TILBURG LAW SCHOOL LEGAL STUDIES RESEARCH PAPER SERIES

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1 TILBURG LAW SCHOOL LEGAL STUDIES RESEARCH PAPER SERIES Injunctive Relief in FRAND Disputes in the EU? Intellectual Property and Competition Law at the Remedies Stage Pierre Larouche & Nicolo Zingales Tilburg University Tilburg Law School Legal Studies Research Paper Series No. 01/2017 This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection

2 TILEC TILEC Discussion Paper Electronic copy available at:

3 INJUNCTIVE RELIEF IN FRAND DISPUTES IN THE EU INTELLECTUAL PROPERTY AND COMPETITION LAW AT THE REMEDIES STAGE Pierre Larouche * Nicolo Zingales ** Abstract In dealing with applications for injunctive relief by the holders of FRAND-encumbered SEPs in the course of protracted licensing negotiations, any legal system faces the challenge of reaching the proper balance between predictability for stakeholders and differentiation between possible scenarios (tough negotiations, holdup, holdout or exclusion). In the EU, that challenge fell to be addressed first under the various national laws concerning remedies for intellectual property violations, as partially harmonized by Directive 2004/48. The outcome was not optimal. After German courts introduced competition law in the equation in Orange Book, the European Commission felt compelled to intervene with a different approach in Motorola and Samsung, leading to a reference to the CJEU in Huawei v ZTE. That ruling sets out an elaborate choreography that SEP holder and implementer must respect, in order to avoid breaching Article 102 TFEU or avert injunctive relief, respectively. Huawei represents a satisfactory compromise in practice, but its theoretical foundation in competition law is not solid. Subsequent case-law has unmoored Huawei from competition law and is turning it into a stand-alone lex specialis for injunctions in FRAND cases. In the longer run, legislative intervention might be preferable to de facto harmonization via competition law. Keywords Competition law; Injunctive relief; Licensing negotiations; Europe; Harmonization; Holdup; Holdout; Exclusion; France; Germany; United Kingdom; Italy; Netherlands JEL Codes K21, L40, O32, O34, O38. * Professor of Competition Law, Tilburg Law and Economics Center (TILEC), Tilburg Law School, Tilburg University; Visiting Professor, Northwestern Pritzker School of Law. SSRN Author page: ** Lecturer, Sussex University Law School; Extramural Fellow, TILEC; Research Associate, Tilburg Institute for Law, Technology and Society (TILT); Affiliate Scholar, Stanford Center for Internet and Society. SSRN Author page: = The authors have benefitted from the financial support of Qualcomm in the preparation of this paper, but the opinions expressed therein are theirs alone. Electronic copy available at:

4 Europe has been a theater in the FRAND litigation conflicts that have played out worldwide in recent years. Cases have arisen in many EU jurisdictions, in particular in Germany. The European Commission also intervened in some cases, and matters went up to the Court of Justice of the European Union. At the same time and conversely, litigation relating to FRAND commitments itself offered a showplace for another ongoing clash, this time between intellectual property law and competition law in the EU. This Chapter provides a reasoned and critical account of the use of injunctive relief in standards-related litigation in the EU. Part A provides background information and sketches a basic model of standards-related IP licensing negotiations, and related litigation. Part B shows how intellectual property law including the law concerning the use of injunctions for the enforcement of IP rights can be, and has been used, to deal with that litigation in Europe, with specific attention to five jurisdictions, namely England, France, Germany, Italy and the Netherlands. Part C builds on Part B and explains how EU competition law was brought to bear on these disputes, culminating (for now) in the Huawei v. ZTE ruling of the Court of Justice of the European Union. 1 Part D looks at the developments following Huawei. Part E completes the analysis with a critical examination of the current state of the law. A. A basic model of IP negotiations in a FRAND setting For the purposes of this model, we assume that, following the establishment of a standard, two parties are negotiating over the licensing of a Standard-Essential Patent (SEP) encumbered with a commitment by the SEP holder to grant licenses on fair, reasonable and non-discriminatory (FRAND) terms. One party is the SEP holder, the other is an implementer that wants to practice the standard in question in its products. 2 Realistically, in contemporary cases, the SEP holder typically holds a significant portfolio of SEPs, and negotiations are conducted over the licensing of the entire portfolio. Furthermore, as is recognized in the literature, patents are probabilistic in nature (Lemley and Shapiro, 2005). This means that the patent office has deployed a specific amount of effort to ascertaining whether the patents are valid; for reasons of efficiency and proportionality, such effort is less what would bring iron-clad certainty regarding validity. Validity is therefore affected by a discount factor: there is a likelihood that, upon further examination, the patent would be found invalid. By the same token, whether the patent is actually infringed when the standard is implemented i.e. whether the patent is truly standard-essential 3 has not been tested; typically, the SEP holder has claimed essentiality, and that claim is also affected by the probability that it could be found wrong, upon closer examination. Aggregating to whole portfolio of SEPs, both parties know that, should validity and infringement/essentiality be 1 CJEU, 16 July 2015, Case C-170/13, Huawei v. ZTE ECLI:EU:C:2015: We leave it open for now whether the SEP holder is also implementing the standard in its own products, and whether the implementer also holds SEPs of its own for which the SEP holder might want a cross-license; we will take these possibilities into account when warranted. 3 If the SEP has not been infringed by implementing the standard, then it is not essential. A finding of non-infringement therefore has much wider-ranging consequences for an SEP than for other nonessential patents. 2 Electronic copy available at:

5 conclusively tested for all SEPs, some of them would fall, but others would survive with greater force, since the probabilistic factor would have been removed. In order to have a complete picture of the parties negotiation over a FRAND license, one needs to consider the outside options of each party. In essence, each party has the option of escaping the probabilistic realm and forcing a conclusive examination of validity and infringement/essentiality, in the hope of prevailing in that examination and achieving a more favorable outcome on the royalty rate. That option exists for each SEP in the portfolio. For the implementer, this outside option involves a direct challenge to validity or infringement/essentiality. For the SEP holder, the outside option is to request injunctive relief against the implementer, and thereby force the implementer to defend itself against the injunction, among others by arguing invalidity or non-infringement. Given that the negotiations bear on a broad portfolio, should the SEP holder exercise its outside option, it will probably pick a SEP that it thinks is very likely to be found valid and essential. 4 On the other side, in order to try to rein in the SEP holder, the implementer might want to use its outside option and challenge the validity or essentiality of a weaker SEP. Accordingly, it is quite likely that both outside options can be validly exercised on different SEPs within the portfolio. In an ideal world, the SEP holder and the implementer should possess enough information about the SEPs, the market and their respective positions that they can come to an agreement. Unfortunately, we do not live in a perfect world. SEP portfolios are complex and views on their valuation can easily differ. The legal meaning of FRAND is itself affected by uncertainty. In the ICT sector, the stakes are often massive, which makes parties defend their interests aggressively. Finally, not all parties can be assumed to act in good faith at all times. Taking the above into account, four scenarios are conceivable, broadly speaking: 1. Negotiation. The parties are locked in difficult negotiations to conclude a FRAND-compliant license. These negotiations might be stalled, and parties might want to use various negotiation tactics to influence the course of negotiations. Yet parties have no obvious interest to derail the negotiations by having recourse to outside options. The threat of the outside option remains hanging, of course. But it would seem more natural to refer their dispute to a third-party for adjudication (court or arbitrator). 2. Holdup. The SEP holder wants to holdup the implementer, and to rely on its market power to obtain exorbitant royalties, despite the FRAND commitment. Note that, in competition policy terms, this represents the exploitation of market power. The SEP holder would not normally seek to exclude the implementer from the market; that would result in no royalties at all and would be counter-productive. However, the threat of injunction might be used to try to force the reluctant implementer to accept a higher royalty. 3. Holdout. The implementer does not want to conclude a license agreement with the SEP holder on FRAND terms and intends to practice the standard without such a license (or with an unreasonably low royalty). Presumably, the SEP holder will want to use its outside option threaten an injunction, and even request one in order to force the implementer to at least post some security whilst negotiations are underway. 4 As a result, since the implementation of the standard requires the use of SEPs, even if the injunction only bears on one or a few SEPs, the implementer is in fact prevented from using the standard. 3

6 4. Exclusion. Should the SEP holder also be competing with the implementer on the downstream market for products conforming to the standard, a fourth scenario arises. Despite the willingness of the implementer to license the SEP, the SEP holder is trying to use its SEP to exclude the implementer from that market. Here, the SEP holder should have no hesitation to use injunctions to exclude the implementer. The implementer can counter with a challenge to a weaker SEP, but that provides little help, since fundamentally there is no mutual interest in concluding a license (contrary to the first three scenarios). The implementer is best positioned if it also happens to hold SEPs of its own and can threaten its counterpart with exclusion as well. At first sight, from a policy perspective, Scenario 1 does not warrant intervention. The parties are managing a difficult negotiation over FRAND licenses, and absent evidence that such negotiations systematically result in welfare losses, it is better to leave the parties to negotiate. What is more, within scenario 1, any policy intervention that would affect the incentives of the parties and push them to litigate more often should be viewed with suspicion, since it generates significant transaction costs over and above an entirely negotiated outcome (Larouche, Padilla and Taffett, 2014). Scenarios 2 and 3 can be seen as pathological cases of Scenario 1, where one party is reneging on its FRAND commitment (SEP holder in Scenario 2) or on the legal requirement to obtain a license, and expectations as to business conduct (implementer in Scenario 3). In Scenario 2, it is not desirable that the SEP holder should be able to obtain, or even seek, injunctive relief. In Scenario 3, on the other hand, the SEP holder should be allowed to seek and maybe even obtain injunctive relief, if the threat thereof does not suffice to discipline the runaway implementer (or at least force the implementer to post security whilst negotiations are ongoing). Finally, in Scenario 4, welfare is adversely affected if the SEP holder moves for injunctive relief. Accordingly, from a public policy perspective, a proper assessment of the use of injunctive relief or the threat thereof crucially depends on the ability to ascertain which of these four scenarios apply. Unfortunately, such an inquiry is not simple: it involves looking into how parties behave, how serious their offers are (including whether proposed royalties would qualify as FRAND) and ultimately what their intent is. None of these matters are easy to find out or to judge. Any legal system therefore faces a daunting task in trying to police the use of injunctive relief in SEP-related licensing disputes. Every case requires careful scrutiny. If litigation increases and cases start to pile up, it is difficult to improve the efficiency of decision-making or provide guidelines to prevent disputes. Indeed there are few simple proxies available: at most, one can consider that Scenario 4 is not likely if the SEP holder is not also competing with the implementer on the downstream market. It is against that background that we now proceed to examine how such disputes are handled in Europe. B. IP law and injunctive relief in SEP-related disputes 4

7 A first and natural port of call has been IP law, given that the subject-matter of the discussions is a set of patents: SEP holders can ask for injunctions in order to enforce their rights, whilst implementers can challenge the validity, infringement or essentiality of a SEP. Since in the EU the remedies available for enforcement of IP law are harmonized by an EU directive, Directive 2004/48, 5 it is useful to review its basic principles, in particular with regard to the issuance of injunctions. Directive 2004/48 must be seen against the backdrop of fragmented IP enforcement in the EU. Indeed the starting point is that, while the substance of IP rights has been harmonized to an extent that varies depending on the type of IP right (Seville, 2015), EU law does not provide exhaustive rules on the enforcement of IP rights. In line with the general principles of national procedural autonomy in EU law, enforcement is left to the laws and institutions of the Member States. 6 Mounting concerns about the effectiveness of that fragmented system IP enforcement led to the enactment of Directive 2004/48. 7 The Directive defines a general framework and sets minimum standards by imposing the obligation to make certain measures, procedures and remedies available to secure effective IPR enforcement. 8 This minimal harmonization approach, which is not unusual in EU law, especially on substantive matters, can be more problematic in the context of enforcement procedures. Indeed, to the extent Member States avail themselves of the possibility to retain enforcement means that are more favorable to rightholders, 9 fragmentation will remain, and with it the potential for inconsistencies and forum shopping. Directive 2004/48 was also conceived primarily as an instrument to strengthen the protection of intellectual property rights. As the explanatory notes to the Directive suggest, the main focus of the legislative exercise was to improve the effectiveness of the fight against counterfeiting and piracy. 10 The Directive was therefore not conceived with complex IP licensing disputes in mind, but rather simpler, almost one-sided enforcement actions. Accordingly, the Directive aims to make it easier for rightholders to enforce their IP rights. By and large, Directive 2004/48 strengthens the hand of rightholders and only marginally addresses limitations to IP enforcement. Article 3 establishes that means of enforcement provided by the Directive shall be fair and equitable and shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse. 11 It is only later, in 5 Directive 2004/48 of 29 April 2004 on the enforcement of intellectual property rights [2004] OJ L 157/45, as corrected at [2004] OJ L 195/16 [hereinafter Directive 2004/48]. 6 The doctrine of national procedural autonomy recognizes the power of States to regulate above and beyond the reach of EU law, provided that such regulation does not compromise the effectiveness the rights conferred under EU law (principle of effectiveness) and does not discriminate between claims of national law and claims of EU law (principle of equivalence or non-discrimination). See CJEU, 14 December 1995, C-312/93, Peterbroeck [1995] ECR I As is explained in the recitals to Directive 2004/48 itself, Rec Ibid., Article 2 (1), containing the explicit acknowledgement that it does not prevent Member States from providing more favorable means for the protection of rightholders. 9 Ibid. 10 See the Commission proposal which led to Directive 2004/48, COM(2003)46 (30 January 2003) at pp Directive 2004/48, Art. 3. See ibid., p. 7 for a lone paragraph alluding to the risk that IP enforcement would affect legitimate competition, carried over in Directive 2004/48, Rec. 12 and Art. 3. 5

8 2011, that the CJEU began to see that IP protection must sometimes be balanced with fundamental rights, including the freedom to conduct a business pursuant to art. 16 of the EU Charter of Fundamental Rights, and must also be proportionate. 12 As can be expected, Directive 20004/48 deals with injunctions, one of the main remedies for IP infringements, both as provisional and precautionary measures (interlocutory injunctions) and as permanent measures. The former are most interesting here since, as pointed out in the literature (European Observatory on Counterfeiting and Piracy, 2011), interlocutory injunctions are the primary or the most effective enforcement remedy in most Member States, often inducing the parties to reach a settlement before any consideration of the merits. There is therefore more than meets the eye in interlocutory injunctions, since they condition the power relationship between the parties during a crucial period of time (pre-trial discussions); their impact is difficult to undo afterwards. As regards interlocutory injunctions, Article 9(1) and (3) of Directive 2004/48 provide that such injunctions must be available under national law, with a view to prevent any imminent infringement and or forbid the continuation of an alleged infringement. In addition, Article 9(4) creates the obligation for Member States to ensure that provisional measures can also be taken ex parte (subject to subsequent review) where any delay would cause irreparable harm to the rightholder. Article 9(5) to (7) establish safeguards for the defendant. The defendant must be entitled to compensation for any injury caused by the issuance of an interlocutory injunction, in cases where the injunction is revoked, the rightholder causes it to lapse or the defendant wins on the merits. In order to ensure that such compensation is available, national courts must be able to subordinate the issuance of an interlocutory injunction to the lodging of security by the rightholder. Finally, the defendant must be able to lift the injunction if the rightholder has not instituted proceedings on the merits within a reasonable time. Despite these safeguards, Directive 2004/48 does not clearly set out the test for the issuance of an interlocutory injunction. At best, Article 9(3) implies that the competent court must be satisfied that the applicant has proven the existence and the infringement (real or imminent) of the IP right at stake. The Directive does not mention any further condition, such as a requirement of irreparable harm, a balance of inconvenience test or a public interest requirement. In some Member States courts have read an urgency condition into the concept of imminent infringement, whereby rightholders need to show that their rights cannot be adequately protected unless they obtain an interlocutory injunction; Other Member States, like Italy, have legislated to counter such case law, by specifying that urgency is given as soon as there is a real or imminent infringement (European Observatory on Counterfeiting and Piracy, 2011). 13 Leaving that interpretive feat aside, Directive 2004/48 remains silent, neither requiring nor forbidding the imposition of further conditions for the grant of interlocutory relief, beyond the existence of the right and its infringement. This would imply that, on the sole basis of Directive 2004/48, the laws of the EU Member State would not allow for the kind of differentiated assessment that the model sketched out above would require, in order for 12 CJEU, 24 November 2011, Case C-70/10, Scarlet [2011] ECR I-11959, at The study brings the example of Slovakia, where the law sets the limit of 14 days from the awareness of the actual or threatened infringement, at 7. The Italian solution is presented as the best practice, at 8. 6

9 the use of injunctive relief in SEP-related disputes to be properly policed. The inquiry does not stop at Directive 2004/48, however. In line with general principles of EU law, if Directive 2004/48 is silent and does not effect full harmonization, any such further conditions, if any, can emanate from the various national laws, as long as these further conditions do not infringe EU law. 14 Accordingly, even if Directive 2004/48 would signal a policy choice to make injunctive relief easily and readily available to rightholders, it is necessary to survey national laws to get a full picture of the legal situation, especially when the law, as Directive 2004/48 intended to frame it, is applied to other types of cases (SEP-related disputes) than the Directive envisaged. In this contribution, we survey what appear to be the 5 most frequent fora for patent infringement cases in the EU: France, Italy, Germany, the Netherlands and England. Because of the changes brought about in the wake of Huawei v. ZTE, 15 this survey is limited to case law up to Subsequent case law is discussed later, in Part IV. 1. England England is where the concept of injunctive relief was born. As the framework for granting injunctions was well developed by the time of the introduction of Directive 2004/48, only minimal change was made to implement Article 9 of the Directive. 16 In order to fully understand the situation in England, some historical depth is needed. Injunction is an equitable remedy (Raack, 1986). In earlier centuries, injunctions mostly interlocutory (Leubsdorf, 1978) were granted without a full assessment of the merits (Kerr, 1867). As injunctive relief became more widespread, however, courts began to look into the relative merits of the claims, in order to constrain possible misuse. A balance of convenience test arose, focusing on the risk of irreparable damage absent the grant of an injunction, as compared to the harm that would be suffered by the enjoined party. Among other relevant factors, the protection of the status quo, i.e. the need to preserve the current state of affairs, plays a role. In cases concerning longstanding property or patent rights, it was deemed that denying relief would cause more inconvenience than protecting the right until the decision on the merits (Leubsdorf, 1978; Evans, 1817). The current Patents Act 1977 endorsed the existing framework by establishing the availability of permanent 17 and interim injunctions, 18 without however attempting to constrain the discretion of the courts concerning the conditions for relief to be granted. 14 Supra, note 6. Given that Directive 2004/48 is already concerned with enforcement and introduces minimal harmonization of enforcement mechanisms with a view to improving the position of rightholders, additional conditions that would add significantly to the substantive or evidentiary burden of the rightholder might run counter to the principle of effectiveness and thus be in breach of EU law. 15 Supra, note The only change brought about by implementing legislation with respect to injunctive relief was the introduction of court orders making continuation of an alleged infringement subject to the lodging of guarantees, intended to ensure compensation of the rightholder (as required by Article 9(1)(a) of Directive 2004/48). See Intellectual Property (Enforcement, etc.) Regulations 2006 of 29 April 2006, Statutory Instrument 2006 No Patents Act 1977, c. 37, s. 61 (1). 18 Ibid., s. 25 (1). 7

10 After an unsuccessful attempt to limit the depth of the inquiry in preliminary injunction cases, in American Cyanamid, 19 the law was summarized as follows in Series 5 Software v. Clarke: 20 [I]n deciding whether to grant interlocutory relief, the court should bear the following matters in mind: (1) The grant of a preliminary injunction is a matter of discretion and depends on all the facts of the case.(2) There are no fixed rules as to when an injunction should or should not be granted. The relief must be kept flexible. (3) Because of the practice adopted on the hearing of applications for interlocutory relief, the court should rarely attempt to resolve complex issues of disputed fact or law. (4) Major factors the court can bear in mind are (a) the extent to which damages are likely to be an adequate remedy for each party and the ability of the other party to pay (b) the balance of convenience (c) the maintenance of the status quo [and] (d) any clear view the court may reach as to the relative strength of the parties cases In other words, balance of convenience, status quo and relative merits of prima facie claims are important guiding factors, but the courts will retain significant discretion in granting this type of remedies. Next to the discretion of the court in awarding relief, it is worth noting that a defendant can defeat a request for injunction if it elects to pay damages, under the following conditions: 21 (1) If the injury to the plaintiff s legal rights is small, (2) And is one which is capable of being estimated in money, (3) And is one which can be adequately compensated by a small money payment, (4) And the case is one in which it would be oppressive to the defendant to grant an injunction. Practitioners note that requests for conversion and in particular the argument that enforcement would be grossly disproportionate 22 rarely succeed in litigation (Dagg, 2010). Indeed, in the recent case of HTC v Nokia, 23 the court concluded that the burden borne by defendants when claiming gross disproportionality should be a heavy one, therefore significantly limiting the ambit of that defence against injunctions in patent cases (Moss, 2014). 24 All in all, it is fair to say that the flexibility and discretion built into decision whether to grant of injunctive relief in England distinguish it from other jurisdictions. 25 Moreover, practitioners point out that the UK is an expensive forum for patent litigation, and arguably because of the discretionary nature of injunction as an equitable remedy, does not offer high rate of success to patent holders (Mueller, 2012). 2. Italy Italy implemented Directive 2004/48 with Legislative Decree 140/2006, which resulted in some amendments to the provisions of the Intellectual Property Code. On the specific aspect of injunctions, the former Article 124 of the Intellectual Property Code was 19 American Cyanamid v. Ethicon Ltd [1975] AC 396 (HL). 20 Series 5 Software Ltd v Clarke [1996] 1 All ER 853 (Ch.). 21 Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287 (CA). 22 The meaning of oppression was clarified in 2004 referring to when an injunction would be grossly disproportionate to the right protected. See Navitaire Inc v Easyjet Airline Co [2004] EWHC 1725 (Ch). 23 HTC Corporation v Nokia Corporation [2013] EWHC 3778 (Pat). 24 See also Pumfrey J s formulation in Navitaire Inc v EasyJet Airline Co Ltd (No 2) [2004] EWHC 2271 (Ch), repeated with approval by Jacob LJ in Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd [2011] EWCA Civ We leave it open whether English law correctly implements Directive 2004/48 on these issues. 8

11 replaced by Article 131, which extended the possibility of injunctive relief to cases of imminent harm (in line with the wording of the directive) and introduced the possibility of ex parte orders. As to the conditions for the grant of an injunction, the provision refers to the rules in the Code of Civil Procedure. Article 700 of that Code provides that preliminary injunctions can be granted only if the applicant has legitimate ground to fear that during the time necessary for the completion of ordinary proceedings, the exercise of his right is threatened by an imminent and irreparable harm. The same requirements, but to a higher degree of stringency, apply to the issuance of ex parte injunctions. In both cases the patentee must show good cause and a reasonable likelihood of success on its claims of validity and of infringement (Jacobacci, 1976). Hence the existence of a validity challenge makes it more difficult for a court to issue a preliminary injunction. 26 As briefly mentioned above, there is a presumption of irreparable harm in cases of patent infringement, on the assumption that replication of the invention will lead to a diversion of sales from the rightholder s product, which is hard to quantify and will tend to increase with the passing of time. 27 There have been four Italian rulings worth mentioning in SEP cases so far. In 2004, the District Court of Genoa dismissed the FRAND defense 28 of the implementer and granted the injunction, because it considered that FRAND terms ought to be assessed with reference to the common practice of the patentee, and that for a successful FRAND defense, the burden lies upon the defendant to identify a prejudice in terms of unequal access to the market relative to its competitors. 29 More recently, in 2012, the Court of Appeal of Milan rejected Samsung s request for injunctive relief against Apple because of the prior attempt by Samsung to reach an agreement on FRAND, which the court took as evidence that monetary compensation would be adequate to repair the potential harm from a continuation of the infringement. 30 In a third case, Ericsson was denied an injunction against Onda, on grounds that the latter had made an offer for the renewal of its existing license for GSM/EDGE technology. 31 In its assessment of the likelihood of irreparable damage, the court also recognized the reduced attractiveness of the patent for all the other licensees, with the consequent possibility that the companies which already signed licenses refuse to renew them or request a reduction of the amount of due royalties, causing therefore a general hollowing of the licensed patent. This contrasts with the approach taken by the Court of Rome in 2011 in Ericsson v ZTE, where a preliminary injunction was denied on grounds that the harm was pure economic loss. 32 In summary, Italian courts are divided on the conditions for injunctive relief. 3. France 26 See Tribunale di Bologna, , 4847/1, Soc. Sig Alfa/Soc. Sacmi Labelling. Giur. dir. ind., 2005, See in this sense Tribunale di Lodi, 9 giugno 2003, Misal Arexons/Mitam; and more generally, Tribunale di Milano Giur. Dir. Ind. 1979, The FRAND defence would entail that no injunction should be granted, given that the subject-matter is a FRAND-encumbered SEP (which can be seen as an essential facility) and the parties are in the process of negotiating a FRAND license. 29 Tribunale di Genova, , 2521/0-2538/04, Philips/Italcard. Giur. dir. ind., 2006, Tribunale di Milano, , and , Samsung/Apple. Giur. dir. ind., 2014, Tribunale di Trieste, , Ericsson/Onda. Giur. dir. ind., 2013, Tribunale di Roma, , Ericsson/ZTE. Giur. dir. ind., 2013,

12 In France, implementation of Directive 2004/48 came in 2007 through the Act on Fighting Counterfeiting. 33 With respect to injunctions, this legislation effected a number of changes in the French Intellectual Property Code: 34 the most notable is the elimination of the need for urgency (Coury, 2003). Rightholders are also entitled to obtain an injunction in case of imminent infringement that is, before the infringement takes place even pursuant to an ex parte proceeding, if the delay would cause an irreparable harm (although ex parte injunctions remain a rare occurrence) (May and Liens, 2014). In a subtle deviation from the Directive, the French IP Code requires that the rightholder provide sufficient evidence as may reasonably be available to show the likelihood of an infringement, real or imminent. At the same time, irreparable harm seems presumed once the likelihood of infringement is established. Contrary to other jurisdictions, a separate showing of irreparable harm is only required in order to obtain an injunction ex parte. The presence of a challenge to the validity of the patent could of course affect the reasoning of the court on whether infringement, real or imminent, is likely. On that issue, French case law has evolved. Earlier cases did not consider validity challenges in the assessment of the likelihood of infringement. 35 In more recent cases, 36 courts took the opposite stance, ruling that the judge should always examine arguments as to validity, so as to avoid that the assertion of an invalid patent would affect competition unduly. 37 The case law now seems to have settled on a middle position, whereby the court will ascertain whether there is a serious validity issue to be tried (i.e. a facially valid challenge). 38 All in all, the formulation of Article 615-3, with its focus on likelihood (as opposed to the serious character of the action prior to the implementation of Directive ), suggests that invalidity questions should be considered before granting injunctive relief. There have been almost no reported SEP disputes in France over the last few years. In a French variant of the Samsung v. Apple litigation, where Samsung was seeking an interlocutory injunction against Apple for an infringement of SEPs in the iphone 4S, Apple argued in its defense that the SEPs were implemented in the Qualcomm chips that it used, and for which Qualcomm had a valid license from Samsung. The court sided with Apple and denied the injunction, adding in passim that the application for injunctive relief was patently disproportionate. 39 Similarly, in Ericsson v TCT Mobile, the court denied injunctive relief because license negotiations were ongoing and the parties disagreed only on the royalty rate, while agreeing on the geographical extent and technological scope of the agreement. 40 The court noted that granting the injunction 33 Loi n du 29 octobre 2007 de lutte contre la contrefaçon, JORF The title of that legislation is reflective of the context within which Directive 2004/48 was enacted. 34 CODE DE LA PROPRIÉTÉ INTELLECTUELLE, see in particular Article L See Cour d appel Lyon, 20 October 2009, 2008/06216, Mundipharma v. Mylan and Tribunal de grande instance Strasbourg, 10 March 2009, PIBD 2009, 899, Laboratoires Negma v. Biogaran. 36 It should be noted that since 1 November 2009, the Paris courts have exclusive jurisdiction for patent and other intellectual property matters. These cases are assigned to chambers of specialized judges, which might explain the evolution in the case law. 37 Tribunal de grande instance Paris, 15 September 2009, PIBD 2010, 913, Radiante v. Medi. 38 Cour d appel Paris, 21 March 2012, PIBD 2012, 963, Novartis v Mylan. 39 Tribunal de grande instance Paris, 8 December 2011, PIBD 2012, 956, Samsung v. Apple. 40 Tribunal de grande instance Paris, 29 November 2013, 2012/14922, Ericsson v. TCT Mobile Europe. 10

13 in such circumstances would unduly favor the patentee and distort the principle of FRAND licences, by putting unjustified pressure on the future licensee. Perhaps the scarcity of SEP disputes comes from the fact that, according to patent law practitioners, French courts have started to conduct a balance of interest test when ruling on interlocutory injunctions, much like in the common law (Véron and Romet, 2011). That test has sometimes favored the applicant, 41 sometimes the defendant; 42 in any event it introduced an element of uncertainty that makes France less attractive to patent owners than jurisdictions where injunctions are granted as a matter of right. 4. Germany Directive 2004/48 was implemented in Germany through the Act on Improving Enforcement of Intellectual Property Rights, 43 which aligned 139 of the Patent Act concerning interlocutory injunctions in patent cases with the Directive. In general, such injunctions can be granted on the basis of 935 of the German Code of Civil Procedure, which provides that injunctions are available when there is a concern that a change in the status quo could frustrate, or make significantly more difficult, the realization of the rights enjoyed by a party. The first condition under 935 is the existence of a fumus boni iuris, which depends among others on the defenses raised by the other party. In patent cases, for example, interlocutory injunctions are typically not granted if the allegation of infringement is likely to be defeated by a prior finding of invalidity. 44 As a result, such injunctions are only granted if the validity of the patent is not in doubt, typically because it has already withstood a validity challenge or no such challenge was ever brought because the patent is commonly perceived as valid. 45 As a second condition under 935, irreparability must be shown. This translates into a balance of convenience test that, according to some, is not very different from that occurring in common law jurisdictions (Perkins and Mills, 1996). However, it seems that German law is more stringent than US law, since interlocutory injunctions are barred where the decision on the merits appears complex (e.g. an expert must be consulted) or concerns an equivalent infringement (Shimada et al, 2007). 46 In contrast, German law is rather permissive when it comes to permanent injunctions, since a permanent injunction will be issued upon a showing of infringement, absent an 41 Tribunal de grande instance Paris, 12 February 2010, 2010/51453, DuPont v. Mylan (Losartan) and 28 January 2011, 2011/50892, Novartis v. Actavis (Diovan). 42 Tribunal de grande instance Paris, 19 August 2010, 2010/56889, Aventis v. Teva (Taxotere). 43 Gesetz zur Verbesserung der Durchsetzung von Rechten des Geistigen Eigentums, BGBL I The Act entered into force on 1 September The Act made parallel modifications to the remedial provisions of the various pieces of legislation dealing with specific intellectual property rights. For the purposes of this contribution, only the modifications to the Patent Act (Patentgesetz, BGBL I.1) are considered. 44 See e.g. the denial of injunctive relief by the Düsseldorf Oberlandesgericht in the Olanzapine litigation, which was reversed on appeal because the validity decision on which the denial was grounded was clearly erroneous in light of the parties statement of facts and the infringement court s own expertise. Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf 29 May 2008, GRUR-RR 2008, 329 (Olanzapine). 45 Oberlandesgericht [OLG] [Court of Appeal] Düsseldorf 29 April 2010, BeckRS 2010, (Harnkatheterset). 46 An equivalent infringement is a functional type of infringement, where the infringing product is not identical on its face, but achieves the same function or result, or operates in the same way. 11

14 extreme likelihood of invalidity or a violation of competition law (Jones, 2014; Korber, 2013). Thirdly, under 935, urgency needs to be proven. Courts differ on how quickly the applicant must have come to the court (IPEG). Besides timing, there is a need to show imminent harm, to be balanced against the interests of the defendant (Cotter, 2014; Kühnen, 2013). In cases of extreme urgency, an injunction can also be entered ex parte. Germany is a peculiar jurisdiction among those mentioned, however, because of bifurcation: patent validity and patent infringement are heard by two distinct courts. The Federal Patent Court, in Munich, is competent for validity challenges, whereas infringement proceedings and interlocutory injunctions are handled by the local district courts (Landgericht). 47 Accordingly, if the applicant shows fumus boni juris, as mentioned above, it will not possible for the defendant to raise invalidity as a defense in an infringement proceeding (de Coster, 2002). 48 As a consequence, Germany has a high concentration of patent infringement suits. It should come as no surprise, then, that the German Supreme Court was the first to rule on the availability and use of injunctive relief in SEP-related litigation, in 2004, in the now famous Orange Book case. 49 In Orange Book, the plaintiff, Philips, was seeking a permanent injunction against the defendant for infringement of Philips s patents concerning CD-R/CD-RW supports. The defendant was producing CD-R/CD-RWs without a license for these patents, and these patents were de facto essential (there was no formal standard involved). The Supreme Court found in favor of the plaintiff. As a starting point for its reasoning, the Court notes that while a license-seeker cannot implement the patent unless and until it has a license from the patent holder, the patent holder can be estopped from seeking injunctive relief against the license-seeker. This is the case, holds the Court, in line with case law concerning patent damage cases, 50 where the license is indispensable to enter a market, and the patent holder cannot refuse to grant a license without breaching competition law. 51 The Court adds, however, that a breach of competition law would only occur if the patent holder sought injunctive relief against a willing licensee, i.e. a license-seeker that complies with two conditions: 47 The same division applies to European patents protected in Germany, where revocation proceedings are governed by German procedural rules and European substantive law: See Art. 138(1) of the European Patent Convention. 48 However, should the district court estimate that there is high probability of invalidation, it may decide to stay the proceedings to wait for the outcome of a pending opposition or nullity action. In practice, this occurs in the presence of novelty-disproving prior art that was not considered during patent examination. 49 Bundesgerichtshof [BGH] [Federal Court of Justice], 6 May 2009, BGHZ 180, 312, NJW-RR 2009, 1047, GRUR 2009, 694, WuW 2009,773 (Orange Book Standard). 50 See Bundesgerichtshof [BGH] [Federal Court of Justice], 13 July 2004, BGHZ 160,167, IIC 2005, 741 (Standard-Spundfass); Landgericht [LG] [District Court] Düsseldorf, 30 November 2006, BeckRS 2011, (Video Signal Encoding I); Landgericht [LG] [District Court] Düsseldorf, 30 November 2006, NJOZ 2007, 2100, BeckRS 2007,06067, WuW 2007, 1278 (MPEG2); Landgericht [LG] [District Court] Düsseldorf, 13 February 2007, BeckRS 2008,07732 (GPRS); Landgericht [LG] [District Court] Düsseldorf, 17 April 2007, BeckRS 2007, (White Light LED II). 51 As the Court notes, a patent holder would be in bad faith if it calls on the coercive power of the State to support it in its refusal to do something that it is legally bound to do in any event. 12

15 1) The license-seeker made, and remains bound by, an unconditional offer to conclude a license, which cannot in good faith be rejected by the patentee. 52 2) The license-seeker is already behaving as if the licence had been granted, i.e. it is paying the royalty that it offered to pay or it is putting in escrow an amount equivalent to such royalty. Since then, significant controversy arose with respect to these two willing licensee conditions. For example, lower courts have gone as far as finding that, in order to be considered a willing licensee, a license-seeker must accept to forego the right to challenge the validity of the patent, 53 agree to FRAND terms specified by the owner, subject to court review, accept liability for past infringements 54 or even pay damages outright (if necessary, in an escrow account) upon entry in the market. Even more strikingly, a German court held that answering the patent holder with a full counteroffer, as opposed to proposing mere adjustments to the initial offer, denotes unwillingness on the part of the license-seeker, unless the initial offer was an obvious violation of competition law. 55 As a result of Orange Book and its progeny, Germany rose to become the preferred litigation venue for SEP holders, as much as for patent holders more generally. 5. Netherlands The Netherlands is a famous forum for patent disputes, because of the availability of a summary procedure (kort geding) that does not follow the traditional rules of evidence and is not subject to appeal. Kort geding takes place before a single judge, with a judgment in 6 to 8 months, making it one of the fastest procedures in Europe. 56 In addition, patent litigation takes place before specialized courts, namely the Hague District Court and the Hague Court of Appeal, which have exclusive jurisdiction over issues of patent validity and infringement. Directive 2004/48 was implemented in Dutch law through amendments to the Code of Civil Procedure, adding provisions on ex parte injunctions 57 and the lodging of guarantees as an alternative to an interlocutory injunction. 58 The conditions for the issuance of an interlocutory injunction closely resemble those of German law, the primary element being a strong prima facie case with no material 52 However, the Court also considers that a clause that leaves the royalty determination to the equitable discretion of the patentee (potentially subject to subsequent judicial review) is acceptable within this framework. 53 Oberlandesgericht [OLG] [Court of Appeal] Karlsruhe, 27 February 2012, WuW 2012, 508, GRUR 2012, 736 (Motorola v. Apple). 54 Landgericht [LG] [District Court] Mannheim, 9 December 2011, BeckRS 2011, 29013, MittdtPatA 2012, 120 (Motorola v Apple). 55 Landgericht [LG] [District Court] Mannheim, 2 May 2012, BeckRS 2012, (Motorola v. Microsoft). 56 Following CJEU, 14 December 2000, Joined Cases C-300/98 and C-392/98, Christian Dior [2000] ECR I-11307, the Wetboek van Burgerlijke Rechtsvordering [Rv] [Code of Civil Procedure] was amended to clarify that, in patent cases, the kort geding measures are interlocutory and must be followed by a claim on the merits within a reasonable period, failing which these measures expire. 57 Art. 1019e Rv. However, practitioners report that such injunctions are rarely granted: Hooneman (2013). 58 Art. 1019g Rv. 13

16 doubts regarding patent infringement or validity. 59 Usually, it is not necessary to show irreparable harm, as this is generally presumed from the ongoing infringement; however, an interlocutory injunction can normally be obtained only by if the patent holder acted within two to ten weeks from gaining knowledge of the infringement. In addition, courts take into account all relevant interests and circumstances, through a balancing exercise, before issuing an injunction. 60 This balancing exercise can be consequential in SEP-related cases. For example, in two cases the court denied injunctive relief, because the license-seeker had initiated good faith negotiations 61 or the patent holder had failed to disclose the patent to the SSO before the standard was set. 62 Furthermore, in Samsung v. Apple, in 2011, the court found against the patent holder for having requested a disproportionate royalty, even though on its side the implementer had not offered to take a license for all patents of the SEP portfolio (considering some of those as non-essential). 63 In a subsequent case between the same parties, the court refused to grant an injunction, finding that the patent holder had failed to respond to a counter-offer of the implementer before starting litigation. 64 As against this line of case law, a famous decision, Philips v. SK-Kassetten, took a more patent holder-friendly stance, with the court holding that injunctions are by default granted if infringement is proven, except in case of unspecified special circumstances. 65 In that case, the court dismissed the FRAND defense raised by the implementer, on the ground that no offer had been made by the implementer. The court added that, even if an offer had been made but not accepted, the implementer would still not be entitled to operate on the market on the basis of an implied license; in order to escape a finding of infringement, the implementer would need to obtain a license on the terms and conditions offered by the patent holder (and then possibly recover excess royalties through a restitution claim) or a court decision substituting for the patent holder s consent. SK-Kassetten is particularly controversial because it is even more demanding than the German Orange Book case. 6. Conclusions from the comparative overview A number of points emerge from the preceding survey. First, in practice, Directive 2004/48 does not prejudge the outcome of applications for interlocutory injunctive relief in SEP-related cases. On its face, the Directive aims at strengthening the position of rightholders, as part of the fight against counterfeiting and piracy; yet its scope is broad, since it extends to IP enforcement overall, including less one-sided matters such as SEP-related cases. Directive 2004/48, if applied in SEP cases with the same intent as in counterfeiting and piracy cases, could have led to a system 59 For instance, when the applicant can show that there is repeat infringement or that the patent has successfully withstood challenge in other cases. 60 Hooneman (2013). 61 Rechtbank [Rb] [District Court] Den Haag 10 maart 2011, IEPT , IEF 9463 (Sony/LG). 62 Rechtbank [Rb] [District Court] Den Haag 25 april 2007, IEPT , IEF 3891 (Philips/LG). 63 Rechtbank [Rb] [District Court] Den Haag 14 oktober 2011, ECLI:NL:RBSGR:2011:BT7610 (Samsung/Apple). 64 Rechtbank [Rb] [District Court] Den Haag 14 maart 2012, ECLI:NL:RBSGR:2012:BV8871 (Samsung/Apple). 65 Rechtbank [Rb] [District Court] Den Haag 17 maart 2010, IEPT , IEF 8682 (Philips/SK- Kassetten). 14