In principle, SEP holders undertake to the standard-setting organisations for their industry to license their SEPs to any third party that is willing to take a licence on fair, reasonable and non-discriminatory (FRAND) terms.

In the context of disputes related to FRAND terms, it has been argued that SEP holders seeking to enforce their SEPs may be abusing their dominant position under Article 102 of the Treaty on the Functioning of the European Union by enforcing or threatening to enforce an injunction against an alleged infringer that has declared a willingness to negotiate a licence on FRAND terms. The concern is that the threat of an injunction may lead to undue pressure during the negotiations and result in unfairly high royalties or the product disappearing from, or not coming to, the market.

The European Commission (the Commission) decisions in Motorola and Samsung of April 2014 were the first cases to provide some guidance from the Commission on the compatibility of SEP injunctions with the EU competition rules (www.practicallaw.com/8-532-4095; www.practicallaw.com/5-568-9727).

While recognising that seeking an injunction is a legitimate remedy against a patent infringer, the Commission held that applying for an injunction based on SEPs may be an abuse of a dominant position where the patent holder has given a voluntary commitment to license its SEPs on FRAND terms and where the injunction is sought against a licensee that is willing to enter into a licence agreement on FRAND terms.

The decisions provide a safe harbour for infringers that are willing to submit to third party resolution of FRAND disputes, and clarify that seeking to challenge the validity of a patent does not render an infringer unwilling, but do not expand much further on the concept of a willing licensee.

In his opinion in Huawei Technologies, Advocate General Wathelet (the AG) set out a framework that specifies what is expected of SEP holders before they seek an injunction so as to avoid the risk of abusing a dominant position, and the steps to be taken by alleged infringers in order to demonstrate that they are a genuinely willing licensee.

Before starting proceedings for injunctive relief, the AG's framework suggested that SEP holders must:

Infringers should respond to the SEP holder's offer in a diligent and serious manner and, if they decide not to accept the offer, promptly make a counter-offer in respect of the clauses with which they disagree. If the infringer's conduct is purely tactical, dilatory or not serious, then the SEP holder seeking an injunction against that infringer should not be in breach of competition law.

Where the parties are not able to reach an agreement under this process, they may request for FRAND terms to be determined by a court or arbitration tribunal. If this is the case, the SEP holder can ask for the infringer to provide a bank guarantee or to deposit funds at court, in respect of its past and future use of the SEPs.

The AG's view was that the potentially infringing user of the SEP should not be deprived of the right to challenge the validity of the SEP and can require this to be a term of any licence.

The question of when an SEP holder is in a dominant position is likely to be the subject of much further debate, particularly as the AG emphasised that the fact that an undertaking owns an SEP does not necessarily mean that it holds a dominant position. If it is not dominant, its behaviour in relation to its SEPs, whether or not it seeks injunctive relief, cannot be an abuse of a dominant position.

In its judgment in Huawei Technologies, the ECJ largely adopted the AG's opinion regarding the availability of injunctive relief, with some simplification of the AG's framework and the various tests.

The obligations of the SEP holder before it may seek an injunction follow the AG's opinion almost exactly. However, the ECJ did not give any indication as to the level of detail required to be given by the SEP holder to the infringer about the SEPs and the infringing actions involved. But it is assumed that, at the very least, examples of the alleged infringer's products that are said to infringe the SEP must be provided.

As for the alleged infringer, if it continues to use the SEPs concerned then, as the AG suggested, it is obliged to respond diligently to the SEP holder's offer in accordance with recognised commercial practices in the field and in good faith. This will be assessed objectively, rather than accepting the parties' subjective assertions. However, the ECJ's judgment does not give any criteria by which this objective assessment should be conducted. The alleged infringer also must not adopt delaying tactics.

The alleged infringer may only allege that an action for a prohibitory injunction is an abuse of a dominant position once it has submitted a specific counter-offer that corresponds to FRAND terms. Presumably, as with the initial offer, this means that any counter-offer must also contain a proposed royalty and calculation, although this was not stated expressly in the judgment.

The judgment also agreed with the AG's view that, should the SEP holder reject the counter-offer, the infringer is obliged to provide appropriate security (for example, a bank guarantee or deposit) in respect of past and future infringement, and render an account. The judgment does not specify whether the amount of security should be calculated by reference to the royalty rate in the offer or the counter-offer, so this remains a question for the relevant national court to decide. It is also unclear as to whether this is a prerequisite to avoiding injunctive relief. It does not feature in the ruling at the end of the judgment, but only earlier on in the text of the decision.

In accordance with the AG's opinion, the ECJ held that it cannot be abusive for an SEP holder to seek damages or a rendering of accounts, since those remedies do not have a direct impact on products complying with the standard in question that are manufactured by competitors appearing or remaining on the market.

On the other hand, the ECJ upheld the right of the infringer to challenge the validity and the essentiality of the SEPs in question, or to reserve the right to do so in future. This is a more simple formulation than the one recommended by the AG.

The ECJ noted that the parties may request by common agreement that the FRAND royalty be decided by an independent third party without delay. However, the judgment does not say anything about what happens to any ongoing litigation in the interim period nor, in particular, the availability of injunctions.

There remains further uncertainty in that the ECJ judgment does not give any guidance on when an SEP holder is in a dominant position, which is a prerequisite to being able to abuse that position. The ECJ did not comment on the AG's obiter point that merely holding an SEP does not necessarily entail having a dominant position that could be abused, the court merely said that this issue was outside the scope of the questions that had been referred.

Huawei Technologies provides important guidance and welcome clarity to both SEP holders and alleged infringers as to what steps each must take in order to retain either the right to request or the right to object to a claim for an injunction preventing the use of an SEP.

The judgment strikes a balance between protection for SEP holders on the one hand and undue delay for implementers in bringing their products to the market on the other. It reaffirms that an alleged infringer cannot be criticised for challenging, or insisting on reserving the right to challenge in any negotiations, the essentiality or validity of the SEP(s) in question.

A number of practical issues remain however: When is an SEP holder dominant? What does FRAND mean in practice? Exactly how much detail does an SEP holder have to provide to an alleged infringer when first alleging use of the SEP? What factors will be relevant to whether an alleged infringer has responded in good faith and without delay? Does an infringer have to provide security for its counter-offer? These will still need to be considered on a case-by-case basis, and so all eyes will be on the German court to see how it implements the ECJ's guidance in this case.

SEP holders that are seeking to enforce their patent should provide to the infringer a formal offer and draft licence that sets out the appropriate details of the infringement, whether through claim charts or otherwise. Potential infringers should refrain from delaying tactics and provide a detailed counter-offer, as they will not be able to challenge a prohibitory injunction otherwise.

Even if the parties are far apart on the amount of royalties payable, it is often possible for them to reach agreement on other terms of the licence, such as the scope, its term, the licensed products and boilerplate provisions.

David Wilson and Andrew Moir are partners, and Nic Ruesink-Brown is an associate, at Herbert Smith Freehills LLP, London. Kyriakos Fountoukakos is a partner at Herbert Smith Freehills LLP, Brussels.