EU proposes reining in the rights of holders of Standard Essential Patents.
Advocate General issues his opinion in Huawei v ZTE in its referral to the Court of Justice.

The Court of Justice of the European Union is currently deliberating a number of questions referred to it by the Dusseldorf Regional Court, Germany in the case of Huawei Technologies Co. Ltd v ZTE Corp. The Court of Justice is deciding in what circumstances an action for infringement brought by a holder of a standard essential patent (SEP) constitutes an abuse of a dominant position under EU competition law. Advocate General Wathelet has issued his non-binding opinion, which proposes answers to the questions referred by the Dusseldorf court. The opinion can be found here.

According to the Advocate General, an abuse of a dominant position arises where:

  • An SEP holder has made a commitment to grant third parties a licence on fair, reasonable and non-discriminatory (FRAND) terms, for example via a standards setting organisation (SSO);
  • If the SEP holder makes a request for corrective measures or seeks an injunction against a company that has infringed the SEP; and
  • It is shown that the SEP holder has not honoured its commitment even though the offending company has shown itself to be objectively ready, willing and able to enter into such a licensing agreement.
The Advocate General has additionally proposed, in order to avoid an abuse of its dominant position, in advance of making a request for corrective measures or seeking an injunction, the SEP holder must alert the third party to the infringement in writing and present the third party with a written offer of a licence on FRAND terms.

A considered and serious response must be provided by the third party. If the conduct of the third party is purely tactical and/or dilatory and/or not serious, an application for corrective measures or an injunction by the SEP holder does not constitute an abuse of a dominant position.

Finally, the Advocate General has proposed that the offending third party may request that FRAND terms be fixed either by a court or by an arbitration tribunal, and be able to challenge the validity, use and essential nature of the SEP after entering into an agreement for a licence without its actions being considered to be regarded as dilatory or not serious.

For the German courts, this represents a potentially serious restriction on the rights of SEP holders whom, following the previous so-called “Orange Book” case, could avoid abusing a dominant position if the offending third party did not make an unconditional and binding license offer in response to the seeking of an injunction, and did not behave as if it were an actual licensee.

Whilst the opinion is not binding on the final decision of the EU’s Court of Justice due in 2015, it is likely to remain very persuasive.

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