Huawei ruling: bad news for SEPs?

From our friend Colm Ahern (Elzaburu, Madrid) comes the following hot-off-the-press comment on today's decision of the Court of Justice of the European Union in Case C-170/13 Huawei v ZTE [noted on the IPKat here].

Standard Essential Patents Lose Ground

The judgment in in Huawei v ZTE (C‑170/13) which was published today largely confirms the Advocate General’s Opinion. It amounts to a significant departure from the very strict conditions laid down by the German Bundesgerichtshof (BGH) in the Orange Book case regarding standard essential patents (SEPs) and antitrust law. It also vindicates the Commission’s position, which has been openly critical of Orange Book.

The Court effectively rejects the rules established by the BGH in the Orange Book case whereby the seeking of a cessation injunction by a patent holder with a dominant position, would only constitute abuse of that position if the alleged infringer had made an unconditional and binding licence offer which could not be limited to cases where patent infringement had been proven. By contrast the Court places the burden on the patent holder to first send a notice letter setting out not only the alleged infringement. Failure to do so before seeking a cessation injunction and removal of infringing products would constitute abuse of dominant position. If the alleged infringer expresses willingness to negotiate, then the patent holder must offer licence terms offer under FRAND conditions specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated. The alleged infringer could then respond with a counter-offer setting out alternative terms. If this offer is rejected the alleged infringer could provide a bank guarantee or place the amounts necessary on deposit. The patent holder could only avoid the charge of abuse if the counter-offer were held not to be serious and to constitute a mere delaying tactic. The alleged infringer could also reserve the right to later challenge both patent validity and the existence of infringement.

The rights held by owners of SEP patents under the “Orange Book Standard” have been significantly curtailed as a result of this judgment.

Thanks, Colm!