European Court Rules on Standard Essential Patents
On the 16 July 2015, the Court of Justice of the European Union (CJEU) handed down judgment in Huawei Technologies Co Ltd v ZTE Corp (Case C-170/13).
The case concerns a standard-essential patent (SEP); a type of patent which the European Telecommunications Standards Institute (ETSI) considers sufficiently important for the future growth and evolution of technology in a particular sector that it ought not be subject to the same rules and laws as regular intellectual property rights. The owner of an SEP must commit to ETSI to grant licenses in relation to their patent on fair, reasonable, and non-discriminatory terms (FRAND terms).
The parties had unsuccessfully attempted to negotiate a licensing agreement on FRAND terms, and Huawei (the SEP owner) had proceeded to bring an injunctive action against ZTE for its continued use of the SEP. ZTE claimed that, since it was ready and willing to negotiate, the taking of injunctive proceedings constituted a clear abuse of dominance in breach of Article 102 TFEU.
On 5 April 2013, the Dusseldorf Regional Court made a request for a preliminary ruling. The European Court of Justice (ECJ) was asked whether injunctive action brought by an SEP owner against an undertaking which manufacturers products in accordance with that standard will constitute an abuse of a dominant position.
On the 20 November 2014, AG Wathelet opined as follows:
- An SEP owner must offer a licensing agreement on FRAND terms to the alleged infringer before bringing an injunctive action.
- If the alleged infringer is “ready, willing and able to conclude” a licensing agreement on FRAND terms, and responds to the offer in a “diligent and serious manner,” then the SEP owner will be in breach of Article 102 if it nonetheless brings an injunctive action.
- It is considered “diligent and serious” for the alleged infringer to request that FRAND terms be fixed by a court or arbitral tribunal if the parties cannot reach agreement between themselves. In that case, the SEP owner is entitled to request from the alleged infringer either a bank guarantee or a deposit at the court or arbitral tribunal in respect of its past and future use of the patent.
- An alleged infringer is still to be regarded as “diligent and serious” where they reject a license agreement under which they would have no right to challenge the validity of the patent.
The Court of Justice of the European Union (CJEU) handed down judgment on the 16 July 2015 and agreed with AG Wathelet’s opinion. The CJEU’s approach was to seek an accommodation between free competition on the one hand and the protection of SEP owners’ intellectual property rights on the other. However, the decision is of particular significance to SEP owners who will now be found to be in abuse of a dominant position if they bring an injunctive action without first clearing the required hurdles outlined in the judgment. Firstly, they must alert the alleged infringer as to the infringing act complained of in writing and in detail, “giving reasons, and specifying the SEP concerned and the manner in which it has been infringed by the infringer.” Secondly, they must offer a licensing agreement on FRAND terms to the alleged infringer, specifying “the precise amount of the royalty and the way in which the amount is calculated.” The alleged infringer need only be ready and willing to enter into a licensing agreement on FRAND terms and respond “diligently” to any offer made in order to protect itself.
Whilst the CJEU and the AG may have attempted to reach a middle ground, SEP holders should not be penalised for asserting their own rights and negotiating a fair deal if they feel they are faced with onerous terms.
However under the judgment, neither the SEP holder or the putative licensee are any closer to understanding what, in objective quantifiable terms, a FRAND offer actually entails. It seems more likely that by further restraining the ability of SEP holders to bring interim injunctions, including the ability of the challenger to delay matters further with court or arbitral proceedings, the ability of SEP holders to enforce their intellectual property rights has been considerably watered down.
France Uncorks Wine Cartel
In April 2015, the French Directorate-General for Competition Consumer Affairs and Prevention of Fraud (the “DGCCRF”), imposed an injunction on three Loire Valley winemaker trade associations. The injunction required them to cease organizing or facilitating the implementation of a price cartel and to communicate to their members that such practices are prohibited.
From 2011 to 2014, separately or together, the trade associations communicated price recommendations, or reached agreements on prices to be applied by wine producers. These recommendations led to a harmonization of prices and were found artificially to have caused increases or decreases over several marketing years.
The DGCCRF specified that it took into account the French Competition Authority's position on price recommendations, i.e.:
- Professional organizations may legally inform their members about official indicators and general past market prices as long as the data is anonymous.
- Professional organizations may not recommend prices since this risks hindering the ability of members to determine their prices in an independent way.
A parallel can be drawn with a Court of Appeal of Paris decision of 1997 which ruled that a Bar Association could not recommend the fees lawyers should charge their clients, particularly because this body has regulatory and disciplinary power over its members.
Interestingly, the DGCCRF found that it had jurisdiction (such jurisdiction being largely concurrent with that of the French Competition Authority) to take measures in this case pursuant to Article L. 464-9 of the French Commercial Code which allows the Minister for Economic Affairs to act notably when the affected market is local. Given that Loire Valley wines are sold far beyond their region of production, in France and abroad, one may wonder whether the facts in question had indeed the required local dimension.
Landmark Italian Judgment Increases Right to Disclosure in Competition Cases
On 4th June 2015 the Italian Supreme Court (“Corte di Cassazione”) held that in “stand-alone” private antitrust actions, claimants must have access to the necessary evidence to support their claims, significantly widening their means of proving harm in Italian courts.
The case at stake concerns a judicial proceeding started by a group of wholesalers (the “Plaintiffs”) before the Court of Appeal of Rome against the Italian company Cargest S.r.l. (“Cargest” or the “Defendant”) for an alleged violation of Article 3 Law No. 287/1990 (“Italian Competition Law”), the provision against the abuse of dominance.
The Plaintiffs alleged that Cargest would abuse its dominant position imposing discriminatory clauses in the contracts for the lease of trading premises located in the wholesale food market in Rome which was exclusivity managed by the Defendant.
The Court of Appeal of Rome rejected the claim mainly on the grounds that the Plaintiffs had not effectively proved the alleged anti-competitive conduct.
The Italian Supreme Court overturned the abovementioned decision arguing that the Court of Appeal of Rome had erroneously narrowed the Plaintiffs access to the evidence, without considering the nature of “stand-alone” action of the case which -- as opposed to “follow-on actions” -- are not backed by a previous decision of Italian or European Competition Authorities.
The Italian Supreme Court pointed out the so-called “asymmetry of information” between the parties during “stand-alone” antitrust proceedings and decided to apply the principles set forth in the EU Directive No. 104/2014 (the “Directive”), establishing provisions on the harmonization of legislations within the European Union on antitrust damages claims.
The importance and peculiarity of the decision is that the Italian Supreme Court found the Directive as “self-executing” and applied it notwithstanding is was not transposed into Italian Law yet.
In particular, the Italian Supreme Court held that, in light of the principles set out in the Directive, the current Italian procedural provisions must be interpreted as to provide the claimants with sufficient powers to obtain the evidence of antitrust infringements, including the possibility for the Court to order to the accused company the production of documents and appoint Expert Witnesses to get specific and technical information on the alleged antitrust violations.
The decision of the Italian Supreme Court clearly represents a landmark judgement on private antitrust enforcement in Italy. In particular, it is our opinion that such decisions may lead to a substantial increase in the number of “stand-alone” antitrust actions, given it helps overcome the so-called “asymmetry of information, which is one of the most important restraints to bringing antitrust proceedings in Italy.
A Bitter Pill to Swallow – Pharmaceuticals Reprimanded
On 6 August 2015, the Competition and Markets Authority (CMA) announced that it had sent a statement of objections to a major pharmaceutical producer and a large distributor, over their pricing of an anti-epilepsy drug. The case is significant as high or excessive prices are thought to be common in the pharmaceutical sector.
The CMA have based their objections on a breach of Chapter II of the Competition Act 1998, that being the prohibition against an abuse of a dominant position. Therefore the CMA believes the producer and the distributor to both have significant market shares in the manufacture and distribution of the particular drug, a common situation in the pharmaceutical industry where intellectual property rights are enforced vigorously.
The CMA alleges that the producer sold the distribution rights to the distributor (when the drug became generic), but carried on producing the drug for the distributor to sell. After this transition, the price of the drug is alleged to have risen by at least 8 times on supply to the distributor, who then further inflates the price to sell at least 25 times the historic price. The case is further made unusual by the counter-logic that the price of the drug increased many times when it was made generic.
It remains to be seen what effect the CMA’s case will have on the industry as a whole. There could be a market failure in operation here due to the fact that the drug increased in price when it was made generic. It indicates a lack of producers in the market. The CMA may feel that by correcting the producer and distributor in their behaviour, the CMA is acting widely to show that it will counter-market failure and high prices by using its competition law powers. Conversely, given the complexity of the market and the sheer array of products on offer, pharmaceuticals and their distributors may feel justified in maintaining their pricing structures and counting this latest prosecution as a rare anomaly and bad luck for the parties involved.
The Italian Pharmaceutical Companies Concede Commitments Over Alleged Bid Rigging
On 29th January 2014, the Italian Competition Authority (the “ICA”) opened an in-depth investigation into two leading Italian companies in the pharmaceutical sector (the “Accused Companies”) for an alleged infringement of Article 2 of Law No. 287/1990 (the “Italian Competition Law”); the prohibition of anti-competitive agreements or concerted practices.
The Accused Companies would avoid competing with each other for tenders. In particular, the ICA focused its attention on tenders in three Italian regions: Lombardy, Emilia Romagna and Veneto from 2010 to 2013. Such tenders were aimed at supplying regional hospitals with a particular medicine produced only by the Accused Companies.
The Accused Companies decided to make no independent invitations but asked for the permit to make invitations as joint venture. Region Lombardy and Emilia Romagna denied such permits but one was granted by region Veneto. The Accused Companies made an invitation as a joint venture for tenders in Veneto and two independent invitations in Emilia Romagna offering the same supply price.
On 1st August 2014 the ICA extended the investigation, including the scrutiny of a co-marketing agreement (the “Agreement”) entered into between the Accused Companies. In particular, some clauses of the Agreement would raise serious anti-competitive concerns, especially the obligations to share strategic information, marketing strategy and to limit output.
In accordance with Article 14-ter of the Italian Competition Law, the Accused Companies provided the ICA with commitments aimed at eliminating the alleged anti-competitive conduct. In particular, the Accused Companies agreed to modify the mentioned clauses of the Agreement in such a way as to safeguard competition between them.
The ICA examined the commitments and decided to make them binding on the Accused Companies, but did not impose any fines.
An Eye for an Eye: CMA Takes Down Opthalmologist Partnership
On August 5th, 2015 the Competition and Markets Authority (CMA) announced a rare formal action against medical professionals in the UK. The CMA has found the Consultant Eye Surgeons Partnership (CESP) responsible for creating anti-competitive pricing agreements across their extensive network of surgeons and medical partnerships.
The lucrative wrongdoings that CESP has been fined for include creating and distributing stringent price lists to their members across the UK, detailing out how much should be charged for a variety of eye procedures. CESP has also admitted to advising its members to refuse any proposals for a fee decrease by the insurance companies as well as devising a platform where future business intentions were shared between consultants, therefore allowing the members to align their responses accordingly. One of the implications for these actions include making it harder for insurers and patients to obtain lower prices for necessary medical treatments.
It is believed that this action is a step towards the CMA having a more watchful eye upon trade associations. The CMA wants this case to act as a wake up call for other trade associations “to take steps to ensure they operate in a way that does not infringe competition law”. The initial fine was £500,000, however the penalty was reduced to £382,500 due to CESP’s cooperation in a adopting a competition law compliance programme.
German Armaments Companies Under Fire for Market Sharing Cartel
On 16th of July 2015, the Federal Cartel Office (“Bundeskartellamt”) imposed fines totaling 1.3 million euros on three armament suppliers.
From 2010 till 2014, three German armament supplying companies, acted against good faith by fixing their prices in several calls for tenders, issued by the German Armed Forces. A fourth company included in the cartel, acted as a whistleblower and gave the authorities information on who, how and when those restrictive trade practices happened and was therefore – in accordance with the authorities leniency program – not imposed with any fines.
Following the same pattern of agreeing on who should win, at what price and how the profit would be shared amongst the four companies, the cartel managed to stay active for four consecutive years.
The cartel colluded over the supply-market for rubber track pads and vibration dampers for track vehicles, which are, due to their limited durability as protection between heavy tracked vehicles like tanks and the road, in constant demand by the German Armed Forces. According to Andreas Mundt, President of the Federal Cartel Office, agreements were made by flexible means of communication. While communicating over the telephone and agreeing on the exact price on one day, on another day the cartel members would meet in person and agree upon the winning party. Therefore they kept their profile low by not exchanging any suspicious e-mails.
The imposed fines by the Federal Cartel Office are final and are calculated with regard to the seriousness and duration of the competition violation.
This action by the Federal Cartel Office reminds us once again of the importance of a leniency program for cartel law in Germany.