© 2013 Cleary Gottlieb Steen & Hamilton LLP. All rights reserved.

Throughout this presentation, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP and its affiliated entities in certain jurisdictions, and the term “offices”

includes offices of those affiliated entities.

Maurits Dolmans

OECD Hearing on Intellectual Property and Standard Setting

Are Injunctions Permissible for FRAND Encumbered Patents?

Paris, December 17, 2014

Injunctions are the norm in the EU

• For instance, German, UK Courts usually grant injunctions

to patentees, even if the infringer is willing to pay: – “the Court has always protested against the notion that it ought to allow a

wrong to continue simply because the wrongdoer is able and willing to

pay for the injury he may inflict. Neither has the circumstance that the

wrongdoer is in some sense a public benefactor…ever been considered a

sufficient treason for refusing to protect by injunction an individual whose

rights are being persistently infringed“

• Shelfer v City of London Electric Lighting Co

• “Soft” equity test in Shelfer: Injunction can be denied if – Injury to the claimant’s legal rights is small;

– Injury can be estimated in money;

– Injury is adequately compensated by a small money payment; and

– It would be oppressive to the defendant to grant an injunction

2

UK Injunction is not easily denied

• Shelfer : Injunctions are the norm “it would have to be a very strong case for an injunction to be withheld. …

the grant or refusal of a final injunction is not merely a matter of the balance

of convenience. Justice requires that the court observe the principles

enunciated in Shelfer’s case and remembers that if the effect of the grant of

an injunction is not oppressive the defendant cannot buy his way out of it,

even if the price, objectively ascertained, would be modest. … ‘oppressive’

in this context is that the effect of the grant of the injunction would be

grossly disproportionate to the right protected. The word ‘grossly’ avoids

any suggestion that all that has to be done is to strike a balance of

convenience. So … The test is whether enforcement would be “grossly

disproportionate”.” » Virgin Atlantic v Premium Aircraft [2009] EWCA Civ 1513

» Navitaire Inc v EasyJet (No 2) [2006] RPC 4 213 at 250

• What is “grossly disproportionate”?

3

Standards tend to exclude rival technologies (like collective boycott)

Exclusion of inter-technology competition to be balanced by rules to

ensure intra-technology competition (implementation of the standard)

Principle: industry-wide successful standards must be available to

everyone to implement (1992 Communication)

- Horiz. Guidelines, para 268: “If a company is either completely prevented from

obtaining access to the result of the standard, or is only granted access on

prohibitive or discriminatory terms, there is a risk of an anti-competitive effect

SSOs therefore extract promises to license on FRAND terms

- Various ways to enforce this:

– FRAND promise (contract? Promissory estoppel?)

– equity principles; “abuse of right” analysis

– Competition law

Injunctions appropriate for SEPs?

4

Injunction on SEP may be denied: IPCom (UK)

• IPCom GmbH & Co. K.G.

– Acquired Bosch’s mobile-telephony patent portfolio in 2007

– Key director is a former patent attorney at Bosch

– 50% owned by private equity fund, Fortress Investment Group

• When pressed, IPCom confirmed to EC it would comply with Bosch

FRAND promise to ETSI

• But IPCom sought injunctions to extract royalties

– IPCom sought high royalties from Nokia for use of mobile patents

– Multiple jurisdictions (UK, Germany), litigants (esp. Nokia, HTC)

– 1 patent found valid /infringed by UK High Court / Court of Appeal;

EPO eventually held patent invalid

5

IPCom (UK) injunction denied

High Court denied injunctive relief. Reason was special: – Roth J found IPCom had given FRAND undertakings to EC

– This meant both parties were willing to sign license

– “I have to say in those circumstances I am very uncertain, to put it

mildly, to see why a permanent injunction should be granted in this case

at all or indeed any injunction. [...] You are willing to give a license.

Nokia wants to get a license. You cannot agree on the terms. They will

be determined. There will then be a license. In those circumstances [...]

to get an injunction seems to me quite extraordinary.”

Nokia v IPCom [2012] EWHC 1446 (Ch) May 18, 2012

– Parties agreed to abide by Court’s FRAND determination.

– IPCom dropped injunction request; Court planned to review

comparators; EPO eventually held patent invalid

– Equity principle can apply to all FRAND-covered patents

6

7

EU Patent law allows equity test in FRAND cases

• Enforcement Directive (2004/48/EC) allows equity test:

– Article 3 – IP remedies shall be “proportionate” and “avoid the

creation of barriers to legitimate trade”

– Article 12 – Member States may provide alternative to injunction if

defendant acted “unintentionally,” if injunction would cause

“disproportionate harm” and if “pecuniary compensation to the

injured party appears reasonably satisfactory”

• Examples from other Courts not consistent

– Dutch courts: Philips/SK Kassetten (injunction granted) vs

Sony/LGE (injunction abuse of right) and Samsung/Apple, • Samsung/Apple, District Court The Hague, The Netherlands, 14 March 2012, Case numbers 400367 / HA

ZA 11-2212, 400376 / HA ZA 11-2213 and 400385 / HA ZA 11-2215; Philips / SK Kassetten, District Court

of The Hague, 17 March 2010, Joint Cases No. 316533/HA ZA 08-2522 and 316535/HA ZA 08-2524

US principles limit injunctions (patent law)

• Before 2006, patentees entitled to an injunction on valid and

infringed patent

• Now: eBay/MercExchange: Injunction a matter of equity, 4 criteria

– 1) plaintiff suffers irreparable injury

– 2) remedies available at law (such as damage award) are

inadequate

– 3) balance of hardships between plaintiff and defendant; and

– 4) the public interest harmed by a permanent injunction.

• US examples on standards and IP

• Rambus, Bosch, Google /Motorola,

• Broadcom v Qualcomm, MSFT v Motorola (Robart), Apple v Motorola (Posner),

Innovatio (Holderman), Ericsson v D-Link (Davis), Wi-LAN v Alcatel Lucent (Davis),

CSIRO v Cisco (Davis), Realtek v LSI (Whyte), GPNE v Apple (Koh), Golden Bridge

v Apple (Grewal)

8

eBay has reduced injunctions

• Injunction requests are now granted on about 75% of cases

(down from 95%)

• Moreover, courts are distinguishing between types of entities

9

Source: Colleen V. Chien & Mark A. Lemley, Patent Holdup, the ITC, and the Public Interest

PAE

FRAND Example: Posner J.’s judgment

• Posner J. denied Apple injunctive relief against Motorola: – “damages are an adequate remedy for the alleged infringements … and because

injunctive relief would impose costs disproportionate to the harm to the patentee and

the benefit of the alleged infringement to the alleged infringer and would be contrary

to the public interest, I cannot find a basis for an award of injunctive relief.”

• Also denied Motorola injunction against Apple – “I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing

the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement.

By committing to license its patents on FRAND terms, Motorola committed to license

the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged

that a royalty is adequate compensation for a license to use that patent.” … “A

FRAND royalty would provide all the relief to which Motorola would be entitled if it

proved infringement of the ‘898 patent, and thus it is not entitled to an injunction.” – Apple v. Motorola Inc., 11-cv-8540, U.S. District Court, N.D.Illinois, June 7, 2012

• Reversed on appeal, but: – "Motorola's FRAND commitments, which have yielded many license agreements

encompassing the '898 patent, strongly suggest that money damages are adequate

to fully compensate Motorola for any infringement". – Appeal no. 12-1548, Apple Inc. v. Motorola, April 25, 2014

10

Standard setting restricts inter-technology competition and

can add market power to SEP by eliminating alternatives

- Para. 269: “a participant holding IPR essential for implementing the standard, could, in

the specific context of standard-setting, also acquire control over the use of a

standard. When the standard constitutes a barrier to entry, the company could thereby

control the product or service market to which the standard relates. This in turn could

allow companies to behave in anti-competitive ways, for example by ‘holding-up’ users

after the adoption of the standard either by refusing to license the necessary IPR or by

extracting excess rents by way of excessive royalty fees thereby preventing effective

access to the standard”

only allowed if “rule or reason”/101(3) conditions are met

- “Where participation in standard-setting is unrestricted and the procedure for adopting

the standard in question is transparent, standardisation agreements which contain no

obligation to comply with the standard and provide access to the standard on fair,

reasonable and non-discriminatory terms will normally not restrict competition within

the meaning of Article 101(1).”). – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to

horizontal co-operation agreements, OJ C 11, 14.1.2010, para. 280

– Case No COMP/M.6381 - Google/ Motorola Mobility, para. 57.

Competition law is relevant

11

Para. 285: “In order to ensure effective access to the standard, the IPR

policy would need to require participants wishing to have their IPR

included in the standard to provide an irrevocable commitment in

writing to offer to license their essential IPR to all third parties on fair,

reasonable and non-discriminatory terms ”

Para. 286: “IPR policy would need to require good faith disclosure,

by participants, of their IPR that might be essential for the

implementation of the standard under development. This would enable

the industry to make an informed choice of technology and thereby

assist in achieving the goal of effective access to the standard.”

Para. 287: “FRAND commitments can prevent IPR holders from

making the implementation of a standard difficult by refusing to license

or by requesting unfair or unreasonable fees (in other words excessive

fees) after the industry has been locked-in to the standard or by

charging discriminatory royalty fees. ”

FRAND promises and disclosure in

Guidelines on Horizontal Agreements

12

EC adopted decision against Motorola for seeking and (briefly)

enforcing injunction against Apple based on FRAND encumbered SEP

- seeking and enforcement of an injunction against Apple … amounts to an

abuse… [since] clear indication that Apple was not unwilling to enter into a

licence agreement on FRAND terms and conditions” (Motorola, para. 280)

- Apple reserved right to challenge validity and infringement of the licensed

SEPs

Motorola v Apple (2014) -- background

13

German court granted injunction because Apple was not a

“willing licensee” based on Orange Book case law

Litigations took place against background of broader patent

war in the mobile industry waged by Apple, Microsoft against

Android (suggesting Apple was not a “willing licensee”)

- Steve Jobs: “I'm willing to go thermonuclear war on this”

• Finding of “dominance” under Article 102 TFEU is required

– ““the power … to behave …independently of competitors, customers and

ultimately of the consumers” allowing the firm to “prevent effective

competition being maintained on the relevant market”.

• Dominance can be found if cumulative conditions are met:

– Patent is valid

– Patent is essential or unavoidable for de facto or de jure standard, and no

standard-compliant work-around is (or later becomes) available

– Standard is essential – no competing standard. (Ex.: HD-DVD v Blu-ray)

– Feature is essential -- not optional component of a standard

• May be the case for many SEPs and Commercially Essential Patents

– Even for large portfolio: Quantity may make up for lack of quality; and if

portfolio is large, license may be de facto essential

• EC in Motorola: Dominance presumed

• AG in Huawei v ZTE: Must be possible to rebut dominance presumption

14

1. When Are SEP Owners Dominant?

But can patentee be dominant

in case of mutually assured destruction?

• Patentee, even if unavoidable, may still not be dominant if:

– SEP owner is active in SSOs and wants to have its technology accepted in

future standards too (“repeat game”),

• Patentee has burden of proof

• User can provide evidence that “repeat game” is avoided by manipulation

– Situation of MAD/countervailing power

• “Large patent pools are understood to ensure “peace” between the big players in

the industry by credible threatening the IP equivalent of “mutually assured

destruction” = balance leads to countervailing power (Oracle/Sun, fn. 458)

• “Google would gain little from extracting large licence fees from its competitors

whilst at the same time leaving its Android OS open to attack.” … “Google will

have to take into account the threat of counter-suits for patent infringement from

companies like Microsoft and Apple prior to engaging in behaviour that could

significantly impede effective competition.” (Google/Motorola, para. 119 and 128)

– But that defense is not available to PAEs

15

“seeking and enforcement of an injunction against Apple … amounts to

an abuse… [since] … Apple was not unwilling to enter into a licence

agreement on FRAND terms and conditions” (Motorola, para. 280)

– “and” means both are required in the circumstances of this case where Apple was

unwilling between 2007 and at least until 2d Orange Book offer in 2011

– Commission makes a point of mentioning the (< one-day) “enforcement”

If the Samsung or similar process is being followed, and the user has

agreed to submit rate setting and T&Cs to court review, then “seeking”

may already be an abuse.

– But to say that “seeking” alone is an abuse when use is “unwilling”, or it is unclear

whether user is “willing” is wrong under ITT Promedia, and impractical.

– ITT Promedia: a company cannot be prevented from going to court to ask a judge

whether the other side is “unwilling” and whether an injunction is justified, unless

that litigation itself is vexatious – i.e., when it is clear than user is “willing”

So, is there a “safe harbour for patentees?

– Press release / Q&As leave open what happens if a user does not submit.

– Patentee must be able to use if the user refuses to submit (as ZTE did in Huawei).

2. What exactly is the abuse –seeking injunctions?

16

Unwilling users can become “willing”, even after years of obstruction,

even after injunction is granted, by offering FRAND terms or agreeing

to adjudication / arbitration:

– Para 441 “Apple's alleged unwillingness between 2007 and 2010 is irrelevant for

the purposes of this Decision as this cannot justify Motorola's continued seeking and

enforcement of an injunction against Apple in Germany on the basis of the Cudak

GPRS SEP after 4 October 2011, the date of the Second Orange Book Offer.”

– See also fn 349: “Motorola’s allegation that internal Apple e-mail

correspondence suggests that, when making its Orange Book Offers,

Apple may also have been hoping to delay the litigation, cannot alter the

fact that, as of its Second Orange Book Offer, Apple was willing to enter

into a licensing agreement with full judicial review and determination of the

proposed FRAND royalties with retroactive effect by a court “.

Does that mean there is no incentive to take early license? Some incentive left:

– Para. 399: “The Second Orange Book Offer added that "LICENSOR reserves the

right to assert higher damages for these acts in addition to this one-time royalty

payment." The decision does not object to that. See also para. 404-405.

3. What is “willingness”? (focus in Huawei v ZTE)

17

Motorola establishes the precedent (although facts didn’t fit theory):

- No injunction against a user who is willing to take a license on FRAND terms

- Request to license can be made at any time, even years after litigation starts

- A licensee is “willing” if it offers FRAND fee and/or agrees to have FRAND

royalty set by court or arbitral tribunal

- A licensee may be “willing” even if challenging validity, infringement, essentiality

Samsung Commitment Decision explains one way how this can be done

- Offer to give/take FRAND license, followed by period of negotiation, and if that

fails, royalty and any disputed term are set by court of arbitral tribunal

Judgments in US already set FRAND rates (Motorola, Innovatio)

- And arbitration proceedings are pending

Huawei v ZTE (preliminary ruling) expected 2015

- Advocate General opinion November 20, 2014 suggests overly rigid process

4. How to implement?

Samsung (2014) and Huawei/ZTE (2015?)

18

Samsung Commitments – FRAND setting process

19

Lengthy negotiation period

No obligation to pay into

escrow

No release if user challenges

validity and infringement

Can FRAND rate be set

probabilistically?

If so, how does it fit with

ability to challenge validity

and infringement?

Can patent owner require

global license?

Basic principle: Offer resolution process to set FRAND terms

Final Commitments; Commission decision of April 29, 2014

Comparable to

Google/Motorola 2013 US Consent Decree

20

• Before seeking or enforcing injunction, Patentee must: – Make an offer to license (at least 6 months earlier)

– Make an offer to arbitrate (at least 60 days earlier)

• Injunctive relief not available if potential licensee is “willing”: – Accepts offer to license

– Accepts offer to arbitrate or

– Asks US District Court to set FRAND royalty

• But injunction is allowed where user of patent: – Refuses in writing to license on any terms (excludes contesting

validity / infringement / essentiality / value)

– Refuses to enter into licence on terms determined by court

– Fails to confirm reciprocity in accordance with SSO's policy

– Defensive use exception: Seeks injunction on SEP(s) against patentee product (without following procedures equivalent to Consent Decree)

Competition law may be relevant even absent

FRAND promise – Orange Book case

• Orange Book (German Supr Ct): Dominant owner of standard-

essential or commercially essential patent must license

– May apply not just to SEPs, also CEPs, unavoidable portfolios

– Not limited to situations where FRAND promise was given

• Licensee can avoid injunction by:

– 1. Asking court to set royalty on FRAND basis

– 2. Paying requested royalty into escrow or making counteroffer for

escrow payment that licensor cannot reasonably reject

– 3. Offer must be unconditional: (but validity infringement no-

challenge clause should no longer be allowed)

• Court will then set royalty rate and royalty base

• Case stands for non-SEPs

• See also Microsoft (interoperability) case

21

User is not Willing”:

-Material breach of license contract that cannot be remedied by damage

-User who cannot pay

-Licensee who refuses per-standard reciprocity

-Licensee who brings SEP-based litigation against SEP holder

(defensive suspension)

-Licensee refuses field of use limitation to scope of standard

no-challenge clauses –vs- permissible settlements / avoiding delays

Illegal tying –vs- permissible “per standard/product” portfolio license

Illegal forced countertrade –vs- reasonable “per standard/product” FRAND

cross-license

What T&Cs can user refuse without being “unwilling?

22

Motorola, Samsung: no-challenge and “termination” clauses not allowed

– But how to avoid perpetual litigation after a license is signed?

– EC: “a reasonable time frame for resolution is of the essence”.

– Ban on termination clauses should be allowed in legitimate settlement:

– Technology Transfer guidelines para 235 - 236: “Settlement agreements in the

context of technology disputes are, as in many other areas of commercial disputes, in

principle a legitimate way to find a mutually acceptable compromise to a bona fide

legal disagreement. …

– Para. 242-243: “In the context of a settlement agreement, non-challenge clauses are

generally considered to fall outside Article 101(1) of the Treaty. It is inherent in such

agreements that the parties agree not to challenge ex post the intellectual property

rights which were the centre of the dispute. … a non-challenge clause may infringe

Article 101(1) where an intellectual property right was granted following the provision

of incorrect or misleading information. Scrutiny of such clauses may also be

necessary if the licensor .. induces, financially or otherwise, the licensee to agree not

to challenge the validity of the technology rights or if the technology rights are a

necessary input for the licensee's production”

Solution to interminable litigation: “sampling” / “proud list” approach

User can resist illegal no-challenge clauses

23

Refusal to accept tying of essential IPR and non-essential IPRs does not make

user “unwilling” and does not justify injunction

But: “portfolio licensing can be efficient in some cases” (EC Speaking Points

at ETSI IPR #16 on 9/9/2013 and EC Speaking Points at ITU on 12/9/2013)

– Allows bundling on “per-standard” basis.

– Allows voluntary full-portfolio licensing

See also

- Article 9 commitments in Samsung: licensing framework for bundle of

“Samsung Electronics’ Mobile SEPs”

- Google FTC Consent Order, provides procedure to determine terms for

bundle of “patents that are Essential to the Covered Standards”

Criticism: Tying should be allowed for all essential IPRs needed per product”.

- Efficient and practical solution: a willing licensee needs all of them anyway

and should accept bundle (subject to right to challenge validity, infringement).

- Otherwise, patent holder might be forced to litigate SEP for every single

standard in the product, which would be costly and inefficient in practice.

User can resist illegal tying SEPs to non-essentials

24

Motorola Decision, para 456: “SEP holders are in principle entitled to request

reciprocity in line with the rules of SSOs.”

– Motorola requested reciprocity in the Second Orange Book Offer

– EC (rightly) did not list that as an element of the abuse

Samsung Commitment, para. 79 and 89:

– “Samsung cannot condition the licensing of its Mobile SEPs on the

crosslicensing of a potential licensee’s non-SEPs or SEPs not covered by the

reciprocity rules of SSOs.” .

– Interpreted as per-standard reciprocity – should have been per-product ?

– Also, defensive suspension: Samsung may seek and enforce injunction if (1)

Potential Licensee files claim for injunctive relief in the EEA against Samsung

or a customer of Samsung for Mobile Device/components for infringement of

any Potential Licensee’s Mobile SEPs, and (2) Samsung offers to be bound by

Licensing Framework

– Samsung should have been allowed to defend itself in the EEA against

injunctions elsewhere, considering that this was a worldwide war

Implied: cross-license must be FRAND (license cannot demand free cross-license)

User can resist illegal forced countertrade

25

EC emphasizes the SEP and standards context,

Motorola and Samsung give no explicit guidance about FRAND-covered non-

SEPs like ActiveSync or FAT, or enforcement of unavoidable portfolio

On the other hand, see Orange Book (de facto essential), Microsoft (denying

interoperability), Commercial Solvents (cutting off supplies), Rambus (ambush)

– (Motorola 278) “…The exercise of an exclusive right by its owner may,

however, in exceptional circumstances and absent any objective justification

involve abusive conduct. The list of exceptional circumstances is not

exhaustive.“

– Note also the nod to the “legitimate expectations” argument in para 294,

which may apply to refusal to license non-SEPs subject to a FRAND promise

– Decision and the press release emphasize that Orange Book applies more

broadly to non-SEPs and is not inconsistent with the EC decision,

– Microsoft continues to apply (that case concerned non-SEPs)

– And cutting off licenses to essential portfolio can be abuse (Commercial

Solvents, etc)

– FRAND licensing also required for technology pools (see TT Guidelines)

What rules for non-SEPs?

26

2

7

CONCLUSION SEP Owner offers

license on terms

to be set by a

court/ arbitration

SEP Owner offers

specific terms, but not

arbitration/adjudication

SEP Owner makes no

offer (and has no

objective justification)

User offers to take

license on terms to

be set by a court /

arbitration

Injunction denied /

irrelevant.

License terms are

set by adjudication

/ arbitration (and

injunction is denied

or suspended)

Injunction suspended

pending FRAND review;

granted if Court finds

SEP owner’s terms

FRAND and user does

not accept; denied if

Court finds SEP owner’s

terms not FRAND, or if

user accepts owner’s

FRAND terms

Injunction denied

User offers specific

terms, but not

adjudication /

arbitration

Injunction granted

unless Court finds

user’s offer

FRAND and SEP

owner does not

accept

Same as above Injunction denied

User makes no offer

(and has no

objective

justification) or offer

is tactical, dilatory,

not serious

Injunction granted Same as above Injunction denied, unless

user refuses any license,

or offer is tactical,

dilatory, not serious

The next problem: PAEs and Privateers (1)

• There are growing opportunities for PAEs and privateers, because of

the increasing complexity of products, and growth of patents

• No need to define what a PAE is.

– It’s not who they are, but what they do.

• The essence of “troll” behaviour is

– Creating expectations (FRAND promise, license promise), or allowing

expectations of patent-free environment/non-assertion to arise, or awaiting

lock-in, and then exploiting lock-in by “hold-up” – often using injunction

– They then extract high royalties (tying/block booking), cross-license, or

other terms the cost of which is greater than the innovative value of the IP

(ex ante), and instead reflects switching costs and opportunity costs of not

taking a license

• Privateers engage in similar conduct

– But in cooperation with, or to benefit, a practicing entity

– Portfolio disaggregation creates Cournot complements problem

28

• “Hold-up” is not limited to SEPs. It also occurs with commercially

essential patents, and even unavoidable patent portfolios.

• And even practicing entities can engage in “hold-up” conduct.

– Practicing entities may have to worry about counterclaims.

– But the smaller their practicing business is, the less vulnerable they

are. PAEs are invulnerable to counterclaims

• Strategic use of privateers creates even greater danger:

– Patent disaggregation leading to royalty stacking (multiple

monopoly rents); raising rivals’ costs (Mosaid/Conversant)

– Avoiding cross-license dynamics (Vringo)

– Evading FRAND promises (Rockstar)

29

The next problem: Trolls and Privateers (2)

• Solution: Deny injunctions against willing licensees (eBay principles) unless

• 1) plaintiff suffers irreparable injury;

• 2) remedies available at law (such as damage award) inadequate to

compensate for the injury;

• 3) a remedy in equity is warranted in light of the balance of hardships between

plaintiff and defendant; and

• 4) the public interest would not be disserved by a permanent injunction.

• No valid reason to treat SEPs and other FRAND-covered Patents differently:

same theory of harm ( “legitimate expectations”, see Motorola, para 294)

• No valid reason to differentiate between PAEs and practicing entities, except

that PAEs are more easily found dominant (no countervailing power)

• Ensure that the UPC does not become a troll tool (potential for misuse of

bifurcation + preliminary injunction): apply eBay principles

• Apply Article 101 to privateers

• Apply Article 102(a) in cases of clearly excessive demands;

• Apply national or EU merger control to avoid creation of asymmetries that

allow buyer to leverage acquired patents

The next problem: Trolls and Privateers (3)

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FRAND promise

32

A license or promise to license:

- No refusal or termination of a license, no injunctive relief, no suit for treble damages, if defendant is willing and able to pay, but disagrees on T&Cs. Exception: Defensive suspension, material (actual or anticipatory) breach

- No constructive refusal to license (e.g., excessive fees, delays, etc.)

Fair and reasonable – equitable, balancing all interests (proportionality)

- Same criterion as 102(a) EC: “not excessive” = share benefits of standards with licensees and consumers (required by 101(3) anyway)

- rate that the IPR owner could have obtained in ex ante inter-technology competition, unless the IP owner took anti-competitive action to diminish ex ante inter-technology competition

- No monopoly rent, moderate, allowing IP owner innovation incentive, but not allowing IP owner to appropriate entire value of standard. Avoid Cournot stack

Non-discriminatory – equal treatment of all customers, including the IPR-owner’s own downstream business.

- Same criterion as 102 EC(b) and 102(c) and 101(3)(b): “not exclusionary, not discriminatory”

- No restriction of downstream competition on the merits (no price-squeeze, no T&Cs that have the object or effect of restricting downstream competition, etc)

- E.g., no differential treatment based on whether licensee purchases the licensor's downstream product

- No restriction of upstream technology competition (no free NAP/pass-thru)

CJEU will now decide (Huawei v ZTE)

• Huawei v. ZTE reference by the Dusseldorf to the CJEU

in a case involving FRAND promise.

• 5 Questions

1. Is it an abuse for an SEP owner who makes a FRAND promise to

seek injunctive relief against an infringer who has declared himself

willing to negotiate such a license, or must the infringer have made

a binding offer?

2. If willingness to negotiate is sufficient, what will suffice to

demonstrate it?

3. If a binding offer is necessary, and what must it include?

4. Must infringer (promise to) pay damages for past infringements as

a condition for escaping injunction?

5. Do the requirements for the presumption of abuse of a dominant

market position by an SEP holder also apply to other remedies for

patent infringement? 33