31 May 2016

Sometimes a Euro-Defence does work: Samsung v Ericsson

European Commission
Author: Amio Cajander
Source Wikipedia
Creative Commons Licence

A Euro-defence is an answer to a claim for the infringement of an intellectual property or other right under national law based on the primacy of European Union law. In the early days of our membership of what used to be called the European Economic Community such defences were pleaded quite regularly and they often succeeded. Probably the high water mark was Magill  (Radio Telefis Eireann and Others v Commission of the European Communities [1995] 4 CMLR 718, [1995] EUECJ C-241/91P, [1995] EMLR 337, [1995] All ER (EC) 416, [1995] ECR I-743, [1995] FSR 530, [1998] Masons CLR Rep 58) where the Court of Justice held that the enforcement of broadcasters' copyrights constituted an abuse of a dominant position within the meaning of art 86 of the Treaty of Rome (now art 101 of the Treaty on the Functioning of the European Union as it has now become).

Such defences are now raised much less frequently partly because judges are astute to them but mainly because of harmonization of national intellectual property law and the development of the doctrine of exhaustion of rights. Nevertheless, the principle that Union law prevails over national law has never disappeared. The decision of the Court of Appeal in Samsung Electronics Co Ltd and Another v Telefonaktiebolaget LM Ericsson and Others [2016] EWCA Civ 489 allowing Samsung Electronic Co. Ltd and its UK subsidiary''s appeal against the striking out of its competition law defence by Mr Justice Birss in Unwired Planet International Ltd v Huawei Technologies Co Ltd and Others [2015] EWHC 2097 (Pat) (21 July 2015) is a reminder that a Euro-defence can still succeed.

The point arose in a patent infringement claim by Unwired Planet International Ltd. against members of the Huawei, Samsung and Google groups of companies. Unwired had obtained all but one of the patents upon which it relied from Telefonaktiebolaget LM Ericsson. Ericsson had worked with the European Telecommunications Standards Institute ("ETSI") to set a standard known as SEP. It was alleged that anyone using the SEP standard would inevitably fall within one or more of those patents. As a condition for incorporating the patents into the SEP, Ericsson promised ETSI to grant licences to third parties on fair, reasonable and non-discriminatory ("FRAND") terms. Samsung argued that Ericsson had not complied with that condition and thus the agreement to assign of the patents to Unwired ("the MSA" or "master sale agreement") was void under European and English competition law.

Mr Justice Birss summarized the issue thus at para [6] of his judgment:
"Ericsson participated in the standard setting process in Europe involving ETSI. Ericsson therefore declared its SEPs to ETSI as essential under the ETSI IPR policy and gave a FRAND undertaking. The breaches of Art. 101 TFEU which fall to be considered on this application relate to the MSA whereby Ericsson transferred the patents to Unwired Planet. I will return to them below. On the basis of the breaches of Art 101, the transfer of the patents is said to be void and so Unwired Planet has no title to sue. Samsung has a patent licence from Ericsson which was entered into in 2014. Samsung contends that since the patents which came from Ericsson in fact still belong to Ericsson, they are covered by the 2014 licence. The proceedings include a counterclaim by Samsung for an indemnity under the 2014 licence to cover any sums due to Unwired Planet. Samsung also alleges that the patents are still under Ericsson's control even if not owned by it (the "control defence"). By that alternative route Samsung contends the patents are licensed under the 2014 licence, alternatively that Ericsson has a duty to procure a licence, even if they are owned by Unwired Planet."
The breaches of competition law were pleaded as follows:
"First, that in transferring patents to Unwired Planet, there was a failure to ensure the complete, proper and effective transfer of an enforceable FRAND obligation. Second, that by dividing Ericsson's patent portfolio into two parts (Ericsson retains patents itself and transferred some to Unwired Planet) in the way that it did a breach of competition law has taken place in that unfair higher royalties will be earned and competition will be restricted or distorted. Third, that certain terms in the MSA are stand alone infringements of Art 101."
As the parties to the MSA were Ericsson and Unwired Planet Inc. and Unwired Planet LLC, Samsung had to join them to the action as 11th and 9th and 10th parties respectively.

Ericssson applied to strike out the claim against itself and Unwired  under CPR 3.4 or summary judgment under CPR Part 24. It argued that the first contention was hopeless because the MSA contained a clear obligation to offer FRAND terms and that Unwired had made a FRAND declaration to ETSI. His Lordship agreed at para [24] of his judgment in respect of the first contention but refused to strike out the second and third.

Samsung appealed against the striking out of its first contention. It accepted that the MSA contained a number of provisions which ensured that Unwired was subject to FRAND obligations but argued that the MSA failed fully to transfer the FRAND undertakings in two respects. First, it argued that the FRAND obligations in the MSA were not enforceable by third parties. Secondly, it argued that he MSA did not fully transfer Ericsson's FRAND obligation.

The Court of Appeal rejected the argument that the FRAND obligations of the MSA were unenforceable in paragraphs [36] and [37] of Lord Justice Kitchin's judgment:
"[36] ....... Ericsson submits and I agree that Samsung's position on this issue is entirely artificial. Not only has UP made a FRAND declaration to ETSI in the same terms as that of Ericsson but it has also pleaded in these proceedings that the declaration is enforceable by Samsung and by any other potential licensee. The only party in these proceedings disputing that it can enforce UP's FRAND declaration is Samsung itself.
[37] Drawing the threads together, it can be seen that ETSI has addressed the competition concerns which arise from the transfer of SEPs from one company to another by requiring the transferor to include in the relevant transfer documents appropriate provisions to ensure that the FRAND undertaking of the transferor is binding upon the transferee......"
 The Court then considered Samsung' s second argument at para [45]:
"Samsung contends the judge has here fallen into error for his reasoning fails to take into account that Ericsson's and UP's position robs FRAND of much of its substantive content. It points out, entirely correctly, that if the original owner of a SEP licenses it to a first licensee then it must adopt non-discriminatory terms when licensing it to a second licensee, for otherwise competition between the licensees is likely to be distorted. Its argument then proceeds as follows. Suppose that the original owner now transfers the SEP to a new owner. When dealing with a third licensee, the new owner must also adopt non-discriminatory terms, judged by reference to the terms struck by the first owner, for otherwise competition between the third licensee and the first and second licensees is again liable to be distorted. Furthermore, if the second owner does not need to take into account the first owner's licensing conduct, SEP owners could contract out of the non-discriminatory part of FRAND by transferring their SEPs to new corporate entity shells, not bound by their original FRAND undertakings."
Ericsson tried to answer that argument with the following illustration:
"Consider a business that acquires a portfolio of SEPs from a number of different sources over a period of years and gives a FRAND declaration to ETSI in respect of them all. When that business comes to negotiate terms for a licence to that entire SEP portfolio, it cannot possibly ensure that the terms which it offers are the same as or are no more onerous than the terms upon which the SEPs have been licensed by all of their different previous owners. It would present that business with an impossible task."
Though he saw force in Ericsson's contentions Lord Justice Kitchin concluded at [50] that Mr Justice Birss had erred. He recognized that this is a developing area of law and it was arguable that in the circumstances of this case art 101 of the Treaty required the effective transfer to Unwired of Ericsson's FRAND obligation so that Unwired could not obtain more favourable terms from its licensees than Ericsson could itself have obtained. The learned Lord Justice also found "a degree of inter-relationship between this aspect of the first defence and the second and third defences" which Mr Justice Birss had allowed to go to trial.  In Lord Justice Kitchin's view it was "arguable that the matters complained of act together to allow Ericsson to circumvent its own FRAND obligations by increasing licence fees and weakening the competition between Ericsson and other users of its SEPs."

The upshot was that it
"was arguable that in breach of Article 101 TFEU the MSA agreements fell short of a full transfer of the non-discrimination aspect of Ericsson's FRAND obligation and that the anti-competitive nature of this breach renders the MSA agreements as a whole anti-competitive and void."
Sir Timothy Lloyd and Lord Justice Tomlinson agreed and the Court allowed the appeal.

Should anyone wish to discuss this case or patent or competition law in general, he or she should call me on 020 7404 5252 during office hours or send a message through my contact form.

25 May 2016

The IP (Unjustified Threats) Bill

Minister for Intellectual Property
Crown Copyright
Open Government Licence

On 19 May 2016 Lady Neville-Rolfe, the Minister for Intellectual Property, introduced the Intellectual Property (Unjustified Threats) Bill into the House of Lords. The purpose of the Bill is to reform the law relating to unjustified threats of IP infringement. The need for reform is illustrated by two comparatively recent cases:
  • Prince Plc v Prince Sports Group Inc. [1998] FSR 21 where the American lawyers of a well-known multinational sports goods supplier landed their client in High Court proceedings by demanding the transfer of a domain name by reference to their client's worldwide trade mark registrations in a letter before action that would have been quite unobjectionable in the United States; and 
  • Brain v Ingledew Brown Bennison and Garrett (No. 3)  [1997] FSR 51 where a firm of solicitors was sued for pre-action correspondence that would have been quite acceptable in almost any other cause of action.
The reason why proceedings arose in both cases is that the Patents Act 1977, Registered Designs Act 1949, Copyright Designs and Patents Act 1988 and the Trade Marks Act 1994 create rights of action for those who are aggrieved by threats of infringement proceedings that turn out not to be justified. I discussed that legislation and the criticisms that have been made of it at some length in my case note on Global Flood Defence Systems Ltd and another v Van Den Noort Innovations BV and others [2015] EWHC 153 (IPEC) (29 Jan 2015) on 31 Jan 2015.

As I mentioned in that case note, the Law Commission has considered whether such rights of action should be retained and has concluded in Patents, Trade Marks and Design Rights: Groundless Threats that they should although the law should be reformed. In a further report on whether to extend the right of action to threats to sue in the Unified Patent Court the Law Commission produced a draft bill.  Following further consultation the Minister has introduced this Bill. In their press release the Minister and Intellectual Property Office said that its key elements include:
  • "providing a clearer framework within which disputing parties and their professional advisers can operate to resolve disputes with a view to avoiding litigation
  • protecting retailers, suppliers and customers against unjustified threats
  • bringing the law for trade marks and designs into line with that for patents by allowing a rights holder to challenge someone who is a primary actor without fear of facing a groundless threats action
  • protecting professional advisers from facing personal legal action for making threats when they act for their clients
  • making the necessary changes to threats law so that the protection against unjustified threats can apply to European patents that will come within the jurisdiction of the Unified Patent Court."
This Bill will follow a special procedure for Law Commission Bills.

The Bill as introduced into the House of Lords consists of 9 clauses the first 6 of which relate to patents, trade marks and EU trade marks and registered, unregistered and Community designs. Clause 7 deals with geographic extent, clause 8 with commencement and clause 9 with short title and citation. The Bill amends the provisions creating threats actions in each of the above-mentioned statutes and the statutory instruments that extend the rights of action in respect of trade marks and registered designs to EU trade marks and registered Community designs.

In the case of each statute the Bill would substitute several new sections for the single section  that creates a threats action at present.  Thus, a new s.70 and ss. 70A to 70F would replace the existing s.70 in the Patents Act 1977.  The new s.70 would create a new two stage test which is set out in the explanatory notes:
"The first part, taken from the common law, is whether the communication would be understood by a reasonable person in the position of a recipient to mean that a right exists. The second part is whether the communication would be understood by such a person to mean that someone intends to bring infringement proceedings in respect of that right for an act done in the UK. This is also based on the current common law but has been modified so that the test can apply to European patents with unitary effect."
If an action lies the remedies are set out in a new s. 70C (a).  The new s.70A (2) to (5) would create exceptions to the definition of "actionable threat" in s.70A (1). S.70B would permit certain communications between the patentee and third parties some of which would at present be actionable.  A new s.70D would exclude lawyers and patent and trade mark agents from liability provided that they act upon instructions and identify their clients.

Clauses 2, 4 and 5 make similar changes to s.21 of the Trade Marks Act 1994, s.26 of the Registered Designs Act 1949 and s.253 of the Copyright, Designs and Patents Act 1988 respectively. Clause 3 makes consequential changes to The Community Trade Mark Regulations 2006. Clause 6 substitutes a new reg. 2  and regs. 2A to 2F for the existing reg. 2 of the Community Design Regulations 2005.

Anyone wishing to discuss this Bill or threats actions in general should call me on 020 7404 5252 during normal office hours or send me a message through my contact form.