For the half-year to 30 June 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Alberto Bellan, Darren Meale and Nadia Zegze.

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Monday, 26 March 2012

Consent and competition: getting the right balance

It's usually good news when the parties -- or more likely their legal representatives -- get together and settle a dispute before it gets to the point that a judge has to take time off from more important things and settle it for them.  The settlement is ideally rendered into  form of words that each party can understand and, more importantly, live with. That way, even if plaintiff and defendant don't actually kiss and make up, they can get on with their respective activities and the loser will ideally retain a modicum of self-respect.  This not what happened in Adobe Systems Incorporated v Netcom Online.Co.UK Ltd & Another [2012] EWHC 446 (Ch), 2 March 2012, a decision of Mr Justice Warren (Chancery Division, England and Wales), concerning a consent agreement that become not so much the end of an old dispute as the beginning of a new one.

Adobe sued Netcom Online for infringement of its Community and United Kingdom trade marks on the grounds that Netcom had sold genuine Adobe products that were the wrong shade of grey in that had not been placed on the market in the EU by Adobe or with its consent. Encouragingly, the proceedings were settled by consent order shortly before trial, which was to have been before Mr Justice Arnold in April 2011, the order providing for an inquiry as to the damages. Netcom then sought to raise a number of issues in the damages inquiry which, it argued, showed that the order was illegal: (i) since the Adobe products in question had been supplied by an authorised distributor outside the European Economic Area to someone within it, that amounted to Adobe's consent to the products being put on the market in the EEA and the trade mark rights in those goods were therefore exhausted; (ii) Adobe had abused its dominant position by charging abusively high prices for its products and (iii) the consent order itself constituted an anti-competitive agreement. Accordingly, said Netcom, the consent order should be set aside on the basis of common mistake or unlawfulness in light of the issues it now raised.

Mr Justice Warren was unmoved by Netcom's entreaties.  In his view:

  • If there hadn't been a consent order and, at trial, Arnold J had made exactly the same order, it would not have been open to Netcom to raise these new defences at the inquiry.  Since those defences weren't raised at the trial, it was too late to raise them in the inquiry: this was because there was a public interest in the finality of litigation.
  • It was correct to say that, as a matter of policy, the courts should not enforce arrangements which were in breach of competition law. However, in all the circumstances, it would be wrong to let Netcom go behind the order for the inquiry so as to raise a new case requiring a mass of new evidence. By refusing this point, the court was not enforcing an unlawful agreement; what it was doing was enforcing its own order which might, if certain facts were proved and certain arguments made good, be shown to have been incorrectly made.

  • The conclusion that a strong public interest in the finality of litigation trumped the complaint that there was a breach of EU competition law could not be challenged as being unlawful since any challenge to it begged the question whether there was a breach of EU competition law in the first place. Accordingly, if national procedural rules satisfied the general EU principle of effectiveness, a decision of the national court which had been reached in compliance with those rules was not open to challenge as an infringement of EU law.

  • There was no mistake of law concerning the exhaustion of rights issue for the very good reason that the point had not even been raised.

  • Significantly for IP owners, there was no reason to think that the case law of the Court of Justice had intended to give the impression that consent orders would be open to attack, so far as they concerned damages agreed by the parties for an acknowledged breach of some property right, on the basis of an infraction of competition law.
The IPKat has an acute dislike of legal actions that look destined to fail and which unnecessarily prolong the state of hostilities between the parties. However, he is left with some misgivings here. Not having seen the evidence and, in any event, noting that infringement was apparently acknowledged, at least initially, he has no quarrel with the outcome. The judgment itself is reasoned and credible.  But what this Kat is anxious about is the comments of the judge on the balance between the strong public interest in the finality of litigation and the powerful dissolving effect of European competition rules on commercial agreements. Ever since his days teaching at Queen Mary back in the 1990s he has felt that dispute settlement agreements in IP cases are a fertile soil for the planting of agreements that, whether intentionally or inadvertently, fall foul of EU's competition rules under Articles 85 and 86, 81 and 82, 101 and 102 of whichever European Treaty happens to be in force at the time.  The danger is compounded where the settlement has the effect of granting a licence on terms that do not sit comfortably with the Technology Transfer Block Exemption (TTBE). It's a sort of instinct, but this Kat feels that, whenever there is a conflict between competition rules and any other commercial or IP doctrine, there's only ever one winner ...

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2 comments:

Mr Pettifog said...

In the EU, competition rules always win because they are part of the grand project of European integration, while intellectual property laws are merely there to support trading activities.

Anonymous said...

The judge has clearly erred in his opinion that his competition law takes 2nd place here.

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