is a potential competitor in all those markets in which its SEP can be used or

sold, and the exclusionary theory of harm would therefore extend to all cases where a

SEP holder seeks injunctive relief. Such a construction would, however, stretch

exclusion beyond its standard meaning, and would infuse competition law analysis with

public policy considerations relating to standardization policy.113 Extending the benefit

of the “FRAND defense” under Article 102 TFEU to all potential SEP users opens up

new scenarios, involving distributors or suppliers at different levels of the production

chain. By the same token, the choreography set out in Huawei would also apply in these

relationships.

The extension of Huawei down the value chain was at the centre of a series of major

cases in Germany, where Saint Lawrence – a patent assertion entity holding SEPs –

sought an injunction against mobile operators Deutsche Telekom and Vodafone,

respectively, in order to prevent them from selling certain phones made by HTC.114 The

SEP was incorporated in mobile devices manufactured by HTC and resold by Deutsche

109 These include firms such as Sisvel, Saint Lawrence, Unwired Planet (now part of PanOptis), or even

NTT DoCoMo, which while a mobile operator is not competing with the defendant in the market

where it applied for injunctive relief (Germany). 110 Landgericht [LG] [District Court] Mannheim 8 January 2016, 7 O 96/14, openJur 2016, 6027

(Pioneer), at para. 92, as well as Landgericht [LG] [District Court] Mannheim 29 January 2016,

BeckRS 2016, 04228 (NTT DoCoMo v. HTC Germany), at para. 71. 111 LG Mannheim,8 January 2016, id. at para. 91, and LG Mannheim 29 January 2016, id. at para. 70.

The OLG Karlsruhe 31 May 2016, supra note 107, on appeal from the former case, did not overturn

the District Court, although it read Huawei as being restricted to an exclusionary theory of harm, as set

out above. See also LG Düsseldorf 31 March 2016, supra note 108 at para. 340. 112 LG Düsseldorf 31 March 2016, ibid. 113 It would be more in keeping with competition law analysis to simply adopt an exploitative theory of

harm for such cases. 114 LG Mannheim 27 November 2015, supra note 108 and LG Düsseldorf 31 March 2016, supra note

108. The latter case, against Vodafone, gave rise to two separate judgments, as mentioned supra note

108, both of which were confirmed on appeal in two largely identical judgments by the

Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf 9 May 2016,

ECLI:DE:OLGD:2016:0509.I15U35.16.00 and ECLI:DE:OLGD:2016:0509.I15U36.16.00, BeckRS

2016, 09323. An appeal in the former case, against Deutsche Telekom, is still pending.


23

Telekom and Vodafone. It seems that the strategy of Saint Lawrence was to direct

applications for injunctive relief at the distributors, with a view to disrupting their

operations and leading them to put pressure on HTC to complete the negotiation of its

FRAND license with Saint Lawrence. 115 In reply, both Deutsche Telekom and

Vodafone raised a FRAND defense, arguing that the negotiations between HTC and

Saint Lawrence deprived the latter of the ability to seek injunctive relief against HTC,

and hence against the distributor. In the case against Deutsche Telekom, the argument

failed, since the court found that HTC was not a willing licensee.116 The case against

Vodafone came to the same conclusion,117 but the court carried out a more elaborate

legal analysis. There the court held that Vodafone – the distributor – could avail itself

of a FRAND defense based on the dealings between Saint Lawrence – the SEP holder

– and HTC – the manufacturer. In the words of the court, “it is incompatible with the

aims of competition law that a [manufacturer] could rely on a FRAND defense, but the

distribution of its products would be hindered in practice because potential clients are

afraid that the SEP holder will seek injunctive relief against them… If the FRAND

defense is to be effective, then the subsequent steps in the distribution chain must be

able to rely on the FRAND defense of the manufacturer or supplier.”118 In the end, in

the eyes of the court, while the SEP holder can direct its enforcement efforts to any

level of the value chain, the SEP holder is by the same token bound by its FRAND

commitment to all levels, and therefore the defendant can invoke a FRAND defense

based on the dealings at another level of the chain.119 It is worth noting that the court

frames its reasoning in exclusionary terms120 – how seeking injunctive relief against

the distributor affects market access by the manufacturer – even though the SEP holder

was a patent assertion entity that should not at first sight pursue exclusion.121 All in all,

while the courts in the Saint Lawrence cases extend the reach of Huawei without

articulating a coherent theory of harm, the outcome seems sound: there is little to be

gained by allowing SEP holders to break from their licensing practice and chase down

firms at other levels of the value chain in order to exert leverage on the usual licensee

(here the device manufacturer).

2. The Huawei choreography: requirements for SEP holders and

implementers

In Huawei, the CJEU might not have clearly set out the theory of harm, but it did try to

provide concrete guidance to the parties involved in licensing negotiations concerning

FRAND-encumbered SEPs. Nevertheless, as could be expected, the application of the

Huawei choreography in subsequent cases brought new questions to the fore.

115 The same strategy was used by Sisvel in France and Italy: see the cases mentioned supra note 99. 116 LG Mannheim 27 November 2015, supra note 108 at para. 148 and ff. 117 LG Düsseldorf 31 March 2016, supra note 108. HTC was found not to have presented a valid

FRAND counter-offer, and was therefore not a ‘willing licensee’ within the meaning of the Huawei

choregraphy. 118 Id., at para. 335-336 (confirmed on appeal). 119 Ibid. at para. 398-403. 120 In an earlier judgment rendered before Huawei, concerning another part of the same case, the OLG

Karlsruhe had set out a more ambivalent theory of harm, combining exclusionary and exploitative

elements (by reference to the Commission in Motorola): Oberlandesgericht [OLG] [Court of Appeal]

Karlsruhe, 23 April 2015, GRUR-RR 2015, 326 (Saint Lawrence v. Deutsche Telekom) at 329, para.

18. 121 The OLG Karlsruhe, id., recognizes as much at para. 21: the SEP holder, being a patent assertion

entity, has no interest in really enjoining the use of the SEP by the manufacturer.


24

At the outset, courts had to consider how to read Huawei: are the obligations incumbent

on the SEP holder and the implementer to be considered at once by the court, or is there

a specific order to them? In Sisvel v. Haier, the district court found that, since the

implementer had not produced a timely counter-offer, the SEP holder could in any event

proceed with its application for injunctive relief without infringing Article 102 TFEU.

The court reasoned that since the implementer was not a ‘willing licensee’ in any event,

there was no reason to look at whether the SEP holder had complied with the Huawei

choreography.122 The court of appeal reversed, finding that “it is clear from [Huawei]

that the procedural steps to be fulfilled in order to balance the legitimate interests of the

parties build upon one another and follow one another in time… [I]n the solution put

forward by the CJEU, the [SEP] holder goes first… Among its obligations, in particular,

the dominant SEP holder must issue a concrete, written license offer on FRAND terms

to the willing licensee. Once and only once the [SEP] holder discharged these

obligations – i.e. did his part to avoid a finding of abuse – do the obligations of the

[implementer] kick in.”123

The rest of the case law indeed treats Huawei as setting out an elaborate choreography,

each step of which has received some attention.

The first step is for the SEP holder to “alert the alleged infringer… by designating that

SEP and specifying the way in which it has been infringed”.124 In a number of cases in

Germany, a transitional issue arose: under the previously prevailing Orange Book case

law, it was up to the implementer to make the first move by contacting the SEP holder.

For cases that had begun prior to Huawei, therefore, the SEP holder will not typically

have initiated contact through a notice to the implementer. German courts have found

that it would be unduly formalistic to retroactively fault the SEP holder for not having

given notice, in a situation where the parties had progressed to the further steps of offer

and counter-offer, and where the implementer’s knowledge of the SEP was

undisputable, at the latest when the legal proceedings were initiated.125 As for the

content of the notice to the implementer, case law suggests that, in order for the

implementer to be fully informed of the situation and to be able to assess its legal

position, a mere mention of the alleged infringement is not enough: rather, the SEP

holder should provide the implementer with the amount of detail typically released in

the course of licensing negotiations, e.g. in a claim chart.126

Once the SEP holder has given notice to the implementer, the latter must signal its

willingness to engage in negotiations with a view to obtaining a license. While the

122 Landgericht [LG] [District Court] Düsseldorf, 3 November 2015,

ECLI:DE:LGD:2015:1103.4A.O144.14.00, GRUR-RS 2015, 19564 (Sisvel v. Haier) at para. 91 and ff.

The District Court also ruled similarly in a parallel case: Landgericht [LG] [District Court] Düsseldorf,

3 November 2015, ECLI:DE:LGD:2015:1103.4A.O93.14.00, openJur 2015, 20550 (Sisvel v. Haier).

For the sake of convenience, references are made to the first case only. 123 Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf, 13 January 2016,

ECLI:DE:OLGD:2016:0113.I15U65.15.00, BeckRS 2016, 01679 (Sisvel v. Haier) at para. 18. The

parallel case, id., was similarly decided in Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf, 13

January 2016, ECLI:DE:OLGD:2016:0113.I15U66.15.00 (Sisvel v. Haier). 124 Huawei, supra note 1, at para. 61. 125 On this issue, see the more authoritative and complete analysis of the OLG Düsseldorf, supra note

114 at para. 32-41. 126 See LG Mannheim 29 January 2016, supra note 110 at para. 57.


25

CJEU did not emphasize this step,127 German courts have turned it into a stand-alone

element in the Huawei choreography. In the two Saint Lawrence cases, the FRAND

defense raised directly by Deutsche Telekom and Vodafone, respectively, faltered on

account of their having failed to respond timely to the notice from the SEP holder with

an indication, however brief, of their willingness to license.128

Thirdly, once the implementer communicated its willingness to the SEP holder, it is up

to the SEP holder to issue “a specific, written offer for a license on FRAND terms, in

accordance with the undertaking given to the standardization body, specifying, in

particular, the amount of the royalty and the way in which that royalty is to be

calculated”.129 This step received by far the most attention in the case law. In three

cases, lower courts in Germany sought to define their role in the assessment of whether

the SEP holder has complied with this obligation. It is worth setting out the reasoning

of these courts at greater length, using Pioneer:130

In Huawei, the CJEU deals with the type of situation that… typically arises in patent

infringement cases based on SEP: both parties are in principle willing to conclude a

license agreement on FRAND terms, but they differ on which concrete set of terms,

and in particular which royalty level, really are FRAND. Were the court to have to

decide… which terms actually are FRAND… then the infringement proceedings would

be weighed down with significant problems, in particular the assessment of the

FRAND royalty level, which can usually be assessed only with the help of an expert

and for which there exists no satisfactory solution, despite all the attention lavished

upon these problems in patent law over the years…

In the opinion of this court, the CJEU [in Huawei], much like the German Supreme

Court [in Orange Book], aims to free the infringement proceedings from the need to

decide which terms are FRAND in the instant case... Accordingly, [the CJEU in

Huawei] does not venture into giving to national courts some criteria to decide when

license terms are FRAND, but rather it focuses on imposing on the parties a series of

obligations that must be met in order for an application for injunctive relief to avoid

breaching competition law, or for a FRAND defence to succeed, as the case may be. In

the opinion of this court, the CJEU thereby sets out a programme of obligations for the

parties in the course of their negotiations… It seems that the CJEU deliberately chose

this path because – in line with the experience of this court – it was aware that,

ultimately, commercially-driven parties will rarely leave it to a court to decide which

terms and which royalty level conform to FRAND. Rather, as the CJEU recognizes,

they will follow the established commercial usage of reaching a mutually acceptable

solution through negotiations.

According to the court, then, as long as its offer is “not obviously not FRAND”,131 the

SEP holder has fulfilled its obligations under Huawei. The reasoning of the court is

remarkable for its attempt to reconcile Huawei and Orange Book and for its concern

127 It is buried within the paragraph setting the obligation on the SEP holder to issue a FRAND offer:

Huawei, supra note 1, at para. 63. 128 See LG Mannheim 27 November 2015, supra note 108, at para. 140 and LG Düsseldorf, 31 March

2016, supra note 108, at para. 254-261. 129 Huawei, supra note 1, at para. 63. 130 LG Mannheim 8 January 2016, supra note 110, at para. 92-93. The same reasoning is set out in LG

Mannheim 29 January 2016, supra note 110. The LG Düsseldorf had followed the same line of

analysis, albeit without such extensive developments, in LG Düsseldorf 3 November 2015, supra note

122. 131 Ibid. at para. 97.


26

for the effectiveness of the judicial process. Indeed, as other courts also emphasize,132

the implementer is not defenseless against the offer of the SEP holder: the implementer

can simply refuse the offer of the SEP holder and, as long as the implementer responds

with its own counter-offer, it can still benefit from a FRAND defense. Viewed from

that perspective, it is superfluous for the court to dedicate extensive resources to the

assessment of the offer of the SEP holder. The lower court also relies on its own

experience as a trial court versed in the details of patent litigation: without explicitly

going into the theory of harm, the court indicates that Huawei and other FRAND-related

litigation are typically not about exclusion. The court does not seem to consider that

exploitation is a significant risk: rather, it frames its reasoning squarely within Scenario

1 (Negotiation).

The holding of the lower court in Pioneer was dismissed by the court of appeal,

however.133 Unfortunately, the court of appeal based its own reasoning on a textual

reading of Huawei, without really answering the more fundamental issue of judicial

efficiency. According to the court of appeal, the CJEU in Huawei never contemplated

that national courts would be relieved from the task of assessing whether the offer of

the SEP holder is FRAND: the standard of “not obviously not FRAND” retained by the

lower court is too generous towards the SEP holder.

On the assumption that the above ruling stands, the lower court judgment in Saint

Lawrence v. Vodafone provides a good overview of how to approach the task of

assessing the offer of the SEP holder.134 As a starting point, terms and conditions that

would have been included even in the absence of market power on the part of the SEP

holder – as evidenced by comparable licenses – are presumably FRAND. For instance,

the SEP holder can propose a worldwide license for an entire SEP portfolio, if that

corresponds to the usage in the industry.135 By the same token, the proposed royalty

can be assessed in the light of publicly-available standard royalty rates for the same

patents: at the very least, in this way the proposed royalty can be shown to be non-

discriminatory. It is apparent that, despite the admonition of the courts of appeal, lower

courts ruling on claims for injunctive relief (for infringement) are not comfortable with

engaging into detailed and time-intensive assessments of offer (or counter-offer) terms,

preferring instead to benchmark these terms against comparable situations or industry

practice.

Fourthly, once the SEP holder has issued a FRAND offer, it is then up to the

implementer to react promptly and without delaying tactics, in accordance with

commercial usage and good faith.136 If the implementer does not accept the offer, it

must submit a written counter-offer that corresponds to FRAND terms.137 In some

cases, the implementer simply failed to react, thereby depriving itself of a FRAND

132 LG Düsseldorf 31 March 2016, supra note 108, at para. 287-288. 133 OLG Karlsruhe 31 May 2016, supra note 107, at para. 26-29. Similarly, the earlier decision of the

LG Düsseldorf 3 November 2015, supra note 122 to the same effect was also reversed by the court of

appeal (OLG Düsseldorf 13 January 2016, supra note 123, at para. 19 and ff.). The third lower court

case to that effect, LG Mannheim 19 January 2016, supra note 110, is currently under appeal, and it

seems likely that the court of appeal will also reverse on this point. 134 LG Düsseldorf 31 March 2016, supra note 108, at para. 267-322. 135 If the offer bundles SEPs and non-SEPs, however, it could be abusive (and therefore not FRAND). 136 Huawei, supra note 1, at para. 65. 137 Id. at para. 66.


27

defence. 138 In other cases, the implementer did react timely, and then the court

examined whether the counter-offer meet FRAND requirements. Here as well, courts

seem to prefer to base their determinations on easily observable elements. For instance,

if the SEP holder offers a worldwide portfolio license – found to be FRAND – will a

counter-offer that is limited in geographical or patent scope also qualify as a FRAND

offer? German courts have suggested that in this situation, the counter-offer would not

correspond to FRAND terms.139 UK courts take a more nuanced approach. In Unwired

Planet v. Huawei, 140 the SEP holder had offered a worldwide license to its SEP

portfolio, to which the implementer countered with an offer to license specific SEPs

only that were both valid and infringed, and only in relation to particular territories. In

his ruling, Birss J. reiterated the principles he laid out the previous year in Vringo v

ZTE:141 on the one hand, any worldwide offer that is deemed FRAND need not be the

only possible FRAND offer, which implies that a licensee is free to submit a

counteroffer limited to certain territories, as long as the terms of that counteroffer are

also FRAND.142 On the other hand, the fact that a worldwide offer is FRAND does not

mean necessarily that an implementer using a patent in one jurisdiction would be

‘forced to take a global portfolio license in order to stave off a national injunction on

that one patent’,143 which suggests that clauses in a license going wider than the scope

of the underlying patents may be anticompetitive.144

It should be noted, however, that the CJEU in Huawei leaves no doubt about one

specific clause that the implementer can insist upon without endangering the FRAND

compatibility of the counter-offer: the implementer can always reserve its right to

challenge SEP validity and infringement (essentiality).145 The CJEU justifies this by

referring to the absence of check on validity or essentiality in the course of

standardization, and to the right to judicial protection (Art. 47 EUCFR). Furthermore,

EU competition law has generally taken a dim view of non-challenge clauses in IP

licenses: these clauses are expressly excluded from the ambit of the group exemption

under Article 101 TFEU.146 In Motorola, the Commission also insisted that an SEP

holder abuses its dominant position by seeking injunctive relief to force the

138 LG Mannheim 27 November 2015, supra note 108, at para. 149 and LG Düsseldorf 31 March 2016,

supra note 108 at para. 323-333. See LG Mannheim 29 January 2016, supra note 110, at para.73 for a

case where the implementer took too long to respond. 139 LG Mannheim 8 January 2016, supra note 110, at para. 152 (reversed on appeal, but not on this

point), LG Düsseldorf 31 March 2016, id. at para. 380. In this latter case, the court qualifies the

restrictive counter-offer as ‘abusive’, without more, although it is not clear how the implementer would

be in a dominant position to start with. 140 Unwired Planet v Huawei [2015] EWHC 1029 (Pat). 141 Vringo Infrastructure v ZTE [2015] EWHC 214 (Pat). 142 Id., at para 107-109. Judge Birss also mentioned practical considerations deriving from common

licensing practice: first, there may be situations where a worldwide license results cheaper than multiple

single-licenses for the various territories in which a licensee uses a patent. Second, there is an important

distinction between the scope of licensed rights and the royalty-bearing event, such that the alleged

inconsistency of requests for worldwide license and the manufacturing taking place only in specific

countries would be a false dichotomy. See Unwired Planet, supra note 140, at para. 52. 143 Vringo, id. at para. 108. 144 See Unwired Planet, supra note 140, at para. 28, citing CJEU, 25 February 1986, Case 193/83,

Windsurfing International [1986] ECR 611. 145 Huawei, supra note 1, at para. 69. 146 Regulation 316/2014 of 21 March 2014 on the application of Article 101(3) TFEU to categories of

technology transfer agreements [2014] OJ L 93/17, Art. 5(1)(b). The reasoning of the Commission is

explained further in the accompanying Guidelines [2014] OJ C 89/3 at para. 133-140.


28

implementer (Apple) to accept a non-challenge clause. In the eyes of the Commission,

“Apple agreed to the inclusion… of disadvantageous licensing terms which it would

likely not have agreed to in licensing negotiations absent Motorola’s seeking and

enforcement of an injunction.”147 For the Commission, the non-challenge clause is

disadvantageous because it adversely influences the level of royalties paid by the

implementer, since the implementer loses the option of paying no royalty if a validity

challenge would be successful.148 In addition, other SEP licensees also lose the benefit

of paying no royalties if the SEP would be invalidated following a challenge by the

implementer.149 The reasoning of the CJEU and the Commission, while appealing at

first sight, suffers from weaknesses, in that it ignores that SEPs are probabilistic and

that negotiations bear on patent portfolios, so that the likelihood that some SEPs are

either invalid or non-essential is factored into the royalty rate. For the licensee, keeping

the ability to challenge SEP validity or infringement amounts to a real option, which

has a present value. That value will be reflected in a higher royalty rate. Accordingly,

it is simplistic to conclude that agreeing to a no-challenge clause is disadvantageous for

the licensee; rather, the probability of a lower royalty later upon a successful challenge

is traded off against a higher current royalty, reflecting the value of the challenge as a

real option.

Fifthly, if, and as of the moment that, the SEP holder rejects the counter-offer of the

implementer, the latter must post security, in accordance with commercial practices, if

the implementer wants to continue using the SEP during the continuation of the

negotiations.150 Even though the posting of security was also required under Orange

Book, the implementer failed to do so in a number of cases in Germany,151 leading to

the failure of the FRAND defense.

As discussed under the previous heading, the CJEU did not apply a consistent theory

of harm in Huawei: while the basis for bringing Article 102 TFEU into play at all was

a novel set of ‘exceptional circumstances’ (SEP and FRAND commitment) linked with

an exclusionary theory of harm, the subsequent parts of the judgment are more

ambivalent. Not only has this led to confusion in the post-Huawei case law, and the

extension of Huawei beyond exclusionary cases, but in practice the Huawei

choreography has become unmoored from any theory of harm. As the above paragraphs

show, the Huawei choreography takes a life of its own: when the lower courts in

Germany try to interpret Huawei in a non-exclusionary setting and reconcile the

incentive to reach a negotiated outcome with the need for judicial efficiency, the courts

of appeal respond with a flat, literal reading of Huawei, without deeper analysis.

Nowhere is the separation between the theory of harm and the choreography more

obvious than in the requirement that the counter-offer also be FRAND, as set out by

the CJEU itself in Huawei: the implementer did not give a FRAND commitment, nor

does it typically hold a dominant position that would somehow restrict its commercial

freedom for fear of abusing it. There is no conceivable theory of harm under

competition law that would justify imposing that obligation on the implementer, yet it

is part of Huawei.

147 Motorola, supra, note 67, at para. 327. 148 Id. at para. 338-357. 149 Id. at para. 375-383. 150 Huawei, supra note 1, at para. 67. 151 LG Mannheim 8 January 2016, supra note 100, at para. 154, LG Düsseldorf 31 March 2016, supra

note 108 at para. 335.


29

3. FRAND for unencumbered SEPs and for non-SEPs

Behind the veneer of EU competition law, Huawei actually ends up as an exercise in

harmonizing the law of remedies in the specific context of disputes involving SEPs and

FRAND commitments. But precisely because the reasoning of the CJEU limits the

scope of Huawei to SEPs for which a FRAND commitment has been issued (the two

‘exceptional circumstances’ invoked by the CJEU), it risks introducing distortions into

the standardization process. Huawei does not address the situations of de facto essential

patents or SEPs unencumbered by a FRAND commitment.

A patent is de facto essential (or ‘commercially essential’) if it has not been formally

declared as essential to a particular standard, but is in fact the most sensible or practical

way to implement it. 152 Leaving aside dubious cases of failure to declare patents ex

ante,153 a patent may establish itself as de facto essential after the definition of a

standard, as a result of practical experience in implementing the standard. It would

thereby escape the process of prior disclosure and FRAND commitment that occurs

ahead of standard development.

Given the absence of a specific FRAND commitment, the de facto essential patent is

also unencumbered. In addition to the case of the de facto essential patent, there are

other possible situations in which a SEP can be unencumbered by a FRAND

commitment: for example, when a patent claim was drafted and granted in such a broad

manner that it covers standards of which the patentee and SDO members were unaware

(Contreras, 2016), or when the SEP holder declared the SEP to the SDO but declined

to submit a FRAND commitment.154

In these two cases (de facto essentiality or unencumbered SEPs), not only is there no

FRAND commitment and thus no constraint on licensing, but Huawei does not apply

either to affect the availability of injunctive relief. By increasing the difference between

FRAND-encumbered and other patents, Huawei magnifies pre-existing perverse

incentives. For example, patent owners may decide to strategically withhold their

participation in SDOs, so as to retain a full panoply of remedies. At the same time, these

‘outsiders’ would monitor SDO work in order to position their patent portfolios

strategically in anticipation of the standard. While this behavior could be countered by

empowering SDOs to impose FRAND obligations on these outsiders, SDOs have not

been willing so far to take that step; in any event, there is no obvious legal basis for

152 To some extent, the existence of de facto SEP can be minimized by the rules of SSOs, which can opt

to include “commercial essentiality” within the definition of essentiality. According to the survey

conducted for the U.S. National Academy of Sciences, two SSOs in the ICT sector (IEEE and VITA)

include commercial essentiality within their IPR policies regarding disclosure and licensing

commitments, and one SSO (ETSI) explicitly rules it out: Maskus and Merrill (2013). See also Chapter

9 (Essentiality) in this book.

153 The famous ‘patent ambush’ situation that was at the centre of the Rambus case: Larouche and

van Overwalle (2015). 154 This is technically possible as most SDOs have a commitment-based IPR policy, and lack the ability

to force SEP holders to make specific FRAND commitments. For example, the rules of procedure of the

European Telecom Standards Institute (ETSI) only require a declaration to be “prepared” to license on

FRAND terms, and do not provide for exclusion for failure to do so. See ETSI Intellectual Property

Rights Policy, Annex 6, ETSI Rules of Procedure (20 March 2013), sections 6.1, 8.1 and 14.


30

such a power and SDO usually lack the information to identify such behavior (Tirole

and Lerner, 2015). Perversely, such a power would cause these outsiders to join

standardization efforts not with the aim to contribute to the effort, but rather to

minimize the chances that their own technology becomes embodied in the standard

(Contreras, 2016).155

Yet it is useful to bear in mind that the scope of application of Article 102 TFEU is not

exhausted by Huawei. FRAND commitments – and by implication the restriction on

remedies and the choreography imposed by Huawei – could conceivably also be

imposed as an obligation under public law: this should not come as a surprise, as the

notion of FRAND finds its roots in competition law remedies imposed to patent owners

(Contreras, 2015). The most suitable approach might be to return to the starting point

and look for other ‘exceptional circumstances’ to justify overriding the right of the

patent holder to seek injunctive relief; an obvious avenue would be to look towards the

first line of cases where ‘exceptional circumstances’ were invoked, regrouped under

the so-called ‘essential facilities doctrine’.

The set of “exceptional circumstances” that justify overriding the rights of the IP holder,

as lastly formulated in Microsoft, are as follows: (i) the refusal relates to a product or

service indispensable to the exercise of a particular activity on a neighboring market;

(ii) the refusal is of such a kind as to exclude any effective competition on that

neighboring market; (iii) the refusal prevents the appearance of a new product for which

there is potential consumer demand; and (iv) the refusal is not objectively justified.156

This set of circumstances concerns the use of competition law to override a refusal to

deal; a fortiori they should apply to when competition law is used to justify a lesser

intrusion in the rights of the IP holder, such as imposing an obligation to negotiate a

license under FRAND terms and limiting the ability of the IP holder to seek injunctive

relief.

This would be too quick a conclusion, however. There are a number of problems with

applying the Microsoft set of exceptional circumstances in the case of FRAND-

unencumbered patents relating to standards.

As a starting point, the holder of the patent in question must find itself in a dominant

position before Microsoft can apply at all. In the ‘essential facilities’ cases, dominance

is always elegantly, if artificially, constructed via the definition of an ‘access market’

– a relevant market for access to the facility in question157 – on which the defendant, as

owner of the facility (IP holder), is ipso facto dominant. This construction only works

if there is also a downstream market for products using the facility in question.158 At

first glance, the same construction could be applied to an unencumbered SEP or de

facto essential patent: an upstream market is assumed for access to the patent in

155 It has also been suggested that SSOs can solve this problem by creating two-tiered membership,

whereby full members would be the only ones able to take part in the process of standard-setting, but

would also have more significant disclosure and licensing obligations: Teece and Sherry (2003). 156 Microsoft, supra note 75, at para. 332-333. These conditions were reformulated differently by the Commission in its subsequent Guidance on the Commission's enforcement priorities in applying Article [102 TFEU] Treaty to abusive exclusionary conduct by dominant undertakings [2009] OJ C 45/7, but that reformulation has not yet been endorsed by the European courts. 157 And that even in the absence of any prior dealings with third parties relating to the facility in question: Microsoft, id. at para. 335. 158 Id.


31

question (with dominance automatically following), with a downstream market for

products manufactured using that patent. Yet the ‘access market’ construction cannot

be separated from the Microsoft exceptional circumstances: it is a prior requirement for

these exceptional circumstances to apply.159 Accordingly, it must be read in light of the

first two exceptional circumstances, i.e. indispensability and the exclusion of effective

competition on the downstream market, both of which point to the market power that

follows from control over the facility and thereby give salience to the ‘access market’

construction.

In the context of unencumbered SEPs or de facto essential patents, it could be argued

that indispensability follows from the essentiality to the standard. Indeed even merely

standard-convenient (as opposed to essential) patents tend to yield market power, and

commercially essential patents may even be on par with technically essential patents.

However, it is important to understand that essentiality to a standard cannot always be

equated with indispensability, since not all standards are bottlenecks for access to a

relevant market. For example, the ISO environmental standards or the IEC standards

for AC power plugs and sockets do not necessarily delineate relevant product markets

in competition/antitrust terms. There may be products made to competing standards,

as well as non-standardized products, within the same relevant market. Patents may be

essential only for the implementation of optional features of a standard, which may not

define a relevant antitrust market. Furthermore, there may be countervailing buyer

power, which prevents the patent holder from “behaving independently” from its

competitors, customers and consumers. 160 The application of the essential facility

doctrine to non-SEPs or unencumbered SEPs might therefore lead to Type I errors.161

Furthermore, the second circumstance – exclusion of effective competition on the

downstream market – echoes the strictly exclusionary theory of harm underpinning the

‘essential facilities’ cases.162 Whereas in Huawei the FRAND commitment is a prior –

and one of the exceptional circumstances – here the FRAND commitment would be

imposed upon the patent holder via competition law, with the restriction on injunctive

relief in tow. Using the essential facilities doctrine to impose a FRAND obligation to

unencumbered SEPs and de facto essential patents would constitute a significant

extension of the reach of competition law into patent disputes. At the very least, one

should insist that this be done only in cases of exclusionary conduct by the patent

holder. Yet as was seen above, a key difficulty with the disputes surrounding SEPs

comes from the commingling of exclusionary and exploitative cases, a difficulty that

Huawei only worsens. 163 The post-Huawei case law already unmoors the Huawei

choreography from its competition law anchor and applies Huawei to SEP cases in

general, even if there is no evidence of exclusionary intent. Here as well, there is thus

reason to believe that, should the essential facilities doctrine be used to attach FRAND

159 Id. 160 Within the meaning of the canonical definition of dominance in CJEU, 14 February 1978, Case 27/76,

United Brands [1978] ECR 207. 161 Type I errors occur when a public authority intervenes in a situation where it should not have intervened if it had perfect information (overenforcement). 162 In the essential facilities cases, the holder of the facility is always competing with the access seeker on the downstream market. 163 As was seen supra, notes 100-121 and the accompanying text, the theory of harm is not that well articulated throughout Huawei to start with.


32

obligations to unencumbered SEPs or de facto essential patents, Type I errors are bound

to follow.

Finally, the third exceptional circumstance – the appearance of a ‘new product’ – is

also troublesome. Microsoft has been widely criticized for watering down this

circumstance (Larouche, 2009), yet it does retain some consistence, in that the Court

excludes that ‘mere copycats’ can rely on competition law to obtain access to their

competitors’ facilities (Larouche and Schinkel, 2014). At least some innovation

potential – even if merely incremental – must be evidenced. This reflects the basic

compromise behind Microsoft: competition law will countenance an adverse effect on

the innovation incentives of the IP holder only if it is counterbalanced by a positive

effect on the incentives of the access seeker; a mere static efficiency gain is not

sufficient. In contrast, in the Huawei set of exceptional circumstances, there is no

equivalent to the ‘new product’ circumstance: one could argue that, by voluntary giving

a FRAND commitment, a SEP holder implicitly refrains from questioning the purpose

of the implementers. There is therefore no room for an inquiry into the inventiveness

of the implementer under Huawei. To be sure, implementers typically bring

improvements to non-standardized features or elements of products already found on

the market; some standards can even be conceived of as platforms upon which

implementers deploy their inventive skills to develop differentiated products. Yet it

would be improper to dispense of the ‘new product’ circumstance altogether, if and

when Microsoft would be used to impose a FRAND obligation upon the holder of an

unencumbered SEP or a de facto essential patent. At the same time, the ‘non-

discriminatory’ in FRAND no longer holds if implementers are treated differently,

according to their inventiveness.

This shows once more the difficulty of using competition law to impose upon a patent

holder that what is otherwise a voluntary commitment linked to participation in SDOs:

Huawei posits a FRAND commitment, and cannot justify imposing one. Using

Microsoft instead is rife with error risks, and is unlikely to result in an obligation

equivalent to a voluntary FRAND commitment.

E. Conclusion

At the outset, a basic model of licensing negotiations on SEPs in a FRAND setting was

developed. That model takes into account that the SEP holder and the implementer

negotiate over a portfolio of SEPs, all of which are probabilistic. This is reflected in the

royalty rate. Each party has an ‘aggressive’ outside option to negotiation (and

eventually, arbitration or litigation), namely a challenge to patent validity or

infringement for the implementer, or injunctive relief for the SEP holder. Both these

outside options entail removing the probabilistic element of the patent at stake. Since

parties negotiate over broad portfolios, it is likely that both their outside options are

available: the SEP holder will seek injunctive relief on the basis of a strong SEP – likely

to be immune to challenge – within that portfolio, while the implementer would

challenge a weaker SEP – likely to be invalid or not infringed (and thus not essential).

Any dispute arising in the course of SEP licensing negotiations will fall under one of

four broad scenarios, each of which gives rise to different public policy

recommendations. The first three share the common assumption that the parties prefer

to conclude a license rather than not doing so. Negotiation (Scenario 1) is where the


33

parties are negotiating in good faith but experience difficulties on the way to an

agreement. In that case, it is unlikely that parties would use their respective outside

option, but it should remain as a threat. Holdup (Scenario 2) is a pathological version

of Scenario 1 where the SEP holder is trying to exploit its position to extract an unduly

high royalty from the implementer, despite the FRAND commitment. Here it is

undesirable, from a public policy perspective, that the SEP holder can use its outside

option (injunctive relief) to force the implementer into submission. Holdout (Scenario

3) is the opposite pathological case, where the implementer does not intend to pay a

reasonable royalty to use the SEP. In this case, from a public policy perspective, the

SEP holder should be allowed to use its outside option to discipline the implementer,

for instance by forcing it to post security in anticipation of having to pay a reasonable

royalty later. Finally, the fourth scenario stands out in that the parties do not share a

preference for concluding a license: in the Exclusion scenario, the SEP holder is

vertically integrated and it is trying to use its SEP to exclude the implementer from the

downstream market. In such a case, of course, the SEP holder should be prevented from

relying on injunctive relief for exclusionary purposes.

Shared preference Theory of case Public policy analysis

Scenario 1

(Negotiation)

Conclude license Difficult negotiations lead to

dispute

No need to intervene

Scenario 2

(Holdup)

Conclude license SEP seeks to exploit position for

higher royalty

Prevent injunctive relief

Scenario 3

(Holdout)

Conclude license Implementer seeks to avoid royalty Allow injunctive relief

Scenario 4

(Exclusion)

No shared

preference

SEP seeks to exclude implementer

from downstream market

Prevent injunctive relief

On difficult issues such as these disputes, the key challenge for any legal system is to

find the proper balance between accuracy (the ability to correctly identify which of the

four scenarios is unfolding in a given case), consistency/predictability (the ability to

treat like cases alike and enable firms to plan their actions accordingly) and efficiency

(the minimum expense of resources in solving these cases).

An examination of intellectual property law in leading EU jurisdictions revealed a sub-

optimal outcome. Injunctive relief for patent infringements is partially harmonized by

Directive 2004/48. That directive, however, was primarily conceived with a view to the

fight against counterfeiting and piracy, and not to find a balanced solution to standards-

related IP disputes. It leaves significant room to the Member States in its

implementation, in particular as regards the test for granting interim or permanent

injunctive relief. As the review of FRAND-related disputes under English, French,

Italian, German and Dutch law shows, courts everywhere have sought to factor in the

conduct of the parties in the treatment of SEP-related cases, irrespective of Directive

2004/48. However, they have done so in an uncoordinated fashion, resulting in a

patchwork of case law that opens the door to arbitrage and thus fails on consistency and

predictability.

The Orange Book ruling of the German Supreme Court marked the introduction of

competition law in the balance, in order to offset the significant bias in favor of the

patent holder when it comes to – permanent – injunctive relief in German law. From

that point on, it was predictable that EU institutions – the Commission and the CJEU –


34

would jump into the fray, all the more since the Commission saw Orange Book as still

too friendly to SEP holders.

In Motorola and Samsung, the Commission put forward its own view of how to analyse

these disputes under EU competition law. Given the conflict with Orange Book, the

matter was brought to the CJEU in Huawei. The Court confirmed that Article 102

TFEU applies to police the conduct of patent holders when, first, the patents are SEPs

and, second, the SEP holder has given a FRAND commitment. The Court then put

forward a choreography of steps to be followed in order to rule whether the SEP holder

breaches Article 102 TFEU by seeking injunctive relief against an implementer. First,

the SEP holder must notify the implementer of the infringement of the SEP. Secondly,

the implementer must indicate its willingness to conclude a license on FRAND terms.

Thirdly, the SEP holder must make a specific, written and complete offer on FRAND

terms, including the royalty rate and how it is calculated. Fourthly, the implementer

must respond to that offer seriously and without delay; if the offer is not acceptable, a

counter-offer corresponding to FRAND must be sent to the SEP holder. Fifthly, if the

SEP holder does not accept the counter-offer, the implementer must provide appropriate

security before using the SEP. In the end, unless the SEP holder has complied with all

its obligations under Huawei and the implementer has failed to do so, the SEP holder

would breach Article 102 TFEU by seeking injunctive relief against the implementer

for an infringement of the SEP.

As far as the Scenarios in the model are concerned, Huawei performs as follows. In

Scenario 1 (Negotiation), both parties will typically have complied with the Huawei

choreography, and injunctive relief will therefore be unavailable to the SEP holder. In

principle, the SEP holder should keep the outside option throughout the negotiation

process, but presumably the parties would rather go to court or arbitration to solve their

dispute. Accordingly, depriving the SEP holder of its outside option might not be too

harmful. In Scenario 3 (Holdout), the implementer might not have complied with all its

obligations, including the indication of willingness (second step) and the serious and

timely response to the offer (fourth step). In that case, under Huawei, the SEP holder

can seek injunctive relief without breaching Article 102 TFEU. It is worth noting that,

if the implementer merely pays lip-service to Huawei and issues a pro forma declaration

of willingness and counter-offer, the implementer will not avert injunctive relief with a

FRAND defense unless it also provides security for eventual royalties. Huawei

therefore protects the ability of the SEP holder to force a runaway implementer to

provide security. In Scenario 4 (Exclusion), the SEP holder has no intent to negotiate a

FRAND license to start with, so Huawei will apply to deprive it of the ability to seek

injunctive relief and thereby defeat the exclusionary plan. The effect of Huawei is

actually to force the SEP holder to live by its FRAND commitment and negotiate a

license.

Scenario 2 (Holdup) is more troublesome, and this is where the post-Huawei debate

amongst German courts comes into the picture. If the SEP holder wants to exploit its

position to reap excessive royalties, in breach of its FRAND commitment, it should not

be able to seek injunctive relief against the implementer. In such a case, the offer made

by the SEP holder in the third step of Huawei will probably not be FRAND. There are

two avenues to deal with this under Huawei: either the court finds that the SEP holder

has failed to comply with its duties, or the implementer rejects the offer and complies

with all its Huawei duties (counter-offer and posting of security). In both cases, Huawei


35

will apply to protect the implementer against injunctive relief. The German lower

courts, taking into account the need for efficiency, suggested that the court only

conducts a marginal examination of the offer; the implementer would shoulder most of

the burden of defeating the SEP holder. The German courts of appeal, on the other hand,

ruled that the court must take it upon itself to review the offer fully: if it is not FRAND,

the implementer does not need to comply with the Huawei choreography further (no

counter-offer and, in particular, no posting of security). While the position of the

German courts of appeal is tidier from a conceptual perspective, it imposes significant

costs and reduces the efficiency of the process (as the lower courts duly noted in their

analysis).

Ultimately, it is a matter of how often Scenario 2 arises: if Holdup is exceptional, it

might be preferable to leave implementers to bear an extra burden in Holdup cases, for

the sake of overall efficiency. If Holdup is frequent, on the other hand, it might be more

efficient to devote more resources to the assessment of the offers of SEP holders, in

order to relieve implementers of the burden of complying with the subsequent steps of

Huawei. Over time, SEP holders might also be deterred from pursuing Holdup

strategies if they will be nipped in the bud during interim relief proceedings. Whilst

patent holdup has been well identified in the theoretical literature (Shapiro, 2010), its

prevalence in practice may not be as large as theory would have predicted (Galetovic,

2015; Larouche, Padilla and Taffett, 2014; Langus, Lipatov and Neven, 2013). Hence

the more pragmatic view of the German lower courts appears more advisable.

In the end, Huawei performs quite well on our model, enabling results that are accurate,

consistent and – subject to the above discussion – efficient. It should come as no

surprise, then, that it has been largely welcome by English, French, Italian and German

courts since then. The subsequent case law – mostly coming from Germany – develops

the steps in the Huawei choreography, such as the nature and content of the notice (first

step), the elements to be taken into account to assess whether an offer or a counter-offer

are compliant with FRAND (third and fourth steps), including in particular the portfolio

and geographic reach of the offer or counter-offer.

One dark spot, however, is that both Commission and CJEU insist that a FRAND offer

cannot include a requirement that the implementer renounce its right to challenge the

validity or infringement (essentiality) of a SEP. The EU institutions are thereby

following a long-standing EU policy of fostering patent challenges in order to limit the

effects of patents to what is warranted. They assume that implementers are always

harmed by foregoing validity challenges (and the chance of paying no royalty at all).

Actually, there is probably a trade-off: the validity challenge is a real option, and

therefore preserving it for the implementer could be reflected in a higher royalty to

begin with.

The protection of validity challenges, out of IP policy grounds not necessarily linked to

competition law, is symptomatic of a broader trend observed in this chapter, namely

the uneasy interface between competition law and broader policy concerns related to

IP. Because Huawei is decided on the basis of EU competition law, it is applicable

throughout the EU and prevails over diverging solutions arising from the application of

IP law. The use of EU competition law amounts in fact to harmonization, in a faster but

less politically accountable way than via the enactment of a directive.


36

While competition law acts as a white knight for IP law, it must still respect its own

logic. And so it is that the CJEU in Huawei, following the lead of the Commission in

Motorola and Samsung, anchors its reasoning on Article 102 TFEU. That provision can

apply to override the rights of the IP holder under ‘exceptional circumstances’ where

the exercise of such rights would be an abuse of a dominant position. The ‘exceptional

circumstances’ at work here are the essential nature of the SEP and the FRAND

commitment issued by the SEP holder (on the assumption that the SEP holder is

dominant). In Huawei, the CJEU does not fully develop its theory of harm, but it is best

understood as Scenario 4 (Exclusion). Yet Scenario 4 is the only scenario that rests on

an exclusionary theory of harm. Under Scenario 1 (Negotiation), there is no harm.

Scenario 2 (Holdup) hinges upon exploitation rather than exclusion. In Scenario 3

(Holdout), the theory of harm escapes the purview of competition law, unless the

implementer would somehow be dominant.

At a fundamental level, extending Huawei to exploitative abuses hits the same

difficulties as with exploitative abuses in general: there is no clear test for exploitation

(Larouche and Schinkel, 2014). The concept of FRAND does not specify a set of terms

and conditions, in particular as regards royalty, but rather a range of acceptable

outcomes: this is why, in a given licensing negotiation, it is possible that the position

of both sides are compatible with FRAND yet different from one another. This is why

it would be counter-productive for the law to assume that there is a ‘right’ set of

FRAND terms and conditions, or that courts should police whether the SEP holder was

able to impose ‘oppressive’ terms on the implementer. Unfortunately, the case law

under Article 102 TFEU typically posits that there is a ‘right’ price for the products and

services of the dominant firm (Larouche and Schinkel, 2014). In the IP area, this has

been extended to imply that patents have a ‘right’ intrinsic value.164 Hence the worry

expressed over the position taken by the German courts of appeal, according to which

it is not sufficient, within the Huawei choreography, for the court to exert a marginal

control of whether the offer and counter-offer comply with FRAND. Taken to its limit,

this could imply that courts set out to find a mystical ‘right’ FRAND set of terms and

conditions, at the expense of judicial efficiency. The Huawei choreography would then

loom too large over licensing negotiations, with the temptation to go to court to have

offers and counter-offers tested in detail.

Indeed FRAND is better seen as a guide for parties to deal with one another, as a set of

disciplines on negotiations and a boundary for a range of possible outcomes. The law

should seek to encourage parties to reach a negotiated outcome, to the largest extent

possible. Seen in that light, the CJEU in Huawei correctly dealt with the case by setting

out this choreography that channels the parties back to the negotiating table. Only if

and once negotiations have come to a dead-end can the parties go to court or to

arbitration. In that sense, it would be premature and burdensome to entrust a court ruling

on an application for injunctive relief (and by implication on patent validity165 or

infringement) with the additional task of determining which licensing terms and

conditions are compatible with FRAND.

164 CJEU, 27 June 2012, Case T-167/08, Microsoft ECLI:EU:T:2012:323 at 138 in particular, where

the Court endorses the view that Microsoft’s intellectual property holds an ‘intrinsic’ as opposed to

‘strategic’ value. 165 Except in Germany, where patent validity is examined separately from infringement proceedings.

See supra notes 47-48 and accompanying text.


37

The pressing need for guidance on how to handle SEP licensing negotiations – under

and around FRAND – explains one of the striking features of Huawei and its progeny,

namely how the choreography became unmoored from competition law and took on a

life of its own. Huawei has been applied outside of Scenario 4 (Exclusion) to the many

cases where parties share a preference to conclude a license. It extends to cover

Scenario 3 (Holdout), even though that scenario escapes competition law: there is no

explanation under competition law for the duties imposed upon the implementer (in

particular that the counter-offer be FRAND compatible), but this helps to provide a

broad-based approach to assess the use of injunctive relief. Huawei has also been

extended to cover relationships with other parties in the production chain, such as

distributors of standard-compliant products.

Nevertheless, there are limits to how far the Huawei choreography should be extended:

Huawei assumes FRAND-encumbered SEPs. In the case of SEPs unencumbered by

FRAND or of de facto essential patents, neither Huawei nor other case law – the

Microsoft line of ‘essential facilities’ cases – provide a basis for imposing FRAND

when the patent holder has not voluntarily committed to do so.

On balance, even if it cannot be justified in theory, the unmooring of Huawei from

competition law provides clear practical benefits. Considering that it would have been

impossible to provide a comparable approach to SEP-related disputes from within IP

law in such a short time, maybe Huawei represents the optimal institutional response

by the EU to the proliferation of these disputes. Nevertheless, many questions remain

open, and there is a risk that, sooner or later, the theoretical shortcomings will catch up

with the evolution of the case law spawned by Huawei. It might be advisable for the

EU institutions to follow up on Huawei via a legislative instrument that would rest on

a more solid and broader foundation and would carry more legitimacy.


38

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