In 2015, the Court of Justice of the European Union provided initial guidance on the conditions under which holders of Standard Essential Patents (SEP) may seek injunctions against implementers unwilling to enter into a licence agreement on FRAND terms. Since then, the German Bundesgerichtshof and the UK Supreme Court have issued judgments, with the Dutch Supreme Court following suit in a recent set of rulings. We explain the background and implications of this case, including the Advocate General's opinion.
Standard essential patents and competition law
Patents declared essential for the application of a standard are commonly referred to as Standard Essential Patents (SEPs). As a rule, SEP holders commit themselves to license their SEPs under Fair, Reasonable And Non-Discriminatory (FRAND) terms. SEP holders may under certain conditions: (i) have a dominant position in a market and (ii) abuse this dominant position when enforcing their SEPs, breaching competition law (in particular, article 102 TFEU, abuse of dominant position).
In its 2015 landmark Huawei/ZTE decision, the CJEU provided guidance on when no breach of competition law has occurred in situations where SEP holders seek injunctive relief against an implementer after they have failed to conclude a licence agreement on FRAND terms. However, many questions remain outstanding on the practice of SEP licensing. A dispute between Philips and Wiko was the first opportunity for the Dutch Supreme Court to weigh in on this matter, after both the German Bundesgerichtshof and the UK Supreme Court had issued post-Huawei/ZTE FRAND decisions in Sisvel/Haier and Unwired Planet/Huawei respectively.
Background of Philips and Wiko dispute
The dispute centred on SEPs for the UMTS (3G) and LTE (4G) standards. In a previous article we discussed the approach of the Court of Appeal of The Hague on the FRAND debate in these proceedings. This was the first time that a Dutch appellate court gave guidance in the aftermath of the Huawei/ZTE decision. The case addressed two questions: when does an implementer qualify as a "willing licensee"; and what constitutes ''FRAND'' behaviour of an SEP holder. The court of appeal held that Philips had not abused its asserted dominant position, while Wiko was not a willing licensee. Accordingly, the Court granted the requested injunctions for the patents that were considered to be valid.
Dutch Supreme Court proceedings
Wiko applied to the Supreme Court asking it to reverse the court of appeal's FRAND decision. According to Wiko, the court of appeal had wrongly refused to recognise a German court's judgment in a matter between the same parties under article 36 Brussel I bis; the German court had held that Philips' offer was not FRAND and that Wiko was a willing licensee. In response to Wiko's allegation, the court of appeal explained that the German court's decision related to a different patent and only regulated the legal relationship between the parties relating to that patent. In his advice to the Supreme Court, the Advocate General (AG), stated that the relevant question was about how to interpret the scope of the German decision. And this, according to the AG, had to be answered according to German law. Under Dutch law, foreign law cannot be assessed in the proceedings before the Supreme Court so that this ground for appeal fails.
Wiko also argued that the court of appeal should have denied injunctive relief based on circumstances that occurred after Philips initiated the proceedings. Wiko argued that it had since become a willing licensee. By continuing to seek injunctive relief, Philips had abused its dominant position. The AG considered it plausible that, after infringement proceedings have been initiated, the threshold for qualification as a willing licensee is higher. Otherwise, there would be no incentive for implementers to act as willing licensees outside of court proceedings. The AG noted that the Sivel/Haier decision also points in this direction. However, the questions referred to the CJEU by a German court in Nokia/Daimler – which meanwhile have been withdrawn due to the fact that parties concerned have reached the settlement – show that this matter remains open for debate. The AG's opinion was that the court of appeal's distinction between Philips' behaviour before and during the proceedings was correct, with neither leading to an abuse of dominance. As the court of appeal did not find an abuse of a dominant position by Philips, it did not need to answer the question whether Wiko had become a willing licensee after the proceedings had been initiated.
Wiko also argued that the court of appeal was wrong in its interpretation of Huawei/ZTE, by stating that the SEP holder is not required to substantiate why its offer is FRAND. According to Wiko, the SEP holder has to offer a FRAND licence, and thus has the burden of proof on whether the offer is indeed FRAND. The AG disagreed with this interpretation. In referring to Dutch legal commentary, Regulation 1/2003 and the Supreme Court's ruling in ANVR/IATA, the burden of proof to successfully argue abuse of dominance lies with the implementer. In this case, Wiko.
Lastly, Wiko argued that the court of appeal had incorrectly ordered it to surrender its profits to Philips. According to Wiko, the only damage eligible for compensation was damage based on a royalty rate on FRAND terms. Surrender of profits, Wiko argued, would have a punitive character. The AG stated that compensation through surrender of profits exists as an alternative to compensation of damage because: (i) it is often difficult for a patent holder to substantiate its actual damage; and (ii) circumstances where a party could benefit from infringement, should be avoided, especially in cases of deliberate infringement such as when an implementer has been notified of infringement by an SEP holder. As such, the AG saw no reason why the possibility to request a surrender of profit should not apply to SEPs.
The Supreme Court dismissed Wiko's complaint in its entirety, by referring to article 81(1) of the Judiciary Organisation Act. This legislation stipulates that if the grounds for appeal cannot result in the Supreme Court reversing the appellate judgment or answering legal questions in the interest of uniformity and development of the law, the Supreme Court is not required to substantiate its decision.
This ruling emphasises the weight and importance of Dutch appellate court decisions on FRAND matters. Due to a lack of a substantive decision by the Dutch Supreme Court, the appellate court decisions remain decisive for these matters. In this matter specifically, the court of appeal's decision underlines the responsibility of implementers to be a "willing licensee". If an implementer does not show willingness to conclude a licence on FRAND terms, the SEP holder may enforce its rights. In addition, the AG's opinion is invaluable, as it includes guidance on how to interpret Huawei/ZTE and, thus, the FRAND obligations of implementers and SEP holders. One of these "pointers" is that the threshold for becoming a willing licensee could well be higher after the SEP holders has initiated injunction proceedings.