FRAND determination under the European SEP Regulation Proposal: discarding the Huawei framework?

Abstract

ABSTRACTAs part of the recent proposal for a regulation that would overhaul the entire standard essential patents licensing system (SEP Proposal), the European Commission has envisaged a pre-trial mandatory FRAND determination by a conciliator. The paper investigates the relationship between the FRAND determination process under such a proposal and the test developed by the European Court of Justice (CJEU) in Huawei v. ZTE, which represents the current guiding framework for SEP licensing negotiations in the EU. The paper aims at demonstrating that even, if the SEP Proposal were not to displace Huawei, it endorses an anti-injunction approach which is inconsistent with the CJEU’s stance and is essentially triggered by the German case law.KEYWORDS: Standard essential patentsFRAND determinationcompetition lawinjunctionswilling licensee testconciliation Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 European Commission, Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, COM(2023)232.2 ibid Recital 2.3 See Group of Experts on Licensing and Valuation of Standard Essential Patents, ‘Contribution to the Debate on SEPs’ [2021] (all websites last visited on 4 November 2023); European Commission, ‘Making the most of the EU’s innovative potential. An intellectual property action plan to support the EU’s recovery and resilience’, COM(2020) 760 final; European Commission, ‘Setting out the EU approach to Standard Essential Patents’, COM(2017) 712 final; European Commission, ‘ICT Standardisation Priorities for the Digital Single Market’, COM(2016) 176 final.4 European Commission, ‘Intellectual property – new framework for standard-essential patents’ [2022] Call for evidence for an impact assessment, .5 ibid.6 See, e.g. Centre for a Digital Society of the European University Institute, ‘Feedback to EU Commission’s public consultation’ [2023] ; Christine A Varney and others, ‘Comments on European Commission’s Draft “Proposal for Regulation of the European Parliament and of the Council Establishing a Framework for Transparent Licensing of Standard Essential Patents”’ [2023] ; Robin Jacob and Igor Nikolic, ‘ICLE Feedback to EU Commission’s public consultation’ [2023] .7 European Commission, ‘Impact Assessment Report Accompanying the Document Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001’, SWD(2023) 124 final.8 Justus Baron and others, ‘Empirical Assessment of Potential Challenges in SEP Licensing’ [2023] Study for the European Commission, .9 European Commission, ‘Impact Assessment’ (n 7) 11–7 and 25.10 Baron and others (n 8) 108.11 ibid 109–10.12 ibid 185.13 ibid 164.14 SEP Proposal (n 1) Article 3.15 Varney and others (n 6). See also the letter sent by the president of the European Patent Office (EPO), António Campinos, to the chair and vice chair of the European Parliament’s Legal Affairs Committee complaining that the EPO was never consulted on the SEP Proposal, despite being “well-versed in the complex relationship between patents and standards” ().16 SEP Proposal (n 1) Title VI.17 Case C-170/13, Huawei Technologies Co Ltd v. ZTE Corp, ECLI:EU:C:2015:477.18 Impact Assessment (n 7) 43 and 58.19 European Commission, 29 April 2014, Cases AT.39985 and AT.39939.20 Bundesgerichtshof (BGH), 6 May 2009, Case KZR 39/06.21 SEP Proposal, Explanatory Memorandum (n 1) 4; European Commission (n 4) 3.22 Baron, Arque-Castells, Leonard, Pohlmann, and Sergheraert (n 8) 71-73.23 Impact Assessment (n 7) 154 and 158. See also BMW Group, ‘Feedback to EU Commission’s public consultation’ [2023] ; Mercedes-Benz Group, ‘Feedback to EU Commission’s public consultation’ [2023] ; and Volkswagen, ‘Feedback to EU Commission’s public consultation’ [2023] , welcoming the SEP Proposal for ensuring that, parallel to FRAND determination, any filed proceedings are suspended and that no injunction request may be brought before national courts, “particularly in Germany”; Baron and others (n 8) 96, arguing that German courts are relatively strict on the interpretation of the Huawei step regarding the assessment of whether the response has been expressed diligently and without engaging in delaying tactics.24 SEP Proposal (n 1) Recital 8 and Article 38(6).25 Impact Assessment (n 7) 15 and 51–2.26 SEP Proposal (n 1) Recital 32. See Impact Assessment (n 7) 43–4, estimating that the total cost of a conciliation will be eight times lower that the average SEP court cost and that up to 24 court cases could be avoided.27 SEP Proposal (n 1) Article 39.28 ibid Article 34.29 ibid Article 56(4).30 ibid Article 1(3-4).31 ibid Article 34(4).32 ibid Recital 34.33 ibid Article 38.34 ibid Article 46.35 ibid Article 47.36 ibid Article 37.37 ibid Articles 50-58.38 Huawei (n 17).39 European Commission, ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements’ [2023] OJ C 259/1, Chapter 7.40 Huawei (n 17) para 55.41 ibid para 42.42 ibid para 47.43 Joined Cases C-241/91 P and 242/91 P, RTE and ITP v. Commission, ECLI:EU:C:1995:98; Case C-7/97, Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG, ECLI:EU:C:1998:569; Case C-418/01, IMS Health v. NDC Health, ECLI:EU:C:2004:257; Case T-201/04, Microsoft v. Commission ECLI:EU:T:2007:289.44 Huawei (n 17) paras 49 and 51.45 See, e.g. UK Court of Appeal, Unwired Planet [2018] EWCA Civ 2344, overturning the single FRAND rate definition endorsed by Justice Birss in Unwired Planet [2017] EWHC 1304 (Pat) and stating that the economic evidence does not support such an inflexible approach and that it is unreal to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of license terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances.46 See Chryssoula Pentheroudakis and Justus A Baron, ‘Licensing Terms of Standard Essential Patents: A Comphrensive Analysis of Cases’ [2017] JRC Science for Policy Report, 13 and 165 , arguing that the theoretical concepts behind FRAND and the empirical data that is available to determine FRAND rates for specific patents and products merely allow for the determination of a potentially wide FRAND range (rather than an unique FRAND rate), thus suggesting that the implementation of the FRAND range in should not aim to calculate a single royalty.47 European Commission (n 3) 6.48 See SEP Proposal (n 1) Recital 31, stating that the main objective of the Regulation is to facilitate the negotiations and out of court dispute resolution.49 European Commission (n 4) 3.50 SEP Proposal, Explanatory Memorandum (n 1) 4–5; European Commission (n 4) 3.51 Baron and others (n 8) 58–9 and 96.52 European Commission (n 4) 3.53 For an analysis of the German case law, see Andrea Aguggia and Giuseppe Colangelo, ‘SEPs infringement and competition law defence in German case law’ (forthcoming) Queen Mary Journal of Intellectual Property; Giuseppe Colangelo and Valerio Torti, ‘Filling Huawei’s gaps: the recent German case law on standard essential patents’ [2017] 38 European Competition Law Review 538.54 See Jacob and Nikolic (n 6), referring, for instance, to the guidance provided regarding what the FRAND rate between the parties ought to be, the scope of a FRAND license, the meaning of a FRAND commitment’s non-discrimination requirements, and whether FRAND commitments require SEP owners to offer licenses at different levels of the production chain. See also Adam Mossoff, ‘Feedback to EU Commission’s public consultation’ [2023] .55 Baron, Arque-Castells, Leonard, Pohlmann, and Sergheraert (n 8) 108 and 164.56 ibid 71–3.57 Impact Assessment (n 7) 8.58 SEP Proposal, Explanatory Memorandum (n 1) 5.59 Impact Assessment (n 7) 58.60 SEP Proposal, Explanatory Memorandum (n 1) 5.61 Impact Assessment (n 7) 32.62 ibid 42.63 ibid.64 SEP Proposal, Explanatory Memorandum (n 1) 3.65 Impact Assessment (n 7) 42. See also Apple, ‘Feedback to EU Commission’s public consultation’ [2023] 3 , arguing that, if properly developed and implemented, the conciliation would limit SEP holders’ ability to use injunction threats to hold up licensees and coerce above-FRAND royalties.66 SEP Proposal (n 1) Recital 35 and Article 34(4).67 ibid Recital 35.68 Impact Assessment (n 7) 12.69 ibid. reporting the findings of the study conducted by Baron, Arque-Castells, Leonard, Pohlmann, and Sergheraert (n 8) 145, according to which negotiations amount on average to three years and litigation may add another 2.5 years.70 Igor Nikolic, ‘Some practical and competition concerns with the proposed Regulation on Standard Essential Patents’ [2023] 5 .71 Impact Assessment (n 7) 58.72 See, e.g. European Commission (n 4) 3; Impact Assessment (n 7) 154 and 158; SEP Proposal, Explanatory Memorandum (n 1) 4. See also Baron and others (n 8) 59, arguing that in many Member States there currently is only a limited number of decisions under Huawei and that, in light of the controversies and diverging court approaches observed in Germany, it may be difficult for parties of SEP licensing negotiations to predict how the courts of these EU Member States would decide.73 Impact Assessment (n 7) 154, 155, and 158. The reference is to BGH, 5 May 2020, Case KZR 36/17, Sisvel v. Haier (Einwand I) and BGH, 24 November 2020, Case KZR 35/17, Sisvel v. Haier (Einwand II).74 Impact Assessment (n 7) 158.75 Orange Book Standard (n 20).76 Motorola and Samsung (n 19).77 See Aguggia and Colangelo (n 53).78 ibid.79 SEP Proposal (n 1) Article 1(4).80 ibid Recital 4.81 ibid Article 38(6).82 For a comparative analysis, see Giuseppe Colangelo and Valerio Torti, ‘Anti-suit injunctions and geopolitics in transnational SEPs litigation’ [2022] 14 European Journal of Legal Studies 45.83 European Commission, ‘EU Challenges China at the WTO to Defend its High-Tech Sector’ [2022] .84 SEP Proposal, Explanatory Memorandum (n 1) 2.85 ibid 10.Additional informationFundingThe study has been conducted as part of the research activities promoted by the International Center for Law & Economics (ICLE). The author is grateful for the financial support received.