The European Commission does not often take decisions in the field of patent law. This article reports a noteworthy decision rendered on 29 April 2014 against Motorola and dealing with the legality of standards-essential patent (SEP) based injunctions under Article 102 TFEU.
A patent protecting a technology set as a standard by a Standard Setting Organization (SSO), is usually designated as a Standard Essential Patent (SEP). A SEP is a powerful weapon as it gives a company the potential to exclude a competitor from a market or to extract high royalty fees. It may also be used to force a competitor to give up invalidity or non-infringement actions against the SEP. Although SSOs typically require SEP owners to commit to licensing on Fair, Reasonable And non-Discriminatory (FRAND) terms, there has been considerable legal debate in recent over whether an SEP confers dominance in the marketplace and, if so, to what extent FRAND terms are circumscribed by the prohibition on abusing a dominant position.
The European Commission is the executive body of the European Union in charge of controlling the implementation of the Treaty on the Functioning of the European Union (TFEU), in particular Article 102 TFEU, which provides that any abuse of a dominant position within the European Union shall be prohibited. To this end, the European Commission can open investigations and where necessary render decisions and take sanctions.
Back in 2012, Motorola sought and enforced an injunction against Apple in Germany on the basis of a SEP. Motorola offered Apple not to enforce the injunction if Apple agreed to give up its right to challenge the validity or infringement of Motorola’s SEP. After receiving a complaint from Apple, the European Commission opened an investigation. The corresponding decision was rendered on 29 April 2014.
The European Commission held that Motorola abused a dominant position because i) Motorola had committed to licence on FRAND terms and (ii) Apple was willing to enter into a FRAND licence.
It is interesting to note that the took into account that Apple was willing to enter into a FRAND licence, because it had accepted to be bound by the German court’s determination of a FRAND royalty rate. By contrast, the Commission took the view that if Apple had remained passive and unresponsive to a request to enter into licensing negotiations or it had been found to employ clear delaying tactics, this would have been indicative of unwillingness to enter into a FRAND licence.
The Commission further held that Motorola operated anti-competitively by threatening to enforce the injunction unless Apple gave up its right to challenge the validity or infringement of Motorola’s SEP.
The European Commission therefore considered that Motorola infringed Article 102 TFEU and must take measures to eliminate the negative effect resulting from the injunction. It may be observed that no fine was imposed. Indeed, the Commission considered that an economical sanction would be unfair, as the legality of SEP-based injunctions has not been questioned yet in a European Union Court, and national courts have so far reached diverging conclusions.
The European Commission insisted however that this decision should not be construed as preventing SEP owners from seeking and enforcing injunctions (in line with the UK decision in Nokia v IPCom which we reported in the Autumn 2011 edition of this newsletter). An injunction remains a legitimate remedy, as long as a competitor is unwilling to enter a FRAND licence agreement.