That’s a wrap! The European Commission accepts Paramount’s pay-TV commitments

We hope you've got your popcorn ready because yesterday, there was a new development in the ongoing Sky UK / Hollywood Studios pay-TV investigation: the European Commission announced that it has accepted the commitments offered by Paramount Pictures, which are now legally binding.
 
We've blogged extensively on this investigation here and here, but as a quick recap:
July 2015: Statement of Objections

The Commission sent a Statement of Objections to Sky UK and six US film studios (including Paramount) in July 2015.  The Statement addressed certain clauses in the licensing contracts between Paramount and Sky UK which:

  1. prevented Sky UK from allowing EU customers outside the UK and Ireland to access Paramount films via satellite and online; and  
  2. required Paramount to ensure that broadcasters other than Sky UK were prevented from making their pay-TV services available in the UK and Ireland.

The Commission was mainly concerned that these clauses raised competition issues for pay-TV broadcasters which were operating on a cross-border basis, and consequently might restrict the EU's Single Market.  
 
April 2016: Paramount's Commitments

In response, Paramount offered four proposed commitments to the Commission in April 2016.  These were:
 
  1. when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount would not (re)introduce contractual obligations, which prevent or limit a pay-TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the pay-TV broadcaster’s licensed territory (No “Broadcaster Obligation”);
  2. when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount Pictures would not (re)introduce contractual obligations, which require Paramount to prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (No “Paramount Obligation”);
  3. Paramount Pictures would not seek to bring an action before a court or tribunal for the violation of a Broadcaster Obligation in an existing agreement licensing its film output for pay-TV; and
  4. Paramount Pictures would not act upon or enforce a Paramount Obligation in an existing agreement licensing its film output for pay-TV.

The latest development

Following the usual market testing of the commitments, the European Commission yesterday announced that it has accepted them.  Paramount's commitments look wide-reaching: they apply to online and satellite broadcast services, and cover the standard pay-TV services as well as relevant subscription video-on-demand services.  The Commission also stated that the commitments will last for five years and apply throughout the European Economic Area.

The investigation into the other five studios continues, with the other companies still disputing the Commission's allegations.  But this latest announcement could well act as a trigger for further developments (and potentially even proposals of commitments), so stay tuned for a sequel coming to a screen near you soon.

FRAND in Finance

The European Commission has accepted legally binding commitments from the International Swaps and Derivatives Association Inc. (ISDA), a trade organisation in the market for over-the-counter derivatives, and Markit, a financial information service provider, to license their IP on fair, reasonable and non-discriminatory (FRAND) terms (see here). This forms part of an EU-wide initiative to make financial markets more efficient, resilient and transparent.  

The Commission opened an investigation into the credit default swaps (CDS) market in March 2011. A CDS is a contract designed to transfer the credit risk linked to a debt obligation – it can be traded ‘over the counter’ or ‘on an exchange’. The vast majority of CDS trading takes place over the counter, despite limited price transparency and high transaction costs. 

The Commission was concerned that the parties had blocked or delayed the emergence of exchange traded products, which could be more effective, safer and cheaper. In particular, it found that:

  • ISDA had refused to license (or restricted the use of) its proprietary rights in the ‘Final Price’ which determines the payment to be made following the default of a debt obligation; and
  • Markit had refused to license its CDS indices which are essential to support new exchange products. 

To address these concerns, the Commission has accepted legally binding commitments from ISDA and Markit to license their IP rights on FRAND terms. They have also committed to exclude CDS dealers from taking individual licensing decisions, as well as influencing such decisions.

It remains to be seen how the parties will go about setting FRAND terms particularly as they operate outside of the usual FRAND arena of telecoms where there is the most legal precedent and a more developed legal framework. Notably, the commitments are subject to mandatory third-party arbitration in case of dispute. This goes further than the Court of Justice’s only decision on FRAND which requires the parties’ agreement for any arbitration (Huawei v ZTE in relation to standard essential patents – see here). This decision is in a different context, but it is a useful reminder that remedies provided for by way of commitments may end up going further than what is required by law, despite there being no actual finding of infringement. 

Testing the patent pool waters

EC’s Investigation of Illumina for anticompetitive conduct

Demonstrating that life goes on outside of Brexit, the European Commission has opened an investigation into Illumina and Sequenom for suspected anti-competitive conduct. 

The Commission will investigate suspected breaches of Articles 101 and 102 TFEU, stemming from Illumina’s and Sequenom’s patent pool agreement concluded in December 2014 relating to non-invasive prenatal testing patents (“NIPT”). 

The agreement allowed Illumina to develop and sell in vitro diagnostic kits for NIPT and enter into licensing agreements with third parties willing to develop their own laboratory-developed tests. The agreement settled the ongoing patent disputes between the two parties and resulted in Sequenom receiving $50 million upfront and royalty payments on sales from the patent pool structure until 2020.

The information on the Commission’s investigation emerged during a Case Management Conference in UK litigation, when Premaitha Health, itself involved in litigation with Illumina in relation to NIPT-related intellectual property, referred to a communication from the Commission regarding this investigation. The Commission is believed to be looking into, on one hand, whether the 2014 agreement constitutes a restrictive agreement and gives rise to abuse of a dominant position, and on the other, whether Illumina’s licensing practices have an anti-competitive effect.

This investigation will be a rare opportunity for the Commission to give a decision in relation to patent pools, an area in which it has previously issued guidance (for instance in the rules for the assessment of technology transfer agreements (adopted on 21 March 2014 here)).

This case is also indicative of a growing trend for patent pools in the life sciences sector. This model of licensing has traditionally been more widespread in the TMT sector. Perhaps a sign that the FRAND wars (on which we reported earlier this week) may in future spread beyond the world of telecommunications…

Vodafone v Intellectual Ventures – Is a new front about to open in the FRAND wars?

When Intellectual Ventures (IV), the world’s largest non-practising entity, sued Vodafone GmbH for infringement of a batch of its standard essential patents (SEPs) in Germany last September, it probably wasn’t expecting the communications services provider to launch a FRAND counterattack in Ireland.  But that’s exactly what has happened.

Last month, the Irish High Court gave an indication that Ireland was the appropriate jurisdiction for hearing Vodafone’s allegations that two companies in the IV group – IV International (based in Ireland) and IV LLC (based in Delaware, USA) – had breached their obligations to license their SEPs on FRAND terms.  As far as we’re aware, this is the first Irish case on issues relating to FRAND and SEP licensing.  As the Irish High Court noted in its judgment, the patent and competition law issues raised by Vodafone’s application made it “something of a first in the Irish courts”.

According to the judgment, IV first approached Vodafone to discuss the terms of a licence to various IV patent portfolios in 2012.  No agreement was reached, however; and IV LLC filed two sets of patent infringement proceedings against Vodafone GmbH in Germany in September 2015 and January 2016.  The patents in question relate to DSL technology, a type of broadband technology which connects a user to a high-speed internet connection across a telephone network.  DSL services operate in accordance with so-called ‘xDSL standards’, which are set by the International Telecommunications Union (commonly known as the ITU).  Like other standard-setting organisations, the ITU has developed policies relating to IP rights which require SEP holders to license their patents on FRAND terms.  Vodafone has alleged that IV abused its dominant position on the markets for the licensing of the relevant patents by making a licence offer to Vodafone on non-FRAND terms and failing adequately to explain how the patents in question are said to be infringed.  In making these allegations, Vodafone has expressly relied on the CJEU’s July 2015 judgment in Huawei v ZTE (which we commented on here and here).

At this early stage, two aspects of the case are interesting:

1. Vodafone’s attempt to sue IV for breach of its FRAND obligations in Ireland

Vodafone’s ‘Irish torpedo’ strategy is noteworthy.  We are not involved in the case and so can only speculate, but it is plausible that Vodafone’s aim in bringing FRAND proceedings in Ireland may be to seek to limit the prospect of IV obtaining swift injunctive relief in Germany (in the event that any of its patents are found to be infringed).  Whether this will work is unclear.  Immediately, it’s important to bear in mind that the Irish Court’s judgment is based on Vodafone’s ex parte application for permission to serve a defendant (IV LLC) out of the jurisdiction.  IV has not yet had the chance to make any points about jurisdiction or the nature of its dispute with Vodafone.  The Irish Court states that it has been “advised” that “none of the eleven sets of proceedings [which IV has commenced against Vodafone in Germany] involves or is related to issues of FRAND licensing”.  This leads the Irish Court to take the view that it may have jurisdiction because the issues before it do not involve the same subject matter or cause of action as the issues already before the German Court.  But if IV can show that FRAND / SEP licensing issues are in fact relevant to the German proceedings, this puts the Irish Court’s jurisdiction in issue.  It remains to be seen whether IV will bring a jurisdiction challenge.

2. The types of declaratory relief sought 

Vodafone has asked for a number of declarations (some in the alternative).  In particular, the Irish Court’s judgment makes clear that Vodafone wants the Court to determine that: (i) the terms of the written licence offer made by IV in March 2016 were not FRAND; and (ii) the terms of the licence counter-offer made by Vodafone in June 2016 were FRAND.  In addition, and perhaps more interestingly, if neither IV’s offer nor Vodafone’s counter-offer is deemed to be FRAND, Vodafone wants the Irish Court to determine the terms and conditions of a licence “of the relevant patents for use in Germany” which would be FRAND.  It is not entirely clear from the judgment whether Vodafone is asking the Irish Court to identify FRAND terms and conditions just for the individual patents on which IV has sued in Germany, or whether it would instead like the Court to deal with some kind of wider IV patent portfolio.  If it’s the latter, it would be interesting to see whether the Irish Court takes a similar approach to that taken by Mr Justice Birss in Vringo v ZTE ([2013] EWHC 1591 (Pat) and [2015 EWHC 214 (Pat)).  In that case, the English High Court judge held that the court should only be able to set the terms of a portfolio licence if both parties agree to be bound by such a determination.

The question of FRAND rates and “what is FRAND” has been of great interest in the TMT sector for some time (as we have discussed previously, for example here and here).  A couple of cases have grappled with it, but guidance remains sparse.  It will be very interesting to see whether the Irish Court is willing and able to grasp the thorny issue, and we will be watching closely the next move from IV in the litigation and whether it resists Vodafone’s FRAND manoeuvre.