Licensing of Latvian collecting society prompts CJEU to provide greater clarity on how to determine excessive pricing

Last week the CJEU released its judgment on excessive pricing that could prove of interest to many of our readers.

In 2013 a dispute arose between the Latvian Competition Council and the AKKA/LAA, the Latvian equivalent of the PRS, responsible for licensing the public performance of musical works and collecting the resulting royalties. AKKA/LAA, a monopoly organisation, was fined for excessive pricing (and thus an abuse of a dominant position under Article 102 TFEU) but took this ruling to the courts. In finding that the collecting society had engaged in excessive pricing, the Latvian competition authority had made direct comparisons with prices in the neighbouring states of Estonia and Lithuania and found that the rates applied in Latvia were two to three times higher than those applied in the other two Baltic States. The authority also made a comparison to the rest of the EU on a purchasing power parity (PPP) basis. On a reference to the CJEU, the Court was asked to rule on several important questions relating to this assessment.

First, the CJEU dealt with how to make valid comparisons in assessing the imposition of unfair prices. The Court ruled that such comparisons are valid, provided that the relevant Member States are selected according to ‘objective, appropriate and verifiable criteria’ and that the comparison is made on a ‘consistent basis’. Such criteria could include factors as concrete as GDP per capita, or as loose as ‘cultural and historical heritage’. Notably, the Court held that a comparison cannot be considered to be insufficiently representative merely because it takes a limited number of Member States into account. Whilst such a clear statement on the legal position is welcome, recent case law has shown that agreeing objective criteria by which to select comparables is not trivial. For example, in the Unwired Planet litigation (see here), in attempting to agree a FRAND rate for a licence in the telecommunications sector, there was much debate over which licences were the most comparable. 

Second, the CJEU dealt with the circumstances in which prices would be considered excessive. The Court ruled that there is no minimum threshold, but instead that Article 102 will bite where a difference in price is ‘both significant and persistent on the facts’. Looking at the growing number of actions against pharmaceutical companies for excessive pricing, most notably the Commission investigation into Aspen (reported on in August), a key question remains as to what amounts to a significantly and persistently higher price. An obvious starting point, now validated by this ruling, is a comparison with other Member States, but with so many different national healthcare and regulatory systems in place in the EU this may not be straightforward.  

Overall, this decision provides some welcome guidance, but there still remains plenty to ponder!

The CJEU’s Intel judgment – First thoughts and some predictions

Today’s Intel judgment from the Court of Justice does not strictly concern the Competition Law/IP interface.  However, it is a case which has considerable interest for potentially dominant companies, as well as a strong technology thread. 

At the basis of today’s judgment is the European Commission fine of €1.05bn, imposed on Intel back in 2009, and upheld by the General Court in 2014, for abusing a dominant position by granting exclusivity rebates to customers.  
 
In brief, the CJEU has today held that the General Court did not sufficiently analyse all of Intel’s arguments that its conduct did not foreclose competitors. The General Court’s failure to analyse the results of the ‘as efficient competitor’ (AEC) test was a particular focus of the criticism. The CJEU has therefore remitted the case to the lower court for further consideration on the central abuse of dominance question.  

Much ink will no doubt be spilled in analysing this judgment, but for now, the points below seem to be key:

  • Relevance of ‘as efficient’ competitors. The Court emphasises that Article 102 applies when conduct foreclosure of “as efficient competitors”; in other words, the provision is not intended as a tool for protecting entities which lack the ability to compete effectively and which are therefore likely to be less attractive to consumers.  
Strictly speaking, the CJEU’s remittal to the GC only requires it to look again at the AEC test because the Commission had in fact carried out such a test, and the GC had not responded to all of Intel’s arguments about it (143-144).  However, the fact that the Court embraces a reference to “competitors considered to be as efficient as [the dominant company]” within its general legal framework (133, 136) suggests that it will not be easy for competition authorities (or indeed private action claimants) to walk away from this test. This is mirrored in the Court’s description of the abuse finding which must be reached before an assessment of objective justification can take place (140).

  • Form vs. effects. On a first read, the judgment is a shot in the arm for effects- rather than form-based analysis (136-140).  On this reading, the mere fact that an exclusivity rebate exists is not enough in itself to establish anti-competitive foreclosure. The extent of dominance plays a role here, as well as the market coverage and duration of the practice (both the market coverage and duration were considered by the Advocate General to be ‘inconclusive’ in themselves).  
However, there are a couple of stings in the tail.  First, to avoid a formalist approach, a company under investigation must adduce evidence during the initial investigation to show that its conduct was not in fact capable of affecting competition (138).  Past cases (e.g. AstraZeneca) suggest that this evidence should be contemporaneous with the conduct.  Second, evidence of a strategy to exclude will be considered relevant (139).  While case law establishes that a company’s intention is less relevant than the objective effects of the conduct, it seems to us that clear evidence of an anti-competitive strategy will make it much more difficult to support an argument that the conduct was incapable of affecting competition. 

It’s perhaps too early to predict what impact this judgment will have on future cases – not least because a further referral back to the CJEU in this case remains possible.  However, a couple of possible consequences are:

  • Reduced options for formalistic short-cuts in establishing infringement – arguably this is of greater relevance in the private litigation context, given that competition authorities have tended to carry out extensive analysis of effects as a fall-back (or have closed cases where such evidence cannot be established, as with the CMA’s recent decision on impulse ice creams).
  • Again in the private litigation context, the practice of splitting questions of dominance and abuse into separate trials may not be the best solution for conduct of this kind, given that the degree of dominance may affect whether the conduct is in fact anti-competitive or not.
As for Intel’s fate when it comes back before the GC, all bets are off.  But given the CJEU’s indication of the significance of evidence of an anti-competitive strategy, we wouldn’t like to bet against a further confirmation of the Commission’s original conclusions…

Apple’s battle with Qualcomm spreads to the UK

On 19 May 2017 Apple issued a major claim against Qualcomm in the English Court. This is part of a widely reported global dispute between the two giants. The English action includes an Article 102 abuse of dominance claim as well as a FRAND licensing claim and was issued just a month after the English Court’s first FRAND valuation in Unwired Planet v Huawei (Bristows’ blog post here and here). The particulars of the claim are now available and make fascinating reading. 

On the FRAND licensing front, Apple seeks a declaration that Qualcomm has breached its obligations to ETSI, by failing to offer a FRAND licence for Standard Essential Patents (SEPs), seeking excessive and non-FRAND royalties. 

As far as competition law and Article 102 is concerned, Apple makes a number of arguments. 

It claims that Qualcomm is abusing its dominant position in the markets for LTE, CDMA and UMTS chipsets by refusing to license its SEPs to competing chipmakers. This means that if a chipset is purchased from a company other than Qualcomm, the purchaser must then obtain a licence from Qualcomm for use of Qualcomm’s standard-essential IP. Apple asserts that Qualcomm’s practices exclude chipset competitors from the market, as well as being in breach of its contractual FRAND obligations.

Apple also complains about various aspects of agreements between itself and Qualcomm. These expired in 2015, and in 2016 Apple began to purchase chipsets from Intel. This has doubtless affected the nature and timing of the litigation.

As mentioned above, Apple contends that Qualcomm’s royalties are excessively high. It then argues that to reduce the effective royalty rate it had to pay, it had no commercial alternative other than to conclude rebate agreements which involved granting Qualcomm exclusivity over Apple’s chipset supply. Apple maintains that one consequence of this arrangement has been to limit the emergence of other chipset manufacturers, who have been precluded from competing for Apple’s custom. Because of Apple’s importance as a purchaser of chipsets this is argued to have foreclosed a significant part of the potential demand. Qualcomm’s practice of forcing customers to take a licence and to agree to exclusionary terms is said to further reinforce the exclusionary effects. 

A particular feature of the rebate agreement which is criticised by Apple is that it was conditional on Apple agreeing not to pursue litigation or governmental complaints that the royalties were ‘non-FRAND’. 

Apple explains that Qualcomm’s royalties are charged in addition to the price of the chipset itself, and are based on the price of the end device being sold by the licensee, rather than on the price of the chipset in which it is argued that all the patented technology is practised. Apple takes the position that in order to be acceptable the royalty should be calculated by reference to the smallest saleable patent practising unit (SSPPU) – in this instance the chipset, rather than the phone. This is said to guard against situations where two phones that use the same Qualcomm technology could incur significantly different royalty obligations for use of the same SEPs based only on their different end sales prices. Those sales prices which differ because of completely different aspects of the phones, such as design or additional functionalities. This issue was not considered by Birss J in Unwired Planet v Huawei. The argument was raised in Vringo v ZTE, but was dropped before trial. 

Apple makes several arguments which are in tension with the recent Unwired Planet v Huawei Judgment. These include: that licensees can be acting in a FRAND manner even though they refuse to take a licence of an entire patent portfolio of declared SEPs, irrespective of validity or essentiality; that the FRAND royalty for an SEP should reflect the intrinsic value of the patent; and that the standard (of which that technology is a part) constitutes value that Qualcomm has not created and which it should not seek to capture through its FRAND licensing. 

Finally, in an attempt to demonstrate that Qualcomm’s royalty is not FRAND, Apple states that Qualcomm holds a quarter of the declared SEPs for the LTE standard and compares Qualcomm’s royalty with the (presumably lower) licence fee it pays other SEP holders, who combined hold one third of the relevant SEPs.

Ultimately, Apple claims that Qualcomm’s undertaking to ETSI is ineffective to constrain its dominance as an SEP owner. This may be a direct response to comments by Birss J in Unwired Planet v Huawei that an SEP holder may not always hold a dominant position, for example, because of the FRAND obligation and the risk that implementers may engage in patent hold-out. 

Conclusion

Developments in this case will be interesting when set against the recent judgment in Unwired Planet v Huawei, in which Birss J considered many of the issues raised by Apple. But Apple also makes arguments that go well beyond the issues considered in that case. For example, Apple’s arguments about exclusionary rebates may be affected by the Intel judgment, due to be handed down by the EU’s Court of Justice on 6 September 2017.  It also sits alongside parallel antitrust litigation in the US, including retaliatory actions by Qualcomm designed to exclude Apple’s handsets from import to the US. How this case, and the global dispute, evolves will be fascinating to follow – and not only for those with an interest in SEP and FRAND issues.

Excessive Pricing: Aspen lose their appeal in Italy – and are in the Commission’s crosshairs

Last year we reported the Italian’s take on excessive pricing (here), where South African pharmaceutical Aspen was in the firing line for increasing the price of four cancer drugs by a hefty 300% – 1500%. The Italian Market Competition Authority (AGCM) found that this amounted to an abuse of dominance by artificially inflating the price of the drugs, which had long been off patent. The company was fined €5.2 million in October 2016. 

On 14 June 2017 Aspen lost all grounds of its appeal against the AGCM decision (the judgment – in Italian only – is here).

This loss for Aspen was set against a troubling back drop for the company: not only had the South African Competition Commission announced an investigation into Aspen, Pfizer and Roche for suspected collusion over cancer drug prices just days earlier, but on 15 May 2017 the European Commission opened a formal investigation into Aspen in relation to excessive pricing of five cancer drugs. 

The Commission’s press release states that – in addition to investigating the apparently ‘significant and unjustified’ price hikes applied to Aspen’s products – the Commission is also looking at the way in which Aspen threatened to withdraw the drugs in issue from Member States.  This was also an influential fact in the AGCM decision and subsequent appeal ruling by the Italian Appeal Court. 
 
The separate statement recording the opening of proceedings suggests that the Commission’s focus is wider than simply the negotiation of prices with national health authorities. It notes that Aspen’s negotiation practices “have included reducing the direct medicine supply and/or threatening supply reductions, as well as defining EAA-wide stock allocation strategies and implementing them in cooperation and/or agreement with local wholesalers”. It has been a while since stock management has been subject to scrutiny by the Commission, and this is likely to be an unwelcome development for the industry more widely. For now, it is probably safe to assume that this aspect of the investigation is ancillary to the primary case on pricing issues.

Meanwhile, back in the UK, the date for an appeal of the (now-published) Pfizer/Flynn decision has been set by the Competition Appeal Tribunal – a four-week hearing is due to start on 30 October. 

Luxury brands, third party platforms and EU competition law – guidance from AG Wahl

The Court of Justice of the European Union (‘CJEU’) has today handed down Advocate General Wahl’s opinion in the Coty Germany reference proceedings (see press release here, the full opinion should be published later today). The press release explains that the Opinion proposes that the European Court find that a supplier of luxury goods may prohibit its authorised retailers from selling its products on third-party platforms such as Amazon and EBay. For the background to the case see our earlier post here

The Opinion begins by restating that selective distribution systems for luxury and prestige products do not necessarily fall within the prohibition of anticompetitive agreements under Article 101(1) if they meet three well-established criteria:

  1. the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers; 
  2. the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and 
  3. the criteria established do not go beyond what is necessary.
AG Wahl then goes on to deal with the restriction which is at the centre of this dispute, namely a provision which prohibits the authorised sellers from using third party platforms for internet sales “in a discernible manner”. He states that – in the present state of development of e-commerce – such a restriction does not necessarily fall within Article 101(1) where three criteria are met. However, it seems to us that the criteria he lists is merely a restatement of the well-established criteria for lawful selective distribution set out above, i.e. that the criteria:  

  1. are dependent on the nature of the product; 
  2. are determined in a uniform fashion and applied without distinction; and 
  3. do not go beyond what is necessary.
The assessment of the facts will ultimately be left to the German Court.  However, AG Wahl does observe that the contested clause does not appear to be caught by Article 101(1). In fact, he suggests that the restriction is likely to improve competition by ensuring the products are sold in an environment that meets the qualitative criteria and guarding against the phenomena of “parasitism” (a more loaded term than the usual reference to ‘free-riding’). He points out that the restriction does not amount to an absolute prohibition on online sales (which is considered a serous restriction of competition) for two reasons. First, the restriction still allows authorised distributors to sell through their own websites and to make use of third party platforms “in a non-discernible manner”. Second, distributors’ own online stores are still the preferred distribution channel so such a restriction cannot be assimilated to an outright ban or substantial restriction on internet sales.  This analysis leaves a number of questions open, and certainly suggests that the analysis of such restrictions may change if the popularity of third party platforms continues to grow.  

Finally, the Opinion proposes that, in the event that a restriction on third party platforms does fall within Article 101(1), it may well be exempted under Article 101(3), including under the block exemption for vertical agreements. AG Wahl does not consider a third party platform ban to be a hardcore restriction which would automatically exclude the relevant distribution agreement from the benefit of the block exemption. 

Overall, the AG Opinion appears to be in line with the Commission’s recent final report in its e-commerce sector inquiry, which recognised that price is not the only relevant competition consideration when selling goods online: “While price is a key parameter of competition between retailers, quality, brand image and innovation are important in the competition between brands. Incentivising innovation and quality, and keeping control over the image and positioning of their brand are of major importance for most manufacturers to help them ensure the viability of their business in the mid to long term.”  The AG Opinion is a first step in showing how this balance may in future be struck – although crucially the Opinion is not binding on the CJEU who will now begin its deliberations in this case. The final word on these issues will be left to the European Court, and this will no doubt be keenly awaited by brand owners, online retailers and third party platforms alike.

A FRAND torpedo? An update on Vodafone v Intellectual Ventures

Patentees commonly litigate in Germany. The validity of a patent is considered separately from (generally after) any infringement claims. Infringement proceedings, including injunctive relief, are not typically stayed pending a validity challenge. The availability of a relatively quick infringement decision and potential injunction against a licensee who has not complied with the Huawei v ZTE framework seem to make it an attractive option. 

To avoid the risks of an injunction in Germany, implementers actually or potentially subject to infringement proceedings there might think about asking a court in another jurisdiction to consider any FRAND dispute. This could enable them to argue that issues relevant to an injunction, such as whether the implementer is a ‘willing licensee’, are already subject to the jurisdiction of another Court, making it more difficult for the patentee to get an injunction. 

This is exactly what happened in Vodafone v Intellectual Ventures. As this blog reported here, when faced with infringement proceedings in Germany, Vodafone launched a FRAND countersuit in Ireland (with an ex parte application for permission to serve out of the jurisdiction). Earlier this year (unreported judgment [2017] IEHC 160), Intellectual Ventures responded by making an application to the Irish Court on the basis of Articles 29 and 30 of the Recast Brussels Regulation. It claimed that the German Court had been ‘first seised’ and so the Irish Court was required (or alternatively that it should exercise its discretion) to decline jurisdiction, or at least stay the proceedings. 

Despite identifying a number of overlaps relating to FRAND between the Irish and German proceedings, the Irish Court did not agree that Article 29 applied. The Irish proceedings did not involve the same cause of action or even the same parties (because of the involvement of an Intellectual Ventures subsidiary in the Irish case). However, given the degree of overlap between the two sets of proceedings, the Court considered that some form of discretionary relief under Article 30 was appropriate. It decided not to decline jurisdiction under Article 30, but agreed to stay the proceedings pending the final judgment of the Düsseldorf Court, expected in September, at which point, the various issues discussed might become clearer, e.g. the extent to which the German Court would cover FRAND.

The success of Vodafone’s tactic is therefore yet to be fully determined. It will be very interesting to see to what extent the German Court takes into account the Irish proceedings when issuing its infringement decision, and in deciding whether to grant an injunction. In the meantime, it seems that implementers wishing to secure a favourable FRAND jurisdiction would ideally act pre-emptively, before patent infringement proceedings are issued.

A final point worth noting arises from Unwired Planet v Huawei (see this blog’s posts here and here).  In that case the English High Court decided that it could settle the terms of a FRAND licence (dealing with incidental FRAND disputes along the way) and that a FRAND licence between companies operating on a world-wide basis would be global in scope. 

There are many issues relevant to determining jurisdiction and the operation of the Recast Brussels Regulation. However, with the English Court clearly prepared to determine FRAND licence terms and having held that a FRAND licence will be global, there is perhaps more potential now to argue successfully that if FRAND proceedings have been issued in one jurisdiction, a Court in another should be cautious about granting an injunction or coming to any other conclusion that might conflict with any FRAND findings of the first Court. Indeed, if the implementer has made it clear that it will accept the terms settled by a Court, it may be difficult to argue convincingly that it should be regarded as “unwilling” or dilatory.

Online auction commitments demonstrate digital markets are central to CMA’s priorities

The CMA has accepted commitments from ATG Media, the largest provider of online auction sites in the UK, to bring an end to practices which it considered hinders competition from rival bidding platforms (press release and decision here and here). 

ATG’s Live Online Bidding (LOB) platforms cover a wide range of markets, including: antiques and art; industrial and insolvency; and construction and agricultural equipment. 

LOB platforms are aggregators that host live auctions run by multiple auction houses. They aim to attract both individual bidders and auction houses to list live auctions. Traditionally live bidding was available only by attending in person or by telephone.

The CMA’s investigation began in November 2016 and focused on three practices:

  • obtaining exclusive deals with auction houses, so that they do not use other providers;
  • preventing auction houses getting a cheaper online bidding rate with other platforms through Most Favoured Nation clauses; and
  • preventing auction houses promoting or advertising rival live online bidding platforms in competition with ATG Media.
In order to bring the investigation to an end ATG has given the CMA legally binding commitments under the Competition Act 1998 to stop all three practices. 

The CMA’s Annual Plan 2017/18 (here) stresses the importance of digital markets in its enforcement priorities: “Online aspects of markets have become a major focus of our work, as many industries have become more digital in how they trade, raising important questions of policy and law.”

Online platforms (particularly those with market power) are likely to face increased scrutiny as competition authorities across the world focus ever more of their resources on the digital economy.   

Innovation and merger control

We have written on a number of occasions in the past (examples here) about the ways in which antitrust grapples with the potential for product innovations to have adverse effects on competition.  Generally, such effects are felt by a number of competitors, which may be a small price to pay for the benefit of genuine product innovation which, taken overall, benefits consumers.

Today’s topic relates to a different subject, which is the role that future innovation plays in merger control.  Merger control is of course prospective.  Antitrust reviews have, by contrast, the advantage of being able to consider actual market developments (even if they also display a worrying tendency to look for likely effects even in cases where actual market developments can be assessed – see the ‘pay-for-delay’ cases, for example…).  Merger analysis on the other hand has to take a view of the likely impacts of acquisitions both on existing products and product pipelines.  The full text of the Dow-DuPont merger decision is not yet available, but it appears that the Commission has been looking ever further into future, by considering not only defined future products (as is not uncommon in pharma merger cases – think Novartis/GSK (oncology) or Teva/Allergan), but also more speculative research poles. The Commission’s factual investigation extended to comparisons of early stage patent filings and use of the esoteric art of ‘forward citation analysis’ (essentially looking at how many other patents cite a particular prior patent to assess its importance) to determine potential future overlaps.

This week the Commission issued three Statements of Objections (SO) to companies which in some way failed to comply with merger filing requirements, either by providing misleading information or by ‘jumping the gun’ in their implementation of a transaction.  Of note in this context is the SO sent to Merck and Sigma-Aldrich. The companies had merged in 2015, and as part of the deal were required to sell off certain Sigma-Aldrich assets relating to certain laboratory chemicals.  The Commission’s allegation now is that the parties failed to tell it about “an important R&D project” which should have been addressed in the commitments package.  While the decision to issue these SOs perhaps says more about the Commission seeking to maintain the integrity of its merger review process, the importance placed on the protection of future competition should not be under-estimated.  We plan to report further on the Commission’s analysis in Dow-DuPont once the decision is available.

Antitrust authorities are increasingly interested in pricing algorithms

A few months ago, we considered whether pricing algorithms might be the European Commission’s next antitrust target (here). The Commission had warned companies about the risks of using algorithms to collude, and indicated that pricing software formed part of its investigation into consumer electronics.

Since then, the Commission has published its Final Report on the E-commerce Sector Inquiry (“Final Report”, see our commentary here). This specifically identifies the wide-scale use of pricing software as something that may raise competition concerns, noting that the “availability of pricing information may trigger automatised price coordination” (13).  The Final Report also claims that comments from retailers point to manufacturers making use of retail price maintenance.  It suggests that pricing software may make it easier for manufacturers to retaliate against retailers that deviate from desired pricing, which may even limit the incentive for retailers to deviate from pricing recommendations in the first place.  The Final Report also considers that pricing algorithms could facilitate or strengthen collusion between retailers – the algorithms make it easier for retailers to detect any deviations from prices implemented under a collusive agreement (33).

At the start of this month the Commission announced an investigation into whether the clothing manufacturer and retailer Guess illegally restricts retailers from selling cross-border within the EU.  It seems likely that this investigation arose out of information the Commission received through the E-commerce Sector Inquiry. Bearing in mind the Commission’s comments on pricing algorithms in the Final Report, there is real potential for subsequent investigations into their use.   

OECD Roundtable

Further insights into the Commission’s current thinking can be drawn from the OECD Roundtable currently taking place on ‘Algorithms and collusion’ (see here).  The Commission's contribution paper identifies the potential harmful effects that pricing algorithms may have in both vertical and horizontal contexts, namely by facilitating collusion and making collusion easier to enforce.  It expands upon the concerns identified in the Final Report, offering by way of example a scenario where retailer A is adhering to retail price maintenance, and retailer B is monitoring and matching retailer A’s prices using pricing software (16).  This is said to show how artificially high prices caused by retail price maintenance can easily spread to other ‘innocent’ retailers through the use of pricing software.  

The paper notes that where firms are using algorithms to engage in explicit collusion, it is clear that the firms are still liable for their behaviour.  It suggests that to a large extent, pricing algorithms can be analysed under traditional EU competition law.  However, it also spends some time discussing the issue of tacit collusion, where there is no anti-competitive agreement involved and therefore the conduct of non-dominant companies acting independently falls outside the EU competition law framework.  Does algorithmic pricing make tacit collusion more pervasive and more effective?  If so, how should competition authorities respond? 

As the paper recognises, this is an area of on-going debate.  Nevertheless, it considers potential options such as whether the market itself may correct ‘algorithm-enabled tacit collusion’ through the development of ‘consumer algorithms’ that could track prices and even identify ‘maverick’ sellers not engaging in algorithmic pricing that consumers could purchase from.  It also explores whether changes to the law on tacit collusion might be effective, or whether the interpretation of ‘communication’ should be expanded in order to bring algorithm-enabled price matching within the scope of Article 101 TFEU.

The UK CMA's contribution to the Roundtable has less of a focus on pricing algorithms. It identifies a few potential theories of harm that may apply to the use of algorithms more broadly:

  • Facilitating the implementation or maintenance of a collusive agreement.
  • Facilitating behavioural discrimination (e.g. price discrimination where consumers are set individual prices based on algorithmic assessment of the highest price that consumer is likely to pay).
  • Reinforcing dominance or raising barriers to entry (relating to the typical requirement for large volumes of data to make an algorithm effective).
The CMA recognises that algorithms can give rise to many consumer benefits. However, it also notes that they could lead to competitive or consumer harm in novel, untested ways, and that it is challenging to detect and understand the exact effect of complex algorithms, particularly given that they rapidly evolve (whether through constant refinement from developers or via ‘self-learning’).

Despite this, the CMA appears to be more comfortable than the Commission in its ability to combat this sort of issue. It notes that “the flexible, principles-based UK competition law framework has to date shown itself able to accommodate technological change, and to be capable of flexible and effective use to tackle a wide range of novel competition harms” (43). It plans to invest in in-house technological expertise and new digital forensic tools in response to the challenges posed by the use of algorithms.

Conclusion

These two OECD contribution papers were prepared for a Roundtable discussion – they do not reflect the Commission’s or the CMA’s official stance on pricing algorithms.  However, they provide an interesting insight: these authorities are clearly paying a good deal of attention to the potential competition issues raised by algorithms.  Coupled with the increasing enforcement activity by the Commission in the e-commerce sector, pricing algorithms continue to be one of the trending topics in competition law in Europe. 

Unwired Planet v Huawei: a new FRAND injunction

Mr Justice Birss has once again broken new legal ground by granting what he has termed a ‘FRAND injunction in Unwired Planet v Huawei.

As a reminder, in April Mr Justice Birss handed down the first UK court decision determining a FRAND royalty rate (see here). A post-judgment hearing took place in May to establish whether or not Huawei should be subject to an injunction in the UK and the issue of permission to appeal.

The FRAND injunction

At the post-judgment hearing, Huawei had argued that the judge should not grant an injunction. As Huawei intended to appeal the decision, it said that it could not enter into the FRAND licence agreement at this stage, in case the Court of Appeal determined that different FRAND terms were appropriate. Huawei claimed that to grant an injunction now would effectively be punishing it for exercising its right to appeal. It also noted that if an injunction was granted, it would last until 2028 (when the patent found valid and infringed in the first patent trial expired), despite the FRAND licence agreement expiring in 2020. Therefore, Huawei would be forced to negotiate a new licence from an extremely weak position – it would automatically be injuncted if terms could not be agreed. 

Huawei requested that the judge accept undertakings in lieu of granting an injunction, offering to: (a) enter into the licence following its appeal, and (b) to comply with the terms of the licence as if it was in effect (including paying royalties) until its appeal was finished.

Mr Justice Birss essentially took the view that the offer of undertakings now was too little, too late. He decided that an injunction should be granted. However, he recognised the risk that this might affect negotiations or disputes about the terms of the licence in later years. To resolve this, he granted a new kind of injunction, which he called a “FRAND injunction”. This would be like a normal injunction, but with the following extra features:

  • A proviso that it would cease to have effect when the defendant enters into a FRAND licence; and
  • Express liberty to return to court to decide whether the injunction should take effect again at the end of the FRAND licence (if it ends before the relevant patents expire, or ceases to have effect for any other reason).
The injunction is to be stayed pending the result of the appeal, on terms that provide for appropriate royalty payments from Huawei to Unwired Planet in the meantime.

Permission to appeal 

Mr Justice Birss granted Huawei permission to appeal on three main issues:

  1. The global licence: including: (i) whether more than one set of terms can be FRAND, (ii) whether a UK only licence was FRAND, (iii) whether the court is able to determine FRAND terms, including rates, for territories other than the UK, and (iv) whether it is appropriate to grant an injunction excluding Huawei from the UK market unless it took a global licence.
  2. Hard-edged non-discrimination: Huawei have permission to appeal the finding that a distortion of competition is required for the non-discrimination aspect of FRAND to apply, but not whether or not there was a distortion of competition in this case.
  3. Huawei v ZTE (Article 102 TFEU): regarding the judge’s findings on abuse of dominance and injunctive relief.
This permits a fairly wide-ranging appeal, especially as regards the competition law elements of the latter two issues. The trial judgment appeared to downplay the importance of competition law in FRAND issues (see here for more information); the appeal may enable a renewed focus on it.

The FRAND licence 

In his main trial judgment, Mr Justice Birss settled the terms of the FRAND licence to be entered into by Unwired Planet and Huawei. This latest judgment annexes a copy of the final form of that licence. Given the shroud of secrecy that usually surrounds such patent licence agreements, this is a unique insight, reflective of the judge’s desire throughout the case to ensure as much transparency as possible.

Transparency is likely to be helpful as the law in this area continues to develop. With the advent of new technologies developed for 5G and the Internet of Things, new companies may need to enter the FRAND licensing field for the first time. Without being able to draw upon any previous experience of negotiating licences in this area, they will be at a disadvantage in negotiations. 

If other judgments follow Mr Justice Birss’ lead and annex copies of any FRAND agreement determined by the court, these would provide useful points of reference for negotiating parties. It might also reduce the requirements for third party disclosure (a costly, time-consuming exercise) in any subsequent litigation. Otherwise, such disclosure will be essential in FRAND cases involving relatively new entrants to the market – they are unlikely to have many licence agreements that can be used by the judge as comparables as part of the process for determining a FRAND rate.

Conclusion

Yet again, Mr Justice Birss provides plenty of food for thought. Assuming that Huawei does go ahead with its appeal, it will be fascinating to see how the Court of Appeal responds to these issues.

Pat Treacy and Matt Hunt