1. © 2013 Cleary Gottlieb Steen & Hamilton LLP. All rights reserved. Throughout this presentation, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP and its affiliated entities in certain jurisdictions, and the term “offices” includes offices of those affiliated entities. Maurits Dolmans LCII Briefing on “Huawei v. ZTE: Implications for Antitrust and Patent Law”, September 4, 2015 Fondation Universitaire, Rue d'Egmont 11, 1000 Bruxelles. SEPs, FRAND and Standards after Motorola, Samsung, and Huawei v ZTE – What Now?

2. Key points in Huawei v ZTE judgment 2 SEP Holder alerts SEP user of alleged infringement by identifying the SEP and the way it has been infringed. Injunction Granted SEP user indicates willingness to conclude a license on FRAND terms SEP user does not indicate willingness to conclude a license on FRAND terms SEP holder presents written offer for a license on FRAND terms (inc. royalty amount and the way it was calculated) SEP user responds diligently and in good faith, but rejects offer SEP user must submit specific FRAND counter-offer in writing (and post security and account for past use). User does not respond diligently / in good faith, or employs delaying tactics Offer FRAND and Counter-offer not FRAND: Injunction Granted Otherwise: Injunction denied A party proposes 3 rd party determination, by decision without delay Offer FRAND: Injunction Granted Offer not FRAND: ?? Parties agree on 3 rd party determination One party refuses 3 rd party determination SEP user refuses: injunction granted SEP holder refuses: injunction denied 3 rd party determines royalty (and presumably other terms) Injunction moot SEP holder rejects counter-offer and no one proposes 3 rd party determination SEP holder rejects counter-offer Both parties agree to 3 rd party determination but can’t agree on venue, etc Offer FRAND and Counter-offer not FRAND: Injunction Granted Otherwise: Injunction denied

3. 3 Samsung sends Invitation to Negotiate to X* Samsung can file Injunction Claim against X 60 days Invitation Signed Invitation Not Signed Stage 1: Agree FRAND rate or agree to alternative procedure for determining FRAND 12 Months, or 6 months in case of unilateral license at request of licensee (Samsung if Annex B Invitation). Default By Agreement Stage 2: Patents Court, High Court, UPC, or arbitration Stage 2: Patents Court, High Court, or UPC 60 days Full determination on validity, infringement, and essentiality (if required) De Novo Appeal (Final and binding) Full de Novo Appeal (except on agreed issues) 30 days (if arbitration is chosen, otherwise usual court timetable) *X = Potential Licensee or, if Annex B procedure, Potential Licensor Mandatory Negotiation Period. If arbitration is chosen Usual rights of appeal Key points under Samsung Commitments

4. Comparing Huawei v ZTE to Samsung Commitments 4 Key Similarities Key Differences Applicable to FRAND covered SEPs –(but note ECJ’s “legitimate expectations” reasoning may eventually be used to argue that same requirements apply to non-SSO FRAND-covered essential patents); –Don’t forget Orange Book SEP holders can pursue claims other than injunctive relief / recall –(including damages, and claims for accounting); SEP users can challenge validity, essentiality, and infringement in parallel to licensing negotiations and also after conclusion of the license agreement. Under SC, SEP holder must only provide an offer to negotiate including “proud list” and claim charts. Under ECJ Decision, SEP holder must identify patents and present license offer including proposed royalty; No specific time periods; though SEP user must not employ delaying tactics; No safe harbour (Under SC, SEP user is “willing” if it agrees to have FRAND royalty set by court or arbitral tribunal) Security or escrow required, and accounts; Under SC, neither party can insist on cross-license of non-SEPs (or SEPs for different standards). ECJ Decision silent.

5. Open issues 5 1.Are SEP owners by definition dominant? The ECJ did not address the issue. 2.Is tying and portfolio licensing FRAND? 3.Is imposing reciprocity and defensive suspension FRAND? 4.Are pan-European license offers FRAND? Or must SEP holder negotiate a license for each EU country? 5.What if either party does not agree to an independent third-party determination? (in practice, offer to have FRAND terms determined by an third party will likely be taken into account by infringement court) 6.What is a FRAND rate – patent pool comparators? What base (phone or chip)? 7.What if offer and counter offer are both FRAND but there’s no agreement? 8.What is “appropriate” security for SEP users already using SEPs? Must SEP users actually render accounts, or merely be “able”? 9.How to avoid delays – Determine validity first or set the rate first? 10.Can “pre-willingness” damages be supra-FRAND? 11.What are the rules for FRAND-covered non-SEPs (“FREPs”)? 12.What lessons for privateers and trolls?

6.  Motorola and Samsung: Apple’s huge portfolio = countervailing power ­ Ability to punish or retaliate  EC ignored this (had to…, since otherwise precedent would fall apart) ­ “countervailing buyer power is the buyer's ability (or credible threat) to switch to competing suppliers” (para. 243) – But there are other sources of power, like ability to punish or retaliate ­ “the Commission’s assessment of whether Motorola enjoys a dominant position is based on the economic strength Motorola enjoys as the holder of the Cudak GPRS SEP vis-à-vis the market as a whole, and not on the basis of its negotiating position vis-à-vis one or more customers such as Apple” (para. 241). – In past cases, EC resolved this by defining separate relevant product market for different customer categories. See Guidelines on Market Definition, para 43 ­ “In cross-licensing negotiations between Motorola and Apple, Motorola … has consistently evaluated the strength of Apple's patent portfolio to be below the strength of Motorola’s own portfolio. As a result, and regardless of whether Apple agrees with such an assessment, Apple's large patent portfolio comprising both SEPs and non- SEPs does not exercise a constraint.” (para 252-3) – In reality, Apple did the same, and litigated aggressively, and got injunctions 1. Are SEP owners per se dominant? 6

7.  No tying of essential IPR and non-essential IPRs allowed  But : “portfolio licensing can be efficient in some cases” (EC Speaking Points at ETSI IPR #16 on 9/9/2013 and EC Speaking Points at ITU on 12/9/2013) – Allows bundling on “per-standard” basis. – Allows voluntary full-portfolio licensing  See also ­ Article 9 commitments in Samsung: licensing framework for bundle of “Samsung Electronics’ Mobile SEPs” ­ Google FTC Consent Order, provides procedure to determine terms for bundle of “patents that are Essential to the Covered Standards”  Criticism: Tying should be allowed for all essential IPRs needed per product”. ­ Efficient and practical solution: a willing licensee needs all of them anyway and should accept bundle (subject to right to challenge validity, infringement). ­ Otherwise, patent holder might be forced to litigate SEP for every single standard in the product, which would be costly and inefficient in practice. Illegal tying vs legal portfolio licensing 7

8.  Motorola Decision, para 456: “SEP holders are in principle entitled to request reciprocity in line with the rules of SSOs.” – Motorola requested reciprocity in the Second Orange Book Offer – EC (rightly) did not list that as an element of the abuse  Samsung Commitment, para. 79 and 89: – “Samsung cannot condition the licensing of its Mobile SEPs on the crosslicensing of a potential licensee’s non-SEPs or SEPs not covered by the reciprocity rules of SSOs.”. – Interpreted as per-standard reciprocity – should have been per-product ? – Also, defensive suspension: Samsung may seek and enforce injunction if (1) Potential Licensee files claim for injunctive relief in the EEA against Samsung or a customer of Samsung for Mobile Device/components for infringement of any Potential Licensee’s Mobile SEPs, and (2) Samsung offers to be bound by Licensing Framework – Samsung should have been allowed to defend itself in the EEA against injunctions elsewhere, considering that this was a worldwide war  Implied: cross-license must be FRAND (license cannot demand free cross-license) Illegal forced countertrade vs legal cross-license? 8