13. How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?
The market shares of the goods or services based on the standard must be taken into account in assessing the effects of a standardisation agreement. The Commission considers that ‘in the absence of market power, a standardisation agreement is not capable of producing restrictive effects on competition’ (section 277 Horizontal Guidelines).
A standardisation agreement that might create market power may nonetheless fall outside article 101(1) TFEU or article 420-1 CC if its IPR holders are subject to a FRAND commitment (see question 12).
FRAND commitments serve, among other things, to prevent IPR holders from charging excessive fees. Under French and EU case law (FCA, Institut national de l'audiovisuel, 10 April 2003, case 03-D-18; Case 27/76, United Brands Company, 14 February 1978), fees may be considered excessive if they bear no reasonable relation to the economic value of the product supplied and therefore, constitute an abuse of a dominant position.
Participants in a standard-setting process are also required to disclose their essential IPRs in good faith. This is to avoid ‘patent ambushes’, where a participant asserts proprietary rights over a technology after the standard has been adopted.
In the Rambus case (COMP/38636, Rambus, 9 December 2009), the Commission provisionally considered that Rambus had engaged in intentionally deceptive conduct in the context of the standard-setting process for DRAM computer chips, which conduct may have led to abuse of its dominant position by charging disproportionate royalties. To end the matter, Rambus made a legally binding commitment under article 9 of Regulation 1/2003 to cap its royalty rates. If Rambus were to break its "article 9" commitment, the Commission could impose a fine of up to 10 per cent of its annual turnover, without having to find an antitrust infringement.
Furthermore, the Commission has recently held that the seeking and enforcement of an injunction based on a SEP may infringe article 102 TFEU (COMP/39939, Samsung and COMP/39985, Motorola, 29 April 2014). Although, in general, the seeking and enforcement of an injunction is a "legitimate course of action" for a patent holder, in the case of a SEP it may constitute an abuse of a dominant position, especially where:
- the patent-holder has agreed to license its patent on FRAND terms; and
- the licensee is willing to enter into such a licensing agreement.
In its Huawei judgment (C-170/13, Huawei, 16 July 2015), the Court of Justice confirmed the Commission’s general approach according to which seeking injunctions based on an SEP, where a commitment to license on FRAND terms has been given, can be an abuse of a dominant position. In its judgment, the Court of Justice’s highlights two important aspects of the case at hand:
- the patent at issue is an SEP, which must be distinguished from patents that are not essential to a standard and which normally allow third parties to manufacture competing products without recourse to the patent concerned; and
- the patent obtained SEP status only in return for the proprietor’s irrevocable undertaking that it is prepared to grant licences on FRAND terms. Since such an undertaking creates legitimate expectations on the part of third parties that the proprietor of the SEP will in fact grant licences on such terms, a refusal to grant a licence on those terms may constitute an abuse.
In its analysis, the Court of Justice distinguished between two types of actions brought by an SEP owner which has given an irrevocable undertaking to grant a licence to third parties on FRAND terms: those seeking a prohibitory injunction or the recall of products; and those seeking the rendering of accounts and an award of damages.
With regard to the first type of actions, the Court held that the SEP owner does not abuse its dominant position when:
- prior to bringing the action, the proprietor has alerted the alleged infringer of the infringement complained about by designating the patent in question and specifying the way in which it has been infringed, and presented to that infringer a specific, written offer for a licence on FRAND terms; and
- while the alleged infringer has not diligently responded to that offer, it continues to use the patent in question.
Moreover, the alleged infringer who has not accepted the offer made by the proprietor of the SEP may invoke the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.
The Court also held that the second type of actions brought by an SEP owner cannot be regarded as an abuse of a dominant position, since such actions do not have a direct impact on standard-compliant products manufactured by competitors appearing or remaining on the market.
As regards royalty calculation, the Court of Justice did not rule on what constitutes a FRAND royalty rate or a FRAND royalty base in its recent Huawei judgment (Case C-170/13, Huawei, 16 July 2015), merely stating that the written offer presented by the proprietor of an SEP to the alleged infringer should specify the royalty and the way in which it is calculated. In its recent Communication on Standard Essential Patents, the Commission indicated that “parties to a SEP licensing agreement, negotiating in good faith, are in the best position to determine the FRAND terms most appropriate to their specific situation” and that “there is no one-size-fit-all solution to what FRAND is”. The Commission considers that the following IP valuation principles should be taken into account:
- licensing terms have to bear relationship to the economic value of the patented technology;
- the present value added of the patent technology should be taken into account in determining a FRAND value. The value should be irrespective of the market success of the product;
- in determining a FRAND value, the parties to the transaction need to take into account a reasonable aggregate rate for the standard, assessing the overall added value of the technology;
- FRAND valuation should ensure continued incentives for SEP holders to contribute their best available technology to standards;
- the non-discrimination element of FRAND means that right holders cannot discriminate between implementers that are “similarly situated”.
- Finally, SEP licences granted on a worldwide basis may contribute to a more efficient approach and therefore can be compatible with FRAND.
The Commission stated in its Communication that it would monitor licencing practices, especially in the IoT sector, and set up an expert group to deepen its expertise in industry licencing practices, sound IP valuation and FRAND determination.
At the French level, the courts have so far never granted a prohibitory injunction on the basis of a SEP (see, for instance, the judgments of the First-Level Civil Court of Paris in Apple v Samsung, 8 December 2011 and Ericsson v TCT, 23 November 2013).
The First-Level Civil Court of Paris recently ruled, however, that, where a commitment to license a SEP on FRAND terms has been given, a clear willingness from the licensor to block the licensee’s possibility to use the patents in return of a fair and proportionate royalty must be proven to demonstrate an abuse of dominant position (Core Wireless v LG Electronics, 17 April 2015).
Answer contributed by
Julie Catala Marty