Is dominance the missing piece of the Huawei puzzle?

di Emanuela Arezzo *

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* Ricercatore universitario, Università di Teramo.

Introduction

A standard-essential-patent is not just like any other patent. As the very same name implies, it is a patent insisting on a teaching, often a sliver of technology, that forms a standard[1]. Sometimes standards emerge de facto, as a result of a natural process within the market whereby consumers gradually gather all around the same product, igniting a vicious circle whereby the more consumers choose the item, the more other consumers will find it advantageous to use the same product (so called direct network effect), and this in turn will lead firms active in adjacent markets to produce standard-compatible products (so called indirect network effect)[2]. Some other times, public authorities of different kinds (at national, European or international level) can dictate the adoption of certain technical specifications by product manufacturers: so called legal standards. Eventually, in other occasions, market participants themselves recognize the importance to elicit together a standard to be commonly adopted within the industry[3]. Although not legally binding, conformity to such standards becomes extremely valuable to manufacturers willing to produce standard-compatible devices, as their products would be far less appealing to consumers (think of a new generation smart-phone only capable of connecting to GSM technology)[4]. In such cases, standardization becomes a complex process which takes place within so called standard setting organizations (i.e. SSO) [5].

In all of the three examples, when a certain technology becomes the - or is chosen to be a --standard, such a determination has generally the effect of excluding the existing competing alternatives from the market. And indeed, while many technologies initially compete for the market, once one of them emerges the others are driven off, as all producers of standard-compliant products will find it more convenient - in case of a de facto standard - or will be forced - in case of legal standard or standard chosen by a SSO, when no other feasible alternatives do exist - to implement the standard technology[6]. Access to the standard becomes then essential to compete both in the markets of standard-embedding products and in the (related) markets for standard-compatible devices or tools, which must be fully interoperable and functional  with the standard product or technology. This means that proprietary control - thanks to IPRs - on such technologies becomes the key to rule the market(s). From this comes the specialty of the SEP or standard essential IPRs in general. Unlike any other patents competing in a market where many alternative technological solutions often exist, an IPR whose underlying fragment of technology happen to become part of a standard has just won the lottery game, as the exclusive control on the standard will not only allow his owner to conquer the (first) market for the product elicited as standard (think for example of the market for operating system for the personal computer in the Microsoft case), but it will further vest the IPR holder with a strategic weapon to either conquer the downstream markets of standard-compatible products or to receive a huge flood of licenses from firms willing to operate in such markets, as all manufacturers will need a license from the IPRs insisting on the standardized product or technology[7].

This second aspect is exacerbated in the sectors, like the telecommunication industry for example, where it is often possible to dissect, on the one side, a(n upstream) market where there standard is not in itself an end product to be sold to consumers - like in the EU Microsoft case, where the very same browser was a standard - but is just a technology (think for example of the 4G technology); and, on the other side, a set of (downstream-)related markets of products embedding the technology (cellular phones, smartphones and tablets for example). In this case, the peculiarity is given by the fact that the perspective is reversed. Differently from the case where the standard itself involves an end product, hence a first relevant product market, and access to the standard is necessary to penetrateancillary downstreamproduct markets (think about the media-player market, as ancillary market of the operating system market), in the latter scenario the markets of product incorporating the standard ("standard-embedding products" and not "standard-compatible devices") can only improperly be defined "downstream" or "ancillary" markets, as they represent the mainstream source of revenues even for firms active in the upstream technology markets (for example, a smart phone cannot surely be deemed an "ancillary" product with regard to the upstream technology market concerning the 4G communication technology).

Now, technology markets are populated by two types of firms: i) firms (solely) active in such (upstream) markets, whose goal is profit maximization throughout licensing of the technology, and ii) vertically integrated firms also active both in the upstream technology market and in one (downstream-) related market, deriving majority of profits from the sale of the end products in the latter market[8]. In both cases, firms competing in technology markets seem often to prefer to create and join ad hoc private organizations (the above mentioned SSOs) to elicit the technology to be implemented as standard within the market, often trying to influence the emergence of a certain technology over a competing one and rightly so. Differently from the case of IPRs which happen to insist on a product which emerges as de facto standard, whose commercial success on the market depends on a vast array of unforeseeable circumstances, and it is ultimately dictated by consumers' preferences, SEPs insisting on technologies which market players elicit as standard become all of a sudden, and not necessarily because the technologies really are the best ones, winning cards, as a huge flood of licenses will come worldwide[9]. Because of the standard, the holder of the patent will suddenly find himself with a strong contractual position on the market vis-à-vis manufacturers of standard-embedding products (so called "implementers") whom he might threaten to leave out of the market should they not accept his licensing terms and conditions[10]. These problematic situations (often referred to as patent hold-up)[11] exerts a direct negative impact on consumers as well, because they will have to bear higher prices for products which are standard compatible, as manufacturers will pass on consumers the mark-up paid on the royalty[12]. Moreover, if hold-up actually occurs, there is a risk not only that confidence in the overall standard setting process will be undermined, but also that manufacturers' ability to compete in the market of standard-compatible devices will be sensibly impaired, again to the detriment of both downstream competitors and consumers in terms of a lessening of innovation should their products abandon (or never enter) the market[13].

Moreover, given the circumstance that, like in the Huawei case, a standard is often covered by thousands of patents all insisting on small fragments of technology composing the overall standard, and that therefore all these patents are "perfect complements", meaning that implementers need access to all essential IPRs in order to produce a product incorporating the standard, a subsequent royalty stacking problem might well arise. And indeed, according to established economic theory, when multiple owners of complementary items, all being essential inputs to a final product, can set prices for such inputs independently, the overall price to be paid from the manufacturing firm for the production of the final product will be so high that it might be no longer appealing, in economic terms, for the latter to make it[14].

Incentives for hold-up may be particularly strong when the SEP holder is a vertically integrated firm also active in the downstream market of standard-compliant products and the implementers are his competitors in such markets[15], as such a scenario presents a win-win situation for the former given that he will benefit either - if not more - from the exclusion of his competitors from the market or from the supra-competitive royalties he will be able to extract. It is not a coincidence, therefore, that the so called smartphone wars actually begun right when new players, which were not part of any standardization consortium, hence did not possess any SEPs, entered the (related) markets of smartphone and tablets (Apple) and operating systems running on such devices (Google and Microsoft): items which would all require access to standard technologies[16].

1. The obligation to disclose patents and to enter FRAND commitments

In order to avoid opportunistic behaviours by SEP holders, both in the phase before the standard has been selected and after[17], many SSOs have adopted detailed IPRs policies which compel their members to i) timely disclose the holding of patent(s) that might insist on a technology considered to be chosen as standard or to be further developed to become a standard; ii) endorse a duty to license such rights, to whomever interested, on fair, reasonable and non discriminatory conditions (so called FRAND terms)[18]. The duty to disclose should eliminate the risks of so called patent ambush, as it happened in the Rambus case[19], while the commitment to license should eliminate the risk that the SEP holder incurs in unfair and abusive conduct. In fact, the requirement of fairness and reasonableness clearly aims at preventing exploitative unilateral abuses in the form of excessively high royalty rates and unfair trading conditions[20], which the SEP holder might try to impose on third parties, and the element of non discrimination clearly implies a duty not to apply dissimilar conditions to equivalent transactions: i.e. not to discriminate in setting licensing conditions and royalty rates among different implementers [21]. While it is dubious whether such obligations can refrain strategic behaviours of firms overstating the essentiality of their right to the standard[22], especially in the case of low quality patents, the obligation to license at FRAND terms clearly curtails good portion of the excluding powers stemming from patent rights, as SEP holders basically accept the fact that they cannot refuse licensing their rights to third parties[23].  

Having said this, on the nuances of such contractual obligation and its corollaries much remains to be said. Academics tend to disagree on how strongly - or weakly - should this contractual obligation be interpreted and in particular on whether, together with her right to exclude in general, the SEP holder should be deemed to have implicitly waived also her right to enforce preliminary measures, such as preliminary injunctions, in the case negotiation regarding the FRAND license should break down[24]. It must be stressed, indeed, that SSOs have a very limited power when it comes to enforce the obligation to license on FRAND terms[25]. Should the FRAND commitment not be honoured, often the only thing a SSO can do is changing the standard's specification in a way to avoid the infringement of the essential patent[26], but this threat has not a strong dissuasive power against the SEP owner, as he knows that manufacturers who have already invested huge sums in the production of standard-embedding products are already locked-in to her technology[27].

These are indeed precisely the circumstances at issue in theHuaweicase where the SEP holder, incapable of reaching an agreement on FRAND terms with the manufacturer of the standard-compatible product ZTE, and having the latter nonetheless commenced production and distribution of his products, asked for a preliminary injunction (together with recall of products and damages). From this, the questions posed before the Court of Justice of the European Union which all evolve around the issue of whether a SEP holder, who has voluntarily agreed to license her essential patent(s) on FRAND terms, may exercise her right, normally legitimate, to ask for a preliminary injunction to defend her patent rights or whether, given the specific circumstances of the cases - i.e. being the holder of a SEP and not just a normal patent and having committed to license on FRAND terms - such conduct might be deemed an abuse of dominant position pursuant to art. 102 of the Treaty, on the assumption that holding a SEP confers a position of dominance to his owner.

Clearly, striking a proper balance of the interests at issue is not an easy task. Granting SEP holders an unconstrained power to use preliminary injunctions towards the alleged infringers, when the former has compelled to license her technology on FRAND terms to whomever desires one, might seem nonsensical as the former would practically be in a position of keeping implementers off the downstream market, a scenario which runs counter the very same purposes of the standardization process[28]. While this scenario seems unlikely to happen, as generally the breaking of FRAND obligations by the SEP owner takes place when manufacturers have already incurred substantial production costs to accept to be cut off the market, the right to seek a preliminary injunction would tilt the balance way too much in favour of the former, increasing her bargaining power in the negotiation[29]. As SEP holder know, indeed, that implementers are locked-in to the standard, and the only way to recoup the sums invested in production is by selling the standard-embedding products, the former can use the preliminary injunction as a bargaining tool to threaten to leave them out of the market should they not accept the proposed contractual terms: hence, forcing implementers to pay much higher royalties they would accept to pay otherwise, far in excess of the holder's true economic contribution[30]. This even more so because technological products are subject to fast moving obsolescence, which confines their life span into quite narrow temporal boundaries. This latter factor exerts a strong impact as well on the manufacturer negotiating power, making it even weaker, as they know that the longer it takes to conclude the bargain, the bigger are going to be the losses in sales[31], as there is less time before a new product will be launched onto the market[32].

On the other side, however, as the Advocate General pointed out, together with the German Supreme Court, a blunt compression of such a right (i.e. the right to file for a preliminary injunction) would risk tilting the balance in the opposite direction[33], unduly favouring the contractual position of the infringer[34]. The latter, indeed, knowing that the SEP holder has her hands tied, could start commercialization right away and push the boundaries to negotiate a very low royalty rate (the phenomenon known as "patent hold-out"[35] or "inverse patent hold-up"[36]). And indeed, a bad faith implementer may simply engage in dilatory tactics just to simply not pay the royalties, adducing that the terms are not FRAND[37].

2. The CJEU ruling

Torn between the complexities of the German "Orange book test", strongly favouring patentees' interests[38], and the more straightforward "willining licensee" test adopted by the EU Commission in the Motorola case[39], which clearly sided for manufacturers of standard-embedding products, the CJEU seems to have endorsed an approach closer to the latter,[40] by ruling that the conduct at issue should not be regarded as abusive if the SEP holder has duly informed the manufacturer of the alleged infringement before commencing the action and the implementer has immediately demonstrated his willingness not to enter the agreement[41] or has engaged in dilatory tactics[42]. On the contrary, seeking a preliminary injunction by the SEP holder might be regarded an abuse when the latter is clearly asserting his right against a willing licensee[43].

While it is clear that the Court did not intend to adopt the legal technicalities put forward by the German Courts (for example about the offer to be unconditional and not containing specific clauses, such non challenge clauses), the judgement strikes the attention for being peculiar at best. And in fact rather than setting a clear cut principle to determine if seeking an injunction against the manufacture and commercialization of standard-compliant products by a SEP holder is or is not an abuse of dominance, the Court has dictated a sort of best practices of how negotiations should be conducted, by placing upon each party time-specific obligations the completion of which shifts the burden on the counter part[44]. Therefore, a first informational duty lies on SEP holders: they must alert the (supposedly good faith) infringer, specifying which essential patent has been violated and how it has been infringed upon[45]. A obligation which finds its rationale in the circumstance that standard technologies in tele-communication sector are normally protected by a vast array of IPRs, so many that it could actually happen that the manufacturer is not aware of that specific infringement[46]. Once the SEP holder has informed the alleged infringer, it is upon the latter to declare that he is willing to enter a licensing agreement on FRAND terms. Again, once this second step has been accomplished, it is again the SEP holder's turn to make a move: namely, SEP holders are encumbered with the obligation to make the first offer on FRAND term, specifying the amount of the royalty and the way for it to be calculated[47]: an obligation which again seems reasonable, given the fact that on the one side the SEP has a contractual obligation to do so and, on the other side, she surely is on a better position to set the royalty rate[48] and make a proposal[49]. Once the offer has been made, it is for the implementer to behave diligently and either to accept the offer or to respond by presenting another counter-offer on FRAND terms[50]. Should the parties not find an agreement on the details of the FRAND terms, the CJEU suggest that they might resort to an independent third party who, by common agreement, would be asked to determine the appropriate amount of the royalty [51].

 

In conclusion, aside from all these behavioural obligations, it seems from a first reading of the judgement that SEP holder can recur to preliminary injunction (to block the infringement of their patents), without it being an abuse of dominant position, only in case there is clear evidence that the implementer is acting in bad faith and has engaged in dilatory tactics[52]. Other than this limited set of circumstances, which all depend on the counterpart's behaviour, the filing of a preliminary injunction by the SEP holder will amount to an abuse of dominance: this even in the cases where production and commercialization of the infringing products has already taken place. And indeed, even if the Court admits that "in principle, the user of those rights [i.e. the essential IPRs], if he is not the proprietor, is required to obtain a license prior to any use"[53], not only she justifies a compression of the right to have recourse to legal proceedings to ensure effective enforcement of the exclusive rights, but she clearly avails ex post agreements, when the infringement has already occurred[54]. In the latter circumstances, however, the Court requires the implementer to provide "appropriate security", according to what is customary to industry practice, and requires him to be able to "render account" of the number of past uses of the technology[55].

3. Compression of SEP rights and exceptional circumstances

In the reasoning of the Court, the circumstance that SEP holders detain exclusive control on a resource which is essential by definition and not duplicable nor interchangeable because market leaders have chosen so, together with the other circumstance thatSEP holders have entered an obligation to license their technology on FRAND terms to each interested party, thereby creating the legitimate expectation on them that they could access the technology at a reasonable rate, are to be regarded tantamount to the "exceptional circumstances" that featured the well known refusal to deal cases involving IPRs[56]. In those cases, the European Courts and the Commission agreed on the fact that although the mere exercise of an IPR, including the refusal to grant access to such right to third parties, was in principle perfectly legitimate, it may nonetheless turn into an abuse of a dominant position when special exceptional circumstances were present[57]. Namely, access to the intangible resource was essential to enter the market, as the IPR subject matter was not substitutable, often thanks to a set of other external market circumstances (mainly network effects), and it prevented new products from being released (i.e. it prevented innovation), to the detriment of consumers[58].

In both line of cases, even if the SEP cases could also be framed as exploitative rather than exclusionary abuses[59] (the category refusal to deals belong to)[60], analogies can be found in the presence of exceptional circumstances to justify the compression of otherwise legitimate exercise of IPRs and constitutional rights of access to Court [61] (in the case of SEP, the legitimate right to fully enforce and defend her right in Court by presenting civil actions and preliminary measures). This to preserve not only competitors' interests but also consumers' welfare which in the refusal to deal cases suffered from a lessening of innovation, while in the SEP case could be damaged by the price increase eventually passed by SEP users on the portable devices sold on the market (more than on the risk that SEP users incapable of finding an agreement would recall their products from the market) [62].

            Despite all these commonalities, however, there is a significant difference between these two set of cases which casts a dark shadow not just on the judgement rendered by the Court but more generally on the antitrust assessment of technological markets. And in fact, the EU jurisprudence on refusal to deal cases, since its very beginning, has always acknowledged a core principle for all cases involving the interaction of the two disciplines (competition law on the one side and intellectual property right laws on the other side): namely, that the mere holding of an IPR is not tantamount per se to a position of dominance in the market. A position that only the presence of exogenous exceptional circumstances and ex post market factors can justify[63]. Quite on the contrary, in theHuaweicase the assumption is exactly the opposite one: meaning that the mere holding of a SEP, because of a set ofendogenousandex antefactors (ie: the standardization process and the obligation to license on FRAND terms), confers dominance upon the holder, a dominance which can be abused if she brings a preliminary injunction for the alleged infringement of her products against a third party who has demonstrated to be interested in negotiating a license in good faith.

Now, despite sympathizing with the position expressed by the CJEU in its judgement, one cannot refrain from asking whether the mere holding of a SEP is really enough to prove dominance. And in fact, while in traditional refusal to deal cases, the market circumstances and factors determining the presence of exceptional circumstances - hence, turning the mere holding of an IPR into a position of dominance - have always been subject to in depth scrutiny by competition agencies, theex ante intrinsicfactors attributing dominancetout courton SEPs have just been taken for granted by the European Court of Justice. An assumption which is perilous at best.

4. SEPs and the assessment of dominance

While the issue was not raised in the preliminary ruling, hence not dealt by the CJEU, the question of whether the mere holding of a SEP can be enough in itself to confer a position of dominance bears a crucial importance in the assessment of these cases as the finding of dominance should be the first step to construe the theory of abuse[64].

There are no doubts that the selection of a patented technology within a standard enhances the value of the patent. As already pointed out, the strong lock-in effects characterizing telecom industries together with the impossibility to design around the standard technology, once it has become standard, will grant SEP holders a stronger bargaining position vis-à-vis implementers, conferring to the former a certain degree of market power[65], intended in economic terms as the power to raise the royalty rates of the licensing agreement (by threatening not to license in the first place)[66].

Under this perspective, it would seem that the SEP holder has the power to behave independently of its competitors, customers and consumers, as enshrined in the European notion of dominance, as his control over a fragment of technology insisting on a small component (the standard) of a much more complex product (for example a smartphone), sold in a separate market (i.e. the market for smartphones), grants him power to successfully threaten implementers' products survival on such market [67]. Moreover, the SEP holder's threat to enforce its patent(s) can determine a direct significant price increase of the final product[68], as experience has shown that often SEP holders have demanded royalties calculated as a percentage of the price of the final product sold in the market (for example a smartphone), despite the fact that their rights insisted on a sliver of technology composing a component of the overall final device[69].

 

The overall considerations just highlighted have led several authors to agree that the mere holding of a SEP is sufficient per se for the firm to be regarded as dominant.[70] Nonetheless, if such enhanced patent value or market power is tantamount to a finding of dominance pursuant to art. 102 of the TFEU[71] is a question to which conflicting answers have been provided[72].

In particular, it seems that the EU Commission is not at all convinced by this theorem. The Guidelines on horizontal cooperation clearly explain that even if the establishment of a standard can create or increase the market power of holders of standard-essential IPRs, "[...] there is no presumptionthat holding or exercising IPR essential to a standard equates to the possession or exercise of market power" and rightly points out that "[…] The question of market power can only be assessed on a case by case basis."[73] Similarly, in the Motorola decision the Commission vividly stated that "[…] the mere ownership of a SEP does not […] in itself equate to dominance" and that other factors had to be taken into account, in particular the circumstance that access to such privately adopted standard (the GPRS technology) had become indispensable for manufacturers of standard-compliant products and the related circumstance that the industry was locked-in to that standard.[74] This is a very important aspect, asprivately electedstandards are binding only to the members of the SSO who have chosen the technology but they are notper secompulsory for all industry participants, unless such standard also becomes ade facto standard.And in fact, otherprivate standardsselected by concurrent SSOs may well emerge and represent valid alternatives.

In the Motoroladecision, the Commission carefully analysed the circumstances of the case, demonstrating that the GPRS technology had been widely adopted in the overall industry due to its inclusion in the GSM standards specification and its implementation by network operators in their 2G networks. The wide adoption of GPRS in the EEA led, in turn, device manufacturers to base their services and products on the same air interface technology, so that devices can communicate with the network: this eventually led to a situation where industry players became locked-in to the GPRS technology[75]. Such an analysis is absent in the CJEU judgement.

4. .1 The implementation of a standard-compliant product does not imply tout court infringement of all SEPs insisting on the standard

Another aspect seems relevant when we discuss the implications stemming from the assumption that mere holding of a SEP confers dominance. And in fact, even if it well might happen - and it has happened -- that firms holding SEPs on technologies embedded into a standard successfully hold-up implementers in the downstream markets, it is just not convincing that eachSEP holder, even one controlling the tiniestmarginalfragment of technology declared to be essential, or even one who is aware of possessing a very weak patent, can alwaysand just by himself successfully threaten the survival on the market of every possible standard-embedding products[76].

This conclusion stems from the widely accepted belief that manufacturing of a standard-embedding product necessarily implies per se the infringement of allthe essential IPRs insisting on the standard. Such theorem is based on two intertwined assumptions. The straightforward infringement assumption stems from the very same concept of "essentiality" (hence: indispensability) adopted by the majority of SSOs. Essentiality of the IPRs is indeed generally described as a situation whereby it is not possible on technical grounds to make equipment which complies with the standard without infringing it[77]: which means that if implementers make something which is standard-compliant without proper access to the underlying IPRs they must be infringing them[78].

The second part of the theory implies that the infringement automatically covers all the standard essential IPRs. This assumption has strong procedural implications. In fact, if the essential IPRs all at once are inevitably infringed, there is no need to prove that any specific SEP's violation has taken place. It will suffice to show that the SEP has been declared essential to the standard and that the alleged infringer has manufactured a standard-compatible product without a license. This second assumption derives straightforwardly from the application of the famous Cournot "complements theory" to essential IPRs[79], deriving that SEPs (and essential IPRs in general) are all to be deemed essential inputs to the release of a final product (which would be the standard) and therefore all necessarily to be employed for the manufacture of a standard-compliant product[80].

Both the assumptions of the above described theorem, however, are not entirely convincing. First of all, SEPs are not always trulyessential, despite being declared so by their holders. It is common knowledge that firms are prone to over-declare the essentiality of their titles of protection - especially in the case of weak patents - to have them inserted in the cluster of essential IPRs and gain from the licensing[81]. Besides, much in the same way it happens with regard to the validity of IPRs, competition authorities do not perform any checks on the actual essentiality of the patents to the standards. By the same token, assuming that the contested SEPs are truly essential to the standard, it might well be the case that such titles of protection are not enforceable, hence not infringed. The SEPs indeed might be found invalid or simply might have expired. Eventually, in the most remote scenario, patents might not be essential to implement within a product, despite the fact that they are correctly identified as SEP and they are valid[82]. Indeed, even a patent -- or more precisely of one of its claims[83] -- which is declared essential to a standard might prove not to be so in practice if it regards an optional feature of the standard technology[84]. This is because the normative clauses of the standard often refer both to mandatory portions, meaning those elements which must necessarily be implemented for the final product to be deemed standard-compliant, as well as to optional portions of the technology which may never be practically implemented[85]. As consequence, even if many SSOs' policies demand claims on optional technologies within the standard to be treated as essential[86], clearly when certain manufacturers decide not to implement certain optional features of the standard in their products, SEPs that are only essential to such specific features will not be infringed[87].

5. Conclusion

The CJEU sentence in theHuaweicase tries to provide an answer to one of the most thorny issue of this century, namely whether the holder of a standard essential patent commits an abuse of dominant position when he enforces his right - apparently legitimate - to a preliminary injunction against an implementer wishing to make and sell a standard-embedding product without a license. As the CJEU rightly states, the answer cannot be provided without taking into consideration the conduct of the opponent: meaning, whether the implementer wishes or not to enter the negotiation and to pay for the appropriate rate of royalties. To this end, in responding to the preliminary ruling posed by the German Court, the CJEU sets some sort of best practices, a set of detailed rules of conduct to which both parties involved shall abide, in order for the circumstances of the case not to be held abusive.

Despite being quite reasonable and convincing in its holding, the sentence does not delve into a crucial aspect which remains in the shadows. The Court, indeed, takes for granted the assumption that mere holding of SEPs is tantamount to holding a dominant position in the market, avoiding also the second related question of how to delineate the relevant market in such a case. One might easily respond that dominance was not an aspect raised in the preliminary ruling, henceforth the Court was not compelled to deal with the issue. While this is circumstance is true, one cannot avoid adding however that still the Court might have - or should have - stressed that all the reasoning put forward is valid as long as the firm is indeed found dominant.

In an attempt to apply the exceptional circumstances test also to SEPs, the Court stretched the overall reasoning well beyond the boundaries set in the well known refusal to deal cases (fromMagilltoMicrosoft), inferring dominance fromex anteandendogenousfactual situations (namely: the declaration that the patent is essential by its holder and the FRAND commitment), without any need to inquire whether suchprivatelyelected standard was also ade factostandard or whether there are other market circumstances which prove it to be actually indispensable to compete in the market. This latter element is crucial when speaking about privately elected standards as, despite being remote, chances could exist that alternative technologies are present or will soon enter the market. Such an analysis, indeed, has been conducted by the European Commission in the aforementionedMotorolacase. Moreover, the need to engage into such an in-depth factual is strengthened by the circumstance that the overall system does not envisage any check on the true essentiality of the patent to the standard, not to mention the validity of the supposedly essential patent. 

NOTE

  • 1) For a complete overview of all possible types of standards see M. Dolmans, Standards for standards, 26 Fordham Int. L. J. 163, 2002, at 164.
  • 2) As a further consequence, the presence of standard compatible products will make the standard even more appealing to consumers who will keep alining to it. The literature on direct and indirect network effects is vast. Among the most relevant studies see: M.L. Katz, C. Shapiro, Network Externalities, Competition, and Compatibility, 75 Am. Econ. Rev. 424 (1985); C. Shapiro, H.R. Varian, Information Rules, A Strategic Guide to the Network Economy, (Harward Business School Press 1999); M. A. Lemley, D. McGowan, Legal Implication of Network Economic Effects, 86 Calif. L. Rev. 479 (1998); J. Farrel, M.L. Katz, The Effects of Antitrust and Intellectual Property Law on Compatibility and Innovation, 43 Antitrust. Bull. 609 (1998).
  • 3) On the benefits coming from standardization in terms of enhanced interoperability, improved products quality, lower risks for consumers to stay locked-in to a technology which rapidly becomes obsolete, increased downstream competition (i.e. in the market of standard-compatible devices), see P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 322 and ff. Similarly A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, in European Competition Law Journal, 2014, 1, at 3 (also stressing that standardization may facilitate competition among producers by reducing wasteful spending on technology and lowering costs for consumers). Standardization, however, also carries downsides. Competition between standards, indeed, surely spurs innovation. R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 218; R.P. Merges J.M.Kuhn, An Estoppel Doctrine for Patented Standards, 97 Calif. L. Rev. 1, 2009, at 7 and ff.
  • 4) At this regard see Communication from the Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ C 11, 14.1.2011, p. 1-72, at § 266 where it explains that "[…]standards requiring that a particular technology is used exclusively for a standard or preventing the development of other technologies by obliging the members of the standard-setting organisation to exclusively use a particular standard, may lead to the same effect" (i.e. risk of emergence of barriers to entry for competitors and exclusion from the market, to the detriment of innovation).
  • 5) For a description of how the standardization process works within an SSO see A. Layne-Ferrar, A.J. Padilla, Assessing the Link Between Standard Setting and Market Power, March 2012, http://ssrn.com/abstract=1567026, at 5 and ff.
  • 6) P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 324, explaining that there are normally many competing solutions to technical problems that are identified during the standard setting process. SSO participants must select the technical contributions which will become part of the standard, with the consequences that once the selection has been operated i twill reduce or eliminate the competitive constraints previously exerted by the competing contributions. Similarly J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 31.
  • 7) R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 221.
  • 8) In the afore mentioned Guidelines on horizontal co-operation agreements, where the Commission explains that while for upstream-only companies the only source of income is licensing revenue and their incentive is to maximise their royalties, vertically integrated companies have mixed incentives. In fact, on the one hand, they can draw licensing revenue from their IPR, but on the other hand, they may have to pay royalties to other companies holding IPR essential to the standard. The Guidelines also point out at a third category of players not active in the upstream technology market: these are pure manufacturers of products or services based on the technologies. For such "downstream-only" companies, who do not hold any relevent IPRs, royalties to get access to intangible assets are just a cost. See Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, supra note 4, § 267.
  • 9) A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, in European Competition Law Journal, 2014, 1, at 6.
  • 10) These concerns have been addressed by the EU Commission in the Horizontal Guidelines where it stated that "[…] by virtue of its IPR, a participant holding IPR essential for implementing the standard, could, in the specific context of standard-setting, also acquire control over the use of a standard. When the standard constitutes a barrier to entry, the company could thereby control the product or service market to which the standard relates. This in turn could allow companies to behave in anti-competitive ways, for example by 'holding-up' users after the adoption of the standard either 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". See Commission Communication, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements [2011] OJ C 11/1 ('Horizontal Guidelines'), § 263.
  • 11) P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 326, explaning that "The owner of a relevant essential patent in theory has the ability to (i) block companies from producing any products compliant with the standard and (ii) demand royalties for its patent that are significantly higher than the royalties it could have demanded had the technology not been included in the standard, or before the standard was adopted and competition eliminated (known as the "hold-up" problem)."
  • 12) P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 334-335.
  • 13) A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, in European Competition Law Journal, 2014, 1, at 26.
  • 14) The issue has been explored in depth by M.A. Lemley, C. Shapiro, Patent hold-up and Royalty Stacking, in 85 Texas L. Rev. 1990, 2007. See also See P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 326. A different perception of the problem is espoused by D. Geradin, M. Rato, Can Standard-setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty Stacking and the Meaning of FRAND, (2007) 3 European Competition Journal 101, at 23-24 and 41-42, arguing by contrast that owners of essential IPRs, when individually setting their prices, will take into account prices set by owners of complementary IPRs, assuming that the prospective implementers will only be able to accomodate a certain price level. Elaborating on these thoughts, J. Sidak similarly argues that the royalty stacking argument fails to take into account wide spread market practices, such as cross-licensing between SEP owners and non-exertion of rights, which would punish companies setting far excessive royalties. See J. Sidak, Apportionment, FRAND Royalties, and Comparable Licenses After Ericsson v. D-Link., in University of Illinois Law Review, 2015.
  • 15) R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 218. D. Geradin, M. Rato, Can Standard-setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty Stacking and the Meaning of FRAND, (2007) 3 European Competition Journal 101, at 5, 21.
  • 16) See at this regard A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, in European Competition Law Journal, 2014, 1, at 9, explaining that the mobile telephony markets had experienced a quiet life as long as most of its core players (like for example, Samsung, Nokia, Ericsson, Motorola, Alcatel- Lucent and Qualcomm) were both SEP-holders and implementers in the market and used to engage in cross-licensing of their patent portfolios. The position changed, however, following the entry into the market of pure implementers and when some of the original players', due to a decline of their position in the final product market, sold off their patent portfolios to patent assertion entities (PAEs). These factors altered the equilibria and led to an explosion of disputes worldwide raising a plethora of contract, patent and antitrust issues, including the question of whether a SEP-holder should be able to enforce its FRAND encumbered patent by seeking a preliminary injunction before a court. 
  • 17) Standard setting process involves several decisions to be jointly taken by SSO members, to select each technical contribution which will come to form the standard technology. Competing technical contributions come from the very same SSO members who, in parallel with the standardisation process, conduct their own research and file patent applications to protect their innovations. Given the increased value patents gain once their underyling technology is selected to be part of a standard, many firms are lead to engage in opportunistic behaviors which have been defined "just-in-time patents", meaning that they use to file patents, often of low quality, right before a standardization meeting takes place in order to participate to the meeting to the sole purpose of negotiating the inclusion of their technology in the standard. See B. Kang, E. Bekkers, Just-in-time patents and the development of standards, Research Policy 44 (2015) 1948.
  • 18) See the General Guidelines for the Co-operation between CEN, CENELEC and ETSI and the European Commission and the European Free Trade Association, signed on 28 March 2003, [2003] OJ C91, 5, where it is established that SSOs "Ensure that all interested parties have access to standards, by broad provision of information on their availability, and by ensuring that standards, including any intellectual property rights (IPRs) they might contain, can be used by market operators on fair, reasonable and non-discrimi- natory conditions."
  • 19) Case COMP/38.636 Rambus, 9 December 2009 (Commitment's Decision), FAQ Press Release on the Rambus commitments decision, MEMO IP/09/544.
  • 20) See at this regard J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 32, observing that while the FRAND commitment is an obligation to accept a royalty that is reasonable in light of the available ex ante technological alternatives, a SEP holder breaching the commitment will seek royalties whose rate reflects absence of ex post alternatives.
  • 21) See P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, p. 333.
  • 22) On this point see infra § 4.1.
  • 23) See J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 31, explaining that by accepting the FRAND commitment the firm accept to surrender significant legal rights: namely, i) her right to refuse to license the patented technology, hence to enjoin any willing licensee, and ii) to set supra competitive royalties. Also Kattan observes that the essence of a FRAND commitment is a promise to forgo the ability to control price and exclude competition that otherwise would be created by a patent's incorporation into a standard. J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 33.
  • 24) Several authors believe that a FRAND commitment automatically implies also a waiver of seeking injunctive relief. See M.A. Lemley, Intellectual Property Rights and Standard-Setting Organisations, in 90 California Law Review 1889, 2002, at 1967; J. Farrell, J. Hayes, C. Shapiro, T. Sullivan, Standard Setting, Patents, and Hold-up, in 74 Antitrust Law Journal 603, 2007, at 638; P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 331, arguing that if the licensee is prepared to give a reciprocal license and pay on FRAND terms, no injunction should in principle be available, since the only issue to be resolved regards the amount of royalties to be paid. J Miller, Standard-Setting, Patents and Access Lock-in: RAND Licensing and the Theory of the Firm, 40 Indiana Law Review 351, 2007, at 358; R.P. Merges, J.M. Kuhn, An Estoppel Doctrine for Patented Standards, 97 Calif. L. Rev. 1, 2009, at 28 and ff. For a completely different perspective on the issue see D. Geradin, M. Rato, Can Standard-setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty Stacking and the Meaning of FRAND, (2007) 3 European Competition Journal 101, at 16, arguing that a FRAND commitment cannot be interpreted as an implicit waiver, for the SEP owner, to its right to seek injunctive relief, as this would be contrary to well established principles of law (according to which a waiver of right must always be made explicitly or derived from inequivocal circumstances showing the right owner's consent to waive such right); similarly, but based on a different reasoning, see J. Ratliff, D. Rubinfeld, The Use and Thret of Injunctions in the RAND Context, in 1 Journal of Comp. L. & Econ. 2013, at 19, arguing that the threat of the imposition of an injunction is what moves the parties towards an agreement on the determination of the FRAND terms.
  • 25) But see also A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, in European Competition Law Journal, 2014, 1, at 8-9, blaming SSOs for not having developed robust dispute resolution mechanisms capable of dealing with the controversial issues arising between major technology companies, with the consequences that such issues are therefore brought before Courts or competition agencies, bringing to the forefront the question of whether competition law has or not a role to play. Sceptical towards the implementation of competition law to solve this type of issues is Advocate General Wathelet, see Opinion delivered on 20 November 2014, case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., ZTE Deutschland GmbH.
  • 26) It's worth mentioning that such a remedy sometimes is not even easy to pursue. For example, the ETSI IPR's policy guidelines envisage a long procedure whereby if the IPR owner keeps refusing to license the SEP and does not provide any explanation for the refusal (within three months from the reception of a letter from the ETSI's Director General), then the Director General will invite the General Assembly to vote in order to refer the standard to a Committee to modify it "so that the IPR is no longer essential". See See Art 8.2 of ETSI's IPR Policy: ETSI Rules of Procedures, 20 April 2016, Intellectual Property Rights Policy, p. 38.
  • 27) P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 328.
  • 28) See R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 234. The author observes that while in normal and undistorted commercial negotiations an implementer can weigh the pros and cons of engaging in a long and costly legal battle with the SEP holder, in this case the former has little choice but to agree to the SEP-holder's un-FRAND licensing conditions, as he faces the risk of being permanently excluded from the market. In fact, "assuming the SEP is valid, infringed, and enforceable, the licensee in fact cannot market its products without infringing the SEP-holder's patents since by definition there are no substitutes".
  • 29) In the mobile telecom industries, for example, firms incur significant investments in designing the product, setting up the production facilities, purchasing the network equipment, etc. As explained by P. Chappatte, once device manufacturers and network operators have incurred such significant sunk costs, they become effectively locked-in to that standard, as they do not want to risk loosing the investments made. See P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 325.
  • 30) At this regard, see M.A. Lemley, C. Shapiro, Patent hold-up and Royalty Stacking, in 85 Texas L. Rev. 1990, 2007 at 1993, further asserting that a supra-competitive royalty price acts "as a tax on new products incorporating the patented technology.
  • 31) See Opinion (AG Wathelet) delivered on 20 November 2014, case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., ZTE Deutschland GmbH, § 82.
  • 32) This concern has been explicitly addressed by the European Commission in the Google/Motorola merger case where it held that "[…] Even if exclusion of competing products from the market through injunctions were to be temporary (i.e. there would be a delay only in access to the relevant products until the counter-party of the SEP-holder agreed to the commercial terms demanded), in a fast-moving market such as the smart mobile device market, serious harm could potentially be caused by it". See Google/Motorola Mobility, case COMP/M.6381, 13 February 2012, § 107.
  • 33) See Opinion (AG Wathelet) delivered on 20 November 2014, case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., ZTE Deutschland GmbH, § 42.
  • 34) See P. Camesasca, G. Langus, D. Neven, P. Treacy, Injunctions for standard-essential patents: justice is not blind, in 9 Journal of Competition law & Economics, 2013, issue 2, 285, at 289,  arguing that an absolute veto on SEP holders to recur to injunctions in all circumstances would give prospective licensees incentives to free ride on the SEPs. See also J.D. Harkrider, Seeing the Forest Through the SEPs, 2013, 27(3), Antitrust 22, at 26 (explaining that "[…] If firms are free to refuse to pay for their use of SEPS without any risk of injunctions or damages that might lead to underinvestment in standards development and related innovation").
  • 35) C. Chien, Holding Up and Holding Out, in 21 Michigan Telecommunications and Technology Law Review 1, 2015.
  • 36) D. Geradin, M. Rato, Can Standard-setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty Stacking and the Meaning of FRAND, (2007) 3 European Competition Journal 101, at 17.
  • 37) See at this regard J. Ratliff, D. Rubinfeld, The Use and Thret of Injunctions in the RAND Context, in 1 Journal of Comp. L. & Econ. 2013, p. 9, 17 and ff., supra note 25, arguing that the threat of injunctive relief serves to provide an incentive for the implementer to stop infringing the patent and accept a "certifiably RAND license", depicted as a license whose terms have been deemed FRAND by a court, have been imposed by a court or where the parties agree that the negotiated terms are indeed FRAND.
  • 38) See at this regard, A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, supra note 1, at 24, arguing that the judgments of the lower courts in Germany have made it very difficult for potential licensees to resist an injunction in practice, even if they are willing to engage in good-faith licence negotiations. And indeed it seems that manufacturers of standard-compatible devices faced with injunction actions in Germany have had the choice of either suffering significant harm, as a result of being excluded from a major fast-moving market, or paying the rate requested by the patentee for both past infringements and future licence payments, while at the same time being compelled to forgo all essentiality and validity claims concerning the SEPs.
  • 39) Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, Brussels, 29.04.2014 C(2014) 2892 final.
  • 40) See at this regard R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 214, arguing that the CJEU in Huawei has basically confirmed the approach of the EU Commission in the Motorola case, refining the willing licensee test and specifying the requirements to be complied with for the latter to qualify as one. On a similar note: P. Maume, Huawei/ZTE or  how the CJEU closed the Orange Book, in Queen Mary Journal of Intellectual Property, Vol. 6 No. 2, 207, 2016, at 223, noting the change of perspective between the German approach, where the Court was mainly concerned with the rights of the proprietors and discussed under what circumstances the implementers could raise a competition law defense, thereby avoiding an injunction order, and the CJEU approach, focusing on whether a SEP holder who has entered a FRAND commitment will abuse his dominant position if he attempts to enforce the patent..
  • 41) This clearly emerges from a literal interpretation of the judgement's wording. In fact, SEP obligation to present the offer on FRAND terms arises only after implementers, being notified of the alleged infringement, have expressly manifested their willingness to enter a licensing agreement. See Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, §§ 63 and 71.
  • 42) This means for the CJEU that he has engaged in purely dilatory tactics. Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 65.
  • 43) As it would happen, explains the Court, in the case where the latter, having asserted to be interested in licensing but not agreeing on the royalty rate proposed by the SEP holder, has promptly submitted to the SEP a specific written counter-offer containing FRAND conditions. See Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, §§ 66, 71.
  • 44) P. Maume, Huawei/ZTE or  how the CJEU closed the Orange Book, in Queen Mary Journal of Intellectual Property, Vol. 6 No. 2, 207, at 221 and ff.
  • 45) Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, §§ 60-61.
  • 46) Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 62.
  • 47) Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 63.
  • 48) See P. Maume, Huawei/ZTE or  how the CJEU closed the Orange Book, in Queen Mary Journal of Intellectual Property, Vol. 6 No. 2, 207, 2016, at 223, explaining that the position adopted by the Court takes into account the information asymmetry between SEP holders and implementers, and favours the disadvantaged barbaning position of the implementer who could risk, were he the one to offer first, to be caught by his own proposed royalty rate, should he set it too high.
  • 49) The Court observed at this regard that lacking a public standard licensing agreement, and where other licensing agreements have been already concluded with other competitors but not released to the public, "[…] the proprietor of the SEP is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer". Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 64.
  • 50) Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 71.
  • 51) Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 68.
  • 52) According to the Court, an implementers engages in dilatory tactics when that, being informed of the infringement, he has not responded diligently "in accordance with recognized commercial practices in the field and in good faith". Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 63.
  • 53) Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 60.
  • 54) See at this regard S. Barthelmess, M. Dolmans, R. Zimbron, Enforcing Standards-Essential Patents-The European Court of Justice's Judgement in Huawei v. ZTE, in Intellectual Property and Technology Law Journal, Vol. 27, N. 12, December 2015, at 15, noting that the informational duty placed on SEP holders seem to trump the well known patent law principle, evoked by the same CJEU, pursuant to third parties should always get a license before implementing the technology. Indeed, the Court has stressed that SEP holders cannot bring a preliminary injunction before informing the user of the supposed infringement, this even if "the SEP has already been used by the alleged infringer" (Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 60).
  • 55) Indeed the same Court specifically dictates that "where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter- offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit […]" (italics added). See Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, § 67. See at this regard S. Barthelmess, M. Dolmans, R. Zimbron, Enforcing Standards-Essential Patents-The European Court of Justice's Judgement in Huawei v. ZTE, in Intellectual Property and Technology Law Journal, Vol. 27, N. 12, December 2015, at 15, further underlying that the EJC does not address in the judgement whether the SEP user may be requested to pay above-FRAND damages for prior use of the technology, at least until he has expressed willingness to enter a licensing agreement.
  • 56) This thesis has found also confirmation in the doctrine: see P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 327, and in the European Commission decisions. See in particular Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, Brussels, 29.04.2014 C(2014) 2892 final, at § 281 and ff.
  • 57) See Case 53/87 CICCRA v Renault [1988] ECR 6039, § 16, where the ECJ stressed that a refusal by a car manufacturer to license did not necessarily constitute an abuse (rather the right of the IPR holder to make exclusive use of the right is the substance of the exclusive right), but would do so if it gave rise to "certain abusive conduct . . . such as the arbitrary refusal to deliver spare parts to independent repairers". Similarly Volvo v Veng, Case 238/87. Cases C-241-242/91 P RTE & ITP v Commission [1995] ECR I-743, § 49. Case T-201/04 Microsoft v Commission [2007] ECR II-3601.
  • 58) For an extensive analysis of these cases see E. Arezzo, Intellectual property rights at the crossroad between monopolization and abuse of dominant position: American and European approaches compared", in The John Marshall Journal of Computer & Information Law, volume 24, issue 3, 2006, 445.
  • 59) And indeed if not framed as an exploitative abuse, either under Art. 102(a) or (c) TFEU, the most appropriate way to describe this conduct would probably be as a constructive refusal to license since, as it has been noted, "as long as the injunction is pending, the SEP-holder is effectively denying a licence to its SEPs, thereby preventing the implementer from marketing its standard-compliant products on the downstream market". See R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 232. And in fact, already in the Deutsche Post decision, the Commission stated that 'the concept of refusal to supply covers not only outright refusal but also situations where dominant firms make supply subject to objectively unreasonable terms'. Commission decision COMP/C-1/36915, Deutsche Post AG, 25 Jul. 2001, at 141. Constructive refusal to license have been disciplined later in the Commission Communication, Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings ('Commission Enforcement Priorities') [2009] OJ C 45/7, at para. 79.
  • 60) But see at this regard A. Jones explaining that even if the main concerns in cases such as Huawei the main concern seem related to the circumstance that SEP holders be capable of extracting far greater rewards for innovation than what they should get, to the detriment of consumers, a further consequence of the hold-up problem might be a lessening in confidence towards the whole standardization process by implementers, hence a distortion of competition and hence a lessening of innovation in downstream markets. Hence, as in the case of exclusionary conduct (such as refusal to deal or margin squeeze) the core concern is that the "the seeking of an injunction may distort competition in downstream markets". See A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, supra note 1, at 18.
  • 61) The CJEU seems to frame the case as a refusal to deal case, as she mentions the category several times and she mentions the risk that implementers' products are not released into downstream markets. See Court of Justice of the European Union, 16 July 2015, case C-170/13, Huawei Technologies Co. Ltd c. ZTE Corp., ZTE Deutschland GmbH, unreported, §§ 53-54.
  • 62) See what happened in litigation concerning Apple and Motorola where the former company preferred to engage in negotiation rather than loosing sales of its standard-embedding products. Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, 29.04.2014 C(2014) 2892 final.
  • 63) This approach has been indeed adopted by the European Commission also in the Motorola decision. See infra at § 4.
  • 64) Dominance still is the first step to analyse cases of abuse, despite the attempts to eliminate it. On the subject see E. Arezzo, "Is there a role for market definition and dominance in an effects-based approach?" Max Planck Forum on Competition Law: "Art. 82 EC: New Interpretation, New Enforcement Mechanisms?", S. Enchelmaier, B. Conde Gallego, M.O. Mackenrodt (eds.), 2008.
  • 65) J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 31.
  • 66) See A. Layne-Ferrar, A.J. Padilla, Assessing the Link Between Standard Setting and Market Power, March 2012, http://ssrn.com/abstract=1567026, at 3, explaining that applying standard economic theories of market power to the SSO scenario, we find that "Market power enables a holder to license more broadly than it otherwise would have and perhaps to charge supra-competitive prices for those licenses."
  • 67) In this sense see J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 31; A. Layne-Ferrar, A.J. Padilla, Assessing the Link Between Standard Setting and Market Power, March 2012, http://ssrn.com/abstract=1567026, at 2; C.V. Chien. M.A. Lemley, Patent Holdup, The ITC, and the Public Interest, 98 CORNELL L. REV. 1, 8 (2012). But see V. Meli, Standard, standardizzazione e applicazione dell'art. 102 Tfue ai conflitti su licenze relative a diritti di proprietà intellettuale, in Orizzonti del Diritto Commerciale (online Law Review), Year II, 2014, 1, at 22, who is very skeptical towards a recostruction of the finding of dominance exclusively based on the company's power to set the rules to compete on a certain market, without taking into account his actual position in such market. As Meli rightly points out, such an approach might lead to a rather peculiar situation where SEP holders' conduct could be found abusive even if they are not active in the related market of standard embedding products.
  • 68) R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 218.
  • 69) In the North-American Microsoft v. Motorola case, for example, Motorola asked for a royalty of $ 3.00-$4.50 per unit, while the Court later set the FRAND rate at $0.03471 per unit. See Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR, 2013 U.S. Dist. LEXIS 60233 (W.D. Wash., Apr. 25, 2013) (Microsoft F/RAND Rate Decision), at 212 and 303. Similarly, in the Dutch case Samsung v. Apple, Samsung made an offer whereby it asked for a royalty rate of 2.4 percent of the entire sale price of the relevant Apple products (i-phones and i-pads) and the District Court held that such an offer did not comply with the commitment to license at FRAND terms. See D.C. Hague, Mar. 14, 2012, Dkt. Nos. 400367/HA ZA 11-2212, 400376/ HA ZA 11-2213, 400385 / HA ZA 11-2215 (Samsung Elecs. Co. Ltd/Apple Inc.). Other examples can be found in L.B. Greenfield, H. Schneider, J.J. Mueller, SEP Enforcement Disputes Beyond the Water's Edge: A Survey of Recent Non-U.S. Decisions, 27 Antitrust 3, (2013).
  • 70) See A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, supra note 1, at 16, arguing that patent owners are likely to acquire market power after the standard is adopted if it subsequently becomes impossible for implementers to invent or design around the patent; J. Kattan, FRAND Wars and Section 2, in Antitrust Vol. 27, n. 2, 2013, 30, at 31, arguing that owners of SEPs on for widely implemented standards possess monopoly power for the technologies on which their SEPs read. But see also R. O' Donoghue, J Padilla, The Law and Economics of Article 102 TFEU, Hart Publishing, 2nd ed., 2013, at 703, who stress that it is also important to check whether the exercise of market power is constrained by countervailing factors, such as blocking patents owned by the manufacturers. A more cautious approach is endorsed by some other authors: for example, R. Grasso, The ECJ ruling in Huawei and the right to seek injunctions based on FRAND-encumbered SEPs under EU competition law: one step forward, in 39 World Competition, 2016, 213, at 211, stressing that others factors need to be taken into account to elaborate a finding of dominance, even in the case of SEPs. A contrary view is expressed by A. Layne-Ferrar, A.J. Padilla, Assessing the Link Between Standard Setting and Market Power, March 2012, http://ssrn.com/abstract=1567026, arguing that no direct evidence exist which assert an unequivocal correlation between SSOs and market power, and that, while several other factors need to be taken into account, "in examining measureable effects on patent value we find that some SSOs appear to enhance some included patents' importance or value, but  most do not".
  • 71) As well known, the European concept of dominance entails a "[…] position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers". See Case 27/76, United Brands v. Commission, [1978] ECR 207, para. 65; Case 85/67, Hoffmann-La Roche v. Commission, [1979] ECR I-461, para. 38.
  • 72) Another critical aspect concerns the delineation of the relevant market. At this regard see V. Meli, Standard, standardizzazione e applicazione dell'art. 102 Tfue ai conflitti su licenze relative a diritti di proprietà intellettuale, in Orizzonti del Diritto Commerciale (online Law Review), Year II, 2014, 1, at 29 e ss.
  • 73) Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, supra note 4, § 269.
  • 74) Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, 29.04.2014 C(2014) 2892 final, § 223, 226. 
  • 75) Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, supra, §§ 227-228. 231. In this case, the Commission further ruled out any likely emergence in the short and medium term of an alternative GPRS technology in the EEA. because of the prevalence of GPRS-compliant products and of the large investments that market participants had already made in GSM/GPRS networks in the EEA. Idem, at § 232.
  • 76) A. Jones, Standard-essential patents: FRAND commitments, injunctions and the smartphone wars, supra note 1, at 5.
  • 77) According to the most recently revised version of the ETSI IPR Policy, "«ESSENTIAL» as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing that IPR". See ETSI Rules of Procedures, 20 April 2016, Intellectual Property Rights Policy, clause 15.6, p. 41. For an overview of the most used practices See R. Bekker, A. Updegrove, A study of IPR policies and practices of a representative group of Standard Setting Organizations worldwide, September 2012, available at http://ssrn.com/abstract=2333445, at 34.
  • 78) The EU Commission in Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, Brussels, 29.04.2014 C(2014) 2892 final, argued that in the standard-setting context, by seeking and enforcing an injunction, an SEP-holder is able to exclude 'even the most innovative standard-compliant products from the market as, by definition, the patented technology cannot be worked around', and eventually limit consumer choice and partially eliminate downstream competition. Motorola - Enforcement Of Gprs Standard Essential Patents, case AT 39985, Brussels, 29.04.2014 C(2014) 2892 final, at § 312.
  • 79) P. Chappatte, Frand commitments - the case for antitrust intervention, in European Competition Journal, 2009, 319, at 326.
  • 80) The complement theory seems to be espoused also by the European Commission. See Communication from the Commission - Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements, OJ C 89, 28.3.2014, p. 3-50, § 252, where it explains - with regard to pools -- that technologies that are essential "are by necessity also complements".
  • 81) See B. Kang, E. Bekkers, Just-in-time patents and the development of standards, Research Policy 44 (2015) 1948. This phenomenon is exacerbated by the circumstance that several SSOs allow for so called blanket disclosures, meaning declarations whereby a party indicates its ownership of one or more patents reading on the standard, while not revealing the details of such patents. See Patents and Standards, a modern framework for IPR-based standardization, Final Report, Study prepared for the European Commission, Directorate General for Enterprise and Industry, 2014, (hereinafter Patent and Standards), at 117.
  • 82) Patents and Standards, a modern framework for IPR-based standardization, Final Report, Study prepared for the European Commission, Directorate General for Enterprise and Industry, 2014, at, 116.
  • 83) See at this regard R. Bekker, A. Updegrove, A study of IPR policies and practices of a representative group of Standard Setting Organizations worldwide, September 2012, available at http://ssrn.com/abstract=2333445, at 11, stressing that it is more appropriate to refer to "essential claims" rather than "essential patents", as a patent might well contain a broad set of claims many of which might not be essential. Therefore, the authors observe that a properly crafted IPR policy should not impose licensing obligations to claims other than those that are in fact essential.
  • 84) A. Layne-Ferrar, A.J. Padilla, Assessing the Link Between Standard Setting and Market Power, March 2012, http://ssrn.com/abstract=1567026, at 12. This point has also been later emphasized, with regard to the determination of the appropriate royalty rate pursuant to a FRAND commitment by G. Ghidini and G. Trabucco in Pro-competitive Guidelines for Assessing FRAND Royalties with Regard to SEPs, in this Law Review.
  • 85)

    R. Bekker, A. Updegrove, A study of IPR policies and practices of a representative group of Standard Setting Organizations worldwide, September 2012, available at http://ssrn.com/abstract=2333445, at 41.

  • 86) R. Bekker, A. Updegrove, A study of IPR policies and practices of a representative group of Standard Setting Organizations worldwide, September 2012, available at http://ssrn.com/abstract=2333445, at 41. The study analyzes the practice of the ten most important SSOs and finds that the majority of them tends to classify patents on optional features of the standard as essential patents. The author highlights that this should be in theory to the advantage of the implementers who should be able to obtain a FRAND license also on such optional features. However, this circumstance shows that the mere production of a standard-compliant product does not amount per se to an infringement of an essential patent.
  • 87) Patents and Standards, a modern framework for IPR-based standardization, Final Report, Study prepared for the European Commission, Directorate General for Enterprise and Industry, 2014, at 115-116.