26 June 2014
Earlier this month, I attended an interesting lecture at the Law Society given by Mr Justice Roth, President of the Competition Appeal Tribunal (CAT). The lecture dealt with the current reforms to private competition litigation in the EU and UK, including the recently adopted antitrust damages directive and the CAT’s draft rules on collective actions – both of which have received significant media attention. Mr Justice Roth also spoke briefly on the less well publicised – but potentially very significant – proposals to empower the CAT to hear standalone competition actions, grant injunctions and set-up a ‘fast track’ procedure aimed primarily at smaller companies seeking injunctive relief for alleged infringements of competition law. The proposals require Parliament to pass the Consumer Rights Bill, which looks set to happen later this year or early next year (it has gone through the Commons and is now in the House of Lords). What’s the IP / Competition interface angle? Well, a number of injunction disputes under the existing rules in the High Court have been in the IP heavy sectors (e.g. InteCare & Chemistree) – these sorts of cases may in future be considered for the CAT’s fast track. This is a topic close to my heart, as it was on this subject that I spoke at the 8th Junior Competition Conference in January this year (and for which I featured for the first time in a tweet). But to get back on track: one of the key issues for the fast track is deciding which cases will actually be ‘suitable’ for fast-tracking. The fast track will offer a number of procedural advantages to claimants – in particular caps on liability for costs and a cap on damages for any cross-undertaking in damages given for interim injunctions. So it is clear that there will big disputes over ‘suitability’ between claimants keen to get their claims fast-tracked and defendants trying to avoid fast-tracking at all costs.
Consideration of the fast track proposals is still at an early stage. Mr Justice Roth explained some of the current options for deciding suitability include the following:
- whether the case could be tried within 6 months of the claim being lodged;
- whether the trial could be heard within 3 sitting days;
- whether little or no disclosure would be necessary;
- whether little or no expert evidence would have to be called.
Roth J also indicated that the CAT would seek to draw lessons from the introduction of the Intellectual Property Enterprise Court (IPEC) which has handled smaller IP disputes very successfully. The current proposals are yet to be finalised, once drawn up the draft rules will be published and subject to a public consultation.
I look forward to seeing the draft rules. I would hope that the rules adopted are more flexible than those outlined above appear to be. Whilst a relatively short and predictable timeline to trial is a good thing, if trials are organised too hastily this might increase cost and erode the quality of justice that the CAT can dispense. I doubt that every fast track trial needs to be resolved within six months. In my view, a limit to the length of a trial is a good thing, this would also probably be the best criterion for deciding suitability for fast-tracking, but 3 days is highly ambitious. The IPEC deals with all cases within 2 days, but IP disputes typically require significantly less fact evidence than do competition cases. Without sufficient fact and expert evidence, the court will reach judgments essentially on the basis of the burden of proof, as seems to have occurred in the recent Martin Retail case - a one day preliminary issue tried before the Central London County Court. This is far from ideal. Restrictions on disclosure will help reduce cost, but I would expect that some very targeted disclosure will be necessary in virtually all cases. I do not think expert economics evidence can ever be dispensed with if the CAT is to reach sound judgments, I very much doubt that written expert evidence alone is adequate. There is a good case for tightly regulating oral testimony, but the CAT should be extremely cautious to dispense with it entirely. Time is needed to test fact and expert evidence, which is why trial length should be considered carefully. For those interested to learn more about the background to the Fast Track proposals, what lessons might be drawn from the IPEC, and a few other thoughts, I have recently had an article published on just this topic in the latest edition of the Competition Law Journal. Jordan Publishing Limited has very kindly given permission for this to be reproduced. For a link to the article click here.
20 June 2014
ZTE has this week announced that it has made a formal competition complaint to the European Commission, asking it to investigate the licensing practices of Vringo and its subsidiaries on the grounds that competition in the telecommunications market is being adversely affected by Vringo’s activities.
Vringo, a non-practising entity, holds numerous standard essential patents (SEPs) relating to telecommunications standards, many of which were acquired from Nokia: in 2012, Vringo paid $22 million for 500 patents in a deal whereby Nokia would continue to use the patents on a “non-exclusive” basis and would also be entitled to receive a 35% share of any revenue in excess of $22 million that they generate.
Vringo, which is understood from Birss J’s interim judgment of last June in Vringo v. ZTE, to have offered ZTE a global portfolio licence on the whole of its SEP portfolio, has made a commitment to license these patents on fair, reasonable and non-discriminatory (FRAND) terms. However, ZTE and Vringo have so far failed to agree on what these terms should be and the companies have been embroiled in litigation, with Vringo suing ZTE for patent infringement in several jurisdictions (full details of the claims are available on Vringo’s website). As readers of our blog will know, the Commission recently reached decisions in the Samsung and Motorola cases (commitments and infringement decisions respectively). The Commission appears to see these decisions as a package which will clarify the application of EU competition rules to the licensing of SEPs (see our post here as well as the Commission FAQs and an illuminating Competition Policy Brief). However, it has not yet had to consider what a reasonable royalty rate should be, stating instead that national courts and arbitrators are “well-placed” to set FRAND rates in disputed cases and that national courts may seek guidance from the Commission on the interpretation of EU competition law “to the extent they deem necessary”.
So far, the Commission has therefore been able to avoid looking at FRAND itself. Going back a few years, the Commission closed an investigation into Qualcomm’s licensing of SEPs when Qualcomm and the complainants reached a settlement. This complaint puts the issue squarely back on the agenda. The Commission may have hoped to close a chapter of the smartphone wars with it recent Motorola/Samsung package, but it appears that a broader armistice is still some way off.
2 June 2014
Patent litigation practitioners in the courts of England & Wales are not generally known for their love of competition law. But now that old 'enemy' may be about to come to the aid of patent practitioners in the face of a Greater Evil, namely German-style bifurcation.
For the uninitiated, bifurcated patent proceedings are those where issues concerning patent validity and infringement are partitioned into separate hearings, possibly even - as in the German model - before different courts. One of the features of the UPC regime [Unified Patent Court - where have you been?!], at least as currently proposed in the 15th round of draft rules, is that it does indeed provide for separation of infringement and validity issues, at least in some cases.
Patent litigators' concerns about this are perhaps less focused on the tendency for the validity trial to lag behind the test of the infringement position (as the German model suggests is the likely outcome) than about the reduced scope for pressurising the other side via the famous (in patent circles) squeeze on validity. For the uninitiated, this “squeeze” arises from the fact that infringement will often be easier to prove on a broad reading of the patent, whereas proving that the patent is valid, i.e. novel and non-obvious, may need a narrow reading to be adopted. This dream of many a litigator is to apply the squeeze on an opponent, without its own case similarly suffering. [We don't want to use this blog to bang
on about this ad nauseam, but this is again the sort of point which demonstrates that questions of patent validity are just a teensy bit more complex than DG Comp would have us believe.] The fact that there is a competition law angle to this is something that we have mused on among ourselves. After all, a driving rationale of recent Commission case law and policy has been the removal of invalid patents (cf. its approach to settlement agreements in Lundbeck, the revised revised
Technology Transfer Guidelines and the Patent
Monitoring reports), as well as ensuring that would-be licensees are not unfairly pressurised into taking a licence by being deprived of the right to raise invalidity defences (cf. the recent Motorola
decision). It is therefore more than a little surprising that the UPC, which was promoted by the DG Competition as a vital policy development for resolving some of the market problems identified as a result of the Pharmaceutical Sector Inquiry, should countenance a system like the German one which allows infringers to be penalised before their defences as to validity are heard. It appears that we are not the only ones to have identified this clash of policies. Belgian MEP Marc Tarabella has recently posed two related questions for written answers by the Commission. First, M. Tarabella asks whether the Commission is aware that bifurcation will assist “patent trolls”** to abuse a dominant position by seeking to obtain injunctions on invalid patents; secondly, he asks whether, to avoid this risk, the Commission will support the suspension of injunctions until after a ruling on validity. This is not the first time that M. Tarabella has raised concerns about the scope for the UPC to facilitate “troll”-type activity in the EU. As reported by the ever-informative IPKat
blog back in January, M. Tarabella received short shrift from the Commission to his last question which in effect raised the same issue. In a rather extraordinary answer, the Commission at the time absolved itself from all responsibility for the unified patent regime that it has pushed forward, stating that “the UPC agreement is an instrument under international law and is not part of Union law. The matter is thus outside the Commission's remit”. Rather more to the point, the response also noted that the right to an injunction under the draft UPC rules is not automatic, that the likelihood of proving validity may be taken into account, that security may be ordered against the grant of an injunction (i.e. equivalent to the current cross-undertakings in damages regime for interim injunctions in English patent proceedings) and that there is in any event no obligation to refer a counterclaim for invalidity to the Central Division.
Even in the light of the Motorola decision, it is hard to foresee the Commission providing a very different answer now. Indeed, the suggestion that infringement proceedings should sometimes be stayed pending the outcome on validity is arguably consistent with the rationale in Motorola, even if the requirement for a “high likelihood” of invalidity is both onerous and unclear. Nevertheless, both patent practitioners and competition lawyers will watch this “squeeze” on the Commission with interest.
** I was sorely disappointed to see that the French (in which this question was originally posed) for “patent trolls” appears to be “patent trolls”, rather than “lutin des brevets”, or similar...