Market Perspective
A major strategy rethink for low to mid-tier products is now in order for the world’s biggest phone maker and top seller in India, analysts say, particularly as Samsung is also losing share to Apple Inc (AAPL.O) at the higher-end.
Samsung -holding Standard Essential Patents( SEPs)
Samsung owns SEPs related to various mobile telecommunications standards and has committed to license these SEPs on FRAND terms.
According to these commitments, Samsung will not seek injunctions in Europe on the basis of its standard essential patents (SEPs) for smartphones and tablets against licensees who sign up to a specified licensing framework.
In April 2011, Samsung started to seek injunctions against Apple on the basis of its SEPs. The Samsung SEPs in question-related to the European Telecommunications Standardisation Institute’s (ETSI) 3G UMTS standard, a key industry standard for mobile and wireless communications. In December 2012, the Commission informed Samsung of its preliminary view that it considered Apple a willing licensee on FRAND terms for Samsung’s SEPs and that against this background, the seeking of injunctions against Apple based on Samsung’s SEPs in several EU Member States may constitute an abuse of a dominant position in breach of Article 102 of the Treaty on the Functioning of the EU (TFEU) (see IP/12/1448 and MEMO/12/1021).
Samsung’s commitments
To address the Commission’s concerns, Samsung has for a period of five years committed not to seek any injunctions in the European Economic Area (EEA) 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 framework for licensing the relevant SEPs.
The licensing framework provides for:
- a negotiation period of up to 12 months; and
- if no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this.
An independent monitoring trustee will advise the Commission in overseeing the proper implementation of the commitments.
EU Competition Law
Article 9 of the EU’s Antitrust Regulation (Regulation 1/2003) allows the Commission to conclude antitrust proceedings by making commitments offered by a company legally binding. Such a decision does not reach a conclusion on whether EU antitrust rules have been infringed but legally binds the company to respect the commitments. If the company breaches these commitments, the Commission can impose a fine of up to 10% of its annual worldwide turnover, without having to find an infringement of Articles 101 or 102 TFEU. A policy brief on commitment decisions under Article 9 is available here.
FRAND issue– Patent Infringement Vs. Competition concerns
Under the licensing framework, any dispute over what are fair, reasonable and non-discriminatory (so-called “FRAND”) terms for the SEPs in question will be determined by a court, or if both parties agree, by an arbitrator. The commitments therefore provide a “safe harbour” for all potential licensees of the relevant Samsung SEPs.This commitment is designed to ensure effective access to a standard for all market players and to prevent “hold-up” by a single SEP holder. Such access on FRAND terms allows consumers to have a wider choice of interoperable products while ensuring that SEP holders are adequately remunerated for their intellectual property.
Seeking injunctions before courts is generally a legitimate remedy for patent holders in case of patent infringements.
However, the seeking of an injunction based on SEPs may constitute an abuse of a dominant position if a SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and where the company against which an injunction is sought is willing to enter into a licence agreement on such FRAND terms. Since injunctions generally involve a prohibition of the product infringing the patent being sold, seeking SEP-based injunctions against a willing licensee could risk excluding products from the market. Such a threat can therefore distort licensing negotiations and lead to anticompetitive licensing terms that the licensee of the SEP would not have accepted absent the seeking of the injunction. Such an anticompetitive outcome would be detrimental to innovation and could harm consumers.
REFERENCES-
Antitrust: Commission accepts legally binding commitments by Samsung Electronics on standard essential patent injunctions – Press release, Brussels, 29 April 2014