A few months back, I
noted a couple of blog posts (on EPLaw and JUVE Patent) discussing 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. This was a patent infringement case in which the court applied the doctrine of "abuse of economic dependence," as
enacted into Belgian law in August 2020. More specifically, although there was no
finding of abuse of dominant position in violation of applicable competition
(antitrust) law, the court ordered the owner of a (non-standard essential)
telecommunications patent (Tunstall) to license two infringement defendants (Victrix
Socsan and Télé-Secours) on the alternative ground that the refusal to license constituted
an abuse of economic dependence, in violation of Belgium’s CDE (Code de droit économique). I never got around to blogging about the case
in depth, but now that my new book project on wrongful patent assertion is
underway I thought it would be worthwhile to revisit the matter, if for no
other reason than to clarify my thoughts on where exactly this doctrine fits or
could fit within the universe of tools for regulating the assertion of patents. I’ll quote below a few passages from the
decision, mostly using the English-language translation provided by EPLaw, but with
corrections where appropriate. (The
English-language version is clearly a machine translation, and has a few errors,
e.g., repeatedly translating the word “belge” as “beige,” where it should be “Belgian.” The repeated references to the “beige” market
are kind of funny, though.)
The basic facts, as
far as I can gather, are as follows. (The
decision could be a bit more clear on the facts, in my opinion, but I think I
have pieced things together correctly.) Tunstall
is the owner of EP 2 160 038 B2 (“Tone signalling”), validated in Belgium, which
the court describes as “protecting the protocols used in the televigilance
sector that it has developed.” Télé-Secours,
which I understand markets televigilance services for elderly and vulnerable people, has been a customer of Tunstall since 2006; Tunstall,
as far as I can tell, markets telecare devices (reception units) and also the software
that implements a platform and protocols for use with the devices. Télé-Secours was unhappy with Tunstall’s delay
in providing an updated platform and/or product (see para. 64), and 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. (Again, the opinion is not a
model of clarity, but apparently Victrix cannot simply do a deal with one of
these other Tunstall-licensed firms without Tunstall’s consent. At least, I infer that that must be the case
or the decision doesn’t make any sense.) Tunstall then filed suit against Télé-Secours
and Victrix for patent infringement. The
two defendants counterclaimed for abuse of dominant position and abuse of
economic dependence. According to the
court, the evidence obtained by means of a saisie-description “showed without
any ambiguity that VICTRIX SOCSAN had not used the patented protocols,” and
thus apparently hadn’t yet serviced any Belgian customers. See para. 75. It’s not clear to me whether Télé-Secours was
infringing or was still keeping to the terms of the preexisting agreement with
Tunstall while it shopped around for a new supplier. Anyway, on to the counterclaims.
First, on the abuse
of dominant position claim, the court concludes that the relevant geographic
market is the EU, rather than Belgium specifically, and that Tunstall does not
have a dominant position in either the European market for televigilance platforms/software
or the protocols that ensure “communication between the reception units and the
telecare software.” The abuse of
dominant position argument therefore fails.
The defendants
prevail, however, on the abuse of economic dependence claim. According
to the court, the difference between the two theories (abuse of dominant
position versus abuse of economic dependence) is as follows:
“. . . the offence of abuse of a dominant position is
established if it is ‘exercised, on the market concerned, towards all customers
or suppliers and towards all competitors’. However, situations of
relative power on the market can occur and lead to economic dependence on the
part of undertakings. Indeed, ‘the dependence of certain customers or
suppliers on a certain undertaking does not make it possible to consider
that the latter is in a dominant position; nor does an undertaking have a
dominant position vis-à-vis small and medium-sized competitors when it itself is
exposed to real competition on the part of a larger enterprise’ . . . . Therefore,
for an infringement of the prohibition of abuse of economic dependence to be
established, an unequal balance of power between particular economic actors -
irrespective of their dominance in the market in general - must be demonstrated”
(para. 56; emphases in original).”
More specifically, an
abuse of economic dependence claim requires that the following three conditions
be satisfied:
“1. The position of economic dependence of one company
on another;
“2. The abuse of this situation;
“3. The effect on competition on the Belgian market
concerned or a substantial part of it” (para. 57).
As for the first
element, “economic dependence is based on two intrinsically linked criteria
that must be assessed in concreto,” namely “the lack of alternatives,”
and “the fact that a company may impose abnormal performance or conditions. This examination is not the same as that
required to determine the existence of dominance on a market: ‘an undertaking may be in a situation of
economic dependence while a satisfactory level of competition remains on the
market’ (N. Neyrinck, op. cit., p. 441)” (para. 58). Applying these criteria, the court states
that “the patented technology is necessary for the proper functioning of TÉLÉ-SECOURS
and for the quality of the services offered to its subscribers” (para. 61), and
that “Under normal market conditions, TÉLÉ-SECOURS should have been able to
definitively break away from TUNSTALL and contract with another platform
provider. However, TÉLÉ-SECOURS remains captive to TUNSTALL since only the
latter has the patented technology needed to ensure the connection between the
vast majority of TÉLÉ-SECOURS' subscriber reception units and the future platform
to be implemented” (para. 65). As for
alternatives, the court states that “platform providers capable of satisfying TÉLÉ-SECOURS
. . . must have the patented technology in order to provide the same level of
service to their subscriber,” and that “[t]he alternative company pointed out
by TUNSTALL is in fact one of its licensees, which therefore uses the patented
technology” (para. 68). Thus:
“. . . TÉLÉ-SECOURS is necessarily dependent on
TUNSTALL or its licensees. At present, there are only two options available to
it:
“- either it maintains its relationship with TUNSTALL,
but in this case TÉLÉ-SECOURS would not have a
platform with all the necessary functions to provide the services proposed to
its subscribers [because, as above, it hasn’t been satisfied with the Tunstall
software it had been using];
“- or it breaks off its relationship with TUNSTALL (or
its licensees), but in this case TÉLÉ-SECOURS would no longer have the patented
technology, and therefore no longer have an operational platform, which would
be particularly detrimental to it” (para. 70).
Moving along to Victrix,
the court concludes that the absence of a contractual relationship between Tunstall
and Victrix is not dispositive to the applicability of the abuse of economic
dependence doctrine (despite some authority apparently seeing it as such), and
concludes that Victrix too is dependent on Tunstall if it wants to enter the
Belgian market (para. 75). Moreover, “TUNSTALL
does not provide any other justification for this refusal of a licence. It
therefore imposes abnormal conditions of refusal on VICTRIX SOCSAN, while the latter
offers to pay the market price to obtain this licence” (id.). The actual justification appears to be, however,
that Tunstall wanted the business for itself, as the court later refers to “TUNSTALL’s
corporate strategy” as being “to develop an end-to-end solution for TÉLÉ-SECOURS
(which it did to the end, by proposing to TÉLÉ-SECOURS the implementation of
the ‘PNC 8’ platform, following the failure of the ‘PNC 7’)” (para. 86).
The court concludes
that Tunstall had abused both parties’ economic dependence, and that in doing
so it had affected competition in the Belgian market to an extent sufficient to
satisfy the elements of the claim. On
abuse, the court states that Tunstall may have “conceal[ed] the patented nature
of the technology” from Télé-Secours (I’m not sure what to make of that—is that
really relevant?), but beyond that
“the history and intensity of the relationship between
the two companies had the insidious effect of placing TÉLÉ-SECOURS' commercial
development at the mercy of TUNSTALL. . . . Finally,
TUNSTALL is able to upset the financial balance of its partner and can charge
high prices to TÉLÉ-SECOURS . This seems
to be the case since, in TÉLÉ-SECOURS ' opinion, TUNSTALL charges 50% more for
the supply of the platform than VICTRIX SOCSAN or 15% more than ESI FRANCE (pp.
37-38 of the defendants' summary conclusions). This statement is not
contradicted by TUNSTALL. This behaviour shows that TUNSTALL is abusing the
economic dependence of TÉLÉ-SECOURS . The latter is obliged to pay a high price
for the provision of a platform that it considers obsolete, because no
alternative platform provider that is viable in its eyes has the right to use
the patented technology on which it is captive” (para. 86).
As for Victrix, “It
is on the basis of a false pretext of patent infringement that TUNSTALL refuses
to grant VICTRIX SOCSAN the patent licence it has applied for. This refusal is
therefore abusive. In addition, TUNSTALL's conduct towards VICTRIX SOCSAN is
also abusive in that all of the latter's competitors on the Belgian market have
requested a licence for its patent from TUNSTALL, which TUNSTALL does not
dispute. The unjustified and discriminatory refusal of the licence constitutes
an abuse of the position of economic dependence in which VICTRIX SOCSAN finds
itself vis-à-vis TUNSTALL” (para. 89). Finally,
as for the effect on competition, the court cites an article describing the
legislation enacting the economic dependence doctrine as intended to “protect small
and medium-sized enterprises, not competition.
Thus, effect on competition may be real or potential” (para. 92). The court also cites with approval a
commentary stating that “abuse also occurs in the case of self-preferencing
behaviour,” which is also present here (para. 94). “TUNSTALL is therefore in a position to
increase its position in markets where TÉLÉ-SECOURS is specifically seeking
more competition. . . . TUNSTALL's behaviour is likely to affect competition in
the Belgian market or a substantial part of it” (para. 95-96).
For a remedy, the
court gave the parties three months to conclude a license, stating that the
price “shall be in line with market value” (para. 97). The JUVE Patent article referenced above states that Tunstall planned to appeal, so if anyone knows the current status of the case, I would like to know if an appeal is in fact pending.
* * *
A few observations. First, I must confess that I still don't know a great deal about the doctrine of abuse of economic dependence generally. For starters, though, here is an article by Vassili Moussis and Atsushi Yamada from Concurrences, and here is another from K&L Gates. If anyone can point me to some other articles or books or economic analyses, I would appreciate it. Second, I wonder whether the court was correct
to conclude that there could be no abuse of dominant position on the facts
presented, because the relevant geographic market was Europe, and Tunstall lacked a
dominant position throughout that entire market? Couldn’t there be a discrete Belgian
geographic market in which Tunstall dominated?
(I’d appreciate any commentary on this point from readers too.) Second, in thinking about how such a case would come
out in the U.S., I would note that we don’t have an “abuse of dominant position”
doctrine in our antitrust law, but that in Sherman Act § 2 monopolization cases
the relevant geographic market does not have to be the entire United States. This case actually reminds me a bit of Aspen
Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), where the
defendant was found (whether correctly or not) to have monopoly power in the market
for skiing services in the Aspen, Colorado area, and to have an antitrust duty not
to terminate a collaborative relationship with its competitor, Highlands. Of course, later case law (Trinko) has
described Aspen Skiing as “at or near the outer boundary of § 2
liability,” and U.S. courts are even less likely to find an antitrust duty to license
one’s IP, at least absent a FRAND commitment (and even then, well, see the
Ninth Circuit’s decision in Qualcomm).
On the other hand, there is reason to believe that a U.S. court wouldn’t
enter an injunction against defendants who are locked in to a particular technological environment; an ongoing royalty
might suffice, though it’s not a sure thing if the patent owner (as here) wants
the business for itself, and the defendants would be knowing infringers if they
went ahead anyway. Or are there any
other doctrines that might fit? I need
to brush up on my knowledge of the civil law “abuse of right” doctrine, which
isn’t mentioned in the decision; I don’t know whether under Belgian law
an argument along those lines would have worked here. (Again, I would be interested in hearing from
readers on this point. I know that Amandine Léonard and Krista Rantasaari, among others, have both written on abuse of right as it relates to IP, and I need to reread their work.)
There is also
some old U.S. case law involving the tort that is sometimes referred to as “interference
with prospective business relations,” to the effect that intentionally causing a third party to cease doing business with another is unlawful, even if the means employed are independently lawful, if the purpose was solely to injure the victim (see, e.g., Tuttle v. Buck, 119 N.W. 946 (Minn. 1909));
but my understanding is that this is no longer the favored view in the U.S., given the risk of nuisance suits if such a rule were
to be followed. (In any event, in the Belgian case it would appear that Tunstall's motive was to advance its own business interest, not solely to harm the defendants/counterclaimants.) In addition, as I noted in an article with Roger Blair some years ago, "A few states . . . recognize a cause of action for 'prima facie tort,' defined as intentionally causing harm to another without justification. See, e.g., Kitchell v. Public Serv. Dep't, 972 P.2d 344, 348 (N.M. 1998) (listing elements of tort as “(1) an intentional and lawful act, (2) an intent to injure the plaintiff, (3) injury to the plaintiff as a result of the intentional act, and (4) the absence of justification for the injurious act”) (citations omitted); Jonas v. N.Y. Cent. Mut. Fire Ins. Co., 665 N.Y.S.2d 189, 191 (App. Div. 1997) (listing elements as 'intentional infliction of harm, (2) resulting in special damages, (3) without excuse or justification, and (4) by an act or series of acts that would otherwise be lawful'). Similarly, the French Civil Code states that anyone who intentionally causes harm to another is obligated to pay damages. See Code Civil art. 1382 (Fr.) ('Tout fait quelconque de l'homme, qui cause à autrui un dommage, oblige celui par la faute duquel il est arrivé, à le réparer.')." Of course, a lot hangs on the meaning of terms such as "without excuse or justification."
A final note: the part of the Belgian decision that talks
about the protection of small and medium-sized enterprises seems to have an
affinity with the neo-Brandeisian perspective on antitrust, which now appears
to be in vogue within the U.S. antitrust enforcement agencies (see, e.g, the recently announced draft Merger Guidelines)—though is not likely to make much
headway in U.S. courts, I think (and thank goodness for that).
Postscript: I found a few additional write-ups on the Tunstall case, here and here.
Post-postscript: It occurs to me that one might challenge the title of this post, on the ground that a refusal to license alone isn't "patent assertion" (though in the Belgian case, the patent owner did assert an infringement claim). But . . . if I refuse to license, and that refusal is backed up by an explicit or implicit threat that I will sue if you proceed without a license, I don't think it stretches the term too far to say that I am "asserting" my patent. In any event, I don't want to get too hung up on semantics: all I am hoping to do in the project I am working on is investigate the various ways in which one's use of a patent, including one's refusal to license it, might constitute an abuse of some sort. I hasten to add that I'm not at all convinced that it is a good idea to have a doctrine of abuse of economic dependence, or to characterize a refusal to license a patent as such an abuse. But it is worthwhile, I think, to map out all the different ways in which courts have sometimes characterized patent owner conduct as "wrongful" or "abusive," before proceeding to analyze the merits of such characterizations as a matter of policy.
