European Commission Takes Action to Limit Injunctions for SEPs

by Orrick, Herrington & Sutcliffe LLP
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On April 29, 2014, the European Commission ("Commission") adopted a decision against Motorola Mobility LLC (“Motorola”), a wholly owned subsidiary of Google Inc., and entered into a settlement agreement with Samsung Electronics Co., Ltd. (“Samsung”).

These actions resolve allegations that Motorola and Samsung abused their market power by refusing to license their standard-essential patents (SEPs) to a competitor who implemented the standard. A SEP is a patent for a technical standard adopted by a formal standard-setting organization (SSO). In return for being included in the technical standard, SSOs generally require companies to promise to license their SEPs on fair, reasonable, and non-discriminatory (FRAND) terms.

Background of the Disputes

The Motorola and Samsung SEPs in question relate to the European Telecommunications Standards Institute’s (ETSI’s) GPRS standard, part of the GSM standard, which is a key industry standard for mobile and wireless communications. When this standard was adopted, Motorola and Samsung declared some of their patents as being essential to the standard, and subsequently gave commitments that they would license their SEPs to implementers of the standard on FRAND terms.

The Commission opened investigations against Samsung and Motorola in 2012. The Commission objected to the companies’ actions, after promising to license their SEPs on FRAND terms, in seeking injunctions against Apple. In doing so, the Commission believed Motorola and Samsung tried to abuse the market power they gained through the standard-setting process to block Apple’s competing products in downstream product markets. One purpose of FRAND commitments is to avoid the risk of patent hold-up by a SEP owner. Allowing a SEP owner to renege on its FRAND commitment could distort licensing negotiations, decrease competition in downstream product markets, and, ultimately, increase consumer prices.

Samsung Settlement

The settlement agreed on by the Commission restricts Samsung from seeking injunctions in the European Economic Area (EEA) on the basis of any of its SEPs related to mobile telecommunications standards, for five years (see press release). To receive this “safe harbour” protection, a potential licensee must agree to a detailed licensing framework for the relevant SEPs. This framework provides for (1) a negotiation period of up to 12 months and (2) if no agreement is reached, a third-party determination of FRAND terms by a court, or by an arbitrator if both parties agree. An independent "monitoring trustee" will advise the Commission in overseeing the implementation of Samsung’s commitments.

Motorola Decision

Separately, the Commission found that Motorola wrongfully sought injunctive relief against Apple in a German court (see press release). Motorola’s conduct was objectionable because it had committed to license the relevant SEP on FRAND terms, and Apple had agreed to take a license on FRAND terms to be determined by the relevant German court. In addition, the Commission found it anticompetitive that Motorola used the threat of injunctive relief to dissuade Apple from challenging the validity or non-infringement of Motorola’s SEPs. Because the Commission believes that implementers of standards should not be required to take a license for invalid or non-infringed SEPs, it concluded that implementers should be allowed to determine the validity of patents and contest alleged infringements without fear that doing so would subject them to potential injunctions. The Commission ordered Motorola to eliminate any negative effects resulting from its conduct, opting not to impose a fine.

Implications for SEP Owners and Potential Licensees

The Commission’s actions bring some additional clarity to the emerging legal position regarding FRAND-encumbered SEPs and injunctions. However, uncertainty continues, as important questions remain unanswered. The broad implications for owners of FRAND-encumbered SEPs and for potential licensees include:

  • SEP owners who previously committed to license SEPs on FRAND terms are prohibited from seeking injunctions in the EEA against companies that qualify as “willing licensees.”
  • Although the actions provide for a potential “safe harbour” for implementers of the standard to avoid the risk of injunctions for FRAND-encumbered SEPs, that safe harbour applies only if implementers qualify as “willing licensees.” But “[w]hether a company can be considered a ‘willing licensee’ needs to be determined on a case by case basis taking into account the specific facts.”
  • An implementer should qualify as a “willing licensee” if it follows the negotiation procedures set forth by the Commission’s decisions. But the Commission takes no position on what other conduct may or may not satisfy that designation.
  • Potential licensees are not prohibited from challenging the validity, essentiality, claim of infringement, or value of the patents at issue. Accordingly, a potential licensee making these challenges will not be deemed “unwilling.”
  • Injunctive relief likely remains available for companies determined to be unwilling licensees.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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