In recent years, German courts have had to deal on several occasions with the question of whether a defendant accused of patent infringement may avert the issuance of an injunction if the plaintiff, being a market-dominating company, refused to grant a license and thus discriminated against the defendant.
A number of trial courts refused to grant injunctive relieve if a patentee was found to have unlawfully hindered a third party from obtaining a license under anti-trust law principles. The German Federal Court of Justice had to consider such a case in 2004, but had left it open whether the patentee’s refusal to grant a license to a potential supplier might prevent the patentee from obtaining an injunction against that supplier using the patent regardless. The recent “Orange Book Standard” case gave the Federal Court of Justice the opportunity to now address this issue.
The Orange Book Stand ard case
The patent-in-suit concerned recordable and rewritable compact discs (CD–R and CD-RW) corresponding to the specifications of the Orange Book Standard. This standard is relevant for CD-R and CD-RW so that common CD-Rs and CD-RWs inevitably use that patent. The patentee already granted licenses to CD manufacturers and was prepared to grant further licenses. However, the royalty requested from individual licensees was not always the same. In the Orange Book Standard case, the defendants considered the requested royalty rate excessive and were prepared to pay only a reduced amount, i.e., an amount deemed reasonable, which was 3% of the net sales price of the CDs.
The appellate court, while assuming that the patentee constituted a market-dominating company, and in view of the importance of the patent for the Orange Book Standard, denied an unlawful discrimination against the defendants. The defendants had not been able to identify actual licensees of the patentee paying the royalty rate that the defendants considered fair and reasonable, i.e., amounting to 3% of the net sales price. Therefore, the appellate court concluded that the plaintiff, when requesting a royalty rate of more than 3% from the defendants, was not acting discriminatory in a way that might have enjoined the plaintiff from obtaining an injunction.
The Federal Court of Justice took a different stand. It emphasized that the refusal of a patentee, which has a market-dominating position, to grant a license on reasonable terms and conditions, is discriminating and an abuse of a market-dominating position, and therefore prevents the granting of injunctive relief. Still, the Federal Court of Justice also concluded that the plaintiff in the Orange Book Standard case was nevertheless entitled to injunctive relief.
According to the court, the patentee’s request for injunctive relief is to be denied if two requirements are met: (1) The defendant has to request the patentee bindingly and unconditionally conclude a license agreement that the patentee cannot refuse without violating anti-trust principles; and (2) The defendant, while using the subject matter of the patent, has to meet the conditions determined in the license agreement to be concluded in relation to the licensed products.
Therefore, the Federal Court of Justice took the view that a defendant cannot prevent the granting of an injunction by merely arguing that the terms and conditions for a license agreement requested by the patentee would not be fair and reasonable. Rather, the defendant has to request from the patentee unconditionally and bindingly to grant a license under “usual” conditions. However, that raises the question whether it will always be possible to identify what those “usual” conditions in the respective technical field are. In particular, determining the “right” royalty rate may not always be easy. The Federal Court of Justice addressed this issue and concluded that it would have been sufficient if the license-seeking defendant had asked the patentee to determine a fair and reasonable royalty rate. Should that amount, from the perspective of the defendant, be excessive, the defendant would be entitled to pay the amount sought into a deposit and subsequently seek a clarification in relation to the “right” royalty amount.
The recent Orange Book Standard case will certainly impact the handling of future cases related to technical standards.