Refusal to grant a licence on FRAND terms may be an act of unfair competition

Refusal to grant a licence on FRAND terms may be an act of unfair competition

23 February 2022 - Tomasz Gawliczek
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On 24 September 2021, the amendment to the Act of 16 April 1993 on combating unfair competition (CUC Act) came into force. The change that was introduced is that an act of unfair competition consisting in breaching the prohibition of competition restricting practices – these within the meaning of, inter alia, Article 102 of the Treaty on the Functioning of the European Union (TFEU) – is now directly articulated in the provisions of this Act (in Article 15c). Although the primary objective of the new regulation is to increase the consistency of competition law provisions and to make it easier to pursue claims for breach of non-competition restrictions (so-called private enforcement), it is worth emphasising that it may also apply to patent infringement cases, in particular those within the ICT sector.

Patent monopoly and abuse of a dominant position

Under Article 102 of the TFEU, any abuse by one or more undertakings of a dominant position, within the internal market or in a substantial part of it, is prohibited as incompatible with the internal market in so far as it may affect trade between Member States. This regulation is particularly important in the ICT (Information and Communication Technologies) sector, where standardisation of the technologies used (e.g. LTE standard for wireless broadband communication) is common. The holders of patents that protect particular elements of such a technology may prevent its use by other market participants and consequently affect the development of competing products. For this reason, in the case of a particular type of patents, namely standard essential patents (SEPs), a specific model for their licensing has been developed in practice, where the licences should be based on fair, reasonable and non-discriminatory (FRAND) terms. If the holder of a SEP notifies a standardisation organisation of their readiness to grant a licence to any third party on FRAND terms, a subsequent refusal to grant such a licence may in certain situations – according to EU case law – constitute a prohibited competition restricting practice within the meaning of Article 102 of the TFEU.

Enforcing SEP from the perspective of fair competition rules

The introduction of the new regulation in Article 15c of the CUC Act was assessed positively by the vast majority of lawyers specialising in competition law. So far, attempts to seek civil liability in this respect have been formulated on the basis of Article 3(1) of the CUC Act, according to which an act of unfair competition is an act contrary to the law or good conduct if it threatens or infringes the interest of another entrepreneur or customer. On the basis of this general clause, it is possible to create so-called unspecified acts of unfair competition that are not directly articulated in the provisions of the Act.

In this situation, what change does the introduction of the indicated provision of Article 15c of the CUC Act bring about? Above all, it creates a direct basis for pursuing claims among entrepreneurs for breaching the prohibition of competition restricting practices within the meaning of, inter alia, Article 102 of the TFEU. It also puts an end to discussions as to whether such actions should be considered an act of unfair competition.

So far, there have been no court decisions in Poland in cases involving infringement of standard essential patents. However, should such a dispute arise, it would be reasonable to conduct a detailed analysis of the circumstances of the case, both from the point of view of the terms of the licence offered and the subsequent steps taken by both parties (the right holder and the alleged infringer) in the course of negotiating such a licence. In fact, it cannot be ruled out that a SEP holder – by not having granted to the alleged infringer a licence on FRAND terms – may be held liable under civil law on the basis of the provision of Article 15c of CUC Act. It is worth noting here that the indicated circumstance should, in principle, not affect the assessment of liability for patent (SEP) infringement, which should be considered as a separate issue in such a case (cf. judgment of the CJEU of 16.07.2015, ref. C-170/13, paras 57-61).

 

How it works in practice

In its judgment of 16 July 2015 in Case C-170/13 (Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH), the judgment being widely commented upon, the Court of Justice of the European Union indicated in which cases taking action for a SEP infringement should not be considered an abuse of a dominant market position by the holder. These are situations where the alleged infringer has been given detailed notice of a possible SEP infringement at the outset and then, if they have expressed a desire to obtain a licence, this has been offered to them on FRAND terms. In this context, in the Court’s view, it is also relevant whether the offer made was specific (e.g. indicating a specific licence fee and explaining precisely how it was calculated) and whether it was considered by the infringer with due diligence, in good faith and in line with proper commercial practices.

 

The article was published on January 28, 2022, in Rzeczpospolita.

 

The content of the article is intended to provide general information related to a given topic. In specific cases, you should seek specialist advice which takes into account individual circumstances.

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