The development of connected automobiles crystallizes the tensions between intellectual property law and competition law that have existed for years, particularly in the area of standard essential patents (SEPs). These SEPs are essential to standards that set the technical specifications defining requirements for products, production processes, services, or test-methods, and which cannot be designed around. European courts, legislatures, and regulatory bodies have been engaging in an evolving debate, often centered on the issue of what constitutes a “fair, reasonable, and non-discriminatory (FRAND)” license.
A typical SEP dispute involves the patent holder suing the user for infringement. In other cases, the user alleges that the SEP holder is violating its market dominant position by not issuing a license on FRAND terms. Courts and competition authorities in Europe haven taken different approaches in protecting the interests of the SEP holder and the user.
In the era of connected automobiles, these questions take on additional importance and complexity given the nature of the supply chain, the number of players involved, and the enormous financial stakes.
Critical issues include the question of what constitutes a willing licensee, what is fair remuneration, and at what level of the supply chain a license should or must be granted. Some of these questions may be answered by the European Court of Justice (ECJ), to which a German court has referred several significant questions, although proceedings could take 18 months to two years to resolve.
Here’s what we’re seeing.
Antitrust Authorities Have Taken a Step Back
- The more complex the supply chains and detailed the FRAND issues at stake, the less relevant is initial case law involving vertically integrated companies and procedural issues.
- The European Commission and the German Federal Cartel Office (FCO) are reluctant to intervene in what they perceive as commercial issues and do not want to act as price regulators.
- European Commission and German FCO have encouraged industry negotiations and mediation as well as recourse to courts.
Courts Have Become Increasingly Involved
- The rising number of SEPs has produced a similar rise in SEP litigation, including invalidity and infringement actions. Within Europe, most of these actions are handled in German courts.
- Between 2018 and 2020, activity related to the automobile industry increased at the EU Commission and in courts particularly in Germany.
- In August 2020, the UK Supreme Court issued a ruling that a UK court can grant an injunction against infringement of a UK SEP patent if the infringer does not take a global license on FRAND terms. The ruling effectively allows a party to obtain a determination on a global license provided a UK patent is contained within a patent portfolio and an intellectual property rights policy is in place.
- In November 2020, the Regional Court of Düsseldorf, Germany, referred a new case to the ECJ. In the action, the SEP holder is seeking an injunction against the OEM for SEP patent infringement. In its referral, the Regional Court asks:
- Whether it constitutes an abuse of a dominant position by the SEP holder if it refuses to grant a license to an automotive supplier, in particular if an obligation exists for the SEP holder to give licensing priority to the supplier of the OEM that manufactures components using an SEP and where such component will be installed in the end-product eventually.
- Whether and to what extent the industry practice for SEP licensing has to be taken into account.
- Whether the scope of such a supplier license would have to be such that the supplied company would in turn require no license, so whether there would be any exhaustion if the patent was licensed upstream of the end-product distributor.
- Whether the refusal to grant a license to a supplier does not constitute an abuse, the court asks whether there are any restrictions on the SEP owner’s decision to initiate injunction proceedings at a specific level of the supply chain.
- Consequences of the referral may include stalling some current negotiations, although the eventual ECJ decision may ultimately create more legal certainty. Other courts may possibly stay or delay their proceedings until the ECJ acts. Decisions by the ECJ may take an average of 18 months before they are delivered.
Regulatory Bodies Are Also Engaged
- The EU Commission published its IP Action Plan in November 2020. The plan appears to continue to favor industry-led solutions to resolve disputes in specific sectors and to keep disputes out of courts. The EU Commission has now issued an expert report on SEP licensing that sets out some ideas on how to address some of the underlying tensions here, including greater disclosure of licensing terms at the standard-setting stage, use of patent pools for licensing, independent third party assessment of essentiality, and use of arbitration to resolve disputes.
- German lawmakers are considering a legislative initiative to modernize patent law. The main pillars of the draft law include a better procedural synchronization between patent infringement proceedings in the civil courts (which take typically one year) and the invalidity proceedings at the Patent Court (which on average take two years). Further, a fiercely debated provision clarifies that the claim for injunctive relief in infringement proceedings shall be excluded if it would lead to disproportionate results.
For more on this topic, check out our recent presentation, “FRAND or Foe? Competition Law and SEP Licensing: Recent Developments in Europe and Their Impact on the Automotive Industry.”