SEP Litigation and Huawei

• Date: 01 December 2017
• DOI: 10.1177/0003603X17735195
• Published date: 01 December 2017

Article

SEP Litigation and Huawei:

Negotiations in the Shadow

of Competition Law

Rupprecht Podszun*

Abstract

In the 2015 case Huawei/ZTE, the Court of Justice of the European Union took one of its rare

opportunities to rule on the interface of antitrust and patent law. The question before the Court was

whether the holder of a standard-essential patent abuses a dominant position by seeking an injunction

against a potential licensee. Regarding a previous line of cases under European law, the Court took a

surprisingly easy solution by forcing the companies to get back to the negotiation table. This may be

attributed to a new methodological balancing approach of the Court. While acknowledging the

problem of patent thickets, the Court restrains the role of antitrust authorities in this field.

Keywords

Huawei; standard-ess ential patents; intell ectual property/antit rust interface; FRAND ; compulsory

licensing

I. Introduction

The judgment of the Court of Justice of the European Union (CJEU) in Huawei/ZTE defines the

antitrust law limits to seeking an injunction against a potential licensee in cases of standard-

essential patents (SEPs). The decision represents a turning point in the clash of intellectual property

and competition law since the Court confines itself to minimum intervention on a good faith basis. The

more outspoken stance of the European Commission in patent law matters is contrasted by the Court

with an approach that favors a negotiation model outside the courtroom. The basis of this approach is a

balancing of interests of the parties involved rooted in the conflict of fundamental rights with antitrust

law. An institutional analysis reveals the path dependencies of this decision. While follow-up litigation

currently takes place regarding the competition defense in patent litigation, at least this case shows that

the problems in intellectual property (IP) law, for example, patent thickets, need a fix from within the

IP law system.

*Civil Law and Competition Law, University of Du¨sseldorf, Du¨ sseldorf, Germany; and Max Planck Institute for Innovation and

Competition, Munich, Germany

Corresponding Author:

Rupprecht Podszun, Civil Law and Com petition Law, University of Du¨ sseldorf, 40225 Du¨ sseldorf, Germany; Max Planck

Institute for Innovation and Competition, 80539 Munich, Germany.

Email: ls.podszun@hhu.de

The Antitrust Bulletin

2017, Vol. 62(4) 786-805

ªThe Author(s) 2017

Reprints and permission:

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DOI: 10.1177/0003603X17735195

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II. The Case

The research question of this article is how the judgment of the CJEU in the matter Huawei Technol-

ogies/ZTE Corp.

1

shapes the European debate of Intellectual Property versus Antitrust. At the heart of

it lies an antitrust story that forms part of the so-called “smartphone wars,” and the CJEU was called

onto the battlefield as a pacifier. The idea that the CJEU held out for the parties is so irritatingly simple

that it may either be read as a stroke of genius or surrender in the fight for reforms of the patent law

system. The Court essentially took the parties back to the negotiation table and refrained from further

intervention.

A. The Facts of the Dispute

These are the details of the battle: Chinese mobile phone giant Huawei holds the European patent EP 2

090 050 B1 for a “method and apparatus of establishing a synchronization signal in a communication

system.”

2

The patent application was filed in 2008; the patent was granted in 2011. The technology is

used for synchronizing signals sent out by a transmitter to a receiver in the mobile communication

environment, essentially by describing how to transform a certain signal in a particularly efficient way

by defining so-called Fourier frequency coefficients that are centrally symmetric. Huawei notified the

patent as “standard-essential” for the LTE standard of mobile phone communication to ETSI, the

European Telecommunication Standardisation Institute. LTE is the Long-Term-Evolution standard of

high-speed wireless communication that the industry agreed to use.

Upon notification by a company, ETSI declares the patent to be standard-essential without a check

of validity or a check how the patent integrates into the standard.

3

This means that according to the

ETSI definitions, no one can make use of the LTE standard without infringing Huawei’s patent (even

though no one has ever ascertained that technologically this is so). In exchange for this declaration of

an SEP, the patent holder, Huawei, agrees to hand out licenses at FRAND terms—fair, reasonable, and

nondiscriminatory.

4

In October 2010, the Chinese mobile phone company ZTE, producing LTE base stations, started to

negotiate with counterparts at Huawei for cross-licensing since ZTE thought it holds patents in LTE

that Huawei needs to ascribe to. After six months, the negotiations failed; and in April 2011, Huawei

filed a patent infringement action against ZTE in the Du

¨sseldorf Regional Court, claiming an injunc-

tion against ZTE.

5

Two Chinese companies battling for patent violation in Du

¨sseldorf is not an exception; the specia-

lized chambers of that court are seen as world leaders for patent rulings, and jurisdiction was estab-

lished since ZTE sold its base stations also in Germany. Confronted with Huawei’s patent infringement

claim, ZTE relied on an antitrust defense: For the holder of an essential patent like Huawei, said ZTE,

it constitutes an abuse of monopolistic power to claim an infringement injunction in court.

B. The Legal Issues

Such a violation of Art. 102 of the Treaty on the Functioning of the European Union (TFEU),

6

a central

EU antitrust provision, would render the claim unlawful. In the dispute, the existence of a monopoly

1. Case C-170/13, Huawei Technologies v. ZTE Corp. ECLI: EU: C:2015:477 (hereinafter, Huawei/ZTE).

2. The patent may be researched in the EPO database, cf. https://worldwide.espacenet.com/? locale¼en_EP.

3. Cf. Annex 6 of the ETSI Directives, Rules of Procedure, No. 4 and 6, portal.etsi.org.

4. For an analysis of SEPs, SSOs, and FRAND, see John D. Harkrider, Seeing the Forest Through the SEPs,27A

NTITRUST 22

(2013).

5. Landgericht Du

¨sseldorf (German Regional Court), 21 March 2013, Case 4b O 104/12, GRUR Int. 547 (2013).

6. Art. 102 TFEU:

Podszun 787