Huawei v ZTE decision by European Court of Justice: No power abuse if standard-essential patents owner makes fair, reasonable and non-discriminatory offer

The Court of Justice of the European Union has ruled that owners of standard-essential patents (SEPs) should make a licensing offer on fair, reasonable and non-discriminatory (FRAND) terms before seeking an injunction against the alleged infringement of a SEP. In the eagerly awaited judgment, handed down July 16th 2015, the Court of Justice of the European Union (CJEU) ruled on the Huawei v ZTE case. The judgement provides a balance between standard-essential patent (SEP) owners’ and implementers’ interests. …

… The Court noted that if the SEP owner has made an “irrevocable undertaking” to grant a licence to third parties on FRAND terms, it would not be an abuse of dominance to seek an injunction. But the CJEU ruled that this can only be done as long as, before bringing the action, the patent owner has alerted the other party about the alleged infringement and, secondly, presented a FRAND licensing proposal. In the case when an alleged infringer continues to use the patent in question, the court ruled, it will be viewed as not having “diligently responded” to that offer. The court said in addition that an alleged infringer who has not accepted a licensing offer may claim that the action is abusive only if it has submitted, in writing, a specific counter-offer that is believed to corresponds to FRAND terms.

The dispute started in 2011 when Huawei sued ZTE at the Regional Court of Düsseldorf. Huawei, China’s largest phone maker, was seeking an injunction against the alleged infringement of an SEP covering LTE (4G), a standard for wireless communication of data for mobile phones. But ZTE criticised the demands, citing article 102 of the Treaty on the Functioning of the European Union, which claims that an application for an injunction based on an SEP would be an abuse of a dominant position. ZTE argued that because it was willing to negotiate an agreement to license the patent, no injunction could be issued against it. The CJEU was then asked to rule on the dispute by the German court.

In an opinion issued in November, the CJEU’s advocate-general Melchior Wathelet said the court should adopt a ruling that is a “middle course”. Wathelet said that an SEP owner should make a licensing offer to a competitor before seeking a legal injunction for any alleged infringement.
In a statement ZTE said the ruling makes it clear that seeking injunctions against alleged patent infringers that are willing to negotiate a FRAND licensing deal constitutes a breach of EU competition law, unless the patent owner follows specific rules. Shen Jianfeng, the company’s chief IPR officer, added: “ZTE is glad that the court agreed with our position and confirmed the legal standard on patent licensing negotiations, particularly relating to SEPs. Today’s ruling will bring more clarity to the industry and will help reduce unnecessary and costly patent litigation, which always comes at the expense of customers.”
A spokesperson for Huawei said: “The CJEU’s decision has clarified a number of rules for claiming injunctions for infringements of SEPs in Europe. Huawei always honours its commitment to license its SEPs on FRAND terms.”