In a combined court case between Philips and SK Kassetten regarding CD- and DVD-technology (CD-R and DVD+R disks), the District Court of The Hague (Netherlands) ruled in favor of Philips, in a case that may revive the discussion about essential patents and competition law defenses (i.e. license under FRAND[1] terms). In our earlier blog we reported on the Orange-Book decision of the German Federal Supreme Court (of 6 May 2009), in which it affirmed the option for the defendant to raise a competition or antitrust law defense in infringement case about an (alleged) “essential” patent, provided that the defendant, i.e. the potential licensee: (i) made an irrevocable offer to take a license under FRAND terms (which could not be objected by the patentee under article 82 EC), and (ii) pays the reasonable royalty fees to the patentee or deposits the fees in escrow.
In a case between Philips and Now the Dutch Court has ruled that the German Orange-Book ruling cannot be applied in The Netherlands, as it finds the German Orange-Book route to be: (i) contravening patent law, (ii) creating legal uncertainty, and (iii) unnecessary to protect the defendant’s interests. The finding under (i) – that the Orange-Book decision is contravening patent law – is supported by the Court in that a defendant’s call for a FRAND license cannot be a justification for continuation of patent infringement. The Court draws a parallel with the Dutch system of compulsory licenses, under which a claimant for a compulsory license has no (license) rights before either a license agreement has been concluded or the court rules in favor of said claimant. As regards legal uncertainty (ii): to prevent a patentee from enforcing its patent rights because of a FRAND license claim would create legal uncertainty; after all, as long as the FRAND license claim has not yet resulted in a license agreement, it is uncertain whether such claim is justified, what conditions and royalty rate would qualify as FRAND etc.
A solution as suggested by the German Supreme Court in its Orange Book decision is also unnecessary, finds the Dutch court, as it is the responsibility of the entity that wishes to engage in the exploitation of patented technology to pave the way and timely request for a FRAND-license. Next, should the patentee refuse to engage into a FRAND license agreement, then interim injunction proceedings could be initiated to have the patentee conclude the FRAND license agreement or have the court order replace the patentee’s signature under the FRAND license agreement. Finally, a finding of patent infringement would not prevent the license candidate to ask the court to lift the injunction and compensate for damages, if it should turn out that the FRAND license claim has been found to be justified (in separate proceedings).
Until a license is concluded, the Dutch court will allow the patentee to enforce its patents. In the court’s view, such enforcement does not necessarily constitute an unreasonable barrier for trade. First of all, third parties can easily request a license before entering the market in order to prevent enforcement actions. Second, the effect of enforcement actions, including an injunction, may be limited now that any party can request the court in summary proceedings to issue a temporary compulsory license. Further, the court notes that the patentee remains liable for the damages resulting from the unjust refusal of a license.
The court’s decision is important because it clarifies that such a license may be obtained simply by requesting the patentee for a FRAND license – and if parties cannot agree on FRAND terms then the court may be asked for a ruling, whereby the court may issue a (temporary) license until the outcome of such proceedings. It will be interesting to see how other European courts dealing with similar questions will view this decision in light of the differences compared to the German Federal Supreme Court’s Orange Book decision. Also noteworthy is that this decision may provide defendants that are sued in the German courts with an additional defense, now that it seems as if a temporary license may be obtained via the Dutch court.
Materials for this blog have been kindly provided by Francis van Velsen at FISAL Law and Bas Berghuis of Simmons & Simmons
[1] Fair And Non Discriminatory