CJEU judgment in Huawei v ZTE (Case C-130/13): theory and practice (2: Practice)

This is the second of two related posts looking at the recent CJEU ruling in Huawei v. ZTE.  In the first post, I reviewed the “theory” proposed by the Court – i.e., what it says that SEP owners and implementers need to do to avoid, respectively, committing an abuse and being injuncted.  In this second post, I’m joined by Pat to consider some of the practical implications and open questions.

And now for the practice…:

But while some things are now, perhaps, clearer, for licensors and litigants, the judgment is arguably as important for what is left unsaid as for the points which are now clearly laid out. 

Picking out the most significant:

  • Portfolio licensing: this is the largest of a couple of elephants in the room. It is striking quite how careful the judgment is to avoid referring to anything other than “the SEP” in the singular.  (There is one slip-up/exception [?] in paragraph 69, which suggests that patentees shouldn’t think about trying to prevent licensees from challenging any patents in their portfolios.) 
There are two possible interpretations for this: (1) the referred questions relate only to a single patent, so it is simply unnecessary for the court to consider any other situation; (2) the court positively wishes to require SEP holders to make specific offers on any SEPs which they propose to litigate seeking an injunction, rather than being able to rely on a portfolio offer.  I think the answer is that there is a bit of both going on – the judgment does, after all, refer to the making of a “specific written offer”.   In a similar vein, he English court has recently given a strong steer that a SEP proprietor which does not make a FRAND offer specific to the patents in suit risks a finding that its portfolio offers (which cover numerous untested patents) are “equitably refusable” – see the judgment of Birss J given in Vringo v. ZTE in January 2015, and picked up again this March in Unwired Planet v. Huawei and others [health warning: the latter is a case in which we are involved]. For now, it’s not possible to be categorical as to how this issue will play out in future cases, but prudent licensors and licensees in this field are likely to need to consider very carefully whether they can risk making a portfolio only offer if injunctions are potentially in play. 

  • Delay and commercial practice: here the question is really “how long is a piece of string?”.  For those in the industry, the considerations are: how will a SEP proprietor know it has left long enough to have reduced the risks of seeking injunctive relief to a tolerable level, and, for implementers, how much time can they take to consider their position without running unacceptable risks of an enforceable injunction being sought.  While the CJEU (and the AG beforehand) may be aiming to bring about a reduction in the time taken for negotiations in this industry, it is far from clear that this will in fact be the result.
  • “FRAND offer”: the other elephant in the room: when the CJEU refers to “FRAND offers”, is this intended to mean “an offer of a type which may be adjudicated as to whether it complies with FRAND”, or an offer which is objectively within the FRAND range? If the latter, and if the original offer proves to be higher than FRAND, licensors could find that an abuse has been committed even if they have followed to the letter all the requirements relating to injunctions. My purely personal view is that the answer follows from Article 102: an abuse may be committed if a dominant undertaking seeks to impose excessively high prices or discriminates against certain customers in a way which affects competition on the market.  On this view an offer which ultimately proves to be slightly in excess of an adjudicated FRAND rate, or only imperfectly non-discriminatory would not lead to a finding of an abuse.  A clearly excessive or discriminatory royalty demand may, however, be an abuse - regardless of the position on injunctions.
Of course, this view depends on an analysis of the nature of the abuse which the CJEU is focusing on. This is something on which reasonable people can disagree (or at least have a healthy debate – see the comments on the Chillin’ Competition blog post on this topic): if the focus is on exploitation and on the excessive nature of the offer, then the excessive pricing aspects of 102 may provide the answer. If the focus is on exclusion and leveraging, then the nature of the conduct and the seeking of the injunction against a “willing licensee” may mean that the FRAND offer must objectively be clearly FRAND to avoid liability.  If the concern is akin to the ‘hold up” concern that underpinned the Commission’s Samsung and Motorola decisions, then again, the focus may be on the conduct in combination with an offer that is not objectively FRAND. 

It is a shame that the CJEU, unlike the Advocate General, did not explain particularly clearly the anticompetitive harm it was seeking to address and how it fitted into broader aspects of Article 102. It was not particularly analytical in identifying whether it was most concerned about excessive pricing or the potential coercive power of potential injunctions – just one more area of uncertainty.

Anyone for a few more preliminary rulings?

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