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Thursday, 18 March 2010

Dutch see Orange Book differently; Philips prevails again

The relationship between IP and competition law is one of the hottest topics in IP law. It now seems that two respected European courts have come to different conclusions on the applicability of the "competition law defence" (although in the result, the decisions do not differ).

CD technology was developed many years ago jointly by Philips and Sony. The technical parameters were laid out in several different documents with various colours on the cover, including for CD-Rs in the so-called Orange Book. If you want to produce CD-Rs that are interoperable and saleable, you need to use the technology specified in the standard, and a license from Philips.

The German company SK Kassetten GmbH & Co. KG did not have a license (and never asked for one) and was sued by Philips. It argued that the patents were not infringed and if they were, it was entitled to a compulsory licence since Philips’ behaviour amounted to an abuse of its dominant position (in the CD-R market) in the sense of art. 82 of the European Treaty. In a decision of 6 May 2009 (the "Orange Book Standard" decision), the German Federal Court (BGH) held the patents infringed and accepted that there was a potential "competition law defence". It rejected an argument that the provisions of the Agreement on Trade Related Aspects of Intellectual Property (TRIPS) on compulsory licences prohibited the raising of the defence. However, to avail itself of a compulsory license, the defendant had to act like a "true licensee", namely by

  • determining the reasonable licence fee objectively (ie, presumably based on common practice in the relevant industry or market intelligence);

  • regularly rendering accounts; and

  • paying, or at least depositing, (eg, into an escrow account) hypothetical licence fees.
Practitioners were quick to note that these requirements put the defendant in an almost impossible situation - to be sure that he could benefit from the license, he had to pay a royalty that was possibly too high, but once he paid, he would not get it back. Google BGH and Orange Boook Standard for some views.

The EPLAW blog just broke the news that the District Court The Hague decided on 17 March 2010 that SK Kassetten could not rely on the compulsory license by competition law defence (the court calls this the "FRAND-verweer"). If this IPKat understands correctly - and that is a big if, because his command of Dutch is extremely limited - the Hague Court argues that SK Kassetten never asked for a license, and this bars it from relying on the "FRAND-defence". SK Kassetten should have asked Philips for a license, and if Philips had refused, sued based on competition law. It could not just infringe and then, when it lost the argument on non-infringement, try to rely on the compulsory license defence. The Hague Court notes that it disagrees with the criteria laid down by the BGH for a compusory license based on competition law (see p. 16 of the decision). The Hague Court doesn't fail to note that even if the BGH criteria were applicable, SK Kassetten could not prevail, because it never paid Philips anything (and neither deposited any money into an escrow, presumably).

If readers with better command of Dutch have more insight, please post them in the comments, and if you have an English translation of the Dutch decision, please let the IPKat now.

3 comments:

Jasper Groot Koerkamp said...

Just read the Dutch decision.

The Dutch court is aware that their criteria differ from the criteria as laid down by the Bundesgerichthof.
According to the Dutch court, application of the German decision in the Netherlands:
(i) is in potential conflict with (Dutch) patent legislation, as without a licence, Philips would be still free to enforce its rights
(ii) introduces uncertainty, as it will always be uncertain that a claim to a FRAND licence will be implemented in the actual licence; and
(iii) is not required for protection of the legitimate protection of the defendant. SK could have arranged for a licence with Philips upfront. They did not, apparently. In addition, they did not make any monetary reservations to pay any licensing fee. The Dutch court also indicates that SK could have asked the Dutch court for a provisional declaration that Philips should provide a FRAND licence - which SK did not do.

Furthermore, according to the court, SK did in any case not comply with the requirements of the German court, so applying the German decision would not have resulted in a different decision. In particular,

What I find interesting is that the Dutch court talks about "a claim to a licence" rather than "an unconditional offer to enter into a licence" about which the German court talks, as far as I recall. These are in my opinion two significantly different things. The first one is: I have a right to a licence under your patent rights, whereas the second one is: I am willing to enter into a licence under FRAND terms & conditions, being x, y and z (and I am already living up to those terms and conditions, in particular w.r.t. the financial aspects).

Based on the facts in the decision, I really wonder whether this different approach would have yielded another decision. However, the in my opinion different German approach would take away a lot of uncertainty referred to by the Dutch court under (ii) and (iii).

So in summary, the Dutch court:
- Is not inclined to apply the German requirements as laid down by the Bundesgerichthof and applies a stricter approach; and
- Interprets the requirements as laid down by the Bundesgerichthof a bit differently than as I understand them (claim to a licence vs. an unconditional offer to enter into a licence agreement)

Besides, this still does not solve the question what FRAND actually means...

Mark Schweizer said...

Thank you, Jasper, for sharing your insights!

Mark Schweizer said...

the EPLAW Patent Blog just posted an English translation of the relevant parts of the decision, see http://www.eplawpatentblog.com/eplaw/2010/03/nl-philips-v-sk-kasetten-frand.html#more

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