Patent hold-out

Patent hold-out refers to the strategy of a standard implementer that uses standard essential patents without a licence and indefinitely delays negotiation, betting on the difficulty the patent holder will have in obtaining an injunction. The term is the mirror image of patent hold-up, which refers to the opposite strategy on the patent holder's side.

Patent hold-out versus hold-up

Hold-up describes the patent holder that exploits the dependence created by the standard to demand excessive terms under the threat of an injunction. Hold-out describes the implementer that, knowing an injunction is uncertain, implements the standard without paying and drags out discussions. Both forms of conduct are contrary to the good faith that governs the negotiation of a FRAND license. The law must discourage one without encouraging the other.

The framework set by Huawei v ZTE

The Court of Justice of the European Union, in its judgment in Huawei v ZTE of 16 July 2015, set out the steps of a fair negotiation. The patent holder must give notice of the infringement and present a written offer on FRAND terms. The implementer must respond diligently, without delaying tactics, and present a counter-offer if it rejects the offer. Failing that, it can no longer rely on competition law against the action for an injunction. It is this last limb that targets hold-out: the implementer that plays for time loses the benefit of the protection granted to a willing licensee.

The indicators of hold-out identified by the courts

European courts examine the actual conduct of the parties. Prolonged silence after notice, repeated requests for clarification without a counter-offer, refusal to provide security or to pay sums into court, and the systematic challenge of the essentiality of each patent are treated as indicators of strategic delay. Conversely, the provision of security and a request for a judicial or arbitral determination of the rate show a willingness to conclude.

The firm argues these issues before the Paris tribunal judiciaire and the Unified Patent Court, for claimants and defendants alike. See our analysis of theFRAND undertaking and our page FRAND and standard essential patents counsel. The Huawei v ZTE judgment is available on the website of the Court of Justice.