Negotiate Before Suing, EU Judge Tells Patentees

(CN) - Patent trolls and tech inventors beware: court may not be the first stop when a standard-essential patent's been swiped, at least not in the European Union.

An adviser to the European Court of Justice made that suggestion to his colleagues Thursday, in Chinese telecom company Huawei's case against ZTE 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 to sue ZTE in a Dusseldorf court seeking a ban on the use of its SEP and damages as well.

But ZTE argued that Huawei is abusing its dominant position by not accepting a licensing offer on FRAND terms. The German court then asked the EU high court whether Huwaei's patent infringement action is an abuse of its dominant position and therefore anticompetitive behavior, since the company had made a commitment to ETSI to license its SEPs on FRAND terms and breached that agreement.

In his 19-page opinion for the Court of Justice, Advocate General Melchior Wathelet said that Huawei doesn't necessary hold the dominant position just by owning a SEP. National courts must make those determinations on a case-by-case basis, he added.

But when a SEP holder makes a commitment to abide by FRAND terms and then runs to court for an injunction or damages - despite an objective willingness by an infringer to negotiate a licensing deal - that becomes an abuse of a dominant position, Melchior said.

"I would point out that Huawei's notification of that patent to ETSI and its commitment to license it had an impact on the standardization procedure and the content of the LTE standard itself," the adviser wrote. "The fact that the teaching protected by the patent at issue has been incorporated into the LTE standard and the fact that a license to use that patent is therefore indispensable create a relationship of dependence between the SEP-holder and the undertakings which produce products and services in accordance with that standard. That technological dependence leads to economic dependence."

Melchior also noted that tech companies may not even know when they're infringing on SEPs, given the sheer number of patents involved in today's technology. In the case of the LTE standard, more than 4,700 patents have been registered as essential with ETSI - and many may not even be valid at all, he said.

SEP-holders must therefore tread carefully and use legal action only as a last resort, according to the advocate general.

"First, unless it is established that the alleged infringer is fully aware of the infringement, the SEP-holder must alert it to that fact in writing, giving reasons, and specifying the SEP concerned and the way in which it has been infringed," Melchior wrote. "Such a step does not place a disproportionate burden on the SEP-holder as it is one which it would have to take in any event in order to substantiate an action for a prohibitory injunction. "Secondly, the SEP-holder must, in any event, present to the alleged infringer a written offer for a license on FRAND terms that contains all the terms normally included in a license in the sector in question, in particular the precise amount of the royalty and the way in which that amount is calculated," the adviser continued.

The alleged infringer may then accept the SEP-holders terms or submit a reasonable counter-offer, with the duration of the negotiations in line with "the commercial window of opportunity available to the SEP-holder for securing a return on its patent in the sector in question," Melchior wrote.

If no negotiations take place or they break down, the SEP-holder can then have a license on FRAND terms set either by a court or through arbitration, the adviser said. At that point, the SEP-holder can also demand a bank guarantee for past and future royalties until the case is finalized, he added.

The adviser's opinion is not binding on the Luxembourg-based Court of Justice, which has begun its own deliberations in the case.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit