The ECJ Huawei–ZTE Decision: En Route to Ending Hold-Out?

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Dina Kallay, Oct 27, 2015

On July 16 2015, the European Court of Justice issued its much-awaited decision in the Huawei-ZTE matter (“Decision”), in reply to questions referred by the German Landgericht Düsseldorf court. The Decision involved a Standard Essential Patent dispute between two telecommunications companies manufacturing smartphones.

The main questions addressed by the Decision focused on: (1) whether, or under what circumstances, an Essential Patent holder who provided a Fair Reasonable and Non-Discriminatory access assurance may abuse a dominant market position, where it enjoys one, if it brings an action for injunction against an infringer who has declared itself willing to negotiate towards a license; (2) what are the particular qualitative and/or time requirements needed to substantiate the infringer’s “willingness to negotiate;” and (3) what are the particular requirements for the Essential Patent holder’s initial offer, if any.

Notably, these questions were raised against the background of the German Orange-Book-Standard decision, which focused only on the willingness of an infringer to conclude a license on FRAND terms in considering whether an “abuse of dominance” defense is available. However, the ECJ chose not to adopt the Orange-Book standard. Instead, the Decision provides a new procedural framework that looks at both the Essential Patent Holder and the infringer’s behavior. On the one hand, where infringers fail to comply with the new ECJ framework, they lose the opportunity to allege a Licensor’s injunctive relief action is potentially abusive. On the other hand, the Decision creates a “safe harbor” in which Licensors may freely seek injunctive relief without potential competition concerns if they comply with the procedural framework. This new framework aims to prevent an increasingly prevalent practice known as patent hold-out, which involves lucrative long-term infringement of Essential Patents by calculated technology users who are unwilling to take a license under FRAND terms.

This note identifies the underlying principles and boundaries of the Decision. It then highlights certain circumstances that are highly specific to the Decision, before examining the constructive guidance and safe harbor framework that the Decision establishes. We conclude by expressing cautious optimism that the ECJ’s new framework may diminish the patent hold-out problem.