European Commission tests Samsung’s proposed commit-ments to close UMTS standards essential patents investigation

by Gabriele Accardo

Last 18 October 2013, the European Commission advised (see also here) that it is testing the commitments Samsung offered in connection with investigations into the alleged abuse of its UMTS standard essential patents (“SEPs”) in breach of Article 102 of the Treaty on the Functioning of the European Union, notably in respect of injunctions it sought against Apple on the basis of its mobile SEPs (see Newsletter No. 1/2013 for additional background).

In particular, while the Commission considers that seeking injunctions before courts is generally a legitimate remedy for patent holders in the case of patent infringements,  an abuse may arise if the injunction sought is based on SEPs, the SEP holder has given a commitment to license its SEPs on Fair Reasonable And Non-Discriminatory (FRAND) terms and the company against which an injunction is sought is willing to enter into a licence agreement on FRAND terms.

The rationale underlying the Commission’s stand is that in such circumstances Samsung could impose royalty rates or other licensing terms which a licensee would not agree, absent the threat of having its products excluded from the market. However, the case at issue did not concern the reasonableness of the royalty or the royalty base.

Otherwise, licensing negotiations may be unduly distorted and cause harm to consumers by increasing prices, reducing product choice and stifling differentiating innovation in the markets for smartphones and tablets.

To address the Commission’s concerns, Samsung proposed not to seek any injunctions on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets against any company that agrees to a particular licensing framework, which consist of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of FRAND terms by either a court or an arbitrator, as agreed by the parties. In the case of disagreement, the parties agree to submit to arbitration.

The proposed commitments would be valid for five years and be monitored by an independent trustee.