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HOW STANDARD ESSENTIAL PATENTS THROUGH FRAND CAN FOSTER COMPETITION AND CURTAIL ANY ABUSE OF DOMINANCE DUE TO PATENT HOLDING

[]Isheta Boruah is an LLM Candidate pursuing Intellectual Property Rights from Queen Mary University of London]


A standard-essential patent (SEP) is a patent that covers technology that is essential for implementing a particular industry standard. SEPs are typically declared by the relevant standard-setting organization (SSO) and are subject to fair, reasonable, and non-discriminatory (FRAND) licensing terms. This means that the patent holder must license the SEP to any implementer of the standard on reasonable terms that do not discriminate against any particular implementer.

 

Introduction

 

Patents encourage research and development and allow information transfer. Standards ensure the rapid diffusion of technologies and product interoperability. Many standards are built on patent-protected technologies. For example, the mobile telecommunications business is heavily reliant on standardisation, which includes a large number of patent-protected developments. To function, 2G (GSM), 3G (UMTS), 4G (LTE), 5G, and WiFi networks rely on thousands of patented technology. Such communication standards are also critical for the growth of the hyper-connected society at large, such as , in electronics for consumers, the automobile sector, and the electrical grid business.


The benefits of FRAND licensing include:


●      Market entry: FRAND licensing makes it easier for new companies to enter the market by providing them with access to the SEPs they need. This increases competition and drives down prices for consumers.

●      Consumer choice: FRAND licensing leads to a wider variety of products and services for consumers to choose from.

●      Growth: FRAND licensing promotes the adoption of new technologies, which leads to economic growth.


The importance of sharing technology in a way that balances the needs of those who contribute to open standards and those who implement them. Agreeing on FRAND terms ensures that implementers can incorporate core technologies into their new products while allowing contributors to be appropriately compensated for the technology they have created and shared.


Fostering Anti-Competitive Behaviour and Preventing Abuse of Dominance


The FRAND commitment associated with SEPs serves as a safeguard against the abuse of dominance by patent holders. It prevents them from engaging in anti-competitive practices, such as patent hold-ups, where they demand excessive royalties or trying to block market competitors from using their patented technology. By requiring SEP holders to license their patents on FRAND terms, competition is preserved, and innovation is encouraged, thereby curbing the abuse of dominance by any entity in the market.


It is imperative to note  that breaching a FRAND pledge can have legal, financial, and competitive ramifications. Breaching a commitment to FRAND might lead to legal repercussions, particularly possible antitrust liability. In the United States, a SEP owner who fails to comply with its FRAND agreement may face antitrust liability, particularly if a SEP is deliberately hidden during the standard-setting process. Breaching a FRAND promise might result in financial consequences, such as the payment of damages.


Case Study – Motorola’s FRAND Breach and the European Commission’s Decision


In one illustrative case, Motorola was compelled to pay $15 million in damages for breaching its FRAND pledge, mostly attributable to the other party's litigation expenditures. This case highlights the potential repercussions of breaching a FRAND pledge, demonstrating the importance of upholding these commitments.


On April 29, 2014, the European Commission issued a ruling concluding that Motorola Mobility had violated the European Union's competition rules by misusing SEPs associated with its mobile devices. The Commission's decision underscores the Commission's commitment to ensuring that SEPs are utilized fairly and equitably within the European Union’s market.


The Commission found that Motorola had abused its dominant position in the market for SEPs by seeking and enforcing an injunction against Apple in a German court, based on a SEP that Motorola had committed to license on fair, reasonable, and non-discriminatory (FRAND) terms. The Commission also found that Motorola had anti-competitively insisted that Apple give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs. The Commission found that Motorola had used the threat of an injunction to force Apple to agree to Motorola's licensing terms, which were not FRAND. The Commission also found that Motorola's insistence that Apple give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs was anti-competitive.


The Commission ordered Motorola to cease its infringement of European Union Competition rules. The Commission also ordered Motorola to eliminate the negative effects resulting from its infringement, such as by licensing its SEPs to Apple on FRAND terms and by withdrawing its request for an injunction against Apple.


The Commission  also found that Motorola breached Article 102 of the Treaty on the Functioning of the European Union (TFEU) "in these exceptional circumstances of the case and in the absence of any objective justification." Motorola deviates from the established line of European Union rulings on aggravating litigation, which states that filing a lawsuit might only be deemed abusive in "wholly exceptional" situations, such as when the party brought the lawsuit purely to intimidate the other party and end competition.


European Commission's stance on standard essential patents and abuse of a dominant position


The European Commission has taken a strong stance on SEPs and the abuse of a dominant position. The Commission has been proactive in targeting the abuse of patent dominance in the creation and implementation of standards. It has emphasized the importance of preventing enterprises whose IP has been selected as an industry standard from imposing "anti-competitive" royalty rates on firms seeking to rely on an industry standard. The Commission has made it clear that anti-competitive abuse is to be avoided, and it requires IP rights holders to employ FRAND terms in their licensing arrangements. The Commission's enforcement priorities include ensuring that owners of standard-essential patents provide effective access on fair, reasonable, and non-discriminatory terms. It emphasizes that standardization processes must be fair and transparent, and once companies hold standard-essential patents, they must give effective access on FRAND terms.


The European Commission has also taken action against companies for potential misuse of standard-essential patents. For example, it initiated an investigation to determine whether Samsung’s enforcement of telecommunication patents constituted an abuse of dominance.

Samsung Electronics (Samsung) and the European Commission signed legally enforceable agreements in July 2021 to resolve concerns over Samsung's use of injunctions in connection with SEPs. Samsung has committed to the following under these agreements: Not to file for an injunction against a SEP implementer unless the implementer has first made a sincere effort to licence the SEP on FRAND terms. Not to file a request for an injunction against a SEP implementer until after attempting to settle the disagreement through arbitration or mediation. If a SEP implementer challenges the legality of the SEP or files a counterclaim asserting that Samsung's SEPs violate its own patents, the implementer may not pursue an injunction against the seeker.

 

Conclusion


The European Commission has taken a strong stance on SEPs and the abuse of a dominant position. Their proactive stance in targeting abuse of patent dominance in the creation and implementation of standards, and have emphasized the importance of preventing enterprises whose IP has been selected as an industry standard from imposing "anti-competitive" royalty rates on firms seeking to rely on an industry standard. They require IP rights holders to employ FRAND terms in their licensing arrangements, and have taken action against companies for potential misuse of standard-essential patents. For example, they initiated an investigation to determine whether Samsung’s enforcement of telecommunication patents constituted an abuse of dominance. Samsung has committed to not file for an injunction against a SEP implementer unless the implementer has first made a sincere effort to license the SEP on FRAND terms, and to not file a request for an injunction against a SEP implementer until after attempting to settle the disagreement through arbitration or mediation. If a SEP implementer challenges the legality of the SEP or files a counterclaim asserting that Samsung's SEPs violate its own patents, the implementer may not pursue an injunction against the seeker.



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