For injunction against ZTE for using it
For this essay two European Court of Justice cases have been examined falling within the area of competition law and particularly within the area of Article 102 TFEU. The first case, Slovak Telekom v Commission, is about Slovak Telekom who had imposed unfair prices and trading conditions for many years hurting the competitors and fair market conditions. The second case is about a whole different topic yet relevant for competition law. In Huawei v ZTE, Huawei sought for an injunction against ZTE for using it patents without a licence and ZTE, in response, raised a competition law defence stating Huawei was abusing its dominant position. In order to get a greater understanding of Article 102 the essay starts with an explanation of the article 102 TFEU.
Abuse of a dominant position (article 102 TFEU)
Abuses of a dominant position are anti-competitive business practices which a dominant firm undertake in order to maintain or increase its position in the market. Competition law prohibit such behaviour as it jeopardizes true competition between companies and exclude dominant firms to compete with other firms. (“Antitrust: Overview – Competition – European Commission”, 2013)
For the European Commission, it is essential to define the relevant market to assess dominance: The relevant product market and the geographic market. The relevant product market are all the products considered by consumers to be a substitute for each other due to characteristics, price and user case. The relevant geographic market refers to the area in which the conditions of competition are similar. Market share is an important indicator for market domination. A good indicator is the length and maintenance of a high market share. A market share less than 40 percent does in general not indicate dominance. Furthermore, the commission assesses the barriers of entry of the particular market; size, strength and available resources of the company and the firm’s presence at several levels of the supply chain. (“Antitrust: Overview – Competition – European Commission”, 2013)
Dominant position itself is not an infringement of article 102 However, a dominant company has a special responsibility to guarantee that its dominant position does not distort competitive practises. Examples of abuse are: Predatory pricing, limiting production, price discrimination and exclusive purchasing. (Graf & Waksman, 2016)
The European Commission has certain powers to investigate and enforce Article 102. These regulations are listed in Regulation 1/2003 (the Antitrust regulation) and includes regulations declaring the European Commission is empowered to i.e. send information request to firms and carry out internal inspections (“EUR-Lex – 32004R0773 – EN – EUR-Lex”, 2004).
Case I: Slovak Telekom v European Commission
The European Commission imposed a fine of more than 38 million euros on Slovak Telekom (SK)and Deutsche Telekom AG (both undertakers), for abuse of its dominant position on the Slovak market for broad band services. According to the commission, SK has pursued an abusive strategy to shut out competitors and committed a single and continuous infringement of article 102 (“European Commission – PRESS RELEASES, 2014)
Facts and legal issues
SK offers fixed broadband services over its telephone and fibre network. In 2005, SK was obliged to give alternative operators access to their broadband services. In august 2005, SK published conditions for alternative operators to enter its Unbundled local loops (ULL) but entry was made artificially more difficult by withholding necessary information and setting unfair terms. Moreover, SK applied a margin squeeze strategy. It did set the prices for access to its local loops and it retail prices at levels which would force competitors to experience losses if they wanted to sell these products matching the prices of SK. (“European Commission – PRESS RELEASES, 2014)
Relevant product and geographic market
The commission defined two relevant product markets in broadband access: The retail mass market for broadband services at a fixed location and the wholesale market for access to ST’s ULLs. The retail market comprises several broadband services at a fixed location and mobile broadband services were not included in the relevant product market. For the wholesale market Slovak Telekom ULLs were included. The relevant geographic market (wholesale and retail level) is the Slovak market. (“CASE AT.39523 – SLOVAK TELEKOM”, 2014)
Decision of the Commission
As single owner of a nationwide broadband access infrastructure, SK had a dominant position on the wholesale ULL market. On the retail market they held a market share of 35 -55 percent during the infringement period whereas competitors had significantly lower market shares. Their first abuse was the refusal to supply. SK gave access to their local loops under unfair conditions, withheld important information and set unfair terms. The second abuse was margin squeeze. The margin squeeze test showed that an equally efficient competitor using ST ULL access had negative margins and could not be profitable on a long-term basis. These abuses harmed true competition and had negative impact on the market. The commission held DT also liable for the infringement as they were the majority shareholder. The decision imposes a fine of EUR 388 38 000 for both ST and DT and 31 070 000 on DT for their abuse. (“European Commission – PRESS RELEASES, 2014)
The decision is in line with paragraph a of Article 102 as ST imposed unfair trading conditions and prices. The research done by the EC showed that they abused its dominant position by refusing to supply and using a margin squeezing strategy. Practises that are stated in Article 102 as being abusive.
Case II: Huawei Technologies Co. Ltd v ZTE Corp.
This case is about Huawei Technologies versus two companies belonging to ZTE group (ZTE corp. and ZTE Deutschland GmbH). Huawei, as Undertaking, was seeking for an injunction against ZTE for breach of the Standard Essential patents (SEP). ZTE in response, claimed that Huawei’s injunction was an abuse of dominance. The German Court asked the CJEU (Court of Justice of the European Union) whether or not Huawei’s call for remedies was an abuse of dominant position. (Abboud, 2015)
Facts and legal issues
Huawei had suggested ZTE to offer a licence to ZTE to use the patent. ZTE disagreed with the licence as it did not consider the licence to be FRAND (Fair, reasonable and non-discriminatory) and therefore no actual licence was exchanged. The negotiations failed while during the negotiations ZTE did use the patent. Due to that, Huawei asked for an injunction on the breach of the SEP, the return on profits, a recall of the products, and compensation for damages suffered. The CJEU investigated whether those remedies can be used without abusing its dominant position. (Killick & Sakellariou, 2015)
Relevant product and geographic market
The relevant product market is the telecommunications market. Huawei Technologies and ZTE Corp. are both multinational companies operating in this sector. The patent belonging to Huawei is registered on the European Telecommunication and Standards institute (ETSI) which made the patent a European patent and the relevant geographic market is Europe. (Killick & Sakellariou, 2015)
Decision of the CJEU
The court stated that the holders of intellectual-property rights have exclusive rights and executing these rights does not constitute an abuse of dominant position itself. However, this case is different from other IPRs cases as this case involves a SEP. First, SEPs are indispensable to all competitors for producing the relevant technology. Secondly, the patent got a SEP status because Huawei gave an irrevocable undertaking to the SSO and the SSO granted the licence on FRAND terms making the SEP available for third parties. (“JUDGMENT OF THE COURT (Fifth Chamber)”, 2015)
On that ground, the court decided that the holder of a SEP must take certain steps before seeking an injunction:
– The SEP holder should send the alleged infringer a written notice specifying the SEP in question and the allegedly infringement.
– The SEP holder must make a written offer of a license on FRAND terms including the royalty rate plus calculation.
– The infringer, then, should respond to the SEP holder with diligence in line with commercial practices without using delaying tactics.
– If the alleged infringer doesn’t take the initial offer it should come with a counter offer based on FRAND terms.
– Where no agreement is possible the parties may request for a third party establishing the terms of the license.
If the SEP holder not follows these steps it could not seek for injunction without breaching article 102. Contrarily, if the potential licensee does not abide by the obligations the SEP holder is permitted to pursue remedies. (“JUDGMENT OF THE COURT (Fifth Chamber)”, 2015)
This case is relevant for this essay as the ECJ judgment provides a detailed framework how SEP holders and SEP users should negotiate their licensing and how SEP holders may seek for injunctive relief without infringement of Article 102 TFEU. This case also shows that the junction between IP rights (especially SEPs) and competition law is a difficult field and that it is needed to have a good balance between the fundamental rights of intellectual property and the protections against abuse of dominance.
In this essay, two completely different cases of competition law have been analysed. The first case about unfair pricing and an abusive strategy committed by Slovak Telekom. This case shows that unfair pricing and practises endangers fair competition and produces worse outcomes for consumers which resulted in an imposed fine of millions. The second case shows that Article 102 is touching a variety of topics. Intellectual property rights may give certain rights to the holders, however in some industries companies rely heavily on certain standards (SEPs) which gives the SEP holder a dominant position. A very difficult issue. In conclusion, the cases in which competition law and in particular Article 102 gets involved is larger than one might think. This essay gave an interesting insight in two completely different cases and hopefully gives a broader understanding of competition law and its wide area of application.