LCII Half-Day Conference: Regulating Patent “Hold-Up”?

Readers who share this blogger's view that the CJEU decision in the matter Huawei ./. ZTE (see e.g. here)  still leaves room for discussion will be pleased to learn that the LCII wants to offer this room in the next event:

REGULATING PATENT “HOLD-UP”? AN ASSESSMENT IN LIGHT OF RECENT ACADEMIC, POLICY AND LEGAL EVOLUTIONS

Abstract: The patent hold-up theory has nurtured many policy developments in the past ten years. On the one hand, Standard Setting Organizations (SSOs) have been exploring changes to their licensing policies, in particular in relation to the commercial implications of FRAND pledges given by holder of Standard Essential Patents (“SEPs”). On the other hand, antitrust agencies and patent courts across the globe have been confronted with several waves of cases Those proceedings have generated a thick, diverse and somewhat inconsistent body of case-law on a wide array of topics, including the availability of injunctive relief, patent valuation, portfolio licensing, practicing and non-practicing entities, etc. This conference seeks to provide a 360° state of play on patent hold-up in contemporary antitrust and patent policy.

This Half-Day conference will take place in Brussels, on February 29th, 2016. The full Conference programme is available here, Registration here.

Speakers include the most prominent scholars, judges and advocate generals in the field such that the event will surely be beneficial to all those who attend.

Deciphering Huawei vs. ZTE: A Paper

The intervention of Nicolas Petit at the Training course for technical judges atthe UPC organized by the CEIPI had been discussed here some time ago. Nicolas has now published his observations on the decision Huawei vs. ZTE, which are available for download here and are interesting to read.

Among other points, Nicolas observes that upstream licensing entities are immune against the antitrust defence because he concern of the CJEU lies in the exclusion of competitors, not in the exploitation. This means that the problems of hold-up, reverse hold-up and of FRAND setting are addressed only in terms of procedural courtesy obligations among parties competing on same market and that the question of substantial pricing is left open or left to the national courts.

Training for UPC technical judges - Antitrust Law

On the last day of the first block of the CEIPI Training Program for Future Technical Judges of the UPC, Nicolas Petit (Univ. Liège) gave a very dynamic and lively talk about the interface between competition law and IP rights. He expects that the UPC will have to establish case-law on antitrust-based defences in patent litigation (FRAND, Standard essential patents ...) as explicitly laid down in Art. 32(1) UPCA.

Prof. Petit

The question whether or not, in case of dubious settlements between the parties, the court will have a duty to raise a motion on breach of competition, was answered by analogy to what is considered to be applicable to mediation procedures: Such a duty exists only where the breach is very glaring and manifest.

He further emphasizes that a source of misunderstanding between lawers and scholars on both fields lies in the different use of the word "monopoly" in IP and antitrust law. While patents are permanently qualified as "monopolies" by IP lawyers, this is not true based on the understanding of this expression in the world of antitrust law. Actually, the patent alone does not confer the sufficient market power to the patentee because there may be lots of competing technologies around. "The patent grants an exclusive right to use a technology but typically does not exclude third parties market" (roughly Quoted from Hovenkamp).

The case law of the FRAND defence is put in analogy to the "essential facilities" case law in the field of antitrust law because the CJEU qualifies intellectual property merely as yet another kind of "raw material" to be processed in secondary markets. Requirement of the admissibility of such a defence would be that the parties are competing in at least a secondary market, which is not the case for Non-Practicing Entities in dispute with potential licensees of their patents. In other words, the FRAND defence will never be applicable to "trolls".

CEUJ Judgement July 2015 (Huawei / CTE C‑170/13) develops a sort of "good faith" test for the behavoir of both the holder of the standard essential patent (SEP) and the implementer who have to respect "certain conditions" in the course of negotiations and when bringing an action to the court.  These new conditions will replace the BGH Orange Book Standard in the future case-law and will be discussed in a separate post.

FRAND: the AIPPI, an informed discussion -- and a report

Lord Justice Floyd (Court of Appeal, England and Wales) and Richard Vary of Nokia spoke at AIPPI UK's event at Allen & Overy on FRAND issues earlier this week (26 May).

Richard Vary’s presentation on injunctions for SEPs covered vast ground, moving away from a US-centric perspective and covering in detail the current state of the law in the US, Brazil, Europe, China and India. In his view, while US case-law is often portrayed as restricting injunctions for SEPs, the situation globally is far more diverse and complex. He noted that the US decisions have been made in a very specific legal framework, and the US comprises less than 5% of cellular connected devices. In a context where the majority of mobile phone users are spread around the globe, and where the majority of mobile phone manufacturers have no licence to most of the patents they use, a move must be acknowledged from a contractual approach focusing on the licensor’s behaviour to one focusing on the licensee’s willingness to enter into negotiations. Such a move can be noticed on a global scale, as illustrated by recent trends in Europe and Asia. Richard Vary also discussed the IEEE’s controversial new policy precluding an SEP holder from seeking relief until a rate has been litigated and the first level of appeal is exhausted. He also welcomed a move from litigation on a patent-by-patent basis toward a more cost-effective portfolio arbitration approach whereby decisions are taken on the overall portfolio and the validity and/or infringement of individual patents matters less. He noted, indeed, that often firms care more about the value of their overall portfolio than about any single patent that is being litigated.

Yes, but is it reasonable ...?

In his keenly-awaited presentation on the United States Federal Circuit FRAND decisions, Lord Justice Floyd explored the setting of reasonable royalty rates in the US courts. He drew a distinction between Microsoft v Motorola Inc. (W.D. Wash. Apr. 25, 2013), where royalty rates were discussed in the context of a breach of an obligation to make a RAND offer (ex ante standard setting), and Ericsson v D-Link (E.D. Tex. Aug. 6, 2013), and In re Innovatio IP Ventures LLC Patent Litig., (N.D. Ill. Oct. 3, 2013), where royalty rates were discussed as part of the assessment of damages (ex post standard setting). He mentioned a number of factors at play in the determination of royalty rates and noted that some of them, such as the enforceability of third party rights or the duty to negotiate pre-contractually in good faith, are jurisdiction-specific and can present interesting cross-jurisdictional challenges for courts seeking to follow one another’s approach. He also reminded his audience that the rationale behind the “smallest saleable unit” approach to the calculation of royalty rates was to avoid juries setting excessive rates by reference to the value of the overarching good instead of the SEP-covered component. The judge referred to General Tire & Rubber Co. v Firestone Tyre & Rubber Co. Ltd (House of Lords [1975] 1 W.L.R. 819) as constituting a good basis for the assessment of royalties in this context and concluded noting that, where sufficient evidence is adduced to show that royalty stacking and hold-up considerations are not relevant, there is no reason why a judge should not find these irrelevant.

This piece was prepared by Elettra Bietti (Allen & Overy). Thanks, Elettra!

Standard setting organizations and F/RAND: 'if it ain't broke, don't fix it'. Or should you?

As of late, the role of standard setting organizations (SSOs) in preventing hold-up has been the focus of a lively debate. The IPR policies of SSOs commonly require members to disclose any standard essential patents they hold, and to commit to licensing them on fair, reasonable and non-discriminatory terms. The F/RAND commitment, however, is frequently described as vague and uncertain, and may be weakened by the SEP holder's recourse to injunctive relief against a willing licensee, during negotiations. The resolution of the uncertainty surrounding F/RAND usually requires a judicial determination, and a long and complex trial, while a preliminary injunction against a third party that is willing to enter into a licensing agreement may yield anti-competitive effects, or be incompatible with the F/RAND commitment.

Joshua Wright (left) at the FTC's swearing-in ceremony

To address both issues, three leading US and EU economists recently suggested that SSOs should introduce new provisions in their IPR policies, (i) implementing a fast and low-cost process to adjudicate F/RAND disputes (arbitration or another ADR mechanism), (ii) requiring SEP holders to specify an acceptable cash price for their essential technologies, and (iii) restricting the use of injunctions and exclusion orders. The use of IPR policies to prevent hold-up had already been advocated in previous studies (here and here), both to attain a better definition of F/RAND commitments (including their transferability in case of sale of a SEP), and to ensure a comprehensive and timely disclosure of essential technologies.

In a speech delivered on September 12, at the Center for the Protection of IP (George Mason University), FTC's Commissioner Joshua Wright discussed the opportunity of modifying the current IPR policies of standard setting organizations, but observed that there is no economical theory or empirical evidence that suggests that introducing stricter terms, or excluding the availability of injunctive relief, effectively prevents hold-up. To the contrary, these modifications could deter participation in SSOs, and possibly result in reverse hold-up. The Commissioner explained that:

Much of the call for SSO contract reform - whether under the guise of possible antitrust enforcement or friendly advice on contract drafting - is based upon the notion that SSOs bear a special responsibility for constraining the market power of SEP holders. Indeed, the possibility of SSOs constraining the exercise of SEP holders’ market power is purported to be the primary benefit of filling gaps in SSO contracts. However, it is unlikely SSO contract reform can bear the burden its proponents place upon it. [...] It is important to recognize that SSOs are not necessarily in a position to constrain license terms for SEPs at will. SSOs compete to attract key players to join and contribute their technology to the standard and can be at the mercy of certain members with essential technologies. However, even assuming arguendo SSO contract terms can constrain market power newly created by adoption of the standard, that situation is clearly not always the case. For some SEPs, the relevant market power will be inherent in the underlying technology and the patents themselves, rather than conferred upon the SEP holder by the SSO as the result of the standard-setting process.

Evaluating the potential consequences of the use of the IPR policies of SSOs to restrict the use of injunctive relief or provide a more accurate delimitation of F/RAND commitments, Wright added that:

Requiring stricter SSO terms might make it less attractive for IPR holders to join the SSO process. The social costs associated with deterring participation in SSOs can outweigh any potential benefits associated with decreasing the probability of hold-up. This would lead to, in the short-term, SSOs more frequently selecting an inferior technology; it could also lead to a dichotomy between competing technologies, which would defeat the purpose of SSOs and deprive consumers of the well-understood benefits of standardization. Over the long-run, these reforms could undermine the very desirable purpose of SSOs, which among other things, facilitate compatibility and interoperability, reduce consumer costs, and advance innovation.

Interestingly, the Commissioner argued that the use of 'less precise contract terms' is fundamental to guarantee the flexibility needed to adapt to quickly changing market conditions, and that the availability and threat of injunctions prevents reverse hold-up and is 'a very important part of the bargaining process and [...] likely part of the benefit of the bargain conceived of by a contributing member of the SSO at the time it decided to participate in the standard'. The Commissioner observed that (i) although rates negotiated under the threat of injunctions are likely to be higher than rates negotiated without the threat of injunction, it does not follow that the former is above F/RAND', (ii) property rights allow the owner to exclude all others, and (iii) no maxim of contract interpretation justifies the idea that, by accepting the F/RAND commitment, SEP holders acknowledged that damages are adequate compensation for infringement. These conclusions unexpectedly conflict with those of several courts and authorities around the world, including the FTC itself. To name just a few:

• the US Department of Justice and US Patent and Trademark Office's Policy Statement of 8 January 2013 ('[a] patent owner’s voluntary F/RAND commitments may also affect the appropriate choice of remedy for infringement of a valid and enforceable standards-essential patent. In some circumstances, the remedy of an injunction or exclusion order may be inconsistent with the public interest');
• the FTC's Statement on the Public Interest of 6 June 2012 ('a royalty negotiation that occurs under the threat of an exclusion order may be weighted heavily in favor of the patentee in a way that is in tension with the RAND commitment');
• the EU Commission's perspective, as expressed in Google/Motorola, and in the recent Statements of Objections notified to Samsung and Motorola (according to Commission Vice President Almunia, '[w]hen companies have contributed their patents to an industry standard and have made a commitment to license the patents in return for fair remuneration, then the use of injunctions against willing licensees can be anti-competitive');
• several US cases, including Apple v Motorola, Microsoft v Motorola, and Realtek Semiconductor v LSI (a F/RAND commitment 'implies a promise not to seek injunctive relief either domestically [...] or abroad').

In particular, the Commissioner's view rejects Judge Posner's persuasive statement in Apple v Motorola:

I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability - without which it would not be a cell phone. 

Although Wright rightfully highlighted that there is no guarantee that improving IPR policies could provide beneficial effects, his reasoning on imprecise, but flexible F/RAND commitments, and on the importance of injunctions in the bargaining process, is likely to prove controversial (see Professor Cotter here). It is reasonable to think, however, that even Commissioner Wright would welcome the introduction of a fast and low-cost process to adjudicate F/RAND disputes, as suggested by US and EU economists, a solution that could protect the interests of both SEP holders and licensees. What do readers think? What is the best way to strengthen F/RAND commitments, while preserving the parties' freedom to negotiate?

EU Commission shares its views on the FRAND defence

In the decision relating to the merger between Google and Motorola Mobility, the EU commissioner for competition Jaquin ALMUNIA expresses some interesting thoughts on the role of standard relevant patents (SRP) in the context of the EU antitrust regulations (Art. 102 TFEU).

Google had committed itself to Motorola's FRAND declarations and to the German "Orange-Book" standard  as follows (see item 9 d of the decision):

Finally, Google contends that in relation to Motorola Mobility's SEPs, a potential
licensee will have the opportunity to prevent an injunction from being sought, even
after good faith negotiations have failed, provided that a potential licensee (a) makes
an offer to license Motorola Mobility's SEPs, subject to certain conditions, and (b)
provides securities with regard to the royalty payments.

 And in item 106:

In the event licensing discussions fail, the SEP holder may ultimately take its counterparty to court and seek an injunction.

Florian Müller on FOSS argues that this might bee seen as a further requirement that licensing discussions must have taken place and have failed before an injunction is granted.

Similar thoughts are expressed in item 126:

it may be legitimate for the holder of SEPs to seek an injunction against a potential licensee which is not willing to negotiate in good faith on FRAND terms.

In a footnote, the commpssion points to the Case T-111/96 ITT Promedia v Commission [1998] ECR II-2937) and argues that in that case,

 the ECJ acknowledged that the fundamental right to property, which includes the rights linked to intellectual property, is not absolutely protected but must be balanced against the protection of other fundamental rights such as the freedom to conduct business. (See Case C-70/10 Scarlet Extended, judgment of 24 November 2011, paragraphs 41 to 46).

However, the commision emphasizes that the commitment to the Orange Book-Conditions is by no means a guarantee that Art. 102 TFEU is respected and reminds that the sword of Damocles of a commission investigation is always hanging over the holder of a SEP trying to enforce his right (item 132):

Given this context, the Commission considers that Google's incentives to use the threat of injunctions to forcibly extract cross-licences from good faith licensees are most likely be constrained by the prospect of an investigation based on Article 102 TFEU.

FRAND - Commission opens proceedings against Samsung

The European Commussion has announced to have opened a formal investigation against Samsung in the question whether Samsung's strategy seeking injunctive relief based on standard-relevant patents amounts to an abuse of a dominant position which may affect trade and prevent or restrict competition given that Samsung had given its irrevocable commitment  to license any standard essential patents relating to European mobile telephony standards on fair, reasonable and non-discriminatory (FRAND) terms.

PatLit had reported on a selection of the litigations in question e.g. here and here.

Meanwhile, Florian Müller reports on FOSS that Judge VOSS at the Mannheim District court has announced his decision reject Samsung's requests for injunctive relief in both pending cases despite of the suspicious attitude towards the FRAND defence used by Apple discussed in a previous post. However, the reasons for the decision are not yet available.

FRAND Defense Requires Accepting Damages for the Past

The Mannheim District Court had to decide on an infringement action brought against Apple by Motorola Mobility. Apple had raised an "Orange Book" defense, which is the german version a FRAND defense by unconditionally offering a license agreement under FRAND terms for the future but without accepting damages beyond the FRAND license fees for the past.

The hitherto unresolved question whether the FRAND offer has to be made before using the patent has been answered in the negative. However, the court decided that in the case where the patent had been used in the past, the FRAND offer has to include an unconditional acknowledgement of the damages for this past use.

First of all, the patentee behaves contradictory when he admits, in the license agreement, that certain acts in the future use the patent while disputing that the same acts in the past have been infringing the patent. According to the Mannheim Court, antitrust regulations do not require any limitation of damages for the past to amounts corresponding to FRAND-License fees.

Further reasons for the latter decision depend on details of the German jurisdiction and the specific circumstances of the case. It might therefore be difficult to use the arguments in other jurisdictions.


In the case at issue, a nullity suit was co-pending at the Federal German Patent Court and the Mannheim court had decided not to stay the infringement procedure until the decision in the nullity suit was made. In the event that the patent will be revoked, any damages paid would be refunded, whereas this is not the case for license fees. The party raising the FRAND defense would therefore achieve an economical advantage over the diligent licensee asking for a license before using the patent.

Further, the case-law unambiguously accepts the right of the patentee to terminate a license agreement for good cause if the licensee files a nullity action against the patent. In the case of a co-pending nullity suit, the principle of dolo agit, qui petit, quod statim redditurus est therefore forecloses the licensee from forcing the patentee into an agreement which could then be terminated by the patentee immediately.

As a consequence, the unconditional withdrawal of the nullity action as well as the acceptance of damages for the past appear to be mandatory prerequisites for raising a FRAND-defense in Germany.
Further points discussed but not decided include the question whether the unconditional FRAND offer by the licensee has to encompass all of the standard-essential patents of the patentee (or of the patentee’s parent company?) in all countries so as to terminate all the ongoing litigations between the party and the question whether the FRAND defense may not be raised at all in cases of willful infringement.

The full text of the decision has been published under "Justiz in Baden-Württemberg"  here.

Christmas: not so sad for Nokia?

On Tuesday, in "Failure to reach FRAND terms may make it a sad Christmas for HTC", PatLit posted this upbeat piece from IPCom which observed, among other things, that the company was in dispute with Nokia, which had so far declined to take licences to use its patents. This weblog has since received a 'corrective' from Nokia which seeks to set out its own position.  Nokia comments thus:

"Though Nokia does not normally comment on legal proceedings which we are not involved in, comments made by IPCom in its press release about patent #100 (EP 1 186 189 B1) and Nokia require correction.

IPCom claims that the algorithm described in patent #100 has been “adopted as a standard by equipment makers worldwide”. What it does not say is that the functionality is not used by any network in Germany or elsewhere. IPCom also fails to mention that, subsequent to the finding of infringement against HTC, the Federal Patent Court in Germany found the patent invalid as granted but allowed amendments which narrowed the scope of the patent in such a way that nobody implementing the standard could infringe what remains.

IPCom states that it is “seeking similar injunctions against Nokia with regard to this and a number of other standard-essential patents”. By doing so, IPCom is explicitly failing to meet its obligations as an owner of alleged standards-essential patents, which include commitments not to seek injunctions against willing licensees. Following a Nokia complaint to the European Commission, IPCom declared in December 2009 its intent to honour these commitments but its behaviour continues to fall short of these commitments.

IPCom states its hope “that Nokia will swiftly recognize that it … needs to come to terms with IPCom”. Nokia was prepared to take a licence to the portfolio on fair, reasonable and non-discriminatory terms before IPCom began legal actions against us in December 2007. However, IPCom has continually failed to make any offer of terms that could be considered FRAND. Instead, IPCom has chosen to pursue an aggressive strategy of legal actions against Nokia. During the past four years, of all of the 54 IPCom patents which have come to judgment in the UK, Germany and elsewhere, none has been found valid as granted, suggesting that its claims for the value of its portfolio have been grossly overstated.

Nokia had two further EPO hearings last week.

In decisions in the Hague and Munich, the European Patent Office has ruled two further IPCom patents (EP 1 258 110, #116 and EP 1 085 716, #070) as invalid as granted. This brings to 56 the total number of patents found invalid as granted or conceded as invalid by IPCom.

“These two decisions, together with those on the previous 54 IPCom patents which have come to judgment, show that the value of IPCom’s portfolio has been grossly overestimated,” says Paul Melin, VP intellectual property at Nokia. “Rather than continuing its aggressive attempts to extract unrealistic licensing terms and mislead the public, it’s time for IPCom to come to terms with reality"".

Failure to reach FRAND terms may make it a sad Christmas for HTC

"IPCom can execute injunction against HTC’s 3G devices in Germany after HTC withdraws appeal" is the descriptively informative title of a press release issued on behalf of IPCom; it reads as follows:

"IPCom, owner of a number of standard-essential telecommunications patents, can execute the injunction it seeks on the sale and distribution of HTC’s 3G devices in Germany, effective immediately. HTC today withdrew an appeal due to be decided on Monday [OLG Karlsruhe 6 U 38/09]. IPCom now intends to execute this injunction in the shortest possible time. 

“Apparently, HTC has accepted it had no realistic chance of winning this case – the courts have clearly established that HTC has been infringing our patents and now given us the means to put a stop to it,” said Bernhard Frohwitter, IPCom’s Managing Director. “Since HTC has never to come up with an offer that adequately reflects the value of these patents, IPCom has been left with no choice – we will use the right awarded by the courts, likely resulting in HTC devices disappearing from shops during the crucial Christmas season.” 

HTC today withdrew its appeal against an earlier judgment [LG Mannheim 7O 94/08] that ruled HTC was infringing patent #100, one of the strongest patents in IPCom’s portfolio. Patent #100 describes an algorithm that allows mobile telephony networks to assign priorities to users on the basis of a pre-defined hierarchy, providing for the smooth functioning of the system in emergencies, and potentially saving lives. This algorithm has been adopted as a standard by equipment makers worldwide. 

IPCom is also seeking similar injunctions against Nokia with regard to this and a number of other standard-essential patents. These cases are being handled by the same court, under the same judge, and concern the same standard-essential patents – divisionals of which have already been decided in IPCom’s favour in other jurisdictions, such as the UK [Case number: HC10 C01233]. 

IPCom hopes that Nokia will swiftly recognize that it, too, needs to come to terms with IPCom if it is not to suffer the same fate as HTC. 

The patents were originally developed by Bosch as part of its R&D for its pioneering car telephony systems, which evolved into the mobile telephony systems we know today. Bosch exited the business in 2000, and then tried for many years to negotiate license fees from Nokia for using these patents on the basis of FRAND (Fair, reasonable, and non-discriminatory). After failing to secure agreement, Bosch sold the patents to IPCom in early 2007. 

Since then, IPCom has successfully negotiated license agreements with a number of global telecoms companies. HTC and Nokia have, however, refused to agree terms with IPCom, and the parties have been engaged in a series of legal disputes in various jurisdictions".

This dispute raises interesting questions relating to the point of intersection between FRAND licensing and patent litigation. In particular, to what extent, when offering to license a patent on fair, reasonable and non-discriminatory terms, may a patent proprietor be permitted to take account of the fact that a would-be licensee has already faced patent infringement litigation or sought through the courts to challenge the validity of the patent, thus incurring expense and inconvenience to the patent owner to the possible benefit of the losing litigant who subsequently seeks a FRAND licence?  If different terms are offered to those made available to other licensees, at what point do they become discriminatory?

Where patent injunctions meet FRAND: Samsung v Apple in the Netherlands

The patent infringement litigation between Samsung and Apple in the Netherlands last month, leading to a judgment on 14 October, is worthy of note for the meshing-in of demands for traditional preliminary patent infringement relief with the analysis of the effects of contract law -- even when no contract has been concluded

This information comes from Ruprecht Hermans (Brinkhof), who reported as follows:

"In the worldwide conflict between Apple and Samsung the Dutch judge rendered a decision in preliminary injunction proceedings commenced by Samsung against Apple regarding infringement of a number of Samsung’s essential universal mobile telephone system (UMTS) patents. Samsung’s claims were rejected in a decision containing some interesting thoughts on the enforcement of essential patents.

Samsung based its infringement claim on the allegation that Apple’s phone products necessarily infringed Samsung’s patents as they complied with the applicable UMTS standards and therefore contained technology falling under the scope of Samsung’s patents. Samsung declared these patents to be essential under the applicable European Telecommunications Standards Institute (ETSI) policy.

Apple’s defence boiled down to the following: 

1. Samsung’s patent rights were exhausted because the chipsets used by Apple originated from third parties that were licensed by Samsung; 

2. Samsung’s Fair, Reasonable and Non-Discriminatory (FRAND) declaration was governed by French law; under French law this declaration was considered a licence as soon as it is accepted by a third party -- even if the royalties are still to be negotiated. It is sufficient that the royalties could be objectively determined, which is the case as they should be FRAND; 

3. As a result of the FRAND declaration Samsung forfeited its right to enforce its patents. Users may trust that they can apply the standard. If no agreement can be reached on FRAND royalties the patent owner can only claim damages for the past and FRAND royalties for the future; 

4. Samsung forfeited its right to enforce the patents because Samsung declared its patents to be essential only after the setting of the relevant standard.

However, as its first line of defence Apple relied on the lack of urgency required in preliminary injunction proceedings on the part of Samsung. Apple’s alleged infringing products had been on the market since 2008 and Samsung did not undertake any action. The judge’s view was remarkable. Instead of taking the usual position that, in matters of IP infringement, urgency is a given as long as the infringement continues, he considered that these proceedings were part of a conflict with proceedings in Japan, Korea, USA, Germany, UK, France, Italy and the Netherlands. Against this background it was likely that Samsung, although it at first didn’t do anything, has (again) an urgent interest in obtaining an injunction. This was already the case because such an injunction would strengthen Samsung’s position in its negotiations with Apple regarding a licence.

The judge rejected Apple’s exhaustion of rights defense because of lack of evi-dence in relation to the origin of the chipsets. He also rejected Apple’s defence that acceptance by Apple of Samsung’s FRAND declaration amounted to a licence. The expert opinions brought forward by both parties explaining the position under French law did not concur and the judge was not convinced that under French law a licence could exist absent an agreement on the licence fees. Moreover he had serious doubts whether the French requirement that a licence should be in the form of a written document was fulfilled.

But did Samsung forfeit its right to enforce? In a judgment on the merits of the District Court of The Hague of 17 March 2010 (Philips/SK Kassetten) it was held that, as long as a party does not have a licence, there is in principle no ground on which to allow it to use the patented technology. The court held: 

“Allowing the use of patented technology or preventing the enforcement of a patent right on the basis of a mere entitlement to a FRAND-licence would moreover lead to legal uncertainty. As long as the alleged entitlement is not converted into an actual licence, it is uncertain for both parties if the alleged entitlement is justified, let alone that it is clear what the licence terms will be. There will be frequent cases of such uncertainty, as parties regularly will have different opinions regarding the answer to the question which terms, and especially which royalty rates, are FRAND. Therefore, also in view of legal certainty a system is desirable where the right to enforce a patent only stands after a party actually has a licence.”

However, in Philips/SK, SK had only requested a licence under FRAND conditions after Philips had commenced infringement proceedings.

The judge in Samsung/Apple considered that the question was to be dealt with under Dutch law, under which there is forfeiture of rights if the right holder’s conduct is contrary to principles of reasonableness and fairness. This is the case if there are circumstances which cause the other party to trust that the right holder no longer wishes to enforce his rights or if the other party's position would be unreasonably harmed. Samsung’s obligation to license under FRAND terms under ETSI rules was not sufficient to come to such conclusion. Third parties may trust to get an offer for a licence on FRAND terms, but they may not trust that they can apply the standardized technology without a licence.

According to the judge the case wasalso different from the conflict between Philips and LG (The Hague District Court, 25 April 2007). In that case Philips neglected to disclose its essential patents although it participated in the standard setting. Samsung did make a general declaration that it would be prepared to license its essential patents under FRAND terms before the standard was established. That Samsung only disclosed the particulars of the essential patents later does not change this.

So for Samsung the case looked very good. Unfortunately for Samsung, though, the judge was not convinced that Samsung had complied with its obligation to negotiate a licence agreement on FRAND terms. The part of the proceedings actually dealing with the status of the negotiations between Apple and Samsung is -- for obvious reasons -- confidential,  and so, therefore, is part of the decision. However, the judge concluded that Samsung’s licence offer to Apple could not be considered FRAND and that the offer made even showed that Samsung was not really prepared to conclude a licence with Apple. According to the judge Samsung did not give the impression that substantially lower royalties than offered could be discussed. The judge considered that, under those circumstances, it would be likely that the court in proceedings on the merits would consider the enforcement of the patents by Samsung a misuse of patent rights. Therefore, other than in Philips/SK, Samsung had under these circumstances no right to obtain an injunction against Apple. Only if, after Samsung had made a FRAND offer but no agreement could be reached, could Samsung return to obtain an injunction against Apple".

A helpful analysis of this decision by Gertjan Kuipers, Douwe Groenevelt and Oscar Lamme (De Brauw Blackstone Westbroek) reached this blogger shortly after Ruprecht's account. You can access it here.