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The CJEU Judgment in the Huawei/ZTE Case. Getting Around the Problem of FRAND Commitments and Competition Law (di Vincenzo Meli)

Con la pronuncia pregiudiziale sul caso Huawei, la Corte di giustizia è intervenuta per la prima volta sul conflitto tra titolari di brevetti essenziali per l'implementazione di uno standard e richiedenti licenze su tali brevetti, in un contesto caratterizzato dall'esistenza di impegni FRAND. Sebbene la questione attenga all'applicazione dell'art. 102 del TFUE, la Corte ha eluso la fondamentale questione della sussistenza dei presupposti per tale applicazione. Inoltre, nessun contributo la pronuncia reca alla individuazione di criteri per la determinazione degli impegni FRAND. La Corte ha invece aderito all'approccio metodologico affermatosi nella giurisprudenza tedesca, pur non condividendone fino in fondo gli sviluppi, sostanzialmente limitandosi a dettare linee di comportamento che le parti dovrebbero seguire al fine di non essere ritenute poi responsabili per il fallimento della trattativa e l'insorgere della lite.

With the Huawei preliminary ruling, the Court of Justice intervened for the first time on the conflict between owners of standard essential patents and licence seekers, when FRAND commitments are provided. Although the question relates to the application of EU antitrust law, the Court did not assess the prerequisites for that application. In addition, it gave no answer to the key question of the identification of FRAND conditions. Yet, the Court adhered to the methodological approach established in the German case law, limiting itself to dictate behavioral guidelines that the parties should follow, in order not to be held responsible for the failure of negotiations and the onset of the dispute.


1. The context - 2. The CJEU and the issue of dominance of SEP holders - 3. The construction of the abuse. The approaches of the German case-law and the EU Commission - 4. The assessment of the abuse by the CJEU - NOTE

1. The context

The Huawei preliminary ruling of the CJEU [1] originates from a dispute before a German court, initiated by Huawei, which sued another Chinese firm, ZTE, for patent infringement, seeking an injunction, as well as compensation for damages, product recall, and the disclosure of accounting data relating to the unauthorized use of a patent. The patent in question had been declared essential for the implementation of the LTE standard (a 4G wireless broadband technology) developed by ETSI (European Telecommunications Standard Institute), and in compliance with ETSI Rules of Procedure Huawei had committed to license it on fair, reasonable, and not discriminatory (FRAND) terms [2]. The defendant had requested the license, and the plaintiff, at least in principle, did not refuse it, but the parties did not agree on the conditions. Countering the judicial initiative of Huawei, the defendant claimed this was an abuse of dominant position under German competition law (GWB). In recent years, several similar disputes where alleged infringement of essential patents is no ordinary patent forgery, but the consequence of failure to implement FRAND commitments, have been brought before the courts of some Member States. The solutions proposed and the conceptual tools used to address these conflicts are various. With an extreme simplification, three main approaches can be distinguished and sometimes they may even coexist in the same judgment: a) the contractual approach, which essentially focuses on the binding effect of FRAND commitments under contract law [3]; b) the IP law approach, which handles the alleged violation of FRAND commitments in terms of possible patent misuse[4]; c) the antitrust approach, which focuses on the possible infringement of Article 102 TFEU (or a similar national norm) by the SEP holder. An overview of the case-law in the Member States reveals that the practicability of the latter is not unanimously agreed upon. It has been particularly embraced by a conspicuous German case-law, but a strong support to this approach comes from the EU Commission, which in recent years has been very active in countering possible abuses of dominance by SEP holders [5]. The last decisions were adopted in 2014 against Motorola and Samsung [6]. Regardless of the legal provisions whose application is required, the judicial assessment in these disputes cannot neglect the conduct of the parties in the negotiation, nor can it ignore the [...]

2. The CJEU and the issue of dominance of SEP holders

A theoretical discussion on the possibility of assessing the request for an injunction by an SEP holder in the legal framework of Article 102 TFEU is of little relevance [14]. Undoubtedly, every activity which can be defined as an 'undertaking' under EU competition law may be subject to the scrutiny of the Commission and the antitrust authorities as well as the judges of the Member States. Instead, the specific behaviors and the context must be analyzed to evaluate if all the requirements for the identification of an abuse of dominant position are met. The first step is, of course, the evaluation of the alleged dominance of the SEP holder. Considering both practice and case-law, this requires the prior identification of a relevant product market. It is not necessary to recall that without dominance there cannot be any abuse under Article 102 TFUE. It is true that a specific question about the relevant product market and the dominance had not been submitted to the CJEU by the referring judge, but the choice made in this respect by the Court sounds odd. The Court has actually mentioned the question of dominance, but has bypassed it [15], shelving it through an unfaithful exposition of the order for reference, stating: "As the referring court states in the order for reference, the existence of a dominant position has not been contested before it by the parties to the dispute in the main proceedings. Given that the questions posed by the referring court relate only to the existence of an abuse, the analysis must be confined to the latter criterion" [16]. But this statement does not exist in the order for reference! The LG Düsseldorf had instead opined that anyone who holds an essential patent, thanks to his power to obtain an injunction against the patent users enjoys a strong negotiating position that must not be abused [17]. Advocate General Wathelet, recalling the observations submitted by the Dutch Government, criticized this apodictic presumption, observing "it should be noted that the referring court did not state in the order for reference that it had arrived at its finding that the SEP-holder in the present case unquestionably holds a dominant position after it had examined all the circumstances and the specific context of the case. I share the view expressed by the Netherlands Government that the fact that an undertaking owns an SEP does not necessarily mean that it holds a dominant position within the meaning of [...]

3. The construction of the abuse. The approaches of the German case-law and the EU Commission

Setting aside the question of dominance, in relation to the issue of its possible abuse two distinct methodological approaches can be noted, once again on the part of the German courts and the Commission, respectively. As to the first, with the Orange Book Standard judgment, the BGH has provided a kind of handbook of negotiating rules, which, if ignored, lead to an assessment of abuse of a dominant position. The German Supreme Court held that"(a) A defendant sued on the basis of a patent is able to defend himself against the claim for injunctive relief asserted by the patent holder filing the action by pleading that the latter abuses a dominant position on the market if he refuses to conclude a patent license agreement with the defendant on non-discriminatory and non-restrictive terms and conditions. (b) Yet the patent proprietor is only culpable of abusive behavior if the defendant has made him an unconditional offer to conclude a license agreement which the patent proprietor cannot reject without violating the prohibition of discrimination or anti-competitive behavior, and if the defendant, for the time that he is already using the subject matter of the patent, complies with the obligations that the license agreement yet to be concluded imposes in return for the use of the licensed subject matter. (c) If the defendant considers the patent proprietor's license demands to be excessive or if the patent proprietor refuses to quantify the royalties, an offer to conclude a license agreement in which the licensor determines the amount of royalties according to its own reasonable discretion meets the requirement of such an unconditional offer". A distinctive feature of the Orange Book Standard approach is the inclusion, in the context of the application of antitrust law, of assessment indices drawn from different legal sectors. In the said judgment, the BGH, identifying the antitrust violation with the breach of an obligation to grant SEP licenses [29], also invokes a criterion of good faith based on the Civil Code [30], without leaving aside national patent law considerations [31]. The result sounds puzzling: in a case centered on the application of antitrust law (specifically, Art. 19 and 20.1 GWB) not only, as noted above, is there no assessment of dominance, but the assessment of the abuse is characterized by a weak consideration of antitrust aspects and no attention is paid to the content of FRAND commitments. Indeed, looking at the [...]

4. The assessment of the abuse by the CJEU

The Court begins with the usual reference to the traditional dicta on abuse of dominance, recalling the statement that only in exceptional circumstances may the exercise of an exclusive right linked to intellectual property be abusive. It then makes a couple of general considerations on SEPs and FRAND commitments and then exposes mixed arguments. There are some antitrust-style remarks: for instance, the statement that "Although the proprietor of the essential patent at issue has the right to bring an action for a prohibitory injunction or for the recall of products, the fact that that patent has obtained SEP status means that its proprietor can prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question" [34] and "the fact that that patent has obtained SEP status means that its proprietor can prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question" (which is not necessarily true in general, but has to be verified case by case: there may also be competition between different standards!). But these remarks play a secondary role in the argumentation of the alleged abuse, whose core regards, as said above, provisions on the way the negotiation of license conditions has to go on, that do not seem to have much to do with antitrust considerations. The Court considers, in particular, that "having regard to the fact that an undertaking to grant licences on FRAND terms creates legitimate expectations on the part of third parties that the proprietor of the SEP will in fact grant licences on such terms, a refusal by the proprietor of the SEP to grant a licence on those terms may, in principle, constitute an abuse within the meaning of Article 102 TFEU" [35]. This statement sounds odd. What has ultimately been considered abusive? An unfair negotiating behavior? Unfulfilled competitor expectations? Whatever the answer, it is unclear how this complies with the established case-law, also recalled by the CJEU [36], according to which "the concept of an abuse of a dominant position within the meaning of Article 102 TFEU is an objective concept relating to the conduct of a dominant undertaking which, on a market where the degree of competition is already weakened precisely because of the presence of the undertaking concerned, through [...]