Huawei v. ZTE, a case currently pending before the European Court of Justice (ECJ), presents the much-anticipated platform for the ECJ to adjudicate whether, and when, Standard Essential Patent (SEP) holders can obtain injunctive relief to enforce their rights in SEPs. The EU Advocate General’s Nov. 26, 2014 opinion in this case provided additional insight into the dispute’s development, and possible outcome.
As background, SEPs are patents so essential for the development, and implementation of a type of technology that they must be treated differently than ordinary patents. Owners of SEPs in the EU do not have the same proprietary rights as ordinary patent holders. Rather, once a patent is deemed an SEP, the patent holder must commit to the European Telecommunications Standards Institute (ESTI) to grant licenses to that patent on terms that are fair, reasonable and non-discriminatory (FRAND).
In this case, Huawei, the SEP holder, sued ZTE in Germany, requesting that the German court enjoin ZTE’s use of Huawei’s SEP as the parties had failed to agree on the FRAND terms. The case made its way up to the ECJ, which is currently considering it.
The EU Advocate General’s Nov. 26 opinion is part of the ECJ decision-making process.1 In the opinion, the Advocate General found that Huawei held a dominant position vis-a-vis ZTE, and generally found in ZTE’s favor. Specifically, the Advocate General ruled that: (1) when an SEP holder and licensee cannot agree on license terms, the SEP holder should detail its proposed terms, including its royalty, which must be based on FRAND principles, and market terms, before it can take any further action against the licensee; (2) if parties cannot agree on FRAND terms, the licensee may (without being considered non-cooperative) request a court or arbitral tribunal to fix the terms; and (3) a licensee may, without being considered unreasonable, reject otherwise FRAND terms that curtail its ability to challenge the underlying patent rights’ validity. However, the Advocate General’s opinion also included some concessions to SEP holder’s legitimate rights. These include that: (1) an SEP may obtain injunctive relief if the licensee is behaving in a “tactical or non-serious fashion;” and (2) an SEP may request that a licensee provide a bank guarantee or post a bond with the court to protect the SEP against financial harm based on the SEP’s past or future use.
The Advocate General’s decision reflects the position that an injunction by an SEP holder against a licensee should be the last resort. Other, less stringent, measures must be taken before an SEP holder will be able to obtain an injunction.
The Advocate General’s stance, largely in favor of ZTE, is an important development in the dispute between Huawei and ZTE currently before the ECJ. Although the Advocate General’s opinion is not binding on parties or on the ECJ, the ECJ has followed the Advocate General’s opinion in a majority of cases. Therefore, the opinion may be instructive for SEP holders and licensees. Ultimately, however, Huawei, ZTE, and similar parties will have to wait for the ECJ’s opinion, expected during the first half of 2015, for certainty on when and whether SEP holders will be able to obtain injunctions against SEP’s use by licensees.