Monday, August 19, 2013

Injunctive Relief and License Termination Clauses, Part 2

Yesterday I noted that in the E.U. no-challenge clauses in patent licenses are generally unenforceable--but that clauses resulting in the termination of the license if the licensee challenges patent validity generally are.  I closed by stating that I would return to the relevance of this issue to the debate in Europe over whether, or under what conditions, owners of standard essential patents should be able to obtain injunctive relief for infringement of their patents, so here it is.

In Germany, under the 2009 Orange-Book-Standard decision, the prevailing patent owner is normally entitled to injunctive relief unless the defendant can prove that the patentee abused its dominant position in the market, in violation of competition law.  To do this, the defendant must show that it “made an offer, ready for acceptance, on contractual conditions, which the patent holder cannot refuse without thereby treating the party seeking a license unequally without good cause as compared with similar enterprises or impeding him inequitably.” Second, the infringer must “behave[ ]  as if the patent holder had already accepted his offer” by paying “the consideration that the licensee would be obliged to pay according to a non-discriminatory or non-obstructive licence contract.”  The license offer, in other words, must be unconditional.  BGH May 6, 2009, GRUR Int. at 749, English translation at 41 IIC 369.  In some more recent cases, German courts have interpreted the "unconditionality" language of Orange-Book-Standard to mean that the conditions are not satisfied if the would-be licensee  refuses to agree that, in the event it challenges the patent at issue, the license will terminate.  In other words, the licensee cannot reserve a right to challenge the patent's validity.  See OLG Karlsruhe, Feb. 27, 2012, 6 U 136/11, GRUR 2012, 738; OLG Karlsruhe, Jan. 23, 2012, 6 U 136/11, Mitt. Heft 3/2012, 127, 128; Hermann Deichfuß, Die Rechtsprechung der Instanzgerichte zum kartellrechtlichen Zwangslizeneinwand nach „Orange-Book-Standard‟, WuW 2012, 1156, 1160-61; Ronny Hauck,  Die kartellrechtliche Bewertung von Nichtangriffsverpflichtungen und Sonderkündigungsrechten in Lizenzverträgen:  Neueste Entwicklungen zum Zwangslizenzeinwand seit “Orange-Book-Standard”, WRP 2013, 673, 675; Axel Verhauwen, „Goldener Orange-Book-Standard am Ende?:  Besprechung zu LG Düsseldorf, Beschl. v. 21.3.2013- 4 bO /104/12, GRUR 2013, 558, 559.  I suppose that one way of looking at it is that, if the infringer is to be rendered no better off than a legitimate licensee, the infringer's offer must submit to a condition that legitimate licensees would have to shoulder (but would they be required to do so in every case?). 

Anyway, this requirement of agreeing to a termination clause in order to invoke the competition-law defense has resulted in a good deal of criticism in recent months, on the ground that the condition effectively insulates weak SEPs from review.  See Stephan Barthelmeß & Lars-Peter Rudolf, Die “Unbedingtheit” eines Lizenzangebotes als Voraussetzung des kartellrechtlicher Zwangslizenzeinwands im patentrechtlichten Unterlassungsverfahren, WuW 2013, 116; Philip Cepi & Kai Rüting, Kartellrecihtliche Zulässigkeit von Nichtangriffsabreden und ihre Prüfung im Petentnichtigskeitsverfahren, WRP 2013, 305, 308-09; Marc Grunwald, Der kartellrechtliche Zwangslizenzinewand:  Muss das Lizenzangebot einen Kündigungsvorbehalt für den Fall enthalten, dass der lizenzsucher das Klagepatent angreift?, Mitt. Heft 11/2012, 492.  It may be that the criticism is beginning to have some impact. 

First, in  March 2013 a court in Düsseldorf referred to the Court of Justice for the European Union (CJEU) the question of whether it is an abuse of dominant position for the owner of an SEP who has made a FRAND commitment to seek an injunction when the infringer has expressed its willingness to negotiate a FRAND license.  Unlike it predecessors, this court seemed much more receptive to the argument that conditioning the license on the licensee’s agreement to a termination clause that would be triggered in the event of a validity challenge.  See LG Düsseldorf, March 21, 2013, Case No. 4 b O 104/12, GRUR-RR 2013, 196,199-200, with commentary by Daniel Hoppe-Jänisch at pp. 200-201.  As Hoppe-Jänisch states, “the court gets to the heart of the matter with the simple words ‘There is no interest in the maintenance of an invalid patent’” (my translation).  

Second, in a Memorandum accormpanying its statement of Objections to Motorola Mobility this past May, the EC states that “in the Commission's preliminary view, the fact that the potential licensee challenges the validity, essentiality or infringement of the SEP does not make it unwilling where it otherwise agrees to be bound by the determination of FRAND terms by a third party. In the case at hand, Motorola required clauses that prohibited such challenges by Apple, even after Apple had agreed to be bound by a third party determination of the FRAND terms. The Commission's preliminary view is that it is in the public interest that licensees should be able to challenge the validity, essentiality or infringement of SEPs.”

For what it's worth, I think the elimination of the termination-clause requirement in this context would be a salutary development.  As I've indicated before, my preference would be simply to interpret patent rights in such a way that patent owners do not automatically get injunctions, but rather the court takes other countervailing factors into consideration (as in the U.S. eBay decision, though that decision has its foibles too).  I also tend to think it makes more sense to determine validity in infringement litigation, as in many countries, rather than in a separate proceeding as in Germany and China.  And as I noted in yesterday's post, I'm not entirely convinced that no-challenge clauses are necessarily always a bad thing; ultimately, I think, the question is an empirical one. 

But all that aside, if the question of entitlement to injunctive relief has to be litigated within the framework of competition law, then it seems to me that it makes sense not to make the competition law defense so difficult to sustain that it will rarely be successful, and not to effectively insulate SEPs from validity challenges.  So if we must work within the parameters of competition law, I hope that the CJEU will come around to the view of the E.C. and others and hold that the infringement defendant need not agree to a termination clause in order to invoke the competition law defense.           

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