Competition Law, Settlement and Licensing - Annual Patents Review 2017

15 February 2018

This is the Competition Law, Settlement and Licensing chapter of Gordon Harris' Annual Patents Review 2017. For the other chapters of the review, please follow the links below or download the Annual Patents Review 2017 in full.

  1. Introduction
  2. Infringement
  3. Validity
  4. Technical Matters and Procedure
  5. Competition Law, Settlement and Licensing
  6. Employee Inventor Compensation
  7. Summary and Conclusions

5. Competition Law, Settlement and Licensing

Competition law

The big issue regarding competition law this year arose in the case of Unwired Planet v Huawei (non-technical)[88]. I have already given some consideration to this issue under the heading of FRAND above. It was established that competition law is a different issue, and that behaviour which might fall outside the scope of FRAND, does not necessarily fall in breach of competition law.

In assessing the dominant position of the holder of a standard essential patent (SEP) the practical effect of the FRAND undertaking and the potential for hold-out by an implementer of relevant technology may lead to the conclusion that an SEP holder is not in a dominant position. European case law indicates that there can be a presumption of dominance but it can be rebutted.

However, in the present case, in the absence of any positive case denying dominance (Unwired Planet merely did not admit) and in the absence of any proper economic analysis (no evidence from either party) the relevant facts were not, alone or together, sufficient to justify not drawing the inference of dominance. These facts were:

  1. the market for licences under the SEPs (the relevant market) was covered by the FRAND undertaking;
  2. the market was one in which the licensee can engage in holding out; and
  3. there was some evidence that licensees do so.

Some commentators feel that, in reaching that conclusion in those terms, the judge has left the door open to future cases challenging the notion that the ownership of SEPs equates to dominance. Indeed this is already a live issue in pending litigation in the UK.

The next question is whether the conduct of either party amounts to an abuse of its dominant position. For example, had Unwired Planet abused its dominant position by bringing litigation prematurely?

The judge said that from the CJEU's judgment in the Huawei v ZTE[89] case he derived the following principles for making this assessment ([744]):

(i) In the judgment the CJEU has set out a scheme which both the patentee and implementer can be expected to follow in the context of a dispute about a patent declared essential to a standard and subject to a FRAND undertaking.

(ii) In stating that the implementer and patentee must express a willingness to conclude a licence on FRAND terms, the CJEU is referring to willingness in general terms. The fact that concrete proposals are also required does not mean it is relevant to ask if those proposals are actually FRAND or not.

(iii) If the patentee complies with the scheme prior to starting a claim for infringement of that patent which includes a claim for an injunction, then bringing such a claim will not be abusive under Article 102.

(iv) In the circumstances contemplated by the CJEU, bringing a claim for infringement of a SEP which includes a claim for an injunction without prior notice of any kind will necessarily be an abuse of dominant position. Insofar as the decision identifies what is abusive rather than what is not, the decision does not go further than that.

(v) Bringing a claim for infringement which includes a claim for an injunction even with sufficient notice is capable of being an abuse of dominant position. However the judgment does not hold that if the circumstances diverge from the scheme set out in any way then a patentee will necessarily abuse their dominant position by starting such a claim.

(vi) Nor does it follow that if the patentee complies with the scheme such that bringing the action is not per se abusive, the patentee can behave within impunity after issue. Again, the scheme sets out standards of behaviour against which both parties' behaviour can be measured to decide if an abuse has taken place.

(vii) If the patentee does abuse its dominant position in bringing the claim or in its conduct after issue, that affords a defence to the claim for an injunction. In other words the proper remedy is likely to be refusal of an injunction even though a patent has been found to be valid and infringed and the implementer has no licence.

(viii) The legal circumstances of this case differ from the circumstances assumed by the CJEU in a crucial respect. FRAND is justiciable and the undertaking can be effectively enforced at the suit of the defendant irrespective of Article 102. The defendant does not need Article 102 to have a defence to the injunction claim.

Underpinning these conclusions, the judge's reasoning is also noteworthy. He said ([740]-[741]):

I cannot read the judgment in [Huawei v ZTE] as drawing a bright line whereby any deviation from the conditions set out in any circumstances is necessarily an abuse of dominant position. That is just not what the judgment as a whole says. …the most that the CJEU is saying in paragraph 60 is that an action brought without some kind of prior notice will be abusive. What amounts to a sufficient notice in a given case ought to depend on the circumstances.

More broadly, I am not persuaded that the CJEU in Huawei v ZTE sought to set out a series of rigid predefined rules, compliance with which is never abusive whereas deviation from which is always abusive, all regardless of the circumstances. Abuse of dominance is a serious matter and the court will have had well in mind that circumstances can vary.

The judge concluded that Unwired Planet had not abused its dominant position through the commencement of proceedings seeking an injunction.

He also considered whether Unwired Planet had abused its dominant position through unfair or excessive pricing and once again concluded that it had not. That is an issue beyond the scope of a talk about patent law.

In short, despite four arguments to the contrary, the judge found that Unwired Planet had not abused its dominant position in any respect in its conduct of the matter, FRAND negotiations, or its multi-jurisdictional bundling.

Exclusive licence

I will deal very briefly with a technical point concerning licencing arising out of the case of Illumina v Premaitha[90].

The issue in question regarded what constituted an exclusive licensee for the purposes of section 130 of the Patents Act.

To cut a very long story short, the relevant provision of the licence ("PPA") in question provided:

On the terms and conditions of this Agreement, Sequenom, on behalf of itself and its Affiliates, hereby grants to Illumina and its Affiliates an exclusive, irrevocable and perpetual…, non-transferable and non-assignable license….

Within the definition section of the Agreement, the word "affiliate" was stated to mean, with respect to a person, any other person directly or indirectly controlling, controlled by or under common control with such person. For the purposes of this definition the term "control" was stated to mean, with respect to any person, the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through the ownership of voting securities or by contract or otherwise".

The judge accepted Illumina's evidence that it exercised de facto control over the activities of various subsidiaries and affiliates including "Illumina Cambridge Limited". However, he concluded ([254]):

A licence is only exclusive under section 130(1) if it is granted to a single person, although he may grant sublicenses to "persons authorised by him". The PPA does not comply with this definition, as it is a licence granted by the proprietor to a number of persons, even though one of them is in de facto control of the others.

This simply concerns a form of words. The expression "affiliate" did not allow the licence agreement to fall within the terms of section 130. Had the agreement talked about subsidiaries or sublicensees, then the position may have been different. Also noteworthy in Illumina v Premaitha were the judge's rulings that reservations in respect of non-commercial purposes and academic research did not prevent a licence being 'exclusive' for the purposes of section 130 in respect of commercial activities.

Another point concerning section 130 arose in Oxford Nanopore Technologies v Pacific Biosciences[91]. I will not delve into the complex facts of the case, but merely allude to the conclusions drawn by the judge, David Stone sitting as deputy High Court judge, in respect of the meaning of "exclusive licence" in section 130(1), and therefore the requirements for a licensee to have standing to sue under section 67(1). Following on from Henry Carr J's judgment in Illumina v Premaitha and earlier authority, he drew the following propositions ([44]):

(i) Whether or not a licence is an exclusive licence for the purposes of section 67(1) of the Patents Act is a matter for English law.

(ii) A licence which purports to be an exclusive licence may not necessarily be so. Identifying an exclusive licence depends on a proper construction of the document or documents.

(iii) It is for the party asserting that it is an exclusive licensee to demonstrate that it is.

(iv) The assessment of whether or not a licence is exclusive is not a "once and for all assessment". An exclusive licence may confer upon the patentee a power to convert the licence into a non-exclusive licence.

(v) The essential element of an exclusive licence is that is a licence to the exclusion of all other persons, including the patentee or applicant.

(vi) It is possible to have a plurality of exclusive licences in respect of any one patent.

(vii) But each exclusive licence may only be granted to one person - a licence will not be exclusive if granted to a number of entities even if they are under the same control.

(viii) An exclusive licensee may grant sub-licences to "persons authorised by him".

(ix) There is a distinction to be drawn between a licence and an equitable right to call for a licence.

(x) Where an equitable right to call for a licence is conditional…, the otherwise exclusive licence will remain exclusive unless and until the contractual conditions are fulfilled that enable the grant of the licence.

Download the Annual Patents Review 2017 in full.

Links to the other sections of the Annual Patents Review 2017 are below.

  1. Introduction
  2. Infringement
  3. Validity
  4. Technical Matters and Procedure
  5. Competition Law, Settlement and Licensing
  6. Employee Inventor Compensation
  7. Summary and Conclusions

Footnotes:

[88] Unwired Planet International Ltd v Huawei Technologies Co. Ltd & Ors [2017] EWHC 711 (Pat) (5 April 2017) Birss J; re-published with fewer redactions as [2017] EWHC 2988 (Pat) (30 November 2017) Birss J
[89] Huawei Technologies Co. Ltd v ZTE Corp. & Anr,Case C-170/13, 16 July 2015 [2015] Bus LR 1261
[90] Illumina, Inc & Ors v Premaitha Health Inc & Ors [2017] EWHC 2930 (Pat) (21 November 2017) Henry Carr J
[91] Oxford Nanopore Technologies Limited & Anr v Pacific Biosciences of California, Inc & Anr [2017] EWHC 3190 (Pat) (14 December 2017) David Stone


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