Universität Wurtzburg , 21 January 2014 Arbeitsgruppe Wettberwerb und Regulierung

Injunctions for FRAND pledged SEPs: The Quest for an Appropriate Test of

Abuse under Article 102 TFEU

Universität Wurtzburg, 21 January 2014

Arbeitsgruppe Wettberwerb und Regulierung

Prof. Nicolas Petit, University of Liege (ULG)[email protected]

Outline

www.chillingcompetition.com 2

1. Setting the scene2. Options for tests of abuse3. Selection rule4. “Testing” the tests5. Conclusion


I. Setting the scene

Apple filing of design patents (January 2007)


Apple filing of design patents (June 2007)


Apple v Samsung litigation (2011)


The global smartphone war (1)


Patent owners enforce their IPRs and seek injunctions in courts across the world (ie to obtain removal of infringing products)

Patent (unlicensed) implementers raise allegations of unlawful abuse as a counterclaim

Difficulty 1: some patents are core to standardized technologies (though not all) => “SEPs”

Difficulty 2: some SEPs are encumbered by a FRAND commitment



Samsung patents over “method and apparatus for reporting inter-

frequency measurement using RACH message in a communication system”, which is allegedly UMTS-essential

“apparatus and method for encoding/decoding transport format combination indicator in CDMA mobile communication system”, which is allegedly UMTS-essential

Motorola patents over H.264 video codec standard (for X-Box) IEEE 802.11 WiFi standard (for X-Box)


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Two types of cases De facto standards Formal standards adopted by SSOs

Different types of proceedings National litigation (patent infringement):

Samsung v Apple EU Commission investigations: Samsung (Apple is

complainant); Motorola (Microsoft is complainant) Different types of allegations

“Competition law” defense Violation of a FRAND commitment as abuse

(patent hold-up)



The legal issue What test of abuse? A priori, ITT Promedia v Commission, T-111/96 as

confirmed by Protégé International Ltd v Commission, T-119/09

But rise of a new test => arguably abusive to seek injunctions against a “willing licensee”

Germany v Commission?

German test EU test


FSC in Orange Book Standard Can be abusive to seek

injunctions against a “willing licensee” If offer that “cannot be refused” Has acted “as if” he was

already a licensee in good standing (acts of fulfillment)

Very “patentee friendly” No formal standard, no

FRAND pledge No final determination of

abuse Unclear if ruling under

German and/or EU law

Press releases in ongoing investigations (21 12 12) May be abusive where SEPs

are concerned and the potential licensee is “willing” to negotiate a license on FRAND terms

More restrictive in scope FRAND and SEPs only

But more “licensee friendly” Patent invalidity proceedings

do not disqualify willingness Accepting third party

determination qualifies willingness

Dusseldorf v Manheim?

ECJ Reference by District Court of Dusseldorf

Question by Manheim Regional Court to EU Commission


Huaweï v ZTE: 5Q on “willing licensee”: Is injunction v a self-proclaimed

“willing” licensee an abuse in itself (#1)? Or must an OBS offer be on the table (#1)?

If OBS offer is no prerequisite, but expressions of willingness suffice, how much evidence => mere statements (oral) or submission of “specific conditions” (#2)

If an OBS offer is prerequisite, how comprehensive? => a draft contract, or less? (#3)

If an OBS offer is prerequisite, how much fulfillment is needed, how far must the willing licensee go? => payment of royalties in account (#4)?

Is there abuse under the same conditions if patentee seeks other types of remedies (damages, etc.) (#5)

Judge Andreas Voß stays proceedings in Motorola v Apple, November 2013

Questions asked to EU Commission relate to what kinds of terms constitute a FRAND agreement.

Motorola sought to impose on Apple a non-challenge clause, and later sought injunction

Apple refusal “willing” or “unwilling”?

Commission v CJEU?


Statements of Commissioner Almunia The Commission will “fully take account” of any

guidance, but will not discontinue its investigations

Use of Article 9 R1/2003 to trump judicial debate? Role of both institutions should be to set

substantive standard for SEP injunctions N. Petit, “Injunctions for FRAND-Pledged SEPS:

The Quest for an Appropriate Test of Abuse under Article 102 TFEU”, European Competition Journal, Volume 9, Number 3, December 2013


II. Options for tests of abuse

Available (Legal) Technology15

Source Tests

Existing case-law proof test

• Abusive Litigation (ITT Promedia/Protégé International) => “wholly exceptional circumstances”

• Abusive refusal to supply (Magill/IMS Health/Microsoft III) “exceptional circumstances”

• Generic abusive anticompetitive foreclosure (Post Danmark)

New test • Modified abusive refusal to supply (Emanuelson; Körber)

• Abusive bargaining (Mariniello)• “Willing licensee” (Orange Book Standard

or reconfigured test)

Other • “Serious doubts” (article 9, R1/2003)



III. Selection rule

How to select the right test? No criterion in the case-law

Lawyers v economists Legal certainty v economic welfare

Lawyers v lawyers Forms-based (Ortiz Blanco & Lamadrid) v effects-based

(Marsden) Economists v economists

Minimize type I or type II errors?

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“Consistency” as a selection rule?


Consistency Set a test coherent with solutions applied in similar

factual, economic and legal setting; Set a distinct test in unrelated factual, economic and legal settings

Example: single branding agreements are lawful < 30% under Article 101 TFEU. Exclusive dealing under 102 TFEU should thus be per se lawful if tied market share < 30%

Various facets of consistency Internal consistency (test consistent with case law

under applicable provision) Transversal consistency (test consistent with case

law under other competition provisions) Constitutional consistency (test consistent with GPL

and other core values) Economic consistency (test makes economic sense)


IV. “Testing” the tests

Internal Consistency (1)


All existing case-law tests are internally consistent

How about the new ones? Abusive bargaining

Under Article 102 a) TFEU, what’s abusive is to set unfair price, not to adopt measures that may give rise to unfair price level (eg CJEU, United Brands)

The problem stems from the decision to include the impugned technology in standard. But this is not a decision of the dominant firm

Contrary to Commission policy under the Guidance Paper

Internal Consistency (2)


“Willing licensee” => FRAND declaration means SEP owner must license all “willing licensees” “Contractual duty” variant

But FRAND does not clearly give rise to contractual duty + not unlawful to breach a contract in EU competition law

Trick 1 => FRAND to give rise to an “antitrust” duty to license? => Yet, need to prove Magill-IMS Health “exceptional circumstances”

Trick 2 => FRAND setting is “exceptional circumstance” in itself => but not the case-law trend + Vesterdorf counterargument

“Moral duty” variant Weberian theory of abuse => false commitment, not

intended to be honoured AstraZeneca => But AZ was an already dominant firm =>

here, patentee is not dominant at FRANDing stage Rambus? => article 9 decision, not CJEU-proof

Transversal Consistency


No obvious transversal inconsistency of the various tests, absent case-law on collective injunction seeking

But “willing licensee” test seems transversally inconsistent SEP owner’s FRAND commitment => No reliance value of

unilateral pledges in competition law Article 101 TFEU Merger control (GC, Gencor v. Lonhro) Article 9 of R 1/2003

Prospective licensee => willingness of buyer to be ascertained on basis of exteriorized conduct (Bayer and VW case-law) => acts of fulfillment are needed, mere willingness declarations are not sufficient

“Act of State” doctrine Opinions of AG Jacobs in Albany and AG Léger in Arduino Is the culprit the court granting injunction?

Constitutional Consistency


All tests impinge yet protect the “freedom to do business”

All tests restrict the “right of access to courts” But one test pays heed to Article 47 EU Charter

=> ITT Promedia/Protégé International “King” of all rights, cannot be balanced as easily

as other fundamental rights General principles of law (incl. EU law)

Willing licensee >< No implied waiver rule Willing licensee >< Principle of legitimate

expectations (key notion of “sufficiently precise assurances”)

Economic Consistency


Screening Tests of abusive exploitation should be

disregarded => black sheep of IO Abusive bargaining, or “holdup” theories => not

mainstream economics

Hold-up as “exoticonomics” Formal rebuttal: G. Langus, V. Lipatov and D.

Neven, “Standard essential patents: who is really holding up (and when)?”, mimeo

Empirical invalidation Litigation costs are trivial (0,1% of Apple’s revenues

in 2012) No empirical evidence: “In the recent case with

Microsoft pursuing claims of hold-up against Motorola in the Western District of Washington, even Microsoft's experts …conceded under cross-examination that holdup was not necessarily a problem. Instead, they stated there was no evidence of hold-up and could not identify a single license that had been held up”.

Empirical data (telcos, Darts IP)

Empirical data (digital communications, Darts IP)

Empirical Data (Samsung, telcos)

Empirical data (Samsung, Digital Communications)

Alternative


Theories of exclusion are more robust (ie refusal to supply, abusive litigation, anticompetitive foreclosure)

Yet, tests articulating a non price predation theory are not plain vanilla economics Complex to prove potential for anticompetitive

exclusion => no good proxy to predict outcome of judicial proceedings (unlike in price predation)

But “raise rival costs” at any rate Yes, but also raises the costs of Domco Does it harm rivals more (cos’ Domco has scale?)

Not sure in emerging markets Smartphone war is a conflict of giants Litigations costs are trivial (0,1% of Apple’s revenues in

2012)


V. Conclusion

Brief Overview of Implications


Internal

consisten

cy

Transvers

al

consistenc

y

Constitution

al

consistency

Economic

consisten

cy

Refusal to

supply+ + – +

Abusive

litigation+ + + +

Anticompetitiv

e foreclosure+ + – +

Willing

licensee– – – –

Abusive

bargaining– – – –

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Worst-case scenario?


CJEU dismisses reference CJEU adresses reference, but ruling à la

Pfleiderer or Sot Lélos kai Sia v GlaxoSmithKline

Legal uncertainty and high compliance costs

Words of wisdom


Josh WRIGHT, FTC Commissioner, recently made the point that antitrust in high-tech markets should be “disciplined by empiricism” Need for facts (ex post intervention is more adequate)

IP enforcement strategies only abusive in “exceptional circumstances”

GC, T-198/98, Micro Leader Business v Commission

If law is to be made, this should be done with binding legal instruments, and reviewable decisions Neither soft law, nor Article 9 decisions (Marsden) Wait for CJEU guidance?


Thank you

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Universität Wurtzburg , 21 January 2014 Arbeitsgruppe Wettberwerb und Regulierung