The antitrust division of the Federal Court of Justice in Germany delivered a landmark judgment in the Orange Book Standard proceeding dealing with the use of the so called “compulsory license objection under anti-trust law.” This long-expected judgment resolves a substantial legal debate in patent infringement proceedings. In re Orange Book Standard, KZR 39/06, (Bundesgerichtshof—BGH, May 6, 2009).

As is typical in Orange Book Standard proceedings, the plaintiff, Philips, sued the defendant for unlawfully using a patent related to the so-called “orange book standard” for recordable and rewritable compact disks (CDR and CDRW). Since the patent in question is a basic or essential patent that all producers of standard CDR and CDRW have to use, Philips enjoyed a market-dominating position. Philips had already granted licenses to various manufacturers on the basis of a standard license agreement. The defendant argued that the license fees demanded of it by Philips were exaggerated and discriminating, as Philips offered more favorable conditions to other companies. The defendant therefore argued that Philips abused its market-dominating position.

The licensing practices of a market-dominating patent holder are subject to the prohibition on discriminatory treatment under section 19, 20 of the German Act Against Restraint of Competition and article 82 of the EC Treaty. The Federal Court of Justice stated that in principle a “compulsory license objection under anti-trust law” can successfully be raised provided that the patent user complies with certain prerequisites.

First, the party seeking the license must demonstrate that the party has unsuccessfully tried to obtain a license on reasonable licensing terms by making the patent holder a binding and unconditional offer to conclude a license agreement. Second, the patent holder must have refused to grant such license without substantive reason and therewith abused its dominant position. The Court further stated that in case the party seeking to obtain the license uses the patent prior to the acceptance of the offer by the patent holder, it must act like a true licensee and pay “reasonable” license fees on a regular basis or deposit the appropriate amount with a court or other authority and waive the right to take back the deposited amount. In case the party seeking the license cannot ascertain the amount of the license fee or if the license fee asked for by the patent holder is too high, the party seeking the license must leave the amount of the fee to the equitable discretion of the patent holder. However, the Federal Court held that in this case the deposited amount must “in any event be adequate.”

In the dispute in question, the Court agreed that Philips was in a market-dominating position under section 20 of the German Act Against Restraint of Competition and that the grant of licenses under the patent in suit constitutes an independent product market which is controlled by Phillips patent. Thus, in principle, the defendant would be entitled to take advantage of the compulsory license provision. However, since the defendant had not paid or deposited any license fee as required by the Court and consequently did not act like a true licensee, it was ordered to stop using the patent and to pay damages.