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European Commission

MEMO

Brussels, 17 October 2013

Antitrust: Commission seeks feedback on commitments offered by Samsung Electronics to address competition concerns on use of standard essential patents – questions and answers

What are standard-essential patents and why are they important?

Standard-essential patents (SEPs) are patents protecting a technology which is essential for the implementation of an industry standard developed by a standard-setting organisation. It is technically not possible to make a standard-compliant product without using the technology protected by the SEP.

In industries such as the IT sector, industry standards are key and bring benefits to consumers and businesses alike in terms of interoperability and innovation. However, once a technology has been chosen and the standard has been set, it is important that the standard is accessible to all interested parties. In order to ensure such access and to prevent patent hold-up, standard-setting organisations generally require that members commit ex ante to license their standard essential patents (SEPs) on Fair Reasonable and Non-Discriminatory (FRAND) terms.

What is an injunction?

An injunction is a court order aiming at preventing the continuation of a patent infringement. Generally, it includes the prohibition to sell the product infringing the patent. Such injunctions can be preliminary – as a precautionary measure typically for the time of the assessment of the case on the merits by the court. Injunctions can also be permanent as a result of the decision on the merits by a court.

What are the Commission's competition concerns in this case?

Samsung owns SEPs related to mobile telecommunications standards and has committed to license these SEPs on fair, reasonable and non-discriminatory (FRAND) terms. The Commission considers on a preliminary basis that Apple was willing to enter into a licensing agreement on FRAND terms for Samsung's SEPs. However, Samsung started judicial proceedings seeking injunctions against Apple. Under these specific circumstances, the Commission takes the preliminary view that Samsung's behaviour amounts to an abuse of a dominant market position prohibited by EU antitrust rules (Article 102 of the Treaty on the Functioning of the European Union – TFEU, see also IP/12/1448 and MEMO/12/1021). Recourse to injunctions under the specific circumstances of this case may unduly distort FRAND licensing negotiations and allow SEP holders to impose licensing terms which a licensee would not agree to absent the threat of having its products excluded from the market.

How did Samsung propose to remedy these concerns?

Under the proposed commitments, Samsung commits not to seek injunctive relief in the European Economic Area with regard to all its SEPs which read on technologies implemented in smartphones and tablets (Mobile SEPs) against any company which agrees to and complies with a particular licensing framework. The licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) a third party determination of FRAND terms by either a court or arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.

Do the proposed commitments relate to what a reasonable royalty rate or the royalty base for Samsung's SEPs should be?

The Commission has not taken any position on the reasonableness of the royalty or the royalty base in its Statement of Objections. National courts and arbitrators are generally well equipped to do this. The Commission's case is about the undue leverage against willing licensees which the seeking of injunctions based on SEPs may give to a SEP-holder who has given a commitment to license those SEPs on FRAND terms.

What is the situation as regards companies which seek injunctions based on Mobile SEPs against Samsung?

The proposed commitments allow Samsung to seek an injunction on the basis of its Mobile SEPs against a company which sought injunctive relief against Samsung on the basis of its own Mobile SEPs. However, Samsung can only seek injunctions defensively if it offers both: (i) to grant a licence for its own Mobile SEPs on FRAND terms and (ii) to take a licence on FRAND terms for the Mobile SEPs of the company alleging an infringement by Samsung.

What consequences does the request for a preliminary ruling by the Regional Court of Düsseldorf in the SEP-based litigation between Huawei and ZTE have on the Commission's investigation?

The Commission will fully take account of any guidance on questions of law by the Court of Justice that are of relevance for the Commission's case.

Does the Commission seek to prohibit the use of injunctions by SEP holders?

No. The Commission attaches high importance to effective patent protection and an efficient patent system.

The preliminary view expressed in the Statement of Objections does not question the availability of injunctive relief for SEP holders outside the specific circumstances present in this case, for example in the case of unwilling licensees.

What are the next steps?

The Commission is now asking interested third parties, in particular market participants, to submit their comments on the proposed commitments, and in particular on the extent to which they address the Commission's competition concerns.

If following the market test, the commitments form the basis for a satisfactory solution to these concerns, the Commission may make them legally binding on Samsung by way of a Commitments Decision (so-called "Article 9 procedure"). Such a decision does not conclude that there is an infringement of EU antitrust rules, but would legally bind Samsung to respect the commitments offered. If a company breaks such commitments, the Commission can impose a fine of up to 10% of its annual worldwide turnover.

The Commission will study all feedback and take it into account in its analysis.

How can I send observations?

The text of the proposed commitments will be published in English on the Commission's competition website in the public case register under the case number 39939. Observations can be sent under reference number AT.39.939 – Samsung- Enforcement of UMTS standard essential patents either by e-mail (COMP-SAMSUNG@ec.europa.eu), fax (+32 2 295 01 28) or post, to the following address:

European Commission

Directorate-General for Competition

Antitrust Registry

B-1049 Bruxelles/Brussel

The deadline to send observations is one month from publication in the EU Official Journal. Observations can be written in any of the official languages of the EU.


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