Litigating standard-essential patents deviates from litigating ordinary implementation

Transcription

1 EUROPE: SPONSORED EDITORIAL Litigating patents that are essential to technical standards requires a careful consideration of antitrust rules. Sabine Agé and Amandine Métier of Véron & Associés, Klaus Haft and Tobias Hahn of Reimann Osterrieth Köhler Haft, Mark van Gardingen of Brinkhof and Ari Laakkonen of Powell Gilbert explain the rules in their own jurisdictions Litigating standard-essential patents FRAND and antitrust implications Litigating standard-essential patents deviates from litigating ordinary implementation patents in at least two aspects: on the one hand, proof of infringement may be easier for the patentee because it can show that the features of the standard-essential patent have been implemented into a standard that is used by the defendant. On the other hand, antitrust law and the rules of standard-setting organisations on the licencing of standard-essential patents may grant the defendant additional defences, specifically against the patentee s claim of infringement and/or request for an injunction. In this article, lawyers from four firms across Europe consider the antitrust defence and how it can be applied in their own jurisdictions. France Technical standards and patents are poles apart: the standard recommends the use of a technology to all manufacturers whereas the patent reserves its use to the owner. Their coexistence is therefore potentially explosive. How, then, to resolve the conflict arising when a standard recommends the use of technology on which a company has retained market exclusivity through the filing of a patent? With respect to patent litigation, the question arises in the following terms: should the holder of a patent declared essential to a standard obtain an injunction prohibiting a third party from using this patent when implementing the standard? Although various actions have been brought on the basis of patents declared essential to a technical standard, in particular in the telecommunications sector and in the audio and video industries, French courts have not ruled on this question. However, it can be assumed how they would answer it by analysing, under French law, (1) the nature and (2) the effects of the declaration pursuant to which the holder of a patent, after having declared this patent essential to a standard, gives an undertaking to the standard-setting organisation concerned that it is prepared to grant a (fair), reasonable and non-discriminatory ((F)RAND) licence to any user of the standard. Nature of the undertaking to grant a (F)RAND licence The main objective of a standard-setting organisation is to elaborate standards and to promote their application. To pursue this objective, a standard-setting organisation seeks to reduce the risk of seeing the investment made in the preparation and adoption of its standards wasted because the IP rights necessary ( essential according to the applicable terminology) to these standards are not made accessible to those wishing to comply with them. The holders of IP rights essential to the implementation of a standard are therefore required under the guidelines of the standard-setting organisations to undertake in writing to grant irrevocable licences to the companies using the standard, thus eliminating the uncertainty which, failing such undertaking, would surround potential users of the standardised technology (if the holders of these rights do not provide such undertaking, the standard is generally not adopted). To ensure that these standardisation agreements on technologies which are subject to industrial property rights do not restrict competition, such licences are required to be made available on (F)RAND terms. Under French law, this tripartite mechanism by which a stipulator (the standardsetting organisation) obtains from a promissor (the holder of the IP right) an undertaking to the benefit of a third-party beneficiary (the manufacturer wishing to use the standard) is construed as a third-party-beneficiary contract known as a stipulation pour autrui. One of the main effects of a stipulation pour autrui is to confer on the third-party ben- 862 JULY/AUGUST

2 EUROPE: THE FRAND DEFENCE eficiary (the manufacturer) a direct right against the promissor (the right holder), from the day on which the agreement was entered into with the stipulator (the standard-setting organisation). By undertaking with a standard-setting organisation to grant to any user of a standard a (F)RAND licence relating to an intellectual property right it has declared essential to the standard, the owner of the right not only offers to negotiate a licence, but commits to grant a licence under which only the (F)RAND conditions are left to be discussed with the manufacturer wishing to implement the standard. Such undertaking prevents the holder of an intellectual property right said to be essential to a standard from being granted an injunction against the users of such standard. Effects of the undertaking Under the terms of Articles L and L of the French intellectual Property Code, the implementation of a patent is prohibited only save for consent by the owner of the patent to allow such implementation. The declaration provided to a standard-setting organisation, pursuant to which a patent holder undertakes to grant a (F)RAND licence to a third party wishing to implement a standard to which the patent is said to be essential, expresses the holder s consent that the patent may be implemented by the third party. This undertaking, therefore, prevents the patent holder from being granted an injunction to stop importing, manufacturing, offering, selling etc the products implementing the patented technology, essential to the standard. However, the patent owner retains the right to obtain an order against the user of the standard that it should pay (F)RAND royalties, which the court will then have to assess if the parties fail to agree on them between themselves. EU rules This solution is in accordance with EU competition law. As the European Commission has repeatedly indicated (see in particular the European Commission s Communication on Intellectual Property Rights and Standardisation, October , and Guidelines on the application of Article 81 (3) of the EC Treaty to horizontal co-operation agreements, January , ), if a standard is not governed by a mechanism which guarantees to third parties the grant of (F)RAND licences French courts recently proved that they pay careful attention to the compatibility of the exercise of patent rights with competition law of intellectual property rights declared essential to it, such a standard, agreed between companies of a given sector, constitutes an obstacle to competition contrary to Article 81(1) of the EC Treaty. Recently, the European Commission also initiated proceedings against Rambus (see European Commission s latest notice dated June (OJEU, C 133/16)) because it believed that Rambus engaged in intentional deceptive conduct in the context of a standard-setting process by not disclosing patents which it later claimed were relevant to the adopted standard (a so-called ambush) and abused its dominant position by claiming unreasonable royalties for the use of these patents. Ruling still to be decided French courts recently proved that they pay careful attention to the compatibility of the exercise of patent rights with competition law (TGI Paris, January , Luk Lamellen und Kupplungsbau c Valeo, PIBD 2005, n 808-III-299; Conseil de la concurrence (French competition authority), November ). Their position on the relief available to the owner of a standard-essential patent that has allegedly been infringed is still to be decided. Sabine Agé Sabine Agé is a partner and dedicated patent litigation specialist at the French law firm Véron & Associés. She specialises in patent validity and infringement litigation as well as claims for ownership. Sabine was admitted to the Paris Bar in 1994 and has developed extensive experience through handling a broad spectrum of cases dealing mainly with mechanics, electricity, optics, chemicals, pharmaceuticals and telecommunications. Amandine Métier Amandine Métier is an associate at Véron & Associés. She specialises in patent litigation involving validity, infringement and ownership disputes. She was admitted to the Paris Bar in 2006 and has handled cases dealing with mechanics, electricity, pharmaceuticals and telecommunications. Sabine and Amandine are often involved in high profile cases and, most recently, acted on behalf of an international telecommunications manufacturer in the French part of a world-wide cross-border patent litigation. JULY/AUGUST

3 EUROPE: SPONSORED EDITORIAL Germany Over the past five years, the so-called (F)RAND defence has developed into a standard defence in German patent infringement proceedings relating to electronics. The following section provides an overview of the main developments. The basis of the FRAND defence The (F)RAND defence can be based either on contract law or on antitrust law. Contract law is invoked to the extent that standardisation bodies demand from their members declarations by which they declare to be willing to grant licences on (fair) reasonable and non-discriminatory, or (F)RAND terms. Antitrust law comes into play as far as an abuse of a marketdominating position can be established. Case law So far, published court decisions have mainly dealt with antitrust law. Some of the most important are outlined below: Admissibility The first landmark decision was the so-called Standard Bung Barrel decision of the Federal Supreme Court (IIC 2005, 741 et seq). Here, antitrust law was found to be applicable because the licensing market for a standard-essential patent was regarded as a market of its own, in which the patentee naturally held a dominant position. For this reason, the defendant was found to be entitled to a reasonable and non-discriminatory licence and that this claim could principally be raised as a defence in patent infringement proceedings. The defence was developed further on the basis of the so-called dolo-agit principle, according to which it can constitute an abuse of rights if the patentee claims injunctive relief despite the fact that he would have to grant a (F)RAND licence (for example, Regional Court Düsseldorf, InstGE 7, 70 (90), Video Signal-Encoding I; Court of Appeals Karlsruhe, GRUR-RR 2007, 177 (178), Orange Book Standard). The Regional Court in Mannheim, on the other hand, repeatedly denied such a defence, arguing that it would introduce a rule of force because, although the defendant may be entitled to a licence, he in fact does not hold such a licence yet (Regional Court Mannheim, docket no. 7 O 287/02, unpublished). Unconditional licence offer First, the defendant must make a binding, unconditional licence offer which is independent of the court s assessment of infringement and which the patentee cannot reject without violating the prohibition of discrimination or anti-competitive behaviour. Such licence offer must comprise usual conditions, which is in line with an earlier case decided by the Regional Court of Düsseldorf (docket number 4a 124/05, unpublished), that is so far the only case where the FRAND and antitrust defence was successfully raised. Here, the patentee demanded a crosslicence for all of the defendant s patents (essential or nonessential, related or unrelated) and did not take into consideration the so-called maximum cumulative licence burden, that is, the fact that the defendant must pay licence fees not only for the essential patents of the individual plaintiff but also for all other patents essential to the respective standards. Therefore, the Regional Court Düsseldorf demanded a cap clause be included in a usual licence agreement ensuring that a maximum cumulative royalty burden will not be exceeded. Regarding the amount of royalties, the Federal Supreme Court does not require the defendant to specify a particular amount but allows for a clause that puts the determination of the fees in the equitable discretion of the patentee (which is then subject to judicial review). In this way, the defendant will not run the risk that his licence offer is considered to be insufficient. Escrow However, at the same time, the Federal Supreme Court found it necessary that the defendant behaves like a licensee and hence provides for regular royalty reports and additionally secures licence fees resulting from those reports by escrowing a sufficient amount. The Court indicated that this amount may be more than the defendant himself considers reasonable but did not offer any further guidance. Thus, the defendant might in the future carry the risk that his escrow is deemed to be insufficient. Outlook While the Orange Book decision dealt exclusively with a defence based on antitrust law, it seems likely that the courts would come to similar conclusions based on contract law. On the other hand, however, in absence of existing case law, one Prerequisites Finally, in its long-awaited and very recent Orange Book decision (docket number KZR 39/06, not yet published), the Federal Supreme Court clarified that the antitrust defence is principally admissible against a claim for injunctive relief. However, the Federal Supreme Court ruled that, in order to successfully raise the antitrust defence, the defendant must meet the following prerequisites: 884 JULY/AUGUST

4 EUROPE: THE FRAND DEFENCE may speculate that the specific wording of declarations and their interpretation under the applicable contractual law (in the case of ETSI, for example French law) may play a role. Enforcement Finally, enforcement of injunctions based on standard-essential patents may be easier stayed than in other cases, especially if the plaintiff is a so-called non-manufacturing or licensing company. In this respect, Section 719 German Civil Procedure Act (Zivilprozessordnung) provides for the possibility of a provisional suspension of the enforcement of an injunction against security payment by the defendant. The decision lies within the discretion of the court. As part of this discretion, the court has to consider the chances of success of the appeal as well as the interests of both parties. In a very recent decision (docket number 7 O 94/08, not yet published), the Court of Appeals of Karlsruhe suspended enforcement in a corresponding case. The case was, of course, based on specific circumstances but interestingly also considered the potential losses for defendant on the one hand and the limited interest of a licensing company in enforcing an injunction on the other hand. Klaus Haft Klaus Haft is a physicist and an attorney with Reimann Osterrieth Köhler Haft in Düsseldorf. He advises on national and international patent infringement litigation and related litigation regarding damages in the entire area of IP law, particularly in the fields of patents, know how and designs. His particular focus is on standard-related litigation (including 3G, 2G, various ITU recommendations, MPEG, MP3, JPEG) involving specific questions on FRAND, exhaustion and enforceability, electronics and optoelectronics (including microchips, LEDs and storage devices), electrics (including power plants, wind energy and electrical grids, automobile, as well as antenna technology), software and general mechanics. Tobias Hahn Tobias Hahn is an attorney with Reimann Osterrieth Köhler Haft in Düsseldorf. He advises clients in all matters of IP law with a strong emphasis on national and international patent litigation as well as proceedings for damages. He focuses in particular on the technical areas of telecommunications, medical devices, pharmaceuticals and mechanics. A main focus of his practice is on infringement proceedings regarding standard-relevant patents where he advises and represents several international telecommunication companies regarding FRAND and antitrust defences. He has been involved in a number of leading FRAND cases. Netherlands Dutch law provides for several legal grounds on which an (alleged) infringer could base a FRAND defence (assuming that the FRAND declaration made by the patentee is subject to Dutch law. This is an important consideration since sometimes they are not. For example, the ETSI declarations are subject to French law). Nature of the FRAND defence First, the infringer can base a FRAND defence on contract law. A patentee s declaration that he is prepared to grant a licence under FRAND conditions may qualify as an irrevocable offer to enter into a licence agreement. Whether this is so depends on the way in which the declaration was phrased. Secondly, the infringer can base his FRAND defence on European (and Dutch) competition law. The IP policies of standard setting organisations (SSOs) requiring their members to declare that they are prepared to license essential patents under FRAND conditions serve to guarantee that standards which are drawn up from a perspective of compatibility and interoperability are not used (or abused) to eliminate competition or to stipulate excessive royalties. After all, the standardisation process means that competing technologies have effectively been eliminated. IP policies prevent standardisation based on patents from conflicting with Article 82 (and possibly Article 81(1)) of the EC Treaty and the corresponding Article 24 of the Dutch Competition Act (cf of the Guidelines on the applicability of Article 81 to horizontal cooperation agreements, and 226 of the Guidelines on the application of Article 81 to technology transfer agreements). Thirdly, the infringer can base a FRAND defence on abuse of right. If the alleged infringer has declared that he will accept a FRAND licence, but the parties have not (yet) agreed on which conditions are FRAND, the alleged infringer could argue that it is an abuse of the patent right to use the patent in the meantime to ask for an injunction. This is because it would appear to be difficult to negotiate reasonable conditions while the patentee is, at the same time, threatening the other party with an injunction. Case law Although in recent years the FRAND defence has been invoked in several patent cases in the Netherlands, this has not (yet) led to any landmark Dutch decisions. One explanation for this may be that cases in which essential patents and FRAND conditions play a role often involve globally active parties, each of whom are often owners of impressive worldwide patent portfolios. It might be assumed that they would rather settle their business disputes out of court, enabling them to keep the details of any (cross-)licence to themselves, rather than entrusting the delicate issue of deciding what is fair, reasonable and non-discriminatory to a judge who would render a public decision. The following cases have, however, emerged in the last years: LG Electronics v Philips This case was decided by the Hague District Court on June LG and Philips had been negotiating for a long time about the royalties that LG should pay for using a Philips patent concerning JPEG technology. The patent was not reported by Philips as an essential patent (Philips argued it was under no obligation to report it as such because it had not been involved in the standardisation process), and therefore no FRAND-declaration was filed by Philips in respect of the patent. When Philips asked for an injunction, LG raised a nullity defence and the FRAND defence. In an earlier decision in this case, the Court accepted validity and infringement, stayed the proceedings to allow the parties to file briefs on the so-called FRAND-ness of their respective proposals, and pending this stay granted an interim injunction against LG for the further lifetime of the patent (which was only a couple more months). In the June decision (in a proceeding initiated by LG), the Court reversed the injunction because LG had been able to demonstrate that, contrary to Philips previous statements to the court, Philips had been involved in the JPEG standardisation process, and was therefore obliged to report the patent as an essential patent and to accept the obligation to offer a FRAND licence. Under those circumstances, the Court ruled, the patentee is not entitled to an interim injunction. JULY/AUGUST

5 EUROPE: SPONSORED EDITORIAL Dutch Mobile v SISVEL This was a preliminary injunction decision of the Hague District Court on November Dutch Mobile tried to get an order for a seizure of 2,000 Motorola mobile phones lifted by offering to pay a licence fee of $0.60 for each seized product (in total $950). The seizure was based on an alleged infringement of an essential MP3 patent. The fee of $0.60 was based on the standard licence agreement that the patent owner (Sisvel) offered on its website. The judge did not accept Dutch Mobile s FRAND argument that Sisvel was only entitled to an injunction if Motorola or Dutch Mobile did not want to enter into a full licence agreement. Only paying for products when The availability of a licence defence will depend on the specific regime surrounding the standard in question they get seized is not enough. The judge rendered a similar decision in Benq v Sisvel on March Sisvel v Acer The case was decided by the Hague District Court on April Acer (the alleged infringer) requested the Court to order Sisvel to submit copies of licence agreements with third parties to enable Acer to assess whether the offer of a licence made by Sisvel to Acer was FRAND, and in particular whether it was non-discriminatory. The Court rejected Acer s request, not because of lack of legal basis, but because of lack of factual substantiation. Apparently, Acer had not been able to demonstrate sufficiently the likelihood that Sisvel had offered different conditions to third parties. Mark GR van Gardingen Mark GR van Gardingen is a partner with Brinkhof in Amsterdam. He specializes in European patent litigation, with a focus on pharmaceutical/chemical inventions, electro technology and mechanical engineering. He litigates before the specialized patent courts of The Hague, the Supreme Court, and the Dutch and European Patent Office. Mark represented Korean multinational Samsung in its multi-jurisdictional nullity attack and infringement defence against several of Ericsson s 2G and 3G mobile telephony patents. The case raised novel legal issues in relation to standards and essential patents, including questions about (proof of) infringement and the ETSI IP policy declaration to licence under FRAND conditions. Mark also represents Samsung in proceedings against Sharp in relation to liquid crystal display technology. Mark s other clients include ratiopharm (relating to revocation of Lundbeck s patent for escitalopram and revocation of MSD s patent for alendronate), Novartis (injunction against J&J for infringement of Novartis patent for extended wear contact lenses; defending Novartis patent for Lescol XL in nullity proceedings), and Boston Scientific (Supreme Court ruling reinstating Boston Scientific s patent for cardiovascular catheters). Mark regularly writes articles on patent law in international journals, and is a regular speaker on conferences. He is a member of EPLAW. UK A defendant may, of course, rely on a defence of licence (that is, that he has the patentee s consent). Such a defence negates infringement. The availability of a licence defence will depend on the specific regime surrounding the standard in question. For example, it may be argued that a declaration that licences are available followed by an act of acceptance creates a licence. Clean hands A defence of ex turpi causa non oritur actio may also lie where a claimant founds his claim on a wrong that he himself committed. This doctrine may be argued to be similar to the German law dolo petit objection raised by the defendant in the Orange Book case. The principle derives originally from the judgment of Lord Mansfield in Holman v Johnson (1775) 1 Cowp R, a judgment of some antiquity but approved by the House of Lords in Tinsley v Milligan [1994] 1 AC 340. Lord Mansfield said: The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. The question therefore is, Whether, in this case, the plaintiff s demand is founded upon the ground of any immoral act or contract, or upon the ground of his being guilty of any thing which is prohibited by a positive law of this country. The doctrine could be argued to have application if, for example, a claimant s anti-competitive conduct is of sufficient turpitude and is sufficiently connected to his claim of patent infringement so as to bar the claim. However, as noted by Sir Murray Stuart-Smith in Vellino v Chief Constable of Greater Manchester [2001] EWCA Civ 1249, The facts which give rise to the claim must be inextrica- 906 JULY/AUGUST

6 EUROPE: THE FRAND DEFENCE bly linked with the criminal activity. It is not sufficient if the criminal activity merely gives occasion for tortious conduct of the Defendant. The Court of Appeal in Gray v Thames [2008] EWCA Civ 713 considered that in cases where the cause of action does not arise out of the illegal act, a sufficient nexus may be found where the relevant loss is inextricably linked with the claimant s illegal act. Untested The ex turpi causa defence in the context of FRAND is as yet untested in English law. In the context of claims of infringement of essential patents, it is possible to see that the nexus is weakened if the anti-competitive conduct relates to a large number of patents as a whole and the damages for patent infringement of individual patents are not inextricably linked to the anti-competitive conduct, or if the patent in question is essential to a standard but the relevant part of the standard is not in fact commercially essential in products. Injunctive relief An injunction is an equitable remedy in English law. As in other member states of the EU, under the Enforcement Directive a court must at least have the power to grant injunctive relief but in contrast to damages there is no strict entitlement to an injunction. The principles applicable to injunctive relief were considered by Mr Justice Pumfrey in Navitaire v Easyjet [2005] EWHC 0282, a case concerned with claimed copyright infringement. When deciding whether to grant an injunction the judge applied the approach adopted by the Court of Appeal in Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287, under which the court must first consider if there is a case for equitable relief, and if a case is established, consider whether the court should exercise its discretion to either grant or deny injunctive relief. To establish a case for equitable relief, the patentee must succeed on the issue of infringement, prove an actual or threatened infringement by the defendant, and overcome all equitable defences such as laches, acquiescence and estoppel. Discretion Once a case has been established, the court should consider whether to exercise its discretion. The general principle is that if: a) the injury to the plaintiff s legal right is small, and b) is one which is capable of being estimated in money, and c) is one which can be adequately compensated by a small money payment, and d) the case is one in which it would be oppressive to the defendant to grant an injunction, then damages in substitution for an injunction may be given. The trial judge in Navitaire suggested that oppressive could mean that the effect of the grant of the injunction would be grossly disproportionate to the right protected. Generally speaking courts have not exercised their discretion to refuse an injunction if infringement has been found. In the context of actions for infringement of patents claimed to be essential, it is possible to see that in circumstances where the patent in question is both essential to a standard and commercially essential to an equipment manufacturer, and there has been a declaration by the claimant that it is willing to grant licences for that patent (see Site Developments (Ferndown) Limited v Barratt Homes Limited and Others [2007] EWHC 415 (Ch), and Banks v EMI Songs [1996] EMLR 452), and the manufacturer can guarantee the payment of any damages which may be assessed, there is an argument that injunctive relief should not be granted. Stay of injunction pending appeal It is possible to see English courts arriving at a result similar to that in the above-cited German case of the Court of Appeal in Karlsruhe. The general principle is that, when considering whether to stay an injunction pending appeal, the court should arrange the outcome so that there is no injustice, no matter what the result of the appeal is (3M v J&J [1976] FSR 139). Factors such as whether the defendant is able to give adequate financial guarantees, and whether the patent is commercially as well as technically essential, would be significant. Ari Laakkonen Ari Laakkonen is a partner with Powell Gilbert in London. He has a huge breadth of experience in the IT, electronics and telecoms sector derived from his time as both in-house and external legal counsel. Ari specialises in electronics patent litigation and IT disputes as well as advising on general IP matters including trade marks, designs and copyright and providing general strategic advice. He has a broad range of experience as both in-house and outside counsel, having been Director, IPR Legal, at Nokia where his responsibilities included managing Nokia s IP litigation in Europe including multi-jurisdictional disputes. Ari is a council member of AIPPI, UK and has published widely on all aspects of IP law. He is also a member of the British Computer Society and is a chartered engineer. JULY/AUGUST

7 I iman ( I f t n lintellect r )ï pi ) aï&, r le:1 cl SPECIAL FOCUS: EUROPE F INCORPORATING IP ASIA VVWW.MANAGINGIP.COM JULY/AUGUST 2009 MEET THE rrr 9/ t\ r MOST INFLUENTIAL PEOPLE IN IP PEOPLE IN IP _rev A GLOESAL GLOBAL GUIDE IP AUDITS HOW TO WIN WHY OBAMA TO UTILITY THE EASY CROSS-BORDER CHOSEi(APPOS KAPPOS MODELS WAY LITIGATION LIT,IeTION FOR THE USPTO 4111 '-