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Court of Justice of the European Union (Fifth Chamber) [2015]: Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH, Case No. C-170/13



This is an informal case summary prepared for the purposes of facilitating exchange during the 2023 WIPO IP Judges Forum.

Session 4: Intellectual Property and Competition Issues

Court of Justice of the European Union (Fifth Chamber) [2015]: Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH, Case No. C-170/13

Date of judgment: July 16, 2015
Issuing authority: Court of Justice of the European Union
Level of the issuing authority: Final instance
Type of procedure: Judicial (Civin( �br> Subject matter: Patents; Competition
Plaintiff: Huawei Technologies Co. Ltd
Defendant: ZTE Corp., ZTE Deutschland GmbH
Keywords: Patent essential to a standard, License on FRAND terms, Actions for infringement of a patent, Abuse of dominant position

Basic facts: Huawei Technologies Co. Ltd (“HUAWEI”) and ZTE Corp (“ZTE”) are the holders of numerous patents essential to the “Long Term Evolution” standard established by the European Telecommunications Standards Institute (“ETSI”), which consists of more than 4700 standard essential patents (“SEPs”). The ETSI Rules of Procedure provide that an intellectual property right shall be regarded as essential if it is not possible on technical grounds to manufacture equipment that complies with a standard without infringing the intellectual property right.

Under the ETSI Rules of Procedure, both companies undertook to licence their respective SEPs to third parties on fair, reasonable and non-discriminatory (“FRAND”) terms.

The case concerns one of HUAWEI’s SEPs, bearing the title “Method and apparatus of establishing a synchronisation signal in a communication system” (“Patent X”).

ZTE marketed products that operated on the basis of the LTE standard, thus using patent X, without paying a royalty to HUAWEI.

Between November 2010 and the end of March 2011, HUAWEI and ZTE engaged in discussions concerning, inter alia, the infringement of Patent X and the possibility of concluding a licence agreement on FRAND terms. HUAWEI sought a certain amount that it considered to be a reasonable royalty. For its part, ZTE sought a cross-licensing agreement. However, no offer for a licence agreement was finalized.

On April 28, 2011, HUAWEI filed an infringement action against ZTE with the Landgericht Düsseldorf (Düsseldorf District Court), seeking: (i) an injunction prohibiting the infringement; (ii) the rendering of accounts in respect of past acts of use; (iii) the recall of products and (iv) an award of damages.

The Düsseldorf District Court considered the decision on the substance in the main proceedings to turn on whether the action brought by HUAWEI constituted an abuse of a dominant position (the existence of a dominant position by HUAWEI not being in dispute). It thus observed that the mandatory nature of the licence could be invoked to dismiss the action for an injunction on the basis of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”), if, by its action, HUAWEI were to be regarded as abusing its dominant position. The District Court also questioned whether the conditions under which the abuse of a dominant position by an SEP owner is to be presumed apply in the same way to an action based on other claims (rendering of accounts, recall of products, damages) arising from a patent infringement.

The Düsseldorf District Court therefore stayed the proceedings and referred the matter to the Court of Justice of the European Union (CJEU) for a preliminary ruling.

Held: The CJEU held that Article 102 TFEU must be interpreted as meaning that the proprietor of a patent essential to a standard established by a standardization body, which has given an irrevocable undertaking to that body to grant a license to third parties on FRAND terms, does not abuse its dominant position, within the meaning of that article, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

- prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated;

− and where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

The CJEU further held that Article 102 TFEU must be interpreted as not prohibiting, in circumstances such as those in the main proceedings, an undertaking in a dominant position and holding a patent essential to a standard established by a standardization body, which has given an undertaking to the standardization body to grant licenses for that patent on FRAND terms, from bringing an action for infringement against the alleged infringer of its patent and seeking the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use.

Relevant holdings in relation to intellectual property and competition issues:
the lawfulness of an infringement action brought by the proprietor of an SEP against an infringer with whom no licence agreement has been concluded, the CJEU stated that a balance must be struck between the maintenance of free competition — in respect of which Article 102 TFEU prohibits the abuse of a dominant position — and the need to safeguard that proprietor’s intellectual property rights and his right to effective judicial protection, as guaranteed by Article 17(2) and Article 47 of the Charter of Fundamental Rights of the European Union (“the Charter”), respectively.

The Court noted that the case has characteristics that distinguish it from the cases that gave rise to the "exceptional circumstances" doctrine, as set out, inter alia, in IMS Health, in the sense that:

(i) the patent at issue is essential to a standard established by a standard-setting body, rendering its use indispensable for all competitors wishing to manufacture products that comply with the standard to which it is linked, whereas patents that are not essential to a standard normally allow third parties to manufacture competing products without recourse to the patent concerned, without compromising the essential functions of the product in question; and

(ii) the patent at issue was granted SEP status only in return for the proprietor’s irrevocable undertaking, given to the standardization body, to grant licences to third parties on FRAND terms.

Under these conditions, and in view of the fact that an undertaking to grant licences on FRAND terms creates a legitimate expectation on the part of third parties that the SEP owner will in fact grant licences on such terms, a refusal by the proprietor of the SEP to grant a licence on such terms may, in principle, constitute an abuse within the meaning of Article 102 TFEU. It follows that the abusive nature of such a refusal may, in principle, be raised as a defence to an action for a prohibitory injunction or for the recall of products.

However, under Article 102 TFEU, the patent owner is obliged only to grant a licence on FRAND terms. In the event of disagreement between the parties as to what constitutes FRAND terms, the SEP owner must comply with certain conditions aimed at ensuring a fair balance between the interests concerned in order to prevent an action for a prohibitory injunction or for the recall of products from being regarded as abusive.

The conditions under which an abuse of a dominant position by an SEP owner is to be presumed when an infringement action is brought seeking a prohibitory injunction or the recall of products do not apply to infringement actions seeking the rendering of accounts in relation to past acts of use of the SEP or an award of damages in respect of those acts of use, since such actions do not have a direct impact on products complying with the standard in question manufactured by competitors appearing or remaining on the market.

Relevant legislation:
Article 102 of the Treaty on the Functioning of the European Union (TFEU)
Articles 17(2) and 47 of the Charter of Fundamental Rights of the European Union
Article 10 of the Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights
Paragraph 242 of the German Civil Code (Bürgerliches Gesetzbuch)
Paragraph 139(1) of the German Patent Act (Patentgesetz)
Paragraphs 19 and 20 of the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen)