Competition law & IP licensing agreements

Following on from yesterday’s post, I recently recorded another webinar for MBL which will be streamed live from 12.30pm today and which may again be of particular interest to readers of this blog.  The webinar gives a brief overview of how EU competition law applies to IP licensing agreements, with a focus primarily on the changes to the EU’s technology licensing regime.  If of interest, more information can be found here

Recent developments in the TMT sector and competition law

For those of you interested in having an overview of recent developments relating to the TMT sector and competition law, (which may be many of you reading this particular competition blog, I hope) you may be interested in a webinar I will be presenting for CIPA. It is not limited to patent attorneys, or to members of CIPA and will be streamed live tomorrow (22nd) at 12.30pm, lasting an hour, and will cover issues such as standards, FRAND, injunctive relief and recent UK and EU decisions.  You can find more information here

Reckitt Benckiser reduces its competition law heartache in the UK / takes some of its own medicine

As per our tagline, The CLIP Board is intended to be a blog covering anything and everything on the competition law/IP interface, and not just the TTBE… So returning to other issues, I spotted last week that Reckitt Benckiser has agreed to settle some more of the follow on claims it is facing since being fined by the OFT in 2010 for its conduct in relation to Gaviscon.  Having already settled with the English health authority, Reckitt Benckiser has now also settled with the Scottish, Welsh and Northern Irish authorities.  

This announcement hasn’t come as a surprise – not because of any ‘inside information’, but because of the many difficulties parties face in relation to follow on actions.  We’ve commented before on the difficulty in this sector, not only in determining the amount of an award, but also in apportioning the damages amongst claimants – see here

Given these difficulties, it remains to be seen what will happen to the claims brought by rivals: Teva, Sandoz and Pinewood Laboratories.  Reckitt Benckiser’s settlement with the health authorities might in practice make issues of apportionment between these claimants (slightly) easier, given that only rivals’ claims now persist.  Had the health authorities remained in the case, they would have been expected to argue that the entry of rivals and competition between rivals would have driven prices down significantly and quickly, i.e. that they had suffered significant financial harm in overpaying for Gaviscon.  In contrast, each individual rival can be expected to argue that although prices would have fallen, they would only have fallen slightly, i.e. that its profits would have been substantial and therefore the damages it can claim larger (than had there been a significant and quick downward spiral in price). 

Complex issues around whether rivals were ready to enter at all to drive down prices ‘but for’ Reckitt Benckiser’s behaviour will remain to be debated.  Perhaps further settlements might be around the corner…

Technology licensing: adapting to the EU's new regime – update!

Last night, we held our eagerly awaited roundtable discussion: “Technology licensing: adapting to the EU's new regime”.  After a quick introduction outlining how the European Commission’s approach to licensing has evolved, we delved straight into an interactive discussion on how businesses could adapt commercial practices to take advantage of the new rules.  The life sciences, and technology, media and telecoms (TMT) sectors were pretty evenly represented, with some of the guests getting almost as excited about the changes as we have been.  

If you were interested in the discussion but couldn’t make it, or if you did attend and would like a souvenir from the evening, you can find some slides here.  Those present will recall that slides were not used (intentionally) for the most part.  In lieu of the discussions that we had on each of the key changes, we’ve therefore included some ‘aides mémoires’ in these slides (inevitably, it’s impossible to recreate the magic of an informal discussion in PowerPoint!).  We hope that you’ll find these to be useful. 

Of course, if you have any further questions, please do get in touch with us and we will consider how best to answer them. 

Finally, the related articles mentioned in our earlier post have now been published:

  • Pat and David's “Europe embraces a new technology transfer regime: headaches for IP licensees and licensors?” for Intellectual Property Magazine – see here; and
  • Osman and Matthew's “Technology licensing and settlements of IP disputes: implications of the European Commission’s new regime” in the Journal of European Competition Law and Practice – see here.

Last, but not least, Sophie's CLI article, “New technology transfer rules: evolution or revolution” has been published in Competition Law Insight (subscriptions available here) and will be available here next month.

Happy reading!

Osman Zafar

The revised technology transfer regime: is there more to patents than their validity?

Reviewing the new TTBER and accompanying Guidelines in their first week in effect, two of us ended up having something of a ‘Socratic dialogue’ around the nature of patents and the views that seem to be emerging from the Commission (perhaps we need to get out more…).  One of the guiding principles behind the revisions to the Commission’s technology transfer regime seems to be what we can refer to as the Windsurfing principle: that as a matter of public interest, invalid patents should be identified and revoked at the earliest possible opportunity.  

We decided to take this principle in isolation as a starting point for our discussion to see where it might lead to in a technology licensing context.  Our discussion* went something like this...

: Surely it’s difficult to object to the principle: a patent – or any exclusionary right – which doesn’t fulfil the relevant criteria for grant, can and should be weeded out.  If there are deficiencies in the systems for grant, we should endeavour to limit the impact of these, including by competition law measures if necessary.  At a minimum, an invalid patent has the potential to deter innovation or market entry in the same space - exactly the opposite of what competition law is trying to achieve.  Of course the impact of this deterrent effect is a pretty unknowable – the ‘known unknown’  might be quite insignificant on the one hand, but it could be quite major on the other in terms of missed opportunities for new product development. 

Even if we assume that the deterrent effect is negligible, at best you might end up with licence fees being paid to the patentee which shouldn’t really be due because the patent ought not to have been granted.  In effect such licence fees are a ‘deadweight loss’, which can only send (consumer) prices in one direction - upwards.  

: Sure; there might well be downsides which are unknowable, but I’m not convinced that they’re all on one side of the argument.  First of all, I’m not a fan of the idea that a patentee necessarily “knows” (or “suspects”, or whatever verb you want to use) that a given patent is invalid - and in fact, the Commission has dropped some of this wording compared with the draft version of the Guidelines.  Even leaving aside very densely patented sectors such as IT/telecoms, where patent numbers alone make it hard for a company to know fully its own patent portfolio, I don’t think that companies generally know for sure how their patents would stand up to judicial scrutiny until it actually happens (and of course different outcomes frequently result from parallel patent litigation - in 11% of cases, according to the Pharma Sector Inquiry report).  

There’s therefore a mismatch between: (i) the final legal position, which says you either have a defensible right or you never had one (because a revoked patent is void ab initio); and (ii) the position that - absent a rare case of actual fraud - the patentee is (rightly) entitled to assume that its granted rights can be used in the way the legislator intended.  

: It’s difficult to disagree with what you say, but I don’t think that means that the Windsurfing proposition shouldn’t influence the Commission’s approach to technology licensing.  Irrespective of whether a patentee knows that its patent is weak, or invalid, or whatever, licensees should surely be placed in the optimum position to undo any patent office errors so that others aren’t unduly impeded in coming to market.  We know that there is uncertainty built into the system, but why should the uncertainty built into the system always be in favour of the patentee?  The UK Supreme Court concluded last year (in Virgin v. Zodiac - a note on which can be found here) that it is the final position which counts - i.e., patentees which win patent litigation prior to a later finding of invalidity (e.g. at EPO level) can no longer rely on the original, incorrect, judgment to obtain damages.

: It’s not just about the patentee / licensor versus the implementer / licensee - there’s also the question of where the wider public interest is located.  I think for these purposes we can leave aside the slightly bizarre notion that licensees (and generic companies, in the pharma patent settlement context) have some kind of obligation to maintain revocation proceedings for the benefit of the greater good.  The Commission has impliedly accepted this by backing down, at least in part, from its proposal to exclude all ‘terminate-on-challenge’ provisions from the scope of the block exemption.  After all, in the EU (unlike the US) there is no standing requirement for bringing revocation actions before the national courts.  

In my view it’s more interesting to take this discussion back to patent law first principles.**  The bargain offered by the patent system entails the making of full public disclosure – of a workable invention which can be reproduced by third parties equipped with the patent claims and specifications – in return for a monopoly (in the patent law sense, if not in the competition sense) over the subject matter of the invention for a limited period.  Even if a patent ‘is invalid’ (assuming this is knowable in the absence of a judicial outcome / final patent office ruling in opposition proceedings): first an investment - perhaps significant - has been made by the patentee in developing the technology; and second a disclosure has still been made of the ‘invention’ to the public.  Because of the myriad ways in which a patent can be invalidated, many of which are highly technical and/or may be the result of a very obscure piece of prior art which is only found when someone actively goes looking for it as a means to knock the patent out, I don’t believe that you can necessarily assume any correlation between the innovative effort and investment which have been made, and the ‘quality’ of the resulting patent.  There must be hundreds of examples of businesses being built on patents which ultimately prove to be invalid – any revocation of a patent covering a pharmaceutical compound or a second medical use will be a case in point.  And it is exactly those sorts of patents which typically attract invalidity actions in the first place - i.e. the existence of revocation or opposition proceedings already implies that the right in question has value for third parties.

So what you may have – and this is a question of fact, which I admit is not straightforward to establish, least of all for a non-specialist competition authority – is a disclosure of a technology which provides valuable guidance to third parties about how to manufacture a particular product / use a particular industrial process / increase efficiency / save costs, albeit while failing to tick all of the boxes for patent validity.  So far, the competition law analysis has paid little attention to the exact way in which a patent is invalidated, but to my mind some invalid patents are going to be more useful, and thus more valuable, than others.  A patent which is revoked by an obscure piece of prior art may well have more value in terms of the wider public disclosure (having created the potential for follow-on or parallel innovation) than a patent which is void for insufficiency, i.e. where the disclosure is inadequate to work the invention.

: Okay, so what you’re saying is that some patents which ultimately prove to be invalid may occasionally (and I don’t think you can put it any higher than that) have some of the value that competition policy, and indeed wider EU policy, accords to innovation generally.  But if you are arguing that you can’t simply assume that there is always a public interest in invalidating the patent in question, I’m still not sure that I agree.  Surely the public interest in respect of future innovation is the same as for any invalid patent, i.e. you remove an obstacle to and/or a toll on follow-on innovation.  The disclosure – if indeed of value – remains available on the patent register for others to consult.  But I suppose that is a rather static way of looking at the issue – and it’s obviously important to look also at dynamic efficiencies and long term innovation.

: That’s one of the major difficulties in this area – designing a patent system (as ‘adjusted’ by the ‘second tier’ competition rules) which sufficiently encourages innovation so that the breakthroughs are captured; but sufficiently discourages the filing of patent applications with little inventive value which may stymie other genuine invention.  I (and, more importantly, real experts such as Sir Robin Jacob***) don’t believe that it’s possible to design a patent system without some measure of invalidity.  So if some measure of patent invalidity is inherent in the system, and we recognise the value for society of encouraging and rewarding innovation generally, then patents which ultimately prove to be invalid are, in effect, just a symptom of a properly functioning system.  In short - a sign that innovation is happening, precisely what the Commission is at pains to encourage in other contexts.  Making significant adjustments, whether using the competition rules or making changes to IP rules themselves, risks changing the balance of incentives which is designed to encourage innovation.

: So what you’re saying is that where the Commission tends to invoke the Windsurfing principle, such as in relation to no-challenge provisions or patent settlements, its justification may not be as robust, or unquestionable as it might like.  But whether you’re right or not, we are stuck with the Court of Justice precedent.  You can’t even say that it is an outlier - US cases on no-challenge provisions also recognise the general public interest in removing IP rights which have been granted in error.

: Agreed.  I’m not sure we’ve wholly rehabilitated invalid IPRs from the ‘curse’ of Windsurfing, and other similar case such as Bayer v. Süllhofer, but in an individual case it just might be worth looking out for evidence of economic value attaching to a patent which was, or which might ultimately have been, invalidated.  How such evidence could be marshalled, and the weight which would be attached to it is very much an open question.

: And that’s a complex question and one that also ties into the appropriateness of dealing with cases on the competition law/IP interface as ‘object’ type infringements (we discussed this recently here).  But it’s perhaps worth concluding by saying that the position of the Commission in the new TTBER / Guidelines is somewhat less fundamentalist on this issue than it was in the draft versions of the same documents published last year.  For example, the fact that exclusive licences can now include ‘terminate-on-challenge’ provisions (at least where the market share thresholds are fulfilled) is a considerable compromise from the earlier position adopted by the Commission, which assumed that Windsurfing reigned supreme.  

oOo

No doubt there are many further perspectives on this issue - comments welcome from anyone interested in joining the dialogue...

* Which did not actually take place on bicycles...

** Patent law first principles are perhaps a bit harder to pin down than we suggest here - Professor Petit's recent article on 'Stealth Licensing' (which is well worth a read generally) contains a useful summary of the various justifications for the patent system. The disclosure function discussed above is important amongst these. 

*** See, e.g.Patent thickets: a paper for the European Patent Office Economic and Scientific Advisory Board meeting” by The Rt. Hon. Professor Sir Robin Jacob, published in the Journal of Intellectual Property Law and Practice, 2013, vol. 8, No. 3, p.203.

Sophie Lawrance and Osman Zafar

Technology licensing: adapting to the EU's new regime – seminar on its way!

In the wake of the announcement of the new technology transfer regime, which came into force yesterday (1 May), we released some immediate thoughts in an earlier blog post.  If you found that to be interesting, you may also be interested to know that our Competition & EU team is getting together with our Commercial IP team for a roundtable discussion on what it all means for day-to-day licensing.  As well as a quick reminder of the recent changes, we’ll focus on how the Commission’s approach to licensing is evolving and how businesses may want to adapt their commercial practices to take advantage of the new rules.  We’re going to focus on: (1) the TMT sector; and (2) the life sciences sector, but there should be plenty to interest those from other walks of life too.  See here for further details/registration.

There are obviously few things that excite us at The CLIP Board as much as technology transfer, so we’ve been busy bees writing articles for various publications, including Osman’s “Commission introduces its new technology transfer regime” for our very own TMT publication, The Cookie Jar.  There are also some articles to watch out for in May:

  • Sophie's“New technology transfer rules: evolution or revolution” for Competition Law Insight;
  • Pat and David's “Europe embraces a new technology transfer regime: headaches for IP licensees and licensors?” for Intellectual Property Magazine; and
  • Osman and Matthew's “Technology licensing and settlements of IP disputes: implications of the European Commission’s new regime” in the Journal of European Competition Law and Practice.
Permission permitting, we’ll link through to these when they’re available (and believe it or not there are others in the pipeline…).  We look forward to seeing you on 13 May!

Osman Zafar