European Court of Justice Issues Judgment in Huawei v ZTE SEP Injunction Case

In 2013, the Regional Court of Dusseldorf made a preliminary reference to the European Court of Justice (“ECJ”) in a case involving German subsidiaries of Chinese telecommunications company Huawei, as the holder of standard essential patents (“SEPs”), and ZTE, as the alleged infringer of the SEPs. When Huawei sought a prohibitive injunction against ZTE for its use of Huawei's SEPs, ZTE asserted as a defence Huawei's abuse of dominance, grounded both on the use of an SEP injunction and on the concept of a willing licensee. The German court decided to seek guidance from the ECJ so that its approach would not conflict with recent holdings in cases involving Samsung and Motorola. The ECJ recently issued a judgment that obligates an SEP holder to provide an alleged infringer with:

  • Notice of an alleged infringement, which specifies the relevant SEPs and the manner in which they have been infringed.
  • A written offer to license the SEPs, including a proposed royalty and the manner for calculating the royalty, before seeking injunctive relief.

The ruling also requires:

  • The licensing offer to be based on fair, reasonable and non-discriminatory, or FRAND terms.
  • The alleged infringer to respond in a diligent and serious manner.

If the alleged infringer disagrees with the offer, the infringer must promptly provide a counter offer that expressly addresses the terms of the offer to which it objects before he can assert an abuse of dominance defence.

Market Reaction

David Wilson, partner, Herbert Smith Freehills London

"This case provides important guidance and welcome clarity to both SEP holders and alleged infringers as to what steps each must take to retain either the right to request or the right to object to a claim for injunction preventing the use of an SEP".

Action Items

GC for Chinese SEP holders seeking to enforce patent rights in the EU should provide infringers a formal offer and draft license, setting out appropriate details of the infringement. GC for companies that are challenged as infringers should refrain from delaying tactics and provide a detailed counter offer to preserve the right to challenge a prohibitory injunction.