Thursday, November 20, 2014

European Advocate General recommends to raise the bar for injunctions over FRAND-pledged SEPs

Last year, the Landgericht Düsseldorf (Dusseldorf Regional Court) referred a set of questions relating to injunctive relief over FRAND-pledged standard-essential patents (SEPs) to the Court of Justice of the European Union and stayed a Huawei v. ZTE litigation pending the CJEU's opinion. The hearing was recently held (I didn't attend due to my changed focus), and today the recommendations of Advocate General Melchior Wathelet were published. There is an English-language press release but not yet an English translation of the full document (at least not when I last checked). The official language of the proceedings is German, and that of the AG's recommendations is French.

Not all but most of the time, the European Court of Justice (which is what the CJEU is still referred to, now unofficially) adopts the AG's recommendations, and I believe that would be good news int his case.

I've read the recommendations, and here's my first takeaway:

  1. The AG's recommendations are consistent with the ways in which I have, for years, disagreed with the way German regional and higher regional courts applied the Orange-Book-Standard ruling by the Bundesgerichtshof (Federal Court of Justice) to cases involving FRAND-pledged SEPs. If the AG's recommendations are adopted, the bar for injunctions over FRAND-pledged SEPs will be raised far, far above the recent practice by German courts, and it will certainly not be lowered as compared to the practice by UK and Dutch courts. In the Netherlands, antitrust law was not previously applied to these cases, but this may now be the case going forward.

    The worst part of the German application of Orange-Book-Standard that the AG disagrees with is that some German courts restricted the rights of defendants to an unreasonable extent. Those judges said that if you want to benefit from a FRAND promise, you have to take a license and must not challenge the validity of the patent-in-suit (though most patents in this field are invalidated or narrowed when challenged) and cannot defend yourself against the infringement allegations--or else an injunction will issue. The AG's recommendations clearly leave all options to defendants. The approach by some German courts was "you pay up or else" and they denied injunctive relief only if a royalty offer was so high that there was no way the patent holder could have asked for even one cent above it.

  2. If the AG's recommendations are adopted, holders of FRAND-pledged SEPs can forget about the possibility of obtaining quick (sometimes within 10 months of filing a complaint) injunction orders by German regional courts over FRAND-pledged SEPs because a defendant will have the option to request a FRAND rate determination by a court or an arbitration panel and no injunction will issue in the meantime.

    The AG's recommendations require the patent holder to make a licensing offer to the alleged infringer, and the defendant to make a reasonable counterproposal, but in many cases both parties will take extreme positions with a view to a future FRAND determination.

  3. Relatively speaking, the best news here for SEP holders is that they will have the opportunity to argue in court against any claim or assumption that ownership of a SEP gives them monopoly power. This could be an opportunity for SEP holders to still obtain injunctive relief, but the hurdle is likely going to be reasonably high, especially if the standard in question is as key as UMTS or LTE.

  4. The AG's recommendations demonstrate a pragmatic approach and a good understanding of commercial realities by saying that implementers of standards do not have to seek a license prior to using the patents that read on it (because there's too many of them to reasonably expect anyone to clear and secure all rights beforehand): it's perfectly reasonable for companies to go ahead and implement a standard and to sort out licensing issues only if and when an infringement assertion is made. That is also a key aspect that some German judges viewed differently from the European AG.

  5. While the AG's recommendations do not endorse the most extreme interpretation of the European Commission's December 2012 press release on the Statement of Objections (SO) in the Samsung case, according to which a totally unspecified willingness to negotiate would have been sufficient for an infringer to avoid injunctive relief, they are materially consistent with the structure of the European Commission's settlement with Samsung. Due to the settlement, that matter never arrived at the CJEU, but the aforementioned press release was the key reason for which the Dusseldorf Regional Court prudently presented its questions to the CJEU. (By the way, the presiding judge who made this decision, Ulrike Voss ("Voß" in German), has meanwhile been promoted to the appeals court, the Oberlandesgericht Düsseldorf.) So in practical terms, this CJEU proceeding is also about the issues at the heart of the Apple-Samsung matter.

  6. In terms of whose parties' past behavior is endorsed, the AG's recommendations lend legitimacy to the pursuit of injunctive relief by Huawei (against ZTE) and Samsung (against Apple), even though the AG's recommendations would make it easy for defendants to avoid injunctive relief in the end. The AG does not comment on whether ZTE's 50-euro royalty proposal was reasonable, but between the line it's clear that it wasn't, and my guess is that ZTE will now seek a FRAND determination by a court of law or an arbitration panel. As for Apple, it's clear now that the positions Apple took in court in the Samsung cases were too extreme in several respects. Apple had basically argued that Samsung wasn't entitled to injunctive relief under any circumstances as long as Apple was willing to have talks (Apple's counsel said so explicitly in the Mannheim court), and that's not what the AG considers to be fair. AG Wathelet does believe that someone must be seriously interested in taking a license.

  7. Earlier today I wrote about the latest draft rules for Europe's future Unified Patent Court, which make injunctions a given in virtually all cases in which an infringement is identified. It's not clear to me how the Unified Patent Court would apply European law if (a) the current draft rules were adopted (which I hope and believe they won't) and (b) the AG's recommendations were adopted by the CJEU (which I hope and believe they will). Critics of the UPC have been saying for a long time that the CJEU should have the final say just the way the Supreme Court of the United States can overrule the Federal Circuit. What will the UPC do about FRAND? That question may very well come up at next week's hearing.

  8. The AG argues that holders of FRAND-pledged SEPs have less leverage than owners of patents that read on de-facto standard without FRAND rules. That's the basis on which he distinguishes cases like Huawei v. ZTE from the German Orange-Book-Standard case, in which there was no FRAND pledge. If there's anything in the AG's opinion that I don't consider good policy, it's this. It's effectively an incentive for standard-setters not to make FRAND promises in the first place. Maybe the AG was being very political here and was just looking for a way to avoid an outright disagreement with the Federal Court of Justice of Germany. By saying that Orange-Book-Standard shouldn't apply to FRAND-pledged SEPs, the disagreement between the European AG and German case law is limited to decisions by lower courts, but the result could be problematic. Some of this will affect future debates over European horizontal agreement guidelines.

I'll certainly comment on the CJEU's opinion when it is handed down. If I find additional interesting things in the AG's recommendations after re-reading them, I may blog about this landmark case again even before the actual ruling.

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