Standard-essential patents: Prohibitory injunction may constitute the abuse of a dominant position

Following a reference for a preliminary ruling from the Regional Court of Düsseldorf (LG Düsseldorf), the CJEU held on the 16 July 2015 (C-170/13) that the bringing of an action for a prohibitory injunction against an alleged infringer by the proprietor of a standard-essential patent (SEP) which holds a dominant position may constitute an abuse of that dominant position in certain circumstances.

In the underlying case the company Huawei Technologies, the proprietor of a European patent in the telecommunications sector, which Huawei notified to the European Telecommunications Standard Institute (ETSI) as a patent essential to a specific standard, brought an action for infringement against a company of the multinational group ZTE that sold products in Germany. ZTE’s products made use of the standard without paying royalties to Huawei. According to the principles defined by the Federal Court of Justice in 2009 in the “Orange Book” judgment, the party seeking the license (or the potential infringer) is, in principle, obliged to make an unconditional offer to the SEP holder for the conclusion of a license agreement and at the same time to behave in advance as if this agreement had already been entered into. The CJEU now had to clarify the circumstances in which an undertaking in a dominant position abuses that position by bringing an action for infringement.

The Court first pointed out that the exercise of IP rights usually does not constitute an abuse of a dominant position except in special circumstances. However, in the case of an SEP, the situation may be different. The use of such a patent is indispensable to all competitors who manufacture products that comply with the standard. The patent only obtained the SEP status because its proprietor irrevocably undertook vis-à-vis the standardisation body that it is prepared to grant licences to third parties on fair, reasonable and non-discriminatory terms (FRAND terms).

Therefore, the judges decided that the holder of an SEP must present to the alleged infringer a specific offer to conclude a licence agreement before bringing an action for an injunction prohibiting the infringement of its patent. However, the Court distinguished between the cease and desist claim and an action for seeking the rendering of accounts and an award of damages. Regarding the latter, the prohibition of abuse of a dominant position does not prevent an undertaking in a dominant position and holding a SEP from bringing an action for infringement with a view to obtaining the rendering of accounts in relation to acts of use of that patent or an award of damages in respect of those acts.

The judgement will have far-reaching consequences. The possibilities of SEP holders to obtain an injunction are significantly reduced. They are ultimately prevented from efficiently enforcing their exclusive rights. This might lead to a strong reduction in participation in SSOs. Furthermore, it remains unclear what the requirements for a sufficient offer for a license agreement are.