EU Commission seeking comments on Samsung's proposed commitments concerning injunctions for standard-essential patents

In a press release issued yesterday, the European Commission invited interested third parties to submit comments on the formal commitments offered by Samsung to address competition concerns raised by its use of injunctions for the enforcement of standard-essential patents in the field of mobile communications. The proposed commitments follow a Statement of Objections notified to Samsung in December 2012, where the Commission took the preliminary view that, by seeking injunctions against Apple in various member states, for the alleged infringement of some mobile phone standard-essential patents, Samsung committed an abuse of a dominant position prohibited by EU antitrust rules (Art. 102 TFEU). According to the press release,

To address these concerns, Samsung has proposed to commit for a period of five years not to seek any injunctions on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets ("Mobile SEPs") against any company that agrees to a particular licensing framework.
The licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of FRAND terms by either a court or an arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.
The proposed commitments would cover the EEA. An independent trustee would advise the Commission in overseeing the proper implementation of the commitments.

There must be something wrong in this picture...

Essentially, Samsung offers a 5-year commitment (clause 14) not to seek injunctive relief, for any of its mobile SEPs, against a 'willing' potential licensee that agrees to comply with a specific framework for determining F/RAND terms (by signing and returning, within 30 days, Samsung’s Invitation to Negotiate). The first part of the proposal (clauses 1-4) sets out the negotiating procedure, which lasts for a maximum of 12 months (although the licensee may reduce the term to a minimum of six months, in case of unilateral licenses). Clause 2 lists several terminating events, while clause 3 circumscribes the perimeter of the commitments. Both clauses, in particular, contain provisions aimed at protecting Samsung from being required to comply with the proposed commitments when a potential licensee, which holds other mobile SEPs, has brought a claim for injunctive relief against Samsung or one of its customers, for infringement of those standard-essential patents. The proposal submits Samsung's obligations to a requisite of reciprocity, to the effect that, when a potential (cross-)licensee is seeking an injunction, and Samsung offers to be bound by the same process of F/RAND determination set out in the proposal, it is relieved from its obligation not to seek injunctive relief (clause 2.c), and may also terminate an on-going license (clause 3.f). The latter provision, for instance, clarifies that:

3. Nothing herein shall:

f.  preclude Samsung Electronics from terminating a Unilateral or a Cross-License concluded in the context of the Licensing Framework in the event the Potential Licensee files a claim for Injunctive Relief before any court or tribunal in the EEA against Samsung Electronics based on alleged infringement of any of the Potential Licensee's Mobile SEPs, where Samsung Electronics has offered or offers to be bound by the same process as set out in the Licensing Framework applied to it as licensee of such Mobile SEPs by signing and delivering the Annex B Invitation to Negotiate.

This mechanism should presumably kick into action when the potential (cross-)licensee, within the same 30-day period mentioned in clause 1, does not withdraw the action for injunctive relief, entering into negotiations under the licensing framework detailed in the proposed commitments. However, in light of the Commission's recent adversity towards strategic termination clauses, as highlighted by the draft proposal for a revised Technology Transfer Block Exemption Regulation (which proposes to exclude, from the safe harbour of the TTBER, any clauses that permit the licensor to terminate an agreement if the licensee challenges the validity of the licensed IPRs), there is reason to doubt that the potential licensee's recourse to injunctions, in the same situation in which Samsung agreed not to seek injunctive relief, may be a sufficient reason to relieve the latter from its obligations. Although Samsung's concern is understandable from a strategic and commercial perspective, such considerations should have no impact on the application of Article 102 TFEU.

Tired of SEPs? Try a good movie!

The second part of the proposal (clauses 5-11) describes the process for the third-party determination of F/RAND terms. If the parties cannot reach an agreement during the 12-month long negotiations, clause 5 establishes that they have an additional 60-day period to submit the matter to arbitration or court adjudication. Surprisingly, clause 6 states that, if the parties disagree on whether to demand the determination of F/RAND terms to a judge or a panel of arbitrators, they must commence an arbitration procedure. Samsung's proposed solution is certainly quite counter-intuitive, as one would expect court adjudication to be the appropriate choice, in case of disagreement. There are, of course, reasons that justify the recourse to arbitration, such as the inclusion, in the panel, of particularly experienced arbitrators (each with at least 10 years’ relevant experience in the telecommunications sector and/or in IP licensing - clause 9.b), the possibility that the arbitration procedure be faster than court adjudication, or the confidentiality assured by the process, and expressly prescribed by clause 9.e ('The arbitration will be conducted in strict confidence and the arbitral proceedings and decision shall be confidential'). At the same time, however, the final and binding decision that concludes the two-stage arbitration procedure (the decision of the first panel may be subject to a de novo appeal before a second arbitral tribunal, according to clause 9.f) would effectively preclude a party (barring exceptional circumstances) from obtaining court adjudication of the controversy, even if it did not agree to arbitration. The absurd consequence would be that a potential licensee wishing to retain its right to a court determination of F/RAND terms would be forced to reject Samsung's Invitation to Negotiate under the proposed commitments, incurring the risk that the SEP owner lawfully pursued injunctive relief against it. It is readily apparent that such consequence still represents an epiphany of the same competition concerns that the proposed commitments seek to address.

Florian Mueller, in his timely review of Samsung's proposal, highlighted similar issues concerning the arbitration/court adjudication mechanism, while also noting that 'a fundamental drawback of arbitration is that it's usually private -- under Samsung's proposal, it would be "conducted in strict confidence" --, so it does not result in the creation and refinement of a body of case law that gradually increases clarity'. This observation is particularly persuasive in light of the recent judgments of two US courts (Judge Robart here, Judge Holderman here), which provided long sought-after guidance on the determination of F/RAND royalty rates. The confidentiality surrounding arbitration would plausibly prevent the arbitral decisions from contributing directly to the debate on F/RAND licensing, although the licensing agreements incorporating F/RAND terms established by the arbitrators would still be examined, and their disclosure required, in judicial proceedings related to the same or comparable standard-essential patents (e.g. in the US, under Georgia Pacific factors n. 1, 2 and 12).

Other provisions of the proposed commitments concern the procedure for court adjudication (before 'the Patents Court, High Court of England and Wales (or any successor court), or the UPC, as is agreed between the Parties' - clause 10), further obligations with regard to non-circumvention (clauses 15-16), and the institution of a monitoring trustee (clauses 17-28). Clause 13 expressly states that the Commission may, on its own initiative or on the request of Samsung, reopen the proceedings to take into account the guidance given by the Court of Justice in case C-170/13, where a German court referred several questions concerning the issuance of injunctions against willing potential licensees (IPKat post here).

Joaquin Almunia, Commission Vice President

The Commission is eagerly awaiting your comments on Samsung's proposed commitments. There appear to be some critical points (the duration of the commitments, limited to 5 years, the termination clauses related to the licensee's conduct, the arbitration/court adjudication mechanism) which would deserve a more in-depth discussion. Further, the proposal indirectly suggests that the ex ante implementation of a policy on the enforcement of SEPs and on the determination of F/RAND commitments, binding on all SEP owners and potential licensees within the context of a specific standard-setting organization, would probably be more efficient in discouraging abusive behaviors, than requiring individual commitments. Whatever your opinion, however, PatLit invites you to share it with other readers, while Commission Vice President Almunia would not mind if you could also address your comments to him:

I am looking forward to receiving the feedback of other market players on Samsung’s proposals. Enforcing patents through injunctions can be perfectly legitimate. However, when patents are standard-essential, abuses must be prevented so that standard-setting works properly and consumers do not have to suffer negative consequences from the so-called patent wars. If we reach a good solution in this case, it will bring clarity to the industry.