Patent Assertion as Abuse of Economic Dependence?

 

In 2023 I blogged about a July 2022 decision of the Tribunal de l'entreprise de Brussels francophone, Chamber of Injunctions, Tunstall Group Holdings Limited v. Victrix Socsan S.L.  Tunstall is a company that markets telecare devices (reception units), and also markets and licenses software that implements a platform and protocols for use with the devices.  Tunstall is the owner of EP 2 160 038 B2 (“Tone signalling”), validated in Belgium, which the trial court described as “protecting the protocols used in the televigilance sector that it has developed.”  Télé-Secours, which markets televigilance services for elderly and vulnerable people, had been a customer of Tunstall for several years, but was unhappy with Tunstall’s delay in providing an updated platform.  Tunstall therefore sought to hire Victrix, a Spanish firm, as a replacement.  Tunstall refused to license Victrix, however, although it licenses other firms against which Tunstall competed in the Belgian market.  Tunstall then sued Télé-Secours and Victrix for infringement, arguing that Victrix had offered to supply an infringing platform to Télé-Secours, and that that certain “test calls” between Télé-Secours and Tunstall constituted infringing uses.  The defendants in turn counterclaimed for abuse of dominant position (in violation of competition law) and for abuse of economic dependence (in violation of a Belgian statute enacted in 2019).  The trial court concluded that Tunstall had not proven infringement by either defendant, and dismissed the competition-law claim on the ground that Tunstall was not dominant throughout the entire EU.  (That rationale struck me as shaky back in 2023, and as we shall see the appellate court dismissed the claim on the merits instead.)  But the trial court found that Tunstall had abused its economic dependence, and ordered the companies to conclude a license on terms in line with market value. 

I had been wondering if the appeal from the first instance judgment had been decided, and so I was pleased that, at the recent conferences I attended in Asia, Professor Amandine Léonard was able to share with me a copy of the appellate court decision (Cour d’appel de Bruxelles, 9^e ch., June 8, 2023), reversing the judgment below on the abuse of economic dependence issue.  The court also affirmed the finding of no abuse of dominant position, on other grounds, and affirmed the judgment that Tunstall did not prove infringement.

On abuse of economic dependence, the appellate court states, as had the trial court, that there are three cumulative conditions:  a situation of economic dependence, an abuse, and damage to competition (para. 21).  More precisely: 

The situation of economic dependence is “a position of subjection of one enterprise toward another or many other enterprises, characterized by the absence of an alternative reasonably equivalent and available without delay, on reasonable conditions and at reasonable cost, enabling the enterprise or each of them to extract benefits or conditions which could not be obtained under normal market conditions” (para. 22).

Here, however, the court concludes that the first element is not satisfied, stating that

In affirming that it does not have, for its platform, an alternative supplier to Victrix, Télé-Secours proceeds from an erroneous premise:  the existence of an alternative must be sought in comparison with the existing platform, and not that of Victrix.

 

According to the judgment of the court of first instance, Télé-Secours is a captive of Tunstall's technology in that “Tunstall possesses the patented technology needed to ensure the connection between the vast majority of the reception units of Télé-Secours’ subscribers and the future platform to be implemented.”  But it admits that ESI France has an alternative—this company benefiting from a license from Tunstall and having proposed a platform to Télé-Secours. Télé-Secours also acknowledges the existence of a new platform, launched in 2022, from Enovation, of which it concedes the architecture appears to be similar to that of Victrix. It appears as well that Z-Plus (another telemonitoring operator in Belgium) has recently opted for the platform proposed by Mextal.

 

The question is therefore whether the platforms proposed by the three above-mentioned players constitute a reasonably equivalent alternative, available within a reasonable timeframe, on reasonable terms and at reasonable cost. They cannot be disqualified on the grounds that their suppliers are Tunstall licensees, for the use of the disputed protocols, the sector to be considered being that of platforms.

 

It is not disputed that the above-mentioned platforms are currently available. Although Télé-Secours asserts that it “must have a task management tool such as Victrix's, which it does not find in Tunstall's licensees” (its conclusions, p. 53), it acknowledges that it has already installed this management tool, which brings real added value to the work of its operators, even if its non-integration in the platform limits its possibilities of use. It does not demonstrate, nor does it assert, that this feature is indispensable and that the aforementioned platforms do not offer a “reasonably equivalent” alternative in this respect. For the rest, it merely asserts that the Victrix platform is more flexible and easier and more efficient to use than the other platforms. With regard to the Enovation platform in particular, Télé-Secours states that it rejected it on the grounds that it did not meet its needs, in addition to the fact that it is substantially more expensive than the Victrix platform, a criticism also levelled at the ESI platform. Télé-Secours’ requirements in terms of flexibility of architecture or easier, more efficient use of the Victrix platform, in the absence of further details, are not such as to lead to the conclusion that there is no reasonable alternative(s) within the meaning of the aforementioned provision.

 

Télé-Secours relies on offers made to another operator . . .  with Victrix and ESI France’s offers being EUR 175,000 and EUR 201,519 respectively, for five years, which does not allow us to conclude that ESI France’s offer is “substantially” more expensive, given that it includes the cost of Tunstall’s license fees, which amount to EUR 17,000.00 for five years. It has therefore not been established that the cost of the above-mentioned platforms is “unreasonable.”

 

Lastly, Télé-Secours asserts, but does not prove, that Z-Plus is not fully satisfied with the Mextal platform, and at the very least does not explain why (paras. 25-27).

The court therefore does not need to consider the second element, whether Tunstall demands benefits or imposes conditions upon Télé-Secours that would be abnormal (para. 28).

Turning next to Victrix, the appellate court concludes, contrary to the court of first instance, that such a claim can only be brought by a party that is already in a business relation with the abuse defendant; the claim does not extend to precontractual negotiations (para. 30).

 On abuse of dominant position, the appellate court finds that, under governing CJEU standards (e.g., the IMS Health decision from 2004), Tunstall’s refusal to license would not constitute an abuse of dominant position unless there were evidence that the refusal precluded the development of a new product or new technology for which there exists potential consumer demand, Tunstall lacked an objective justification for the refusal, and the refusal would tend to exclude all competition in a derivative market.  On the facts, the court doesn’t find that to be the case here.  It also notes that, if these conditions are too readily found, there would be less of an incentive to invest in creating the asset at issue (paras. 32-37).

I am inclined to agree with the appellate court's reasoning, that the successful invocation of either abuse of dominant position or abuse of economic dependence as a rationale for obligating the patent owner to license its IP should be rare--though perhaps not quite as rare as such cases are under U.S. antitrust law (e.g., Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP).  I'm especially wary of the abuse of economic dependence doctrine, an expansive interpretation of which would open quite a Pandora's box, in my view (see my post on the court of instance case here).  Limiting such claims to cases in which the patent owner is exploiting an existing commercial relationship makes me think, however, that perhaps abuse of economic dependence could play some role, in those countries that recognize it at all, in regulating "holdup" in the sense originally developed by Oliver Williamson and others, as a form of opportunism on the part of the dominant party in a contractual relationship; for discussion, see pages 1514-29 of my article with Erik Hovenkamp and Norman Siebrasse discussing the origins of holdup theory and its subsequent application to patent infringement cases.

 Postscript:  For a summary of a more consequential decision, involving a finding by the European Commission that Teva abused its dominant position by missing the patent system and disparaged a competing product, see here.  I've been holding off blogging about it until there is a publicly available decision to read.