Unwired Planet v Huawei: Court of Appeal upholds Birss J’s judgment

The keenly awaited appeal judgment in Unwired Planet v Huawei was handed down yesterday. In its unanimous judgment, the Court of Appeal dismissed Huawei’s appeal, confirming Mr Justice Birss’s first instance decision (see previous commentary here and here) on FRAND licensing of standard-essential patents (‘SEPs’). We summarise the key findings below. 

1. Global licensing may be FRAND

The Court of Appeal held that a global licence can in principle be FRAND, and that if such a licence is refused by an implementer, the SEP holder should be entitled to the usual relief available for patent infringement, including an injunction. Agreeing with Birss J that Unwired Planet’s portfolio is substantial in size and scope and that Huawei’s business is global in nature, the Court decided that a global licence is what reasonable companies would have agreed on the facts of this case.

The Court of Appeal disagreed with Birss J on one point.  In the Court’s analysis, Birss J’s finding that there is only one set of FRAND licence terms in any given scenario was at odds with the complexities of patent licensing – and concepts such as fairness and reasonableness did not sit easily with Birss J’s rigid approach. This did not affect the Court’s overall conclusion on the global licensing issue, however. 

Implications

The Court of Appeal’s strong endorsement of Birss J’s approach means that the UK is likely to remain an attractive forum for SEP holders seeking to resolve global licensing disputes.  Nevertheless, the judgment still leaves scope for new issues to be raised: the Unwired Planet saga turned very much on its own facts and on Birss J’s assessment of those facts. The judgment does not mean that every future court-determined SEP licence will necessarily be global: this will depend on the nature of the portfolio to be licensed and the implementer’s sales and manufacturing footprint.  The law in this area is likely to continue to develop as new issues are raised (for example, an appeal of a jurisdiction challenge is currently pending before the Court of Appeal in another FRAND licensing case) and as other jurisdictions continue to develop their FRAND jurisprudence. 

2. Unwired Planet’s offer was non-discriminatory

The Court of Appeal agreed with Birss J that the ‘ND’ limb of the FRAND obligation only requires a SEP holder to offer a rate which reflects the proper valuation of the portfolio to all potential licensees. However, a SEP holder is not prevented from charging less than that benchmark rate if it chooses to do so. Indeed, the Court acknowledged that price discrimination is inherently neither pro- nor anti-competitive, stating that “an effects-based approach to non-discrimination is appropriate”. In cases where discrimination below the FRAND benchmark rate does cause competitive harm, this can be addressed by the application of competition law.

The approach of the Court of Appeal is in line with European competition law, which only identifies anti-competitive discrimination where there is a risk of competitive harm.  Arguably, the ruling at first instance went further, and required actual harm to be proved (the Court of Appeal did not address this point). 

Implications

SEP holders are likely to welcome this flexibility, which may also be beneficial for implementers who are looking to take advantage of a bespoke deal.  But in the context of litigation, implementers may be concerned that the ND obligation now lacks teeth. Nevertheless, prior licences of a particular portfolio are likely to remain of critical importance in any comparator licence analysis under the “fair and reasonable” limb of FRAND (unless they can be sufficiently differentiated, such that they are deemed not to be comparable), so the Court of Appeal’s judgment doesn’t give SEP owners a free hand to license at differential rates.

3. The Huawei v ZTE negotiation framework is not a set of prescriptive rules

The Court of Appeal has taken a pragmatic view, holding that just one part of the Huawei v ZTE framework is mandatory: the obligation on the SEP owner to contact and notify the implementer before starting litigation. The remainder of the framework is said to provide a ‘safe harbour’ – the licensor may stray from it, but in doing so faces risks of infringing Article 102 and being unable to obtain an injunction.

Implications

Whilst the Court has endorsed Birss J’s relatively flexible approach to applying the Huawei v ZTE framework, parties should nonetheless think carefully before straying too far from the scheme established by the CJEU.  Non-compliant conduct may remain high-risk if litigation occurs in the courts of other EU member states.

What next for FRAND?

The High Court’s judgment has been upheld and so the ‘FRAND injunction’ issued by Birss J will now take effect, unless a further suspension is ordered while an appeal to the Supreme Court takes place.  Huawei has already indicated that it may seek permission to appeal.

It remains to be seen to what extent the courts of other countries, including emerging FRAND centres such as China, will sit back and allow the UK courts to play ringmaster on FRAND/SEP issues. Recent guidelines issued by the courts of Guangdong (an important tech centre in China) suggest that global FRAND disputes may also find a home in other jurisdictions.

In any event, FRAND in the UK will continue to be influenced by developments in other countries, whether that is the approach of the US courts (as seen in cases like TCL v Ericsson), or the policies of the European Commission (which published a Communication on SEPs in November 2017), or guidance issued by other authorities such as the Japanese Patent Office (which issued a guide to SEP licensing negotiations in June this year).


SEP holders’ guidelines on IoT / 5G FRAND licensing

The Commission’s SEP Communication was designed to offer guidance on FRAND and SEP licensing. However, as we have noted before, it did not take a position on certain controversial issues such as use-based licences, or whether the FRAND obligation requires licences to be offered to any company that asks for one.  These issues will become increasingly important as the Internet of Things (IoT) continues to develop and more companies at different levels of the supply and distribution chain enter the SEP licensing arena for the first time.  

Earlier this year we reported on the establishment of two CEN-CENELEC workshops, one primarily backed by SEP holders, one primarily backed by implementers, that both seek to produce guidance on industry best practice for SEP licensing. We noted that each workshop was likely to take a different view on these kinds of issues. 

The first workshop, backed by Nokia and IP Europe, has now produced a first draft of its Guidance for licensing SEPs in 5G and the IoT. The draft is available for public review and comments until 13 December 2018. It sets out six principles that should apply in SEP licensing: 

  1. Owners of patent rights which are essential for using standardised technologies (SEPs) should allow access to that patented technology for implementing and using the standard. 
  2. Both the SEP owner and the potential licensee should act in good faith with respect to each other with the aim of concluding a FRAND licence agreement in a timely and efficient manner.
  3. Each party should provide to the other party, consistent with the protection of confidentiality, information that is reasonably necessary to enable the timely conclusion of a FRAND licence.
  4. “Fair and reasonable” compensation should be based upon the value of the patented standardised technology to its users.
  5. A SEP owner should not discriminate between similarly situated competitors.
  6. If the parties are unable to conclude a FRAND licence agreement within a reasonable timeframe they should seek to agree to third party determination of a FRAND licence either by a court or through binding arbitration. 

Taken at face value, these principles may sound uncontroversial.  However, implementers may feel that the devil is in the detail.  One point which is likely to provoke dissent is the question of who is entitled to benefit from SEP licences.  The document observes that there is usually one point or level in the supply chain where a SEP owner will choose to license its technology for a given product or service.  It is suggested that some consensus around this will simplify licensing, reduce costs for all parties and help maintain a level playing field between licensees. In other words, it indicates that ‘licensing to all’ is not required. 

The basis on which royalties are to be calculated is also likely to prove controversial.  In suggesting that compensation “should be based upon the value of the patented standardised technology to its users”, the document does not make clear whether this should include value attributable to the technology’s inclusion in a standard (the EC Communication and previous guidance in the Horizontal Guidelines suggests that such value should in principle not be included).  Other indicators which the Guidelines suggest may be considered include consumer demand, measurable benefits of the patented standardised technology, and the price difference between substantially identical products with and without the standardised technology.  This text suggests that there is indeed an intention to move away from the ‘incremental value’ rule, an issue which has recently been raised as part of the wider, significant debate about the role of antitrust in FRAND in the United States. (See for example, this letter by 77 former government enforcement officials and professors of law, economics, and business to Assistant Attorney General Delrahim, in which they criticise a number of speeches the AAG has made. They suggest that patent hold-up is a serious antitrust concern partly because “implementers are vulnerable to paying supra-competitive royalties based on the entire value of the product, not on the value of the patented technology”; the AAG’s response, supported by a number of other experts, is here.)

The second workshop is yet to publish the first draft of its alternative proposal. However, based on previous positions adopted by the Fair Standards Association (FSA) and ACT | The App Association, it seems likely that it will:

  • Stipulate that a patent owner cannot seek to increase the value of its patents by focusing on value created by downstream innovators and devices.
  • Call for an obligation on SEP holders to license only relevant patents – which may not necessarily be an SEP holder’s entire SEP portfolio.
  • Require licensing to any and all that seek a license.

In short, it is likely to take the opposing view to the first workshop on the key unresolved issues in the interpretation of FRAND.  

If the final products of each workshop are completely opposed to one another, they will not be particularly helpful as guidance to new potential licensees. It may require judicial or regulator intervention to resolve these issues before the full rollout of the IoT and 5G.  It remains to be seen where the first real determination of these kinds of questions will take place. One possibility is the FTC v Qualcomm case in California (discussed here), where the FTC is seeking a declaration that Qualcomm must be prepared to license competing chipset manufacturers. That could provide a persuasive authority on whether FRAND requires licences to be offered to all, although other jurisdictions may of course take a different view.

Global FRAND issues unpicked in Japan Patent Office’s new licensing guidance

We have previously reported on FRAND guidance from other jurisdictions outside of Europe, such as those published in South Korea a couple of years ago (see here), as well as on EU initiatives, such as last year’s Commission Communication (see our comments here).

Earlier this year, the Japan Patent Office (“JPO”) published a “Guide to Licensing Negotiations Involving Standard Essential Patents”, which aims to shed light on key topics concerning FRAND licensing. It provides a useful summary of licensing negotiations and royalty calculations for standard essential patents (“SEPs”), including taking into account the possible implications of the rise of the Internet of Things on future FRAND-based negotiations.

The Guide focusses on the “two aspects of FRAND”: the negotiation process itself, and the terms of the resulting licence agreement. 

For the first aspect, it gives advice on how to negotiate in good faith, from the perspectives of both the patent holders and the implementers of patented technology. It also sets out actions that it suggests are likely to increase the efficiency of FRAND licensing negotiations, including around timing and issues such as the level of the supply chain at which negotiations should take place. Generally, the Guidelines limit themselves to outlining the issues, and are far from prescriptive.  However, the footnotes provide useful examples of cases from around the world that demonstrate how courts have dealt with particular aspects of these negotiations, including Unwired Planet v Huawei ([2017] EWHC 711 (Pat)) and Huawei v ZTE (Case C-170/13 [2015] CJEU), which we have reported on previously (see, for example, here and here).  Indeed, the licensing negotiation methods proposed are closely aligned to the perspective of the Court of Justice.

For the second aspect of FRAND, namely the terms of the licence, the Guide focusses predominantly on different ways of calculating a FRAND royalty, including the “top-down” and “bottom-up” approaches for calculating the royalty rate. It also sets out the advantages and disadvantages of using the smallest saleable patent practising unit compared to the entire market value as the royalty base, a subject that has sparked debate in recent years with the emergence of new technology such as smart phones and connected vehicles. 

Of particular note is the fact that the JPO’s Trial and Appeal Department now provides non-binding advisory opinions in relation to the technical scope of a patented invention. Also, since April 2018 the JPO has been offering opinions to parties in disagreement over the essentiality of a patent. This appears to be in line with an increased emphasis in Japan on arbitration and alternative dispute resolution: in June 2018, it was announced that Asia’s first international arbitration centre specialising in patent disputes would be opening in Tokyo later in the year (see here). 

From the European perspective, the global reach of the Japanese guide is of note: drawing on case law from around the world, it suggests that different national approaches to FRAND can be unified.  For the authors, it is too soon to assume that there is a consistent global approach of FRAND.  Recent announcements from US policy-makers, for example, suggest that the approach to the balance to be struck between licensor and licensee may be changing in a way which differs from that seen in Europe (compare and contrast, for example, Assistant AG Delrahim’s rejection of the role of antitrust in FRAND violations which appears likely to favour licensors, evident desire for balance between licensor and licensee interests in most of the European Commission’s recent statements.

Nevertheless, for those with an interest in FRAND issues, the JPO Guide is well worth reading for an overview of the key considerations for parties engaged in SEP licensing negotiations. The JPO has stated that it aims to keep the Guide updated regularly, with contributions from experts from around the world.  

Request to re-open Glaxo ‘dual pricing’ case rejected by General Court: The end of the road for challenges to dual pricing?

Entering into agreements that erect barriers to parallel exports between EU markets is generally a high-risk endeavour, which is likely to attract the attention of the competition authorities.  Nevertheless, in the pharmaceutical industry the financial stakes can be high – medicines are often sold at very different prices in different Member States, due to the different applicable health policies.  

Relatively low mandated prices in Spain have led a number of companies to devise sales structures which reduced the flow of parallel exports out of the country – in particular, through the use of so-called dual pricing schemes.  Under such schemes, prices charged to wholesalers differ depending on whether the medicines were resold in Spain or exported to other Member States; in some cases this is achieved by selling all products at the export price, and granting rebates to wholesalers where the products do not in fact leave the country.  While not explicitly prohibiting parallel trade, such practices are likely to reduce the financial incentive for wholesalers to export.

GSK introduced such a scheme in 1998, and applied to the European Commission for an individual exemption (under a procedure which has since been repealed).  This application, and a subsequent complaint by the industry body for parallel traders (the EAEPC), has led to what must be one of the longest-running competition cases.  Initially found by the Commission to be restrictive of competition by object, GSK succeeded before the European Courts in showing that the Commission had given insufficient consideration to whether the practice warranted an exemption.  The case was therefore remitted to the Commission for further consideration.  In January 2010, GSK formally withdrew its original application for an individual exemption.  However, that was not the end of the matter, as the EAEPC’s complaint remained live. By this time, however, GSK had changed its practices, so the Commission rejected the complaint and closed its file.  EAEPC persisted, and lodged an appeal.

The General Court Judgment

It is this appeal that has given rise to the most recent development. On 26 September 2018, the General Court (GC) approved the Commission’s stance, effectively putting an end to this case (appeals to the Court of Justice are rare in rejection cases). 
 
The GC judgment demonstrates that while there was still some sympathy for EAEPC’s appeal, the Court was unable to identify any continued Union interest. The Court agreed with the applicant that the previous judgments have generated legal interest in relation to the “analysis of … dual-pricing systems in the light of Article 101 TFEU”.  However, that was not sufficient reason to require the Commission to continue examining the applicant’s complaint. 

The Court held that a “specific and genuine interest” is required to justify use of the Commission resources. Likewise, EAEPC’s contention that GSK’s practices and the Commission’s “inaction” in the late 1990s led to the adoption of dual pricing by other manufacturers such as Pfizer, Janssen-Cilag and Lilly was not accepted as good reason for requiring the Commission to act now. 

The future of dual pricing schemes? 

The relevance of the GC decision for other dual pricing schemes should not be overstated: the rejection of EAEPC’s complaint turns on its particular facts.  Indeed, the fate of another Commission investigation into Spanish dual pricing practices more generally (referred to in the Commission rejection decision and the GC judgment) is unclear (the Commission website shows no record for the case number cited by the GC).  

However, developments have also continued in Spain.  Within the past six months, the Spanish Supreme Court has rejected an appeal by the EAEPC against a lower court rejection of a complaint against Janssen-Cilag’s drug supply scheme, finding that the scheme did not breach competition law.  More recently, the Spanish competition authority closed an investigation into alleged collusion between pharmaceutical manufacturers in relation to the introduction of such schemes in the mid-2000s.  The authority found that the companies’ schemes were the result of changes in pharmaceutical legislation, not of anti-competitive agreements.

Despite the successes for the originator companies, it remains the case that agreements which seek to limit parallel trade within the EU are high risk of being found to restrict competition by object and, as the Glaxo Greece case has shown (see our recent report, here), unilateral conduct may also be caught.  

Of course, from a UK perspective, a no-deal Brexit may make prohibiting parallel exports possible again, but it is unlikely to be possible under any likely successor to the Chequers proposal.  In any event, agreements affecting exports within the European Union will continue to be caught.

CLIP of the month: Strengthening Buyer Power as a Solution to Platform Market Power?

Each month we publish a ‘CLIP of the month’, a publication that we have found to be controversial or thought provoking (if you haven’t noticed this feature before, see above, look to the right of your screen, just below the header!).

This month’s CLIP (available here) comes from two of the CMA’s economists, writing on the dynamics of platform-to-business relationships, and the options for market solutions in the face of calls for greater regulation.  According to the authors, the key is finding a market-based counter-balance to the power held by platforms. The authors theorise that this could come from the collective bargaining power of the platform’s users. 

It is welcome to see individuals from within the competition authorities considering the alternatives to regulation, which could prove difficult in such a fast moving area.  It is also notable that the UK may seek to move in a different direction from many of the EU member states which appear to favour greater regulation.  However, such market-based alternatives may themselves face competition law challenges, given the risks that exist around collective bargaining and exchange of information between competitors.  At least some of these risks are recognised by the authors (and it is worth reading an economist’s perspective on this from David Parker of Frontier Economics, here).   However, without some kind of safe harbour for such discussion across all relevant territories, the competition law risks are likely to remain a significant disincentive to such collective action.  There may also be a problem of timing.  In the case of existing businesses, the incentive and ability to challenge platform market power may be at their highest before true platform market power emerges.  

The role and (potentially) regulation of platforms is likely to remain a key area of debate in competition policy for the foreseeable future.

Amazon Marketplace seems to be the Commission’s next big data antitrust target

Following up on our recent post about the big data concerns assessed by the Commission in the Apple/Shazam merger (here), the news that the Commission has opened a preliminary investigation into Amazon’s use of third-party merchant data on its Marketplace platform is another sign of the Commission’s continued focus on data in all its guises.

The investigation is reportedly based upon complaints received by the Commission, as well as behaviour observed during the e-commerce sector inquiry (see Commissioner Vestager’s announcement here). Although the investigation is still in a preliminary, information-gathering stage, the Commission is examining platforms like Amazon Marketplace where the platform both hosts smaller merchants and acts as a merchant itself. The Commission is considering whether competition concerns arise if the platform is able to collect sensitive data about products sold through a marketplace and then to make use of that data to boost its own sales. As part of the probe, the Commission has issued Requests for Information to online retailers that use Amazon Marketplace (see here).    

Viewed in a broader context, the reason why the UK has set up an independent panel to examine digital competition (which met for the first time recently – here) is to try and get ahead of these sorts of issues that arise as the e-commerce sector continues to grow. The terms of reference for the panel include questions such as ‘what effect can the accumulation and concentration of data within a small number of big firms be expected to have on competition?’.

Whilst it can be appreciated that marketplace platforms offer great exposure for small businesses that might otherwise struggle to gain access to buyers, they typically pay either a listing fee, commission, or monthly fee to the platforms for that privilege. In addition to receiving this compensation, the platform is in the advantageous position of being able to examine the sales of thousands of small businesses to determine which kinds of products sell well, and which don’t. It seems plausible that by using this data, the platform could increase its share of sales for the most profitable or most popular products by developing its own brand business. And if the sales of small business are at risk of being cannibalised by a platform in this manner, then it is clear that competition concerns may arise as small sellers struggle to compete with the platform’s own brand.

Although the use of data by a platform in this manner is a relatively novel concern, it echoes concerns raised by suppliers of brands in the consumer goods sector.  Most supermarkets these days have their own private label ranges, making them competitors to, as well as the retailers for, branded goods. They are similarly in the relatively privileged position of being able to make use of sales data of competitors to support their own offering.  It will be interesting to see whether this so-called ‘gatekeeper’ issue will be something the CMA considers as part of its investigation of the Sainsbury’s/Asda merger, which was referred to a phase II investigation on 19 September 2018 (here).

The cartelization of innovation – a new emissions scandal?

Consider the following hypothetical scenarios:

A group of suppliers of medical device equipment meet to draw up minimum clinical standards for intravenous devices.  

Competing media platforms meet under the auspices of an industry group to compare privacy policies and decide on best practice in tackling online copyright infringements.  

And a group of car manufacturers discuss clean emissions technologies and car safety features and – perhaps – decide on a common approach.  

These scenarios have in common that they may involve competing companies, and that they focus on conditions of competition other than price. 

Two of them are (to the best of the author’s knowledge) fictional examples.  (The author has, however, previously considered the potential impact of treating privacy as a parameter of competition.)  

The third scenario resembles – at least superficially, based on recent announcements – an ongoing cartel investigation by the European Commission.  It may be that the evidence gathered by the European Commission overwhelmingly suggests that the likes of BMW, VW and Daimler deliberately and jointly elected to use less effective emissions technologies than were potentially available, and might have been adopted by some of the companies if they had been acting separately (the Commission is focussing in particular on selective catalytic reduction systems and on a specific form of particulate filter used in petrol cars).  But it may be the case that the discussion was more subtle.  Perhaps the companies’ discussion led to the adoption of technologies which resulted in improved emissions cuts for some of the members compared to those which could have been achieved by some of the individual manufacturers, but did not match the most advanced emissions technologies which others were considering.  And perhaps overall emissions were reduced, compared to a counterfactual in which each company acted alone.  

Of course, it may not be the case that every pricing cartel results in all participants pricing above the levels they would have done in a truly competitive market.  It may even be that some result in lower prices for some participants – the key point under competition law is the coordination, and the resulting harm to consumers who cannot shop around.  But is it appropriate to treat non-price parameters of competition in the same way?  Innovation can often be fostered by competitors working together, with appropriate safeguards – see the success of mobile telecommunications developments, under the auspices of standards bodies such as ETSI (although as frequent posts on this blog make clear, that coordination gives rise indirectly to many areas of dispute).  Indeed, it is clear from the Commission’s press release that the investigation does not currently address all of the issues on which the car manufacturers worked together. Listed in the Commission’s press release are a number of other safety and quality issues, such as specifications for car parts and testing procedures, maximum speeds at which convertible car roofs will open or at which cruise control will work.  The press release specifically states: “EU antitrust rules leave room for technical cooperation aimed at improving product quality”, which is firmly in line with the Commission’s Guidelines on Horizontal Cooperation.  Nevertheless, it is already evident from recent abuse of dominance cases that innovation may not be immune from antitrust scrutiny (cases currently progressing through the EU Courts in which this question arises include Qualcomm and Google Shopping; see also our earlier commentary on ‘predatory innovation’).  The role of innovation in competitive processes now looks set to make a significant appearance in an Article 101 case.

The boundaries of object restrictions have been significantly tested in both the European courts (for example, in Cartes Bancaires) and in the UK (for example, last week’s Ping judgment) in recent years (see our commentary on these cases here, and here).  The emissions case, if it proceeds, is likely to test those boundaries once again.  It is also foreseeable that the case may provide a testing ground for the viability of efficiency defences under Article 101(3) – and, given the rarity of such defences, may afford a valuable insight as to the approach of the Commission and European Courts to such defences, in particular where non-price competition is concerned.

Summer FRAND developments: some big antitrust news to come

Back in May this year, the Court of Appeal sat for five days to hear Huawei’s appeal of Birss J’s judgment in Unwired Planet.  The bench included two of the Court’s most experienced patents judges in Lord Justices Kitchin and Floyd (and Kitchin LJ has now been appointed to the Supreme Court, see here). Although rumours circulated that the Court of Appeal’s judgment might be forthcoming before the summer vacation, nothing materialised, and the expectation now is that the judgment will be published at the start of the Michaelmas term, which begins on 1 October. (A reminder of the issues being appealed can be found here.)

That judgment will be hugely significant for the conduct of FRAND negotiations, licensing and litigation both in the UK and elsewhere. This is not least because there are now several FRAND cases before the High Court, including Apple v Qualcomm, Conversant v ZTE & Huawei, Philips v ASUS & HTC and TQ Delta v Zyxel (the latter on ASDL, rather than ETSI telecoms standards). All of these are likely to be affected by the Court of Appeal’s decision.

However, the upcoming judgment isn’t the only relevant FRAND news. FRAND is a global concern, and recently there have been other FRAND developments around the world that are worth noting.

Delay to German Supreme Court ruling in Sisvel v Haier 

Back in 2015, the Düsseldorf Regional Court granted Sisvel an injunction against Haier for infringement of two its SEPs. However, on appeal, the OLG Düsseldorf held that Sisvel had failed to offer Haier FRAND terms as per Huawei v ZTE because Sisvel’s offer was discriminatory (there was a significant difference between Sisvel’s treatment of Haier and its competitors). Sisvel appealed to Germany’s Supreme Court, the Bundesgerichtshof.

In parallel, Haier had brought proceedings challenging the validity of the two Sisvel SEPs. One has now expired, and the other was declared invalid at first instance. Sisvel has appealed this decision.

The Supreme Court has now suspended its decision on the FRAND side of the case until the patent proceedings are completed, to avoid the risk of conflicting judgments (the decision is here, in German).  

It seems likely that if the invalidity decision is upheld, the Supreme Court will decline to make a final determination on the FRAND issues. Given the limited case law available on the discrimination aspect of FRAND (see here for some discussion of this), as well as the lack of consensus on the approach to FRAND in the German regional courts, this will mean that uncertainty continues at least as regards the German position for the foreseeable future.

Haier fails to convince US Court to take up digital TV case

Meanwhile, over in the USA, Haier had sought to turn the tables on other holders of declared SEPs, having brought a case in the Northern District of New York alleging a conspiracy by the holders of SEPs reading onto the ATSC standard.  Haier claimed that a patent pool established by companies including LG and Panasonic and administered by MPEG LA was artificially inflating prices above a FRAND level, and that licensors were refusing to license individually.

The Court rejected the claim on limitation grounds earlier this month (September 2018) and did not engage with the substance of the allegations (see here). 

FTC moves for summary judgment on Qualcomm’s obligation to license competitors 

In the Northern District of California, the FTC is engaged in proceedings against Qualcomm, alleging that Qualcomm has excluded competitors and harmed competition by withholding its baseband processors unless a customer accepts a licence on terms favourable to Qualcomm (including disproportionately high royalties). The trial is scheduled for early January 2019.

However, at the end of August, the FTC filed a motion for partial summary judgment regarding a key aspect of the case. It has asked for a declaration that under its FRAND obligations, Qualcomm must license its SEPs to its chipset competitors such as Intel.

Whether FRAND requires SEP holders to grant a licence to any company that asks for one (known as licensing to all) is a hotly debated topic.  The answer is potentially of wide significance, because it could fundamentally affect the licensing model that has applied in the sector for the past 20 years. For example, if all chipset manufacturers were licensed (potentially at royalties based on the chipset price rather than on the price of a smartphone) the manufacturers of smartphones may not require licences at all (depending on laws relating to pass-through and exhaustion) which would have a major impact on how SEP licensing currently operates.  Alternatively, the price of chipsets themselves might need to rise significantly to account for the increased IPR costs.  Or manufacturers may start to seek to tailor licences to different uses, splitting value along different parts of the supply and distribution chain. 

Examples of any judicial authority considering this topic are rare. The Commission dodged the issue in preparing its 2017 Communication on SEP Licensing (see here), although the Korea Fair Trade Commission has found Qualcomm’s refusal to license its SEPs to competing chipset manufacturers abusive (the decision is here, but note that Qualcomm is appealing). Although the California Court’s judgment will relate to the ATIS and TIA standards interpreted on the basis of US law (rather than ETSI FRAND interpreted on the basis of French law), it is still likely to be influential in Europe.

BEIS notice on competition law in the event of a ‘no deal’ Brexit

With Brexit fast approaching, the government has issued further technical notices that set out its plans in the event of ‘no deal’ with the EU27 (our post-referendum view on possible negotiated alternatives are here, although at present the only alternative to no deal remains the so-called Chequers plan).  Issues covered in the notices include the potential loss surcharge-free mobile roaming, the UK’s withdrawal from innovative space programmes, and additional certification requirements for manufacturers.  

However, of most interest to us was the BEIS guidance on ‘Merger review and anti-competitive activity if there’s no Brexit deal’.  It’s short, and perhaps does not say much that is new or surprising, but to summarise the key points:

  • The domestic UK competition regime will remain in place, unchanged bar the removal of references to EU law and institutions, and duties under EU obligations. 

  • The EU block exemptions which are applied as parallel exemptions under UK law will be preserved; so companies that benefit from any applicable exemption will continue to do so, and any new agreements meeting the relevant criteria will also benefit. 

  • The European Commission will not begin investigations into the UK aspects of mergers or cases involving potentially anti-competitive conduct. 

  • There may be no agreement on jurisdiction over live EU merger and antitrust cases which address effects on UK markets (this could include the Commission’s investigation into Aspen’s pricing, Guess’ distribution systems, and geo-blocking by Steam and video games companies).

  • The CMA and UK will no longer be bound to follow future CJEU case law. 

  • A decision made by the European Commission could no longer be relied upon as a binding finding of an infringement in follow-on claims.  

  • A number of the rules governing jurisdiction for damages claims would be repealed (these are covered in a separate notice), and the UK would revert to the existing common law and statutory rules that apply in non-EU cross border disputes.  The UK would however retain the Rome I and Rome II rules on applicable law. 

The confirmation that block exemptions will be preserved does provide some reassurance for UK companies, but there still remains a lot of disconcerting uncertainty – particularly for any company currently engaged in merger talks and at risk of being engaged in a ‘live’ review come 29 March 2019.  However, the government is clearly focusing on solutions to the issues raised earlier this year, and is communicating developments to try and provide certainty for UK businesses; we hope this progress continues with as much transparency as possible.  

As regards the potential for lack of jurisdiction over ongoing merger and antitrust cases, the advice to ‘take independent legal advice’ will be of little comfort to business in view of the significant ongoing uncertainties.  Whilst a pragmatic solution can readily be identified for antitrust cases which address past conduct (and where, as a result, jurisdiction should follow the legal regime in place at the relevant time), the position is less obvious as regards forward-looking merger analysis.  Given the flexibility of the UK’s voluntary merger notification regime, it is to be hoped that further guidance will be forthcoming from the CMA over the next few months should a no-deal exit become inevitable.

The Ping judgment – CAT confirms that internet sales ban is restrictive of competition ‘by object’

In a judgment handed down on 7 September, the UK’s Competition Appeal Tribunal (CAT) upheld the CMA’s decision of August 20171 that golf equipment manufacturer Ping’s online sales ban was a restriction of competition ‘by object’ and did not qualify for any exemption.  Although the CAT held that Ping’s aim2 in implementing the policy was a legitimate one, the ban was, by its very nature, liable to harm competition between Ping’s retailers. Whilst the CAT did find that the CMA had erred in law by seeking to carry out a proportionality analysis3 (which was not relevant to the question of whether the policy was caught by the prohibition in Article 101(1)), the CAT held that this had no impact on the overall conclusion.  In a small victory for Ping, the CAT found some minor errors in the CMA’s calculation of the fine, resulting in a small reduction in the penalty. 

The CAT’s response to Ping’s grounds of appeal

By object infringement

Ping’s submission was that the presence or absence of a “plausibly pro-competitive rationale” is the key to identifying an infringement by object. However the CAT stated that this submission did not reflect the law as set out in Cartes Bancaires. The CAT was “of the clear view” that regardless of Ping’s subjective aim in introducing the internet sales ban as a means of promoting custom fitting, the ban may be characterised as an object infringement if it reveals a sufficient degree of harm to competition.4  In the CAT’s analysis, the existence of a pro-competitive objective does not per se preclude a finding of infringement by object. This accords with the Court of Justice’s holding in Pierre Fabre that, by excluding a method of distance selling, the internet ban was liable to restrict competition even if that was not its purpose. 

In the current case the Tribunal found that “the potential impact of the ban on consumers and retailers [was] real and material”. In its view, the ban restricts intra-brand competition; prevents retailers from attracting consumers located outside their catchment areas by offering better prices/service; and removes the advantages of online sales (in particular, access from any location 24 hours a day) to the detriment of consumers. The CAT accepted Ping’s submission that objective justification and proportionality are not in themselves relevant to an assessment of whether an agreement is an infringement by object. 

The human rights ground

According to Ping, its appeal concerned the freedom of a company to pursue a business which involves the sale of a product whose properties are fundamentally inconsistent with internet selling. Ping maintained that it built its brand image as a manufacturer which sells only customised clubs and submitted that the CMA’s decision contravened its human rights under Article 16 by requiring it to sell a product it did not sell and did not wish to sell (i.e. non-fitted clubs). The CAT dismissed this argument, finding that since Ping’s internet policy constitutes an object restriction under Article 101(1), any restriction on the exercise of its rights under Articles 16 and 17 as a result was “proportionate to the legitimate aim of avoiding the distortion of competition within the EU.”  The CAT also accepted the CMA’s submission that the decision does not force Ping to sell a product that it does not already sell –Ping could maintain its policy of promoting custom fitting with or without the ban. 

In relation to the alternative measures proposed by the CMA, Ping’s fundamental objection was that they were likely to lead to customers making uninformed decisions as to which clubs to buy, thereby harming their game and ultimately damaging Ping’s brand. The Tribunal said this was “not compelling”: there is technology that enables an accurate assessment of custom fitting online and other premium golf club brands sell their custom fit golf clubs online.  This suggested that “guessing [custom fit measurements] amongst customers of those brands is not a significant problem”.

The penalty

The CAT considered that the £1.45 million fine imposed by the CMA was “slightly too high” and a further small reduction was therefore appropriate. It found that a fair and proportionate fine, taking into account that it was not an ‘aggravated’ infringement, should be £1.25 million.

The CAT concluded that the CMA erred in treating director involvement as an aggravating factor on the specific facts of the case. If the fact of director-level knowledge alone were treated as an aggravating factor then this infringement could never have been considered as anything other than aggravated. However, Ping restricted competition law through its negligence rather than with intention and so applying an uplift in this case would be “meaningless” and should be “reserved for more reprehensible behaviour”. 

Comment

As we noted in our comment on the CMA’s decision (here), the infringement decision itself was not surprising – outright sales bans have long been considered problematic.  The fact that the CAT has upheld the CMA’s decision is therefore, in itself, equally unsurprising.  Of more interest was the CAT’s consideration of the CMA’s use of an ‘Alternatives Paper’ – this was part of the CMA’s by object case, showing that there were alternative, less restrictive means of satisfying Ping’s legitimate policy aim.  Whilst finding that the CMA had erred in law in its approach, the CAT nevertheless concluded that this was not sufficient to overturn the CMA’s decision.  Rather, the CAT sought to square a particularly tricky circle on the facts of this case – it had sympathy with both the ‘legitimate aim’ behind Ping’s policy and the CMA’s conclusion that an outright internet sales ban is a by object infringement that was “clearly … not objectively justified”.  It seems that the fact that other brands made their custom-fit clubs available online and that Ping itself allowed sales over the internet in the US were decisive here.  

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1 We commented on the CMA’s decision here

2 Ping contends that the internet ban prevents consumers from making uninformed decisions about their custom fitting specification and so guards against blame being levelled at Ping causing damage to its brand.

3 The CMA previously determined that the internet ban should be prohibited on the basis that the company could have achieved its legitimate aim through less restrictive means. 

4 The Tribunal accepted the CMA’s analysis that if the internet sales ban is so inherently damaging to competition as to amount to an object infringement, it is not necessary to conduct an assessment of the actual effects.