Essential patents: first to sue should notify

The Court of Justice (Judgment. 16.07.2015 in Case C-170/13) has recently dealt with the so-called “essential patents” relating to particular telecommunications companies.

It is constant rule that these companies have the need to use some standards without which it would be impossible to make a working phone.

These standards are covered by patents not only numerous but also hard to read and interpret so companies operating in this sector are often in the difficult situation of having to choose between accepting licenses very expensive or take an equally onerous, and perhaps more risky, investigation to try to defend against a possible infringement action.

In Europe ETSI (European Institute for Telecommunications Standards) pay checks patents that relate to a certain standard and which are notified ETSI to be so called “essential patents”.

If a patent becomes “essential” must be licensed to anyone who requests it in conditions FRAND (fair, reasonable and non-discriminatory) although, unfortunately, there is no rule when in practice these conditions are and which is the right royalty to be paid.

The problem is that despite the above the FRAND royalties continue to be very high and become prohibitive when you add together the cost of multiple licenses reaching incidence rates on the product price so high as to make it non-competitive.

This last aspect, which we believe is one of the most serious, has not yet been dealt with by a court while the latest decisions are designed to determine if a company can be sued by the holder of an essential patent.

In this context, the recent decision of the Court of Justice sets another important principle.

The Court ruled that the holder of a patent before you take legal action against an alleged infringer must

«prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.»

Once that is done the company patent holder can sue the alleged infringer only if they continue to exploit the patent and does not do so with diligence to negotiations standard on FRAND license.

When the alleged infringer, despite not having yet signed a license agreement, is instead negotiating the contents of the license, the patent holder can not act with an injunction or demand the withdrawal from the market of products, because these measures could be considered abusive.

The Court, while confirming the above, however, has stated that the patent holder may bring «an action for infringement against the alleged infringer of its patent and seeking the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use» as these actions don’t have a direct impact on the marketing of goods and can not be regarded as unfair.