Universität Wurtzburg , 21 January 2014 Arbeitsgruppe Wettberwerb und Regulierung

1. Injunctions for FRAND pledged SEPs: The Quest for an Appropriate Test of Abuse under Article 102 TFEU UniversitätWurtzburg, 21 January 2014 ArbeitsgruppeWettberwerb und Regulierung Prof. Nicolas Petit, University of Liege (ULG) Nicolas.petit@ulg.ac.be

2. Outline • Setting the scene • Options for tests of abuse • Selection rule • “Testing” the tests • Conclusion www.chillingcompetition.com

3. I. Setting the scene www.chillingcompetition.com

4. Apple filing of design patents (January 2007) www.chillingcompetition.com

5. Apple filing of design patents (June 2007) www.chillingcompetition.com

6. Apple v Samsung litigation (2011) www.chillingcompetition.com

7. The global smartphone war (1) • Patent owners enforce their IPRs and seek injunctions in courts across the world (ie to obtain removal of infringing products) • Patent (unlicensed) implementers raise allegations of unlawful abuse as a counterclaim • Difficulty 1: some patents are core to standardized technologies (though not all) => “SEPs” • Difficulty 2: some SEPs are encumbered by a FRAND commitment www.chillingcompetition.com

8. The global smartphone war (2) • Samsung patents over • “method and apparatus for reporting inter-frequency measurement using RACH message in a communication system”, which is allegedly UMTS-essential • “apparatus and method for encoding/decoding transport format combination indicator in CDMA mobile communication system”, which is allegedly UMTS-essential • Motorola patents over • H.264 video codec standard (for X-Box) • IEEE 802.11 WiFi standard (for X-Box) www.chillingcompetition.com

9. The global smartphone war (3) • Two types of cases • De facto standards • Formal standards adopted by SSOs • Different types of proceedings • National litigation (patent infringement): Samsung v Apple • EU Commission investigations: Samsung (Apple is complainant); Motorola (Microsoft is complainant) • Different types of allegations • “Competition law” defense • Violation of a FRAND commitment as abuse (patent hold-up)

10. The global smartphone war (4) • The legal issue • What test of abuse? • A priori, ITT Promediav Commission, T-111/96 as confirmed by Protégé International Ltd v Commission, T-119/09 • But rise of a new test => arguably abusive to seek injunctions against a “willing licensee” www.chillingcompetition.com

11. Germany v Commission? German test EU test • FSC in Orange Book Standard • Can be abusive to seek injunctions against a “willing licensee” • If offer that “cannot be refused” • Has acted “as if” he was already a licensee in good standing (acts of fulfillment) • Very “patentee friendly” • No formal standard, no FRAND pledge • No final determination of abuse • Unclear if ruling under German and/or EU law • Press releases in ongoing investigations (21 12 12) • May be abusive where SEPs are concerned and the potential licensee is “willing” to negotiate a license on FRAND terms • More restrictive in scope • FRAND and SEPs only • But more “licensee friendly” • Patent invalidity proceedings do not disqualify willingness • Accepting third party determination qualifies willingness www.chillingcompetition.com

12. Dusseldorf v Manheim? ECJ Reference by District Court of Dusseldorf Question by Manheim Regional Court to EU Commission • Huaweï v ZTE: 5Q on “willing licensee”: • Is injunction v a self-proclaimed “willing” licensee an abuse in itself (#1)? Or must an OBS offer be on the table (#1)? • If OBS offer is no prerequisite, but expressions of willingness suffice, how much evidence => mere statements (oral) or submission of “specific conditions” (#2) • If an OBS offer is prerequisite, how comprehensive? => a draft contract, or less? (#3) • If an OBS offer is prerequisite, how much fulfillment is needed, how far must the willing licensee go? => payment of royalties in account (#4)? • Is there abuse under the same conditions if patentee seeks other types of remedies (damages, etc.) (#5) • Judge Andreas Voß stays proceedings in Motorola v Apple, November 2013 • Questions asked to EU Commission relate to what kinds of terms constitute a FRAND agreement. • Motorola sought to impose on Apple a non-challenge clause, and later sought injunction • Apple refusal “willing” or “unwilling”? www.chillingcompetition.com

13. Commission v CJEU? • Statements of Commissioner Almunia • The Commission will “fully take account” of any guidance, but will not discontinue its investigations • Use of Article 9 R1/2003 to trump judicial debate? • Role of both institutions should be to set substantive standard for SEP injunctions • N. Petit, “Injunctions for FRAND-Pledged SEPS: The Quest for an Appropriate Test of Abuse under Article 102 TFEU”, European Competition Journal, Volume 9, Number 3, December 2013 www.chillingcompetition.com

14. II. Options for tests of abuse www.chillingcompetition.com

15. Available (Legal) Technology 15 www.chillingcompetition.com

16. III. Selection rule www.chillingcompetition.com

17. How to select the right test? 17 • No criterion in the case-law • Lawyers v economists • Legal certainty v economic welfare • Lawyers v lawyers • Forms-based (Ortiz Blanco & Lamadrid) v effects-based (Marsden) • Economists v economists • Minimize type I or type II errors? www.chillingcompetition.com

18. “Consistency” as a selection rule? • Consistency • Set a test coherent with solutions applied in similar factual, economic and legal setting; Set a distinct test in unrelated factual, economic and legal settings • Example: single branding agreements are lawful < 30% under Article 101 TFEU. Exclusive dealing under 102 TFEU should thus be per se lawful if tied market share < 30% • Various facets of consistency • Internal consistency (test consistent with case law under applicable provision) • Transversal consistency (test consistent with case law under other competition provisions) • Constitutional consistency (test consistent with GPL and other core values) • Economic consistency (test makes economic sense) www.chillingcompetition.com

19. IV. “Testing” the tests www.chillingcompetition.com

20. Internal Consistency (1) • All existing case-law tests are internally consistent • How about the new ones? • Abusive bargaining • Under Article 102 a) TFEU, what’s abusive is to set unfair price, not to adopt measures that may give rise to unfair price level (eg CJEU, United Brands) • The problem stems from the decision to include the impugned technology in standard. But this is not a decision of the dominant firm • Contrary to Commission policy under the Guidance Paper www.chillingcompetition.com

21. Internal Consistency (2) • “Willing licensee” => FRAND declaration means SEP owner must license all “willing licensees” • “Contractual duty” variant • But FRAND does not clearly give rise to contractual duty + not unlawful to breach a contract in EU competition law • Trick 1 => FRAND to give rise to an “antitrust” duty to license? => Yet, need to prove Magill-IMS Health “exceptional circumstances” • Trick 2 => FRAND setting is “exceptional circumstance” in itself => but not the case-law trend + Vesterdorf counterargument • “Moral duty” variant • Weberian theory of abuse => false commitment, not intended to be honoured • AstraZeneca => But AZ was an already dominant firm => here, patentee is not dominant at FRANDing stage • Rambus? => article 9 decision, not CJEU-proof www.chillingcompetition.com

22. Transversal Consistency • No obvious transversal inconsistency of the various tests, absent case-law on collective injunction seeking • But “willing licensee” test seems transversally inconsistent • SEP owner’s FRAND commitment => No reliance value of unilateral pledges in competition law • Article 101 TFEU • Merger control (GC, Gencor v. Lonhro) • Article 9 of R 1/2003 • Prospective licensee => willingness of buyer to be ascertained on basis of exteriorized conduct (Bayer and VW case-law) => acts of fulfillment are needed, mere willingness declarations are not sufficient • “Act of State” doctrine • Opinions of AG Jacobs in Albany and AG Léger in Arduino • Is the culprit the court granting injunction? www.chillingcompetition.com

23. Constitutional Consistency • All tests impinge yet protect the “freedom to do business” • All tests restrict the “right of access to courts” • But one test pays heed to Article 47 EU Charter => ITT Promedia/Protégé International • “King” of all rights, cannot be balanced as easily as other fundamental rights • General principles of law (incl. EU law) • Willing licensee >< No implied waiver rule • Willing licensee >< Principle of legitimate expectations (key notion of “sufficiently precise assurances”) www.chillingcompetition.com

24. Economic Consistency • Screening • Tests of abusive exploitation should be disregarded => black sheep of IO • Abusive bargaining, or “holdup” theories => not mainstream economics www.chillingcompetition.com

25. Hold-up as “exoticonomics” • Formal rebuttal: G. Langus, V. Lipatov and D. Neven, “Standard essential patents: who is really holding up (and when)?”, mimeo • Empirical invalidation • Litigation costs are trivial (0,1% of Apple’s revenues in 2012) • No empirical evidence: “In the recent case with Microsoft pursuing claims of hold-up against Motorola in the Western District of Washington, even Microsoft's experts …conceded under cross-examination that holdup was not necessarily a problem. Instead, they stated there was no evidence of hold-up and could not identify a single license that had been held up”.

26. Empirical data (telcos, Darts IP)

27. Empirical data (digital communications, Darts IP)

28. Empirical Data (Samsung, telcos)

29. Empirical data (Samsung, Digital Communications)

30. Alternative • Theories of exclusion are more robust (ie refusal to supply, abusive litigation, anticompetitive foreclosure) • Yet, tests articulating a non price predation theory are not plain vanilla economics • Complex to prove potential for anticompetitive exclusion => no good proxy to predict outcome of judicial proceedings (unlike in price predation) • But “raise rival costs” at any rate • Yes, but also raises the costs of Domco • Does it harm rivals more (cos’Domco has scale?) • Not sure in emerging markets • Smartphone war is a conflict of giants • Litigations costs are trivial (0,1% of Apple’s revenues in 2012) www.chillingcompetition.com

31. V. Conclusion www.chillingcompetition.com

32. Brief Overview of Implications 32 www.chillingcompetition.com

33. Worst-case scenario? • CJEU dismisses reference • CJEU adresses reference, but ruling à la Pfleiderer or Sot Lélos kai Sia v GlaxoSmithKline • Legal uncertainty and high compliance costs www.chillingcompetition.com

34. Words of wisdom • Josh WRIGHT, FTC Commissioner, recently made the point that antitrust in high-tech markets should be “disciplined by empiricism” • Need for facts (ex post intervention is more adequate) • IP enforcement strategies only abusive in “exceptional circumstances” • GC, T-198/98, Micro Leader Business v Commission • If law is to be made, this should be done with binding legal instruments, and reviewable decisions • Neither soft law, nor Article 9 decisions (Marsden) • Wait for CJEU guidance? www.chillingcompetition.com

35. Thank you 35 www.chillingcompetition.com