16 July 2015, Luxembourg – ZTE Corporation welcomes the landmark decision of the European Court of Justice in the ZTE v. Huawei case. In this highly-anticipated ruling, the Court provides further clarification of EU law with respect to the right of a holder of Standard Essential Patents (SEPs) to seek injunctions against a potential licensee of the relevant SEPs. Today's decision will create a precedent across the EU and will be applicable in all Member States.
It is now finally clear that if an SEP patent holder has committed to license its patents under Fair, Reasonable and Non-Discriminatory (FRAND) terms, seeking injunctions against alleged patent infringers who have declared they are willing to negotiate a license constitutes a breach of EU competition law, unless the patent holder follows specific rules.
"ZTE is glad that the Court agreed with our position and confirmed the legal standard on patent licensing negotiations, particularly relating to SEPs. Today's ruling will bring more clarity to the industry and will help reduce unnecessary and costly patent litigation, which always comes at the expense of customers. Instead, companies will be able to direct their resources towards research and innovation" said Shen Jianfeng, Chief IPR Officer at ZTE.
"ZTE believes that all companies should have the right to enforce their intellectual property rights. However, we are dealing here with SEPs which provide their holders with significant market power. It is therefore only fair that certain safeguards are in place to allow fair licensing negotiations, without the threat of injunctions, which could be extremely damaging to business, especially when sought by Non-Practicing Entities who have nothing to lose in the market and abuse the patent system for commercial purposes" he added.
ZTE is a world-leading technology innovator, and both a licensor and licensee of IPR. ZTE submitted 2,179 filings under the Patent Cooperation Treaty in 2014, the third-highest total globally, according to the World Intellectual Property Organization. ZTE has been ranked in Top 3 of WIPO's PCT application tables over the last four years. ZTE respects the intellectual property of other companies, and has signed dozens of global licensing agreements with holders including Qualcomm, Siemens, Ericsson, Microsoft and Dolby Laboratories.
In November 2010, Huawei and ZTE entered into negotiations on a license agreement for several of Huawei's self-declared Standard Essential Patents (SEPs) related to 4G technologies.
Huawei initially asked ZTE to enter into a portfolio license under 131 patents. Huawei demanded a portfolio royalty that was not fair and reasonable (not FRAND), as it was many times higher than that of other respected industry players, compared on a per patent basis. In order to evaluate the proposal, ZTE asked Huawei for a detailed analysis, commonly called "claim charts", for each patent. Such charts serve to establish whether or not patents are actually standard-essential, valid or even infringed. Huawei refused to provide ZTE with such claim charts, which inevitably delayed the negotiations by forcing ZTE to examine each of the 131 patents one by one, without any assistance from Huawei. Huawei abandoned these negotiations, without having ever made a FRAND offer on the patents at stake in the present case, and brought an action against ZTE before the Düsseldorf Regional Court in April 2011.
In 2012, ZTE made another attempt to enter into licensing negotiations, and made various license offers under individual patents that Huawei asserted in the lawsuits. ZTE deposited the license fees due under these offers with a court. Huawei did not accept any of these offers which are still pending. At various occasions, ZTE also made it very clear that it is highly interested at resolving the dispute by taking a license.
In March 2013, the Düsseldorf Regional Court referred the case to the European Court of Justice (ECJ), seeking guidance on whether the "Orange-Book-standard" framework currently applied in German courts was in line with EU law, and whether SEP holders who have committed to licensing these patents under Fair, Reasonable and Non-Discriminatory (FRAND) terms, are abusing their dominant market position and breaching EU antitrust law by bringing injunctions against licensees who are willing to negotiate such terms.