EU Orders Patentees to Negotiate Before Suing

     (CN) – Tech companies that have licensed their patents in the past must negotiate licenses with alleged infringers before suing, the EU high court ruled on Thursday.
     Chinese telecom company Huawei sued ZTE in a German court over a standard-essential patent used in fourth-generation – or LTE – cellphone networks.
     The European Telecommunications Standards Institute, or ETSI, developed the LTE standard. And it requires that inventors license their standard-essential patents incorporating the LTE standard to third parties on fair, reasonable and nondiscriminatory (FRAND) terms, since every cellphone maker complying with the standard inevitably uses the patented technology.
     ZTE operates base stations in Germany with LTE software, and unavoidably uses Huawei’s standard-essential patent, or SEP. Licensing discussions between the companies broke down, however, prompting Huawei’s suit seeking damages and a ban on ZTE’s use of the SEP.
     ZTE argued that Huawei was abusing its dominant position by refusing a licensing offer on FRAND terms. The German court asked the European Court of Justice whether Huawei’s patent infringement action was anticompetitive behavior, given its commitment to ETSI to license its SEPs fairly.
     In late 2014, an adviser to the EU high court said that while Huawei doesn’t necessarily hold the dominant position just by owning a SEP – the German court must make that determination – running to court to fight ZTE after promising to license the SEP may be anticompetitive abuse.
     On Thursday, the high court agreed with its adviser’s assessment in this case, since ZTE had been willing to license the SEP on FRAND terms.
     “Although the proprietor of the essential patent at issue has the right to bring an action for a prohibitory injunction or for the recall of products, the fact that that patent has obtained SEP status means that its proprietor can prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question,” the Luxembourg-based court wrote.
     “In those circumstances, and having regard to the fact that an undertaking to grant licenses on FRAND terms creates legitimate expectations on the part of third parties that the proprietor of the SEP will in fact grant licenses on such terms, a refusal by the proprietor of the SEP to grant a license on those terms may, in principle, constitute an abuse within the meaning EU law.”
     The court did acknowledge, however, that in this case the parties have never agreed what is a fair FRAND term for the patent. In this case, Huawei and ZTE should have asked an independent third party to determine the royalty rate instead of filing lawsuits, the court said.
     However, the EU high court stopped short of calling Huawei’s lawsuit an abuse of its dominant position since the case involves only a request for an accounting of ZTE’s use of the patent and possible damages relating to that use.

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