European Commission closes Samsung and Motorola cases on alleged abuse of standard essential patents

07 May 2014

On 29 April 2014, the European Commission adopted its final decisions in two landmark proceedings regarding standard essential patents (SEPs), i.e. patents which will necessarily be infringed by the technical implementation of a specific industry standard.

It accepted binding commitments by Samsung not to seek injunctions in relation to SEPs where certain conditions are met, and found that Motorola had infringed Article 102 TFEU by seeking and enforcing injunctions against Apple in relation to SEPs. The Commission emphasised the importance of protecting intellectual property rights (IPRs), and highlighted the exceptional nature of its intervention in these two cases, reflecting the fact that using technology covered by SEPs is essential for entry into certain markets. Although both the Samsung and Motorola cases concerned patents essential to mobile telecommunications standards, the cases are intended to establish principles applicable to all SEPS that are crucial to ensuring interoperability across not only the communications and IT sectors, but also more widely in sectors such as automotive and renewable energy, that are characterised by innovation and standardisation.

The Commission’s decisions are the final steps in its proceedings into alleged abuse of dominance against Samsung and Motorola, respectively. In both cases, the Commission’s concerns centred around the fact that Samsung and Motorola were seeking injunctions based on SEPs for which they had previously given voluntary commitments to license on FRAND terms (Fair Reasonable And Non-Discriminatory).

The Commission notes that seeking injunctions before courts is - generally - a legitimate remedy for patent holders in the event of patent infringement, but stresses that seeking injunctions in the case of FRAND-encumbered SEPs can be anti-competitive. Since injunctions generally involve a prohibition on the sale of the infringing product, seeking SEP-based injunctions may exclude competing products from the market. It can therefore distort licensing negotiations and lead to excessively onerous licensing terms. Where a patent holder seeks an injunction against a company willing to enter into a licence agreement on FRAND terms, having previously given a commitment to license the SEP on those same FRAND terms, the Commission considers that the patent holder may be abusing its dominant position.

On this basis, the Commission found that it was abusive for Motorola to seek and enforce an injunction against Apple and ordered Motorola to eliminate the negative effects resulting from it. However, recognising that there was no EU case-law in this area, and that national courts have previously taken different views on the issue, it exercised its discretion not to impose a fine. In the Samsung case, the Commission had similar concerns about Samsung's conduct in seeking injunctions against Apple on the basis of its SEPs. However, it decided the Samsung case on the basis of commitments given by Samsung (on which the Commission had previously consulted in October last year), which address the Commission’s concerns and have now been declared binding upon Samsung.

A key element of the Commission’s application of Article 102 TFEU to the assertion of FRAND-encumbered SEPs is the fact that the patent holder has sought an injunction against a prospective licensee that has previously indicated its “willingness to enter into a licence agreement on FRAND terms”. The commitments given by Samsung shed some light on the circumstances in which the Commission considers that a prospective licensee is “willing". Essentially the commitments set out a framework for the determination of FRAND terms. A company that accepts that framework is to be considered as a “willing licensee”. The framework provides for (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a binding third party determination of FRAND terms. The third party determination is to be carried out by a court if either party chooses, or by an arbitrator if both parties agree. Samsung has agreed not to seek injunctions in the EEA on the basis of any of its relevant SEPs against a company that agrees to this framework. The commitments have a duration of 5 years.

Although Samsung’s commitments are in principle limited to its own specific proceedings and the facts of this case, the “framework” established by the commitments can be considered as a “safe harbour” approved by the Commission for identifying standard users as willing licensees, against which the seeking of injunctions based on FRAND-encumbered SEPs will generally be abusive.

The Commission notes that seeking injunctions in respect of SEPs outside this safe harbour will be assessed on a case by case basis, taking into account the specific facts, and may also infringe Article 102 TFEU. Furthermore, the Commission stresses that potential – even willing – licensees of SEPs should remain free to challenge the validity, essentiality or infringement of SEPs. In this context, the Commission specifically refers to the German case law on injunctions and the preconditions for a defendant to run a successful competition law defence in patent infringement proceedings. Here the Commission comments that it would be anti-competitive if the courts required the defendant not to challenge the validity, infringement and essentiality of the SEPs in question.

It remains to be seen whether Motorola appeals against the Commission’s decision in its case and, if so, whether the European Courts uphold the Commission's approach. Whether or not there is an appeal, the Commission’s decisions must also be considered in the context of the pending request for a preliminary ruling by the Regional Court of Düsseldorf to the European Court of Justice in the SEP-based litigation between Huawei and ZTE. The ECJ can be expected to provide further guidance on this issue in that case too, and the approach that the Commission applied in its 29 April decisions may require modification accordingly.