Standard-Essential Patent
The Standard
A standard is a reference document published by a standardization body or a group of such bodies.
Examples include IEEE (which manages standards such as Wi-Fi and networking), ETSI (which manages the GSM standard), and 3GPP (which manages 3G, LTE, and other standards).
A standard describes in detail how a technology operates, specifying mandatory or optional functionalities.
How the Standard Works
In practice, industrial players participate in standardization committees and propose new methods and functionalities to be integrated into the standard (e.g., innovative compression methods, interference management techniques).
These proposals are then discussed within the committee and may (or may not) be included in the final standard (or at least in one of its versions).
Naturally, industrial players’ participation in these committees is not entirely altruistic: they often own patents covering the functionalities they propose.
Declaration of Industrial Property Rights
In most cases (though generalizations are difficult), industrial players participating in standardization committees are contractually obligated to declare all industrial property rights they own that are essential for implementing a standard.
For example, Article 55 of the 3GPP rules states:
Individual Members should declare at the earliest opportunity, any [Intellectual Property Rights] which they believe to be essential, or potentially essential, to any work ongoing within 3GPP. Declarations should be made by Individual Members to their respective Organizational Partners.
Essentiality
A patent is essential to a standard if it is impossible to implement the standard without infringing the patent.
Consider the case where (Paris Court of Appeal, Division 5, Chamber 1, April 16, 2019, Case No. 15/17037) the claim covers a method for selecting a base station in a mobile communication system comprising:
- identifying a poor radio connection between a second base station and a multimode terminal;
- selecting one of the first base stations based on the measurement of at least one base station signal in the multimode terminal.
Now, suppose the standard requires that if a radio connection with quality below a certain threshold is identified, a measurement step as claimed must be performed.
The identification step in the claim is not required by the standard, so it is possible to implement the standard without infringing the patent.
Remuneration of Industrial Players
Depending on the standardization body and the standard, the remuneration of industrial players may vary:
- either parties wishing to implement a standard contact industrial players directly to obtain a license for their industrial property rights,
- or these parties contact the standardization body to pay for a license, with the body then responsible for distributing the license fees among its members (typically based on the number of industrial property titles).
FRAND Terms Principle
Certain standards (increasingly so) require industrial players participating in the standard to grant licenses for their industrial property rights covering the standard under so-called « FRAND » terms.
This means the license must be:
- Fair: the license must not include terms that unduly restrict competition;
- Reasonable: the license fee must not be prohibitive relative to the advantage provided by the inventions covered by the industrial property rights;
- Non-Discriminatory: it is not permissible to refuse to grant a license to a particular third party, even a direct competitor.
Infringement Action
Principle
Since industrial players participating in the standard own industrial property rights, it is reasonable to assume they may bring infringement actions against parties implementing the standard without obtaining a license.
But is it that simple?
Abuse of a Dominant Position?
Indeed, in a 2015 case, ZTE argued that the infringement action brought by Huawei Technologies constituted an abuse of a dominant position on its part, as Huawei Technologies’ demands were disproportionate toward a third party (ZTE) willing to pay for a license but unable to reach an agreement with the rights proprietor.
ZTE contended that Huawei Technologies’ behavior was contrary to Article 102 of the Treaty on the Functioning of the European Union:
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.
Such abuse may, in particular, consist in:
a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions,
b) limiting production, markets or technical development to the prejudice of consumers,
c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage,
d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
Conditions Established by Case Law
The CJEU had to analyze this article in light of the ZTE-Huawei dispute.
In its judgment of July 16, 2015, the CJEU distinguished two types of infringement actions:
- Actions for injunctions or product recalls
- Actions seeking the production of accounting data and damages
Regarding point 1, there is no abuse of a dominant position if, cumulatively:
- prior to bringing the action, the patent proprietor has:
- notified the alleged infringer that one of its actions was potentially infringing by identifying the relevant IP right and specifying how it was being infringed, and
- after the alleged infringer expressed its willingness to conclude a license agreement on FRAND terms, submitted a license offer specifying, in particular, the official fee and its calculation method;
- the alleged infringer, while continuing to exploit the IP right, has not responded to this offer with due diligence, « in accordance with recognized commercial practices in the field and in good faith, » which must be determined based on objective factors and implies, in particular, the absence of any delaying tactics.
In short, as you will have gathered, there is still a great deal of subjectivity involved…
Regarding point 2, the CJEU considers that there is no abuse of a dominant position under any circumstances, as requests for accounting information and damages do not have a direct impact on competition in the commercial sense.