In recent years, innovation in the information and communications technology (“ICT”) sector has increased at an unprecedented pace, creating and expanding a multitude of sectors in the innovation economy. In particular, the development of standardized technologies, such as 2G to 5G cellular telecommunication standards, has transformed the way we communicate with each other around the globe.1Eleftheria Stefanaki, The Internet of Bodies Could Save Many Lives but Risks Failing Without Standards, IAM (Apr. 21, 2021), https://perma.cc/MQP2-VZDH. Individuals can now (or in the near future) enjoy the Internet of Things, connected vehicles, “intelligent transport systems” as well as “‘smart’-agriculture, -health solutions, and -cities,” to name a few examples.2Julia Brito, R&D, IPR and Innovation: The Virtuous Circle for a Competitive Brazil, SSRN 3 (Nov. 18, 2021), https://perma.cc/9XE2-HMH7; see also Ali Zaidi, Yasir Hussain, Marie Hogan & Christian Kuhlins, Cellular IoT Evolution for Industry Digitalization, Ericsson (Jan. 2019),
https://perma.cc/7KJ9-J34D; Connected Vehicles, Ericsson, https://perma.cc/ZU3H-CP2Z; Smart Cities, Eur. Comm’n, https://perma.cc/KNB9-MACP. In fact, some cities such as Los Angeles, New York, Washington, D.C., Boston, and San Francisco have already become “smarter.”3Jayna Locke, Top 12 Smart Cities in the U.S. – Smart Cities Examples 2020, Digi (Oct. 9, 2020), https://perma.cc/ZGX7-ZMH2; Ted Ross, City of L.A., SmartLA 2028: Technology for a Better Los Angeles 5–6 (2020), https://perma.cc/E6JC-JDML. Thanks to cellular standards, these cities can significantly reduce congestion and pollution by controlling traffic flow, monitoring water use, and reducing the use of energy. Additionally, cities can enhance public safety with early warning systems for earthquakes; software that uses security-camera footage to detect gunshots and capture criminals more quickly; systems that monitor air quality and atmospheric conditions; or, during COVID times, by enabling “contact-free essential public services” and “accelerated medical solutions”.4See Locke, supra note 3; Ross, supra note 3, at 7, 19, 28.
This massive success of cellular standards is the result of intellectual-property rights (“IPR”) policies that balance the interests of those who create the patented inventions that comprise these communication technologies, known as standard essential patents (“SEPs”), and those who use these patented inventions.5See infra Part II. In this context, SEP owners typically commit to make their SEPs available on fair, reasonable and non-discriminatory (“FRAND”) terms and conditions.6While RAND is the preferred terminology in the United States, FRAND is typically used in Europe. See Bowman J. Heiden, IPR Policy As Strategy – The Battle to Define the Meaning of Frand, CPI Antitrust Chron. (Mar. 24, 2020), https://perma.cc/85JZ-CLZY; Damien Geradin & Miguel Rato, Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-Up, Royalty Stacking and the Meaning of Frand, 3 Eur. Competition J. 101, 121 (2007) (“[A] flexible system of fair, reasonable and non-discriminatory licensing of IPR essential to a standard . . . . has allowed thousands of standard implementers and owners of IPR essential to the standard to reach mutually satisfactory agreements and SSOs to conduct valuable standardization activities in a number of vastly different fields.”). Accordingly, SEP owners can obtain a fair and adequate reward that incentivizes them to engage in the standardization process, while SEP users can access the standardized groundbreaking technology under reasonable terms.7See Eur. Telecomm. Standards Inst., ETSI Directives: Rules of Procedure: Annex 6: ETSI Intellectual Property Rights Policy, § 3.1–.3 (June 22, 2022), https://perma.cc/WG9C-9KEV.
In the last few years, there have been extensive debates among scholars, global legal disputes, and investigations and enforcement actions by antitrust authorities concerning the right of SEP owners to receive an injunction in patent-infringement lawsuits. Some U.S. academics and antitrust-law authorities have expressed the concern that SEP owners may abuse their dominant position by threatening to use injunctions to extract excessive royalty rates.8See, e.g., Carl Shapiro & Mark A. Lemley, The Role of Antitrust in Preventing Patent Holdup, 168 U. Pa. L. Rev. 2019, 2021 (2020) (“[A]ntitrust has a role to play in policing holdup, particularly in cases where the patent owner avoids its contractual commitments or uses a SEP to restrict competition on adjacent markets.”); Written Submission on the Public Interest of Federal Trade Commission Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter at 1, Certain UMTS and LTE Cellular Commc’n Modules & Prods. Containing the Same, Inv. No. 337-TA-1240 (May 16, 2022), https://perma.cc/3MB7-PTK9 (“An ITC-issued exclusion order involving FRAND-committed SEPs, where infringement is based on implementation of standardized technology, has the potential to cause substantial harm to U.S. competition, consumers, and innovation.”); Rebecca Kelly Slaughter, Comm’r, Fed. Trade Comm’n, Remarks at ANSI World Standards Week: Intellectual Property Rights Policy Advisory Group Meeting: SEPs, Antitrust, and the FTC 6 (Oct. 29, 2021), https://perma.cc/7KZZ-86SZ (“When SEP holders undermine the competitive safeguards put into place by SDOs, and obtain or enhance monopoly power by voluntarily contributing their technology to standards, the FTC should investigate, and when appropriate, bring cases.”); In re Motorola Mobility LLC, 156 F.T.C. 147, 165–68 (2013). Consequently, U.S. courts have been reluctant to grant injunctions for SEPs, especially under the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C.9547 U.S. 388 (2006). in which it crafted a four-part test for issuing injunctions in patent cases.10Id. at 391.
Given these concerns, a consensus has started to emerge that an injunction may be awarded for an ongoing infringement of an SEP if the infringer has proven to be an unwilling licensee. For example, in a draft policy statement jointly released in December 2021, the U.S. Department of Justice (“DOJ”), the National Institute of Standards and Technology (“NIST”), and the U.S. Patent and Trademark Office (“USPTO”) indicated that “[a]n injunction may be justified where an implementer is unwilling or unable to enter into a [FRAND] license.”11U.S. Pat. & Trademark Off., Nat’l Inst. of Standards & Tech. & U.S. Dep’t of Just., Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments 9 (2021). Similarly, the Honorable Rebecca Kelly Slaughter of the Federal Trade Commission (“FTC”) remarked in October 2021, that the organizations that develop standards and create FRAND polices, known as standard development organizations (“SDOs”), should adopt policies that “eliminate the threat of exclusion against willing licensees.”12Slaughter, supra note 8, at 6. These U.S. authorities and officials have not defined what is or is not a willing license. But European courts have been addressing the issue of what constitutes a willing or unwilling licensee and have been issuing injunctions to SEP owners.13See infra Part V. These European court decisions provide useful insights that can guide policies at SDOs, as well as guide judges and antitrust authorities in determining when an infringer of an SEP is deemed to be unwilling, and therefore, the SEP owner may be entitled to an injunction, as provided for under patent law.14E.g., 35 U.S.C. § 283 (providing for injunctions as an equitable remedy for infringement of a patent).
This Article explains the elements identified by European legal authorities on what constitutes a willing licensee and thus when an injunction may or may not be issued for infringement of an SEP. Part I explains how cellular standards are developed by SDOs and the contractual obligation of FRAND licensing for patents that cover these standardized technologies like 4G or 5G. Part II explains how SDOs balance the interests amongst SEP owners and SEP users with their IP policies to avoid or at least mitigate the concerns expressed by Commissioner Slaughter and the DOJ/NIST/USPTO draft policy statement about SEP owners exercising undue market power over users of standardized technologies through injunctions. Part III explains the U.S. approach thus far to distinguishing between willing and unwilling licensees of SEPs and the effect this distinction has on the availability of injunctions as a remedy for infringement of these SEPs. Part IV explains the European approach to defining a willing or unwilling licensee in the last decade, with a focus on the landmark ruling of the Court of Justice of the EU (“CJEU”) in Huawei v. ZTE.15Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477 (July 16, 2015). Part V provides a general overview of how European courts’ have interpreted and applied the Huawei v. ZTE decision. This Article concludes by highlighting the need to consider the conduct of the parties involved in FRAND negotiations (not only the SEP owner but also the SEP user) to take a balanced approach that keeps the innovation circle in standardised technologies alive.
I. Balance of Interests Between SEP Owners and SEP Users
Today’s cellular standards are typically developed by different stakeholders, mostly companies that create cutting-edge technological solutions under the umbrella of the 3rd Generation Partnership Project (“3GPP”).16See Introducing 3GPP, 3GPP, https://perma.cc/BS44-DQ45. The 3GPP is a consortium of seven standard development organizations from around the globe.17See id. The seven SDOs in 3GPP are ARIB (Japan), ATIS (USA), CCSA (China), ETSI (Europe), TSDSI (India), TTA (Korea), and TTC (Japan). Partners, 3GPP, https://perma.cc/FR4H-4L2F. In the 3GPP, participants submit and evaluate technologies to be included as part of the global cellular standards used in mobile devices, such as the 5G technology used in our smartphones and tablets.18See Justus Baron & Kirti Gupta, Unpacking 3GPP Standards, 27 J. Econ. & Mgmt. Strategy 433, 438–39 (2018). The 3GPP ensures a level playing field for all parties involved in the creation and commercialization process by requiring adherence to agreed-upon principles, such as openness, transparency, consensus, and impartiality.19See Principles for the Development of International Standards, Guides and Recommendations, World Trade Org., https://perma.cc/JXN6-A4A9. These principles are followed in evaluating and developing these technological standards, as well as in the discussions related to IP Policy.
To attract cutting-edge technologies into the standards and broadly disseminate them, 3GPP aims to strike a balance between the interests of technology developers and those of implementers who use these technologies in its partnership project agreement.20See 3GPP, Third Generation Partnership Project Agreement § 3.1 (1998), https://perma.cc/U6PA-XCAE; David Lopez-Berzosa & Annabelle Gawer, Innovation Policy Within Private Collectives: Evidence on 3GPP’s Regulation Mechanisms to Facilitate Collective Innovation, 34 Technovation 734, 740 (2014). Accordingly, the seven SDOs that comprise the 3GPP encourage their respective members who are creators of these technologies to declare their willingness to grant licenses (to their SEPs) on FRAND terms.21See Eur. Telecomm. Standards Inst., supra note 7, § 6.1; Lopez-Berzosa & Gawer, supra note 20, at 740. This FRAND commitment is a balanced contractual commitment by all participants in the standard development process. On the one hand, it ensures that users of cellular technologies, such as smartphone manufacturers, have access to the SEPs necessary to produce and sell their mobile devices to consumers.22See Standard Essential Patents, Eur. Comm’n, https://perma.cc/95J4-F5VP; Juan Martinez, FRAND as Access to All Versus License to All, 14 J. Intell. Prop. L. & Prac. 642, 643 (2019); Richard Vary, The Case for the Defence: Access for All v. License to All, Bird & Bird (Apr. 23, 2020), https://perma.cc/EZ7F-S3VJ. On the other hand, the innovators who create and contribute their patented technologies to be included in a technological standard like 5G are paid reasonable royalties by the companies using and profiting from their patented technologies.23Tim Pohlmann, IPlytics, Fact Finding Study on Patents Declared to the 5G Standard 6 (Jan. 2020), https://perma.cc/RL9L-X5XC. This allows innovators, which have heavily invested in research and development (“R&D”),24Baron & Gupta, supra note 18, at 440. to recoup their investments and encourages them to continue their development of future generations of cellular technologies, such as 6G.25Vincent Angwenyi, Hold-up, Hold-out and F/RAND: The Quest for Balance, 12 J. Intell. Prop. L. & Prac. 1012, 1022 (2017). Thus, the cycle of innovation continues to the benefit of innovators, implementers, and consumers who purchase and use these technologies.
For example, the European Telecommunications Standards Institute (“ETSI”) was responsible for creating 2G and is one of the seven 3GPP partners.26ETSI launched 2G in 1991 and later joined 3GPP with other standardization development organizations in developing 3G, 4G, and 5G. See 2nd Generation (GERAN), Eur. Telecomm. Standards Inst., https://perma.cc/M49A-34V8. ETSI states the following in its “policy objectives”:
3. Policy Objectives
3.1 It is ETSI’s objective to create STANDARDS and TECHNICAL SPECIFICATIONS that are based on solutions which best meet the technical objectives of the European telecommunications sector, as defined by the General Assembly. In order to further this objective the ETSI IPR POLICY seeks to reduce the risk to ETSI, MEMBERS, and others applying ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable. In achieving this objective, the ETSI IPR POLICY seeks a balance between the needs of standardization for public use in the field of telecommunications and the rights of the owners of IPRs.
3.2 IPR holders whether members of ETSI and their AFFILIATES or third parties, should be adequately and fairly rewarded for the use of their IPRs in the implementation of STANDARDS and TECHNICAL SPECIFICATIONS.
3.3 ETSI shall take reasonable measures to ensure, as far as possible, that its activities which relate to the preparation, adoption and application of STANDARDS and TECHNICAL SPECIFICATIONS, enable STANDARDS and TECHNICAL SPECIFICATIONS to be available to potential users in accordance with the general principles of standardization.27Eur. Telecomm. Standards Inst., supra note 7, § 3.1–.3.
In other words, to attract the best technology into the open standard, ETSI seeks to balance the interests of the SEP users and the SEP owners. This balance is achieved via the FRAND undertaking by (1) adequately and fairly rewarding SEP owners, and (2) making standards available to future potential users, preventing waste of resources for both sides.28See id. § 3.2–.3.
FRAND terms are generally agreed upon in bilateral negotiations between an SEP owner and an SEP user, as they are best situated to address the circumstances of each individual case within the FRAND framework.29Luis Herranz & Claudia Tapia, Good and Bad Practices in FRAND Licence Negotiation, in Resolving IP Disputes: A Selection of Contemporary Issues 49, 52–53 (Gerold Zeiler & Alexander Zojer eds., 2018). However, for FRAND licensing negotiations to succeed, both parties must negotiate in good faith.30See id. Otherwise, SEP owners risk not obtaining an injunction even after having proved the validity and infringement of their patents.31See id. at 53–57.
On the other hand, prospective licensees are expected to act as willing licensees for the time until they have signed a FRAND agreement. In practice, the latter means that SEP users should engage constructively in negotiations when approached by an SEP owner. By doing so, SEP users can benefit from FRAND terms, and potentially avoid an injunction prohibiting the use of patented standardized technology, in those exceptional cases in which negotiations fail and parties resort to litigation.32Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶¶ 65–68 (July 16, 2015). Understanding, therefore, what a willing licensee means is crucial not least from the angle of pending infringement proceedings.
FRAND licensing and the WTO principles have led to a highly successful standardized connectivity in terms of technological performance,33See supra notes 1–4 and accompanying text. wide dissemination, as well as reasonable pricing.34See GSM Assoc., The Mobile Economy 2020, at 3 (2020), https://perma.cc/LMA3-NMFY; Wolfgang Bock, François Candelon, Steve Chai, Ethan Choi, John Corwin, Sebastian DiGrande, Rishab Gulshan, David Michael & Antonio Varas, The Mobile Revolution: How Mobile Technologies Drive a Trillion-Dollar Impact, Bos. Consulting Grp. (Jan. 15, 2015), https://perma.cc/8BWW-LDKG. Estimates are that cellular connectivity will contribute $5 trillion to the global economy by 2024.35GSM Assoc., supra note 34, at 3. The automotive sector alone is expected to earn an additional 30% in revenue, or up to $1.5 trillion by 2030 due to new automotive business models based on data collected thanks to cellular standards.36Paul Gao, Hans-Werner Kaas, Detlev Mohr & Dominik Wee, Automotive Revolution – Perspective Towards 2030, McKinsey & Co. (Jan. 1, 2016), https://perma.cc/X7DD-D5RL.
II. Hold-Up v. Hold-Out Concerns
Despite the overwhelming success of standardized technologies thanks to IP policies that balance the interests of SEP owners and SEP users via FRAND commitments,37See Bowman Heiden, Jorge Padilla & Ruud Peters, The Value of Standard Essential Patents and the Level of Licensing, 49 Am. Intell. Prop. L. Ass’n Q.J. 1, 1–5 (2021); Bock et al., supra note 34; Keith Mallinson, Analyst Angle: Massive Growth in IoT Leveraged by Fulcrum of 4G and 5G Technologies, Enter. IoT Insights (May 17, 2017), https://perma.cc/Z64R-QZM4; Keith Mallinson, Don’t Fix What Isn’t Broken: The Extraordinary Record of Innovation and Success in the Cellular Industry Under Existing Licensing Practices, 23 Geo. Mason L. Rev. 967, 968–79 (2016). some have raised the concern that the SEP owner is in the position to “hold-up” the SEP user by threatening to obtain an injunction—the hold-up theory.38On the lack of evidence of hold-up theory, see Anne Layne-Farrar, Patent Holdup and Royalty Stacking Theory and Evidence: Where Do We Stand After 15 Years of History?, at 7, DAF/COMP/WD(2014)84 (Nov. 18, 2014), https://perma.cc/K2F4-YQV4. In this scenario, the SEP user, which has made “heavy” investments when incorporating the standard in its products or services, is then “forced” to pay excessive royalty rates (above FRAND).39Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 1993 (2007); Daniel G. Swanson & William J. Baumol, Reasonable and Nondiscriminatory (RAND) Royalties, Standards Selection, and Control of Market Power, 73 Antitrust L.J. 1, 19–20 (2005); Philippe Chappatte, FRAND Commitments—The Case for Antitrust Intervention, 5 Eur. Competition J. 319, 326 (2009). Jonathan Putnam, on the other hand, explains that the FRAND undertaking and the ETSI disclosure system prevents such opportunistic behavior. See Jonathan D. Putnam, Economic Determinations in “FRAND Rate”-Setting: A Guide for the Perplexed, 41 Fordham Int’l. L.J. 953, 963–65 (2018). On the other hand, “hold-out” occurs when patent infringers apply delaying tactics or refuse to engage in good faith negotiations in order to force an SEP owner to accept royalties below FRAND.40Angwenyi, supra note 25, at 1019. This behavior is usually exacerbated by the denial of injunctions for SEPs, as the worst consequence that an unwilling licensee faces in such a scenario is to pay the same FRAND terms it would have paid in a good faith licensing negotiation.41See Richard A. Epstein, F. Scott Kieff & Daniel F. Spulber, The FTC, IP, and SSOs: Government Hold-Up Replacing Private Coordination, 8 J. Competition L. & Econ. 1, 26–27 (2012); Edward J. Egan & David J. Teece, Untangling the Patent Thicket Literature 13 (Tusher Ctr. for the Mgmt. of Intell. Cap., Working Paper No. 7, 2015), https://perma.cc/6GGV-7TRQ; Geradin & Rato, supra note 6, at 119.
There are diverging views amongst antitrust agencies (even within the same agency) on whether hold-up or hold-out poses a greater risk from an antitrust perspective. For example, Makan Delrahim, former Assistant Attorney General of the DOJ, expressed doubts that patent hold-up can be considered a significant problem, since it is devoid of empirical support.42Makan Delrahim, Assistant Att’y Gen., U.S. Dep’t of Just., Remarks at University of Pennsylvania Law School: The “New Madison” Approach to Antitrust and Intellectual Property Law 8–9 (Mar. 16, 2018), https://perma.cc/AY9A-BTGB. Delrahim acknowledged that hold-out, a real threat to innovation outweighs hold-up, a non-evidence-based phenomenon.43Id. Similarly, Maureen K. Ohlhausen, former Acting Chair of the FTC, warned that the patent system is becoming tilted in favor of patent users, while referring to the dilution of IP rights as a problem to be solved.44See Maureen K. Ohlhausen, Patent Rights in a Climate of Intellectual Property Rights Skepticism, 30 Harv. J.L. & Tech. 103, 107–08 (2016). Ohlhausen notes that some influential jurisdictions use antitrust law “not to protect competition, but to regulate the price of patent rights.” Id. at 106. It should be noted that, in her view, dilution of IP rights is an international issue present in jurisdictions such as China, India, Korea, and Japan. Id. at 107. One example of what Olhausen considers to be a signal of such dilution is prohibiting SEP owners from seeking prohibitory injunctions.45See id. at 107–08.
In contrast, FTC Commissioner Rebecca Kelly Slaughter in her statements of October 2021, identified hold-up as potentially harmful to competition and to consumers.46Slaughter, supra note 8, at 6. She also expressed her concern for small- and medium-enterprise implementers suffering from anticompetitive distortions concerning FRAND royalties, which could discourage them from investing in innovation.47Id. at 7. In the Commissioner’s view, the threat of exclusionary remedies allows SEP owners to abuse their market power against implementers in licensing negotiations.48Id. at 4. Theoretically, she argued, the threat of exclusion could allow a SEP owner to obtain royalties that exceed what a FRAND royalty would be.49Id. The Commissioner encouraged SDOs to implement FRAND policies that “eliminate the threat of exclusion against willing licensees.”50Id. at 6. As an alternative option, antitrust agencies’ intervention was proposed.51As former FTC Commissioner Joshua D. Wright pointed out, others also advocated in favor of antitrust law to discourage hold-up “[wrongly] presuming contractual incompleteness in SSO contracts is sufficient to demonstrate inefficiency that requires legal regime change or other solutions.” Joshua D. Wright, Comm’r, Fed. Trade Comm’n, Remarks at the Center for the Protection of Intellectual Property Inaugural Academic Conference: The Commercial Function of Patents in Today’s Innovation Economy, 11–12 (Sept. 12, 2013), https://perma.cc/L79Q-EG8E. In Wright’s view, such presumptions are “problematic” as “perfectly complete or comprehensive contracts are observed only on blackboards in graduate economics departments and the occasional textbook.” Id. at 12. Some examples of those promoting the use of antitrust to deter holdup cited were George S. Cary, Mark W. Nelson, Steven J. Kaiser & Alex R. Sistla, The Case for Antitrust Law to Police the Patent Holdup Problem in Standard Setting, 77 Antitrust L.J. 913, 913 (2011) (“While other areas of law may prove capable of addressing certain abuses of standard-setting processes, they are an incomplete solution, as only antitrust law can ensure that private parties and government enforcement authorities can seek redress where the underlying abuse harms competition.”); George S. Cary, Larry C. Work-Dembowski & Paul S. Hayes, Antitrust Implications of Abuse of Standard-Setting, 15 Geo. Mason L. Rev. 1241, 1262 (2008) (“Antitrust law has an important role to play in governing both collusive and unilateral conduct in the standard-setting process.”); Thomas F. Cotter, Patent Holdup, Patent Remedies, and Antitrust Responses, 34 J. Corp. L. 1151, 1205 (2009)) (in Wright’s words: “suggesting that SSO agreements aimed at controlling the price paid for patented technology should be subjected to the same antitrust scrutiny as any other horizontal agreement among competitors”). Wright, supra, at 9 & n.15.
Without delving into the discussion concerning whether hold-up or hold-out is potentially more harmful to competition, most would agree that innovation would benefit from avoiding both. Therefore, an appropriate use of injunctions is key to avoiding hold-up and hold-out while, at the same time, achieving a balance of interests between innovators (“SEP holders”) and implementers (“SEP users”).52Vincent Angwenyi, Smokescreen Strategies: What Lies Behind the Hold-up Argument?, 67 GRUR Int’l 204 (2018). To accomplish this objective, the proper use of injunctions is crucial; otherwise, court decisions could tilt the balance in favor of hold-up or hold-out. Consequently, it is indispensable to understand the requirements for SEP users to be considered unwilling licensees and the role this plays in the determination of whether to grant an injunction.
III. U.S. Approach to “Willing Licensees”
In the United States, there is limited jurisprudence on the concept of willing licensees. While the possibility of SEP injunctive relief is recognized in U.S. case law, a detailed framework addressing the conduct of the parties in FRAND licensing negotiations has yet to be developed.53Spyros Makris & Haris Tsilikas, Standard Essential Patents and Injunctions: The Key Role of Good Faith in Major Jurisdictions, IEEE Commcʼns Standards Mag., Dec. 2021, at 127.
In eBay Inc. v. MercExchange, L.L.C, the U.S. Supreme Court established certain requirements for patent owners, for both essential and nonessential patents,54See Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1331–32 (Fed. Cir. 2014). known as the “four-factor test” which must be passed in order for patent owners to be granted injunctive relief for patent infringement in federal courts.55eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). Many U.S. legal scholars, especially those who specialize in remedies law, recognize that the eBay 4-factor test introduced a new test in patent law.56See Adam Mossoff, The Injunction Function: How and Why Courts Secure Property Rights in Patents, 96 Notre Dame L. Rev. 1581, 1586–87 (2021).
According to the eBay decision, in order to obtain an injunction, the patent owner must demonstrate
(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the [patent holder] and the [infringer], a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.57eBay, 547 U.S. at 391.
Therefore, if the above conditions are met, injunctive relief for SEPs should, in principle, be granted. For instance, in Apple Inc. v. Motorola, Inc.,58757 F.3d 1286 (Fed. Cir. 2014). the U.S. Court of Appeals for the Federal Circuit indicated that, “an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.”59Id. at 1332.
To properly assess whether injunctions should be granted, however, it is critical to further detail what constitutes an unwilling licensee. Even though the possibility of SEP owners leveraging potential injunctions in their favor should be considered, without any guidelines on interpreting unwillingness, courts may feel discouraged to grant injunctions for SEPs, involuntarily encouraging hold-out behavior and posing a serious threat to innovation.60See Richard A. Epstein & Kayvan B. Noroozi, Why Incentives for “Patent Holdout” Threaten to Dismantle FRAND, and Why It Matters, 32 Berkeley Tech. L.J. 1381, 1404 (2017) (“[A]bsent the backstop of the injunction threat, implementers will have powerful incentives to breach their end of the FRAND contract and pursue their own ex post strategy of ‘patent holdout’ or ‘efficient infringement.’ That conduct could lead to suboptimal returns from playing the FRAND game, and thus an eventual breakdown of the FRAND–enabled innovation marketplace.”). In fact, this is not a theorical scenario; studies show that U.S. courts are highly reluctant to grant injunctions for SEPs.61See, e.g., Kirti Gupta & Mark Snyder, Smart Phone Litigation and Standard Essential Patents 4, 13–14 (Hoover Inst. Working Grp. on Intell. Prop., Innovation, & Prosperity, Working Paper No. 14006, 2014).
IV. European Perspective of a Willing Licensee
In contrast to U.S. case law, European courts have developed a framework on good-faith FRAND licensing negotiations. Such a framework may serve as guidance for U.S. courts when dealing with SEP cases, particularly regarding the willingness aspect.
The European FRAND negotiation framework is rooted in the 2015 landmark CJEU ruling in Huawei Technologies Co. v. ZTE Corp.62Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477 (July 16, 2015). The Huawei decision represented a clarification in the EU’s approach in the determination of remedies for infringement of an SEP. The court corrected the previous asymmetry in prior decisions and statements that did not account for the facts of both hold-up and hold-out risks.63See id. ¶¶ 46–50.
Between 2011 and 2015, the European Commission (“EC”) was solely and improperly focused on hold-up as the only commercial fact that should be accounted for in evaluating the proper remedy for infringement of an SEP.64See infra Section IV.A. In Huawei, however, the court clarified that the risks of hold-up and hold-out existed equally on both sides of a license negotiation in which both contracting parties could engage in strategic behavior.65See Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶ 69 (July 16, 2015). Thus, the referring court explained that “the positions of the proprietor of an SEP and of the infringer ought not to make it possible for them to obtain excessively high royalties (a ‘hold-up’ situation) or excessively low royalties (a ‘reverse hold-up’ situation), respectively.”66Id. ¶ 38 (ultimately adopting this position). Consequently, the court provided a framework for FRAND licensing negotiations that takes this fundamental idea of a willing licensee into consideration and, in case litigation occurs, guides courts in their decision to either grant an injunction or not.67See The Focus in Europe Moves from Patent Hold-up to Hold-out, IAM (Jan. 24, 2020), https://perma.cc/Q9LT-P78R. Following Huawei, the EC evolved into a more balanced position, recognizing the need to protect against hold-up as well as hold-out conduct.
A. EC Approach Prior to Huawei
In 2011, the EC Guidelines on horizontal cooperation agreements clarified that:
[S]tandardisation may lead to anti-competitive results by preventing certain companies from obtaining effective access to the results of the standard-setting process (that is to say, the specification and/or the essential IPR for implementing the standard). If a company is either completely prevented from obtaining access to the result of the standard, or is only granted access on prohibitive or discriminatory terms, there is a risk of an anti-competitive effect.68Communication from the Commission of Jan. 14, 2011, Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements, 2011 O.J. (C 11) 1, 57.
The EC also claimed that SEP owners could hold-up users after adopting the standard “by refusing to license the necessary IPR or by extracting excess rents by way of excessive royalty fees thereby preventing effective access to the standard.”69Id. at 58 (footnote omitted). The EC also clarified that: [E]ven if the establishment of a standard can create or increase the market power of IPR owners possessing IPR essential to the standard, there is no presumption that holding or exercising IPR essential to a standard equates to the possession or exercise of market power. The question of market power can only be assessed on a case by case basis. Id. The Guidelines contained no reference to hold-out conduct and its corresponding antitrust risks.70See id.
In 2012, the EC expressed concern over the possibility of hold-up in the context of the Google acquisition of Motorola.71The Focus in Europe Moves from Patent Hold-up to Hold-out, supra note 67. However, the EC accepted that seeking an injunction against a potential licensee not willing to negotiate on FRAND terms could be justified.72Id. Even though the EC implicitly recognized hold-out behavior by bad-faith licensees, this was not further analyzed.73Id.
The EC concern on hold-up was also present in the decisions in two antitrust investigations. Both cases involved injunctions being sought on the basis of SEPs, where Apple was the patent user and Motorola and Samsung the respective patent owners.74See European Commission Press Release IP/14/489, Antitrust: Commission Finds That Motorola Mobility Infringed EU Competition Rules by Misusing Standard Essential Patents (Apr. 29, 2014); European Commission Press Release IP/14/490, Antitrust: Commission Accepts Legally Binding Commitments by Samsung Electronics on Standard Essential Patent Injunctions (Apr. 29, 2014).
On April 29, 2014, the EC launched a press release communicating its decision in the Motorola v. Apple case.75European Commission Press Release IP/14/489, supra note 74. The EC considered that Motorola, the SEP owner, was abusing its dominant position against Apple, the implementer, by seeking an injunction as remedy for infringement.76Id. The EC held that seeking an injunction may constitute an abuse of dominant position within the meaning of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”),77Article 102 of the TFUE establishes the following: “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.” Consolidated Version of the Treaty on the Functioning of the European Union art. 102, June 7, 2016, 2016 O.J. (C 202) 89. if the implementer is “willing to enter into a license agreement on . . . FRAND terms.”78European Commission Press Release IP/14/489, supra note 74. Although the requirements needed for a licensee to be willing were not set forth clearly, declaring its willingness to take a license appeared sufficient for the licensee to avoid an injunction, independently of whether the licensee was actually willing to conclude the licensing agreement.
Also on April 29, 2014, Samsung publicly committed not to seek an injunction against any company willing to enter a licensing agreement “[t]o address the Commission’s concerns.”79European Commission Press Release IP/14/490, supra note 74 (“Samsung has for a period of five years committed not to seek any injunctions in the European Economic Area (EEA) on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets against any company that agrees to a particular framework for licensing the relevant SEPs.”). In principle, Samsung’s commitments were limited to the proceedings concerning their own patented technology. However, they were regarded by the Commission as legally binding as well as a “safe harbour” for all potential licensees. Id. Indeed, such commitments followed the preliminary view of the EC made in December 2012, that “[w]hile recourse to injunctions is a possible remedy for patent infringements, such conduct may be abusive where SEPs are concerned and the potential licensee is willing to negotiate a license on Fair, Reasonable and Non-Discriminatory (so-called ‘FRAND’) terms.”80European Commission Press Release IP/12/1448, Antitrust: Commission Sends Statement of Objections to Samsung on Potential Misuse of Mobile Phone Standard-Essential Patents (Dec. 21, 2012). In its 2014 press release, the EC also stated that “the seeking of an injunction based on SEPs may constitute an abuse of a dominant position if an SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and where the company against which an injunction is sought is willing to enter into a license agreement on such FRAND terms.”81European Commission Press Release IP/14/490, supra note 74.
B. German Courts’ Approach Prior to Huawei
The views expressed by the EC in the Motorola and Samsung investigations seemed to contradict the previous position held by the German Bundesgerichtshof (“Federal Court of Justice”) in its judgment of May 6, 2009, in the Orange-Book-Standard case.82Bundesgerichtshof [BGH] [Federal Court of Justice] May 6, 2009, KZR 39/06, juris (Ger.), https://perma.cc/DTQ9-33B5. The Federal Court of Justice considered that seeking a prohibitory injunction should only be regarded as an abuse of dominant position under the following conditions: (1) the implementer must have made an unconditional offer to conclude a licensing agreement which could only be refused by acting in a discriminatory manner; and (2) if the implementer was already using the patented technology, it must have complied with the obligations ordinarily imposed if a license were concluded.83Id. ¶ 29. In particular, the implementer must render accounts of its past use and satisfy the resulting payment obligations.84Id.
In view of this conflict, the Düsseldorf Regional Court, in a case involving two Chinese companies (Huawei and ZTE) where an injunction was sought regarding an SEP for which a FRAND commitment was made, stayed its proceedings and submitted a reference for a preliminary ruling under Article 267 of the TFEU to the CJEU.85Landgericht Düsseldorf [LG] [Düsseldorf Regional Court] Mar. 21, 2013, 4b O 104/12, justiz-online (Ger.) https://perma.cc/6ZC4-UEGP. The decisions of the court are binding on the EC as well as on the national courts of the European Union.86See Alberta M. Sbragia, The European Community: A Balancing Act, 23 Publius 23, 29–35 (1993).
Apart from questions regarding the requirements for establishing abuse of market dominant position,87Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶ 39 (July 16, 2015). the Düsseldorf Regional Court sought clarification on the requirements (or lack thereof) enunciated by Article 102 of the TFEU on willingness to negotiate.88Id. Particularly, it asked whether an oral statement of willingness is enough, or some further action from the infringer is required.89In particular, it asked whether the infringer “must . . . already have entered into negotiations by, for example, submitting specific conditions upon which it is prepared to conclude a licensing agreement.” Id.
C. Advocate General Opinion
Against this background, the Advocate General delivered an opinion in Huawei v. ZTE, pondering on the questions posed for preliminary ruling by the Düsseldorf Regional Court.90Opinion of Advocate General Wathelet, Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2014:2391, ¶¶ 40–46 (Nov. 20, 2014). The Advocate General considered the commission’s interpretation of willingness in the Motorola and Samsung cases as lacking in precision. In his view, merely requiring the infringer to be willing to negotiate should not be sufficient to preclude an SEP owner from seeking an injunction.91Id. ¶ 50. In fact, the Advocate General argued that to be regarded as a willing licensee, an infringer must be “objectively ready, willing and able to conclude . . . a licensing agreement.”92Id. ¶ 98. As a way of showing itself to be ready to conclude a license, the infringer may need to provide a bank guarantee or a deposit for the payment of future and past royalties. Id.
According to the Advocate General’s understanding, neither the Orange-Book-Standard approach, nor the one taken in the Motorola and Samsung cases were optimal. While the former would over-protect the SEP owner to the detriment of the implementer, the latter would under-protect the SEP owner in favor of the infringing user of the SEP.93See id. ¶ 51. As the Advocate General explained:
[P]lacing reliance only on the alleged infringer’s mere “willingness to negotiate” would result in pricing which falls well below the true economic value of the SEP. Conversely, placing reliance on the case-law established by the Bundesgerichtshof in Orange-Book-Standard would create the opposite problem, in that the license royalties imposed would be very high (though not so high as to constitute a refusal to conclude a contract, in breach of Article 102 TFEU).94Id. ¶ 51 n.19.
Therefore, the Advocate General advocated for finding “a middle path.”95Id. ¶ 52. He also suggested the establishment of a “framework of ‘rules of good conduct’” to determine whether parties negotiating FRAND licenses are willing or not.96Id. ¶ 11. Subsequently, the CJEU followed the Advocate General’s suggestion in the Huawei v. ZTE judgment.97Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶ 71 (July 16, 2015).
D. The CJEU Position
The Huawei judgment is a landmark decision in SEP litigation, modifying the way courts and the EC approach the matter by striking a fair balance between the SEP owner and the implementer’s opposing interests.98See Stephan Waldheim, Huawei v. ZTE Five Years After—Luxembourg Locuta Causa Finita?, 11 J. Eur. Competition. L. & Prac. 181, 187 (2020). In its decision, the CJEU clarified that an SEP owner who has made a FRAND commitment might abuse its dominant position, within the meaning of Article 102 of the TFEU, by bringing an action for infringement seeking an injunction in some circumstances.99Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶ 53 (July 16, 2015). However, it also emphasized that “in principle, the [SEP] proprietor may not be deprived of the right to have recourse to legal proceedings to ensure effective enforcement of his exclusive rights.”100Id. ¶ 58.
One of the most important contributions of the Huawei judgment is the establishment of a framework for SEP owners and implementers to show they are acting in good faith. Not adhering to the introduced guidelines may result in either the grant or refusal of a prohibitive injunction in favor of the SEP owner and against the implementer.101Herranz & Tapia, supra note 29, at 55–57. However, courts have rightly understood said guidelines as establishing a “safe harbor” for the parties involved in negotiations, rather than as strict rules.102Hof’s-Gravenhage 2 juli 2019, 2020, ECLI:NL:GHDHA:2019:3613, ¶ 4.14 (Koninklijke Philips N.V./Wiko SAS) (Neth.), https://perma.cc/VXT4-EFVL; Landgericht München [LG] [Munich Regional Court] Sept. 10, 2020, 7 O 8818/19, ¶ 144, gesetze-bayern (Ger.), https://perma.cc/TS8R-NYF7.
An SEP owner behaving in good faith, and thus, preserving the possibility to access injunctive relief, should: (1) notify the alleged infringer of the infringement, specifying the SEP and how it was infringed; and (2) once the alleged infringer has expressed its willingness to conclude a FRAND agreement, submit a written and specific offer that stipulates the royalty amount and the way it is to be calculated.103Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶¶ 61–63 (July 16, 2015).
For alleged infringers to be regarded as willing and avoid injunctions, they should: (1) express their willingness to conclude a licensing agreement on FRAND terms once they have been notified of the infringement; (2) diligently respond to the offer made by the SEP owner, in accordance with commercial practice, in good faith, and refraining from delaying tactics; (3) in the event they do not agree with the patent owner’s offer, submit promptly and in writing a specific FRAND counter-offer; and (4) if the counter-offer is rejected, provide appropriate security in accordance with commercial practice, for example, by providing a bank guarantee or a deposit.104Id. ¶¶ 65–67.
Source: 4iP Council, National Courts Guidance105National Courts Guidance, 4iPCouncil, https://perma.cc/TJP7-ZUQZ.
In Huawei, the commercial practice aspect plays a key role as it is the lens through which parties’ conduct is assessed. In particular, the steps set by the CJEU encourage alleged infringers to behave “in accordance with recognised commercial practices.”106Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2015:477, ¶ 65 (July 16, 2015). On the other hand, national courts have interpreted Huawei by considering that SEP owners’ conduct should also be examined in the light of recognized commercial practices.107See National Courts Guidance, supra note 105.
By establishing such a well-balanced framework, the Huawei judgment successfully found the middle path suggested by the Advocate General between the contrasting positions held in the Motorola, Samsung cases and the Orange-Book-Standard. The Huawei judgment embodies the European view on willingness and has led to a harmonized and balanced treatment of injunctions for SEPs.
E. The EC’s New Position Following Huawei v. ZTE
Following the CJEU ruling in Huawei v. ZTE, the European political institutions gradually changed from a focus on hold-up to a more balanced position that recognized the symmetrical threat of strategic behavior by both SEP owners and implementers. In 2016, the EC released a communication entitled “ICT Standardisation Priorities for the Digital Single Market,” in which it identified the need for “a balanced IPR policy, based on FRAND licensing terms.”108Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, ICT Standardisation Priorities for the Digital Single Market, at 13, COM (2016) 176 final (Apr. 19, 2016). In the EC’s view, a beneficial licensing approach to SEPs would be one that guarantees a fair reward for SEP owners in return for their innovative efforts, while simultaneously ensuring fair access to SEPs for implementers.109See id. In the same year, the European Parliament emphasized the importance of SEPs and FRAND “to preserve R&D and standardisation incentives, foster innovation and ensure fair licensing conditions.”110Resolution of 26 May 2016 on the Single Market Strategy, Eur. Parl. Doc. 2015/2354(INI), 2018 O.J. (C 76) 112, 120. Also, the Council of the European Union acknowledged the importance of a balanced licensing system to ensure “a fair return on investment for SEPs holders as well as a fair access to SEPs for all players.”111Draft Council Conclusions on the “Digital Single Market Technologies and Public Services Modernisation” Package 8735/16 ¶ 9 (May 17, 2016), https://perma.cc/ZH4G-G9Q2.
As a follow-up to the EC communication on ICT standardization, the EC launched a roadmap for an initiative aiming to tackle some perceived problems concerning SEPs and the European digitalized economy.112Commission Roadmap of Initiative “Standard Essential Patents for a European Digitalised Economy,” Ares(2017)1906931 (Apr. 10, 2017), https://perma.cc/9WPB-QAEG. One of the risks sought to be addressed was uncertainty in SEP enforcement, which could allow for “aggressive licensing practices,” including the use of delaying tactics by implementers to undermine SEP holders’ rights.113Id.
On November 29, 2017, the EC released a communication entitled “Setting out the EU approach to Standard Essential Patents.”114See Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee, Setting out the EU Approach to Standard Essential Patents, COM (2017) 712 final (Nov. 29, 2017) [hereinafter Setting out the EU Approach to Standard Essential Patents]. In its communication, the EC made recommendations concerning the enforcement of SEPs based on the framework established in Huawei v. ZTE and the further guidance provided by national courts.115See id. at 9–10. By considering the Huawei judgment as the reference for courts to enforce SEPs, the EC recognized the reciprocal obligations of parties involved in FRAND licensing.116Spyros Makris, The European Commission’s Communication on Standard Essential Patents: A Step Forward Towards the Digital Single Market and the Internet of Things? 10 Geo. Mason J. Intʼl Com. L., no. 2, 2019, at 1, 17–18. Coherently, the EC addressed hold-out risks too by stating that the amount of security to be provided by the SEP user should be set “at a level that discourages patent hold-out strategies.”117Setting out the EU Approach to Standard Essential Patents, supra note 114, at 10. A balanced approach was also taken regarding injunctions. The EC referred to injunctive relief as a means of protecting SEP owners against unwilling infringers, while stressing the need for safeguards against the threat of an injunction potentially driving SEP users to accept royalties that are not FRAND.118See id. at 9.
V. European Courts’ Application of the CJEU Ruling Regarding Willing Licenses
Following the Huawei judgment, national courts have interpreted the CJEU framework for “rules of good conduct,” which has provided stakeholders with further guidance on the topic of willingness.119For a comprehensive guide regarding the decisions provided after the Huawei judgement, 4iP Council, a European non-profit organization focused on high quality academic insight and empirical evidence on intellectual property and innovation, provides an exhaustive compilation of case law. See Case Law Post CJEU Ruling Huawei v. ZTE, 4iPCouncil, https://perma.cc/4K44-9FJW. To present a clear picture of the European courts’ view on willing licensees, their most relevant decisions are explained below. First, a general overview of the guidelines to assess willingness is given. Second, the particular elements concerning said guidelines are discussed.
A. General Guidelines on Willing Licensees
Even though there is no commonly agreed standard amongst European courts to assess willingness, courts have developed some general guidelines on the matter. In this respect, the High Court of Justice in England (“EWHC”) provided one of the most relevant contributions in Unwired Planet International Ltd. v. Huawei Technologies Co.120 EWHC (Pat) 711 (Eng.). According to the EWHC, “a willing licensee must be one willing to take a FRAND license on whatever terms are in fact FRAND.”121Id. at .
Following this principle, the Federal Court of Justice in Germany122Even though the requirement of a “clear” and “unambiguous” declaration was first introduced by the Federal Court of Justice in Germany, other European Courts have also made similar statements. See Hof’s-Gravenhage 2 juli 2019, 2020, ECLI:NL:GHDHA:2019:3613, ¶ 4.13 (Koninklijke Philips N.V./Wiko SAS) (Neth.), https://perma.cc/VXT4-EFVL; Landgericht München [LG] [Munich Regional Court] Sept. 10, 2020, 7 O 8818/19, ¶ 125, gesetze-bayern (Ger.), https://perma.cc/TS8R-NYF7. requires a willing licensee to: (1) “clearly” and “unambiguously” declare its willingness to conclude a FRAND agreement and (2) engage in licensing negotiations in a “target-oriented” manner.123Bundesgerichtshof [BGH] [Federal Court of Justice] May 5, 2020, KZR 36/17, ¶ 83, juris (Ger.), https://perma.cc/S3MZ-DXQS; Landgericht Mannheim [LG] [Mannheim Regional Court] Aug. 18, 2020, 2 O 34/19, 49 (Ger.), https://perma.cc/R9Y9-3TMH; Landgericht München [LG] [Munich Regional Court] Sept. 10, 2020, 7 O 8818/19, ¶ 125, gesetze-bayern (Ger.),
https://perma.cc/5W55-2YGZ; Landgericht München [LG] [Munich Regional Court] Oct. 23, 2020, 21 O 11384/19, ¶ 149, gesetze-bayern (Ger.), https://perma.cc/PDW7-QVMX; Bundesgerichtshof [BGH] [Federal Court of Justice] Nov. 24, 2020, KZR 35/17, ¶ 57, juris (Ger.), https://perma.cc/H65X-LJ3T.
One key aspect highlighted by the Federal Court of Justice and adopted by the subsequent case law in Germany is that a holistic perspective regarding the assessment of willingness is needed. In the words of the Regional Court of Munich in the Conversant v. Daimler case,12421 O 11384/19. “the assessment of willingness requires a comprehensive analysis of all facts until the end of the oral hearings in the infringement proceedings.”125Conversant v. Daimler, Regional Court (Landgericht) of Munich I, 4iPCouncil, https://perma.cc/KH2L-MHWL; 21 O 11384/19, ¶¶ 150–153. In particular, it is not enough to focus only on the behavior of the alleged infringer directly after receiving a notification of infringement.126See 7 O 8818/19, ¶¶ 95, 131; KZR 35/17, ¶ 77 . Instead, the implementer’s entire conduct should be considered, including during licensing negotiations, if any, while court proceedings are pending.127See KZR 35/17, ¶¶ 102–104.
German courts have found that the behavior of the licensee after being sued is also relevant in assessing willingness since there is still a possibility to remedy flaws at this stage, for example, to rectify an initial lack of willingness. In fact, the Higher Regional Court of Karlsruhe, in a case between IP Bridge and HTC, almost solely considered the parties behavior after the end of the first instance trial and during the appeal proceedings.128Oberlandesgericht Karlsruhe [OLG] [Higher Regional Court of Karlsruhe] Nov. 25, 2020, 6 U 104/18, ¶¶ 118–119, dejure (Ger.) https://perma.cc/7EAV-Q5R3. However, as the trial progresses, the conditions to show willingness become increasingly more strict.129See 7 O 8818/19, ¶ 95. In this regard, the Regional Court of Munich determined, for instance, that counteroffers made during infringement proceedings should, under certain conditions, not be considered in assessing willingness.130Id. ¶ 131. Otherwise, implementers would be allowed to negotiate “pro forma” without actually being willing, and then pull the “emergency brake counter-offer” to avoid being held liable in trial.131Landgericht München [LG] [Munich Regional Court] Oct. 23, 2020, 21 O 11384/19, ¶ 151, gesetze-bayern (Ger.), https://perma.cc/PDW7-QVMX.
Similarly, the Hague Court of Appeal did not consider a counteroffer made by the implementer after the start of the proceedings.132Hof’s-Gravenhage 2 juli 2019, 2020, ECLI:NL:GHDHA:2019:3613, ¶ 4.20–.21 (Koninklijke Philips N.V./Wiko SAS) (Neth.), https://perma.cc/VXT4-EFVL. In the court’s view, a counteroffer not made with due diligence and speed should not prevent the SEP owner from seeking an injunction.133Id.
B. The Unwilling Licensee as Defined in the Case Law
Overall, the different actions by implementers taken into account by European courts in the assessment of willingness refer either to “formal” elements of the declaration of willingness (“clear” and “unambiguous”) or the subsequent engagement of the implementer in licensing negotiations (“target-oriented”).134See infra Sections V.B.1 and V.B.2, respectively.
1. “Clear” and “Unambiguous” Declaration
For a declaration of willingness to be considered “clear” and “unambiguous” when responding to a notification of infringement, it is not sufficient to (i) merely demonstrate willingness to consider signing a license or (ii) enter into negotiations about whether and under which conditions taking a license would come into question.135Landgericht Mannheim [LG] [Mannheim Regional Court] Aug. 18, 2020, 2 O 34/19, 49, (Ger.), https://perma.cc/R9Y9-3TMH. Instead, the implementer should declare its willingness to actually conclude a FRAND license.
Furthermore, such a declaration cannot be made subject to any condition.136Bundesgerichtshof [BGH] [Federal Court of Justice] May 5, 2020, KZR 36/17, ¶ 96, juris (Ger.), https://perma.cc/S3MZ-DXQS. For example, in the Sisvel v. Haier case, the Federal Court of Justice in Germany considered the declaration of willingness made by Haier, the implementer, to be insufficient because the signing of the license was made subject to the prior confirmation of the validity and infringement of the patent in suit by German courts.137Id. The implementer preserves, though, the right to contest the validity of the patents at any time before, during, or after the proceedings. Similarly, the Regional Court of Düsseldorf, in the Conversant v. Huawei138Landgericht Düsseldorf [LG] [Düsseldorf Regional Court] Aug. 27, 2020, 4b O 30/18, d-prax (Ger.), https://perma.cc/XKV6-GL7C. case, considered it an indication of the implementer’s “unwillingness” that the signing of a license was made subject to the outcome of two other infringement proceedings in which the SEP owner was involved in the United States against third parties.139Id. ¶¶ 239–241.
Moreover, in Optis v. Apple,140 EWHC (Pat) 2564 (Eng.), https://perma.cc/9ZGH-7AJB. the EWHC concluded that not committing to take the FRAND license determined by the court is a signal of unwilling behavior.141Id. ¶ 17. In this case, even though the court had established that the patent in suit was valid and infringed, the infringer did not commit beforehand to take whatever license the EWHC would eventually consider to be FRAND.142Id. ¶¶ 6, 17. Therefore, a “clear” and “unambiguous” declaration of willingness to conclude a license “on whatever terms are in fact FRAND” was missing.143Id. ¶ 115 (quoting Unwired Planet Intʼl Ltd. v. Huawei Techs. Co.,  EWHC (Pat) 711  (Eng.)).
Another relevant factor of willingness is the timing of the declaration of willingness by the SEP user following the notification of infringement made by the SEP owner. In this sense, the appropriate timing, according to European jurisprudence, is to be assessed on a case-by-case basis. For example, the German Federal Court of Justice pointed out that taking several months to respond to a notification of infringement typically signals a lack of interest in taking a license.144Bundesgerichtshof [BGH] [Federal Court of Justice] May 5, 2020, KZR 36/17, ¶ 92, juris (Ger.), https://perma.cc/S3MZ-DXQS; Bundesgerichtshof [BGH] [Federal Court of Justice] Nov. 24, 2020, KZR 35/17, ¶ 87, juris (Ger.), https://perma.cc/H65X-LJ3T. In Saint Lawrence v. Vodafone,145Landgericht Düsseldorf [LG] [Düsseldorf Regional Court] Mar. 31, 2016, 4a O 73/14, justiz (Ger.), https://perma.cc/YD3S-9EFY. the court understood waiting five months to respond to the SEP owner’s notification of infringement as a delaying tactic.146Id. ¶ 271. In Saint Lawrence v. Deutsche Telekom,147Landgericht Mannheim [LG] [Mannheim Regional Court] Nov. 27, 2015, 2 O 106/14, juris (Ger.), https://perma.cc/BDS9-NWBP. the court even considered a period of over three months to request a license from the SEP owner to be too long.148Id. ¶ 214. In Philips v. Wiko,149Oberlandesgericht Karlsruhe [OLG] [Higher Regional Court of Karlsruhe] Oct. 30, 2019, 6 U 183/16, juris (Ger.), https://perma.cc/LV8B-4DRT. the Higher Regional Court of Karlsruhe declared that the time taken by the implementer to respond should, in that case, not exceed two months after receiving a notification of infringement.150Id. ¶ 115. In this context, one relevant factor courts consider is the information included in the infringement notification. The more detailed it is, courts have assessed, the less time the (willing) implementer requires to respond.151Landgericht Düsseldorf [LG] [Düsseldorf Regional Court] Mar. 31, 2016, 4a O 73/14, ¶ 258, justiz (Ger.), https://perma.cc/YD3S-9EFY. Similarly, the more equipped an implementer is to understand the notification letter, the shorter the period to respond should be.152See 2 O 106/14, ¶ 214.
2. Target-Oriented Engagement in Licensing Negotiations
For the licensee to be considered willing, it must engage in negotiations in a “target-oriented” manner, that is, with the goal of concluding a FRAND license.1536 U 149/20, ¶ 187. The Higher Regional Court of Karlsruhe recently made clear that, in principle, the implementer’s duty to negotiate exists even when the SEP owner’s offer is not perfectly FRAND.154Id. ¶ 193. Only exceptionally, in cases when the SEP owner’s offer could not be objectively considered to be “seriously meant,” the SEP user may not be obliged to react.155Id. ¶¶ 194–195. This target-oriented engagement is considered by courts to be incompatible with delaying tactics.156Id. ¶¶ 187, 190.
European courts have analyzed implementers’ conduct to identify delaying tactics. Although they may adopt different forms, each of these delaying tactics shares a common goal of stalling negotiations.
For example, in Sharp v. Daimler,157Landgericht München [LG] [Munich Regional Court] Sept. 10, 2020, 7 O 8818/19, gesetze-bayern (Ger.), https://perma.cc/5W55-2YGZ. after being approached for a licensing negotiation, the SEP user referred the SEP owner (Sharp) to Daimler’s suppliers.158Id. ¶¶ 136–139. The Regional Court of Munich noted that by doing so, Daimler had failed to negotiate in a “target-oriented” manner.159Id. ¶ 140. Daimler’s defense was based on the fact that in the automotive sector it is common for suppliers, rather than automotive manufacturers, to obtain licenses for car components.160See id. ¶¶ 163–164. However, the court clarified that the SEP owner was not obliged to accept such a practice.161Id. ¶ 164. Rather, because Daimler’s products increasingly use wireless telecommunications technology, the company should accept the prevailing commercial practice in that field, that is, to license at the end-user level, which in this case was Daimler.162Id. Accordingly, the court granted an injunction against Daimler and also ordered the company to pay damages.1637 O 8818/19, ¶¶ 96–99, 115–120.
Another factor to consider in assessing the willingness of SEP users is their attitude towards nondisclosure agreements (“NDAs”).164In principle, refusing to sign an NDA is not per se a sign of unwillingness. However, if the SEP user chooses to do so, the SEP owner is no longer obliged to provide a detailed FRAND offer that goes beyond its confidentiality interests. Oberlandesgericht Düsseldorf [OLG] [Higher Regional Court of Düsseldorf] July 18, 2017, I-2 U 23/17, ¶ 33, justiz (Ger.), https://perma.cc/2ESF-BCBV. In VoiceAge v. HMD,165Landgericht München [LG] [Munich Regional Court] Sept. 9, 2021, 7 O 15350/19, gesetze-bayern (Ger.), https://perma.cc/3PFW-VBB3. the Regional Court of Munich considered that taking eight months to provide input on a draft NDA was a delaying tactic. According to the court, a willing licensee would have proposed amendments to the draft, if any, much earlier.166Id. ¶ 142. In Conversant v. Huawei, the District Court of Düsseldorf interpreted as a sign of unwillingness by the SEP user the fact that it made the continuation of the license negotiations dependent on the conclusion of an NDA around three years after the start of the contract negotiations.167Landgericht Düsseldorf [LG] [Düsseldorf Regional Court] Aug. 27, 2020, 4b O 30/18, ¶¶ 251–257, d-prax (Ger.), https://perma.cc/SJ7R-N6WU.
German courts have also discussed the filing of an antisuit injunction (“ASI”) in connection with the assessment of an implementer’s willingness. An ASI is an order issued by a court in one jurisdiction that restrains a party from initiating or continuing proceedings in other jurisdictions.168Igor Nikolic, Licensing Standard Essential Patents: FRAND and the Internet of Things 217 (2021). By issuing an ASI, courts may force SEP owners not to bring any foreign patent infringement claim until the issuing jurisdiction has resolved the FRAND dispute.169Haris Tsilikas, Anti-Suit Injunctions for Standard-Essential Patents: The Emerging Gap in International Patent Enforcement, 16 J. Intell. Prop. L. & Prac. 729, 730 (2021). As a consequence, German courts explained, SEP owners’ “property-like” rights would be impaired even further than the past and present acts of infringement.170Landgericht München [LG] [Munich Regional Court] Feb. 25, 2021, 7 O 14276/20, ¶ 68, gesetze-bayern (Ger.), https://perma.cc/9F3E-2CBU; Landgericht München [LG] [Munich Regional Court] June 24, 2021, 7 O 36/21, ¶ 25, gesetze-bayern (Ger.), https://perma.cc/HV6Z-7G6D. In this respect, the Regional Court of Munich declared in two separate cases that an implementer that files an ASI, or even threatens to do so, cannot be regarded as a willing licensee.1717 O 14276/20, ¶ 94; 7 O 36/21, ¶ 37. According to the court, an implementer truly willing to conclude a license would not try to undermine the SEP owner’s rights.1727 O 36/21, ¶ 37.
Courts can heavily impact the future of innovation when deciding whether to grant injunctions related to patented technologies essential to a standard. If courts automatically grant injunctions for SEPs, they would tilt the balance in favor of patent owners, who would get overcompensated. This in turn may disincentive investment in the implementation of the standard or lead to higher costs for consumers. On the other hand, should courts deny injunctions without previously considering the conduct of the parties (not only the SEP owner but also the SEP user), the incentives for companies to share their cutting-edge technologies with others, and to have those technologies included within standards would be drastically reduced. This in turn would lead to lower-quality open standards, and to fewer compatible products or services for consumers in the medium term.
While courts should not grant injunctions against willing licensees and SDOs should not encourage it, it is equally necessarily that courts be encouraged to grant injunctions against unwilling licensees and that SDOs’ policies recognize such a conduct as incompatible with the FRAND principles. As shown by the vast case law presented in this Article, without the possibility of an injunction being granted, SEP users would have no incentives to engage in a good-faith licensing negotiation. Instead, they would in all probability engage in delaying tactics until they force the SEP owner to accept a royalty rate “which falls well below the true economic value of the SEP.”173Opinion of Advocate General Wathelet, Case C‑170/13, Huawei Techs. Co. v. ZTE Corp., ECLI:EU:C:2014:2391, ¶ 51 n.19 (Nov. 20, 2014). As a result, SEP owners would have less revenues to reinvest in the next generation of the standard.
To continue the circle of innovation in standardization, companies must be willing to share the patented technology resulting from their investment of billions in research and development. They will not do so if they cannot protect their investments (lacking the possibility of injunctions), and risk facing unwilling licensees and long and costly litigation, to then be undercompensated. In this interconnected world where digitalization is key for the economic success of a country, the United States cannot afford to get it wrong.
This Article has shown the need for a balanced approach versus the granting of injunctions, as well as for guidelines for U.S. courts, legislators and SDOs on what constitutes a willing licensee based on European jurisprudence, which has rendered many insights on this topic. Following these suggestions, nothing stands in the way of U.S. cities getting smarter by the day.