Premier League scores in latest dispute with pub broadcasting football matches

The ever-increasing amount of money tied up in TV deals for Premier League football perhaps makes it unsurprising that The Football Association Premier League (“FAPL”) has been willing to litigate on a number of occasions against publicans using foreign satellite services to show football matches in pubs.

Following the CJEU’s decision in the joined cases FAPL v QC Leisure and Murphy (C-403/08 and C-429/08) and the subsequent High Court decision in FAPL v QC Leisure (here) the law in this area is relatively settled. Although FAPL can grant rights on a territorial basis, exclusive licences preventing the supply of foreign satellite decoder cards into other Member States are unlawful. Despite this, the FAPL on-screen graphics and logos incorporated into the live feeds of football matches are copyright protected works. FAPL is therefore able to bring actions for copyright infringement for any unauthorised uses of these. The success of such actions will depend on the terms of the agreement that a decoder card is supplied under.

As an aside, it may be possible for pubs to avoid infringement claims by only switching the screens on at kick-off, and attempting to cover up any FAPL logos and graphics. This would be challenging in practice however, given the frequency in which graphics pop up throughout the matches (for example when a player is booked or a replay is shown).

FAPL v Luxton

The Court of Appeal has recently added to the relevant pool of judicial opinion by rejecting an appeal by Mr Luxton, the proprietor of a pub in Swansea, against the summary judgment granted in favour of FAPL by the High Court in January 2014. Mr Luxton had used a domestic satellite decoder card originally sold by a Danish broadcaster to show Swansea City matches following Swansea’s promotion to the Premier League.  Mrs Justice Rose held that by using a domestic satellite decoder card rather than a commercial one, Mr Luxton was using FAPL’s copyright works without its consent. 

Mr Luxton raised two EU law defences which have now been considered by the Court of Appeal (see here).

The two defences raised

  1. That the proceedings brought by FAPL were an illicit attempt to prevent Mr Luxton from using a foreign decoder card, isolating the UK market from the continental market in breach of Articles 101 and/or 56 TFEU.
  2. The (alleged) illegal arrangements between FAPL and its exclusive licensees in Europe had prevented Mr Luxton from obtaining a commercial foreign card; FAPL should therefore be prevented from exercising its copyright in respect of the domestic foreign card.
The Court of Appeal’s decision

Floyd LJ gave the leading judgment, disposing of both defences relatively quickly. On the first, he noted that in bringing the action, FAPL was relying on the right of a copyright owner to prevent the unauthorised communication to the public of copyrighted works. This right could also be enforced against a person in the UK who used a domestic card issued by FAPL’s UK licensee (Sky) for commercial purposes. The fact that Mr Luxton was using a foreign domestic card did not make any difference; FAPL’s right was not one that depended on the use of the card in a particular territory. Enforcement of the right could not therefore be capable of reinforcing allegedly unlawful agreements to partition the market.  

Regarding the second defence, the judge did not consider Mr Luxton’s use of the domestic card to be a consequence of FAPL’s agreements and practices. Even if the effect of those practices was to starve the market of foreign commercial cards - that did not make the use of foreign domestic cards a natural consequence of FAPL’s actions. Though Mr Luxton thought he had purchased a commercial card rather than a domestic one, this could not change the outcome, as if his argument was correct a publican who deliberately sought out a foreign domestic card would be in the same position.
 
Comments on ‘Euro-defences’

The decision provided some interesting commentary on the overlap between IP and EU/competition law, noting that it “has long been recognised that in some circumstances an intellectual property right may become unenforceable because what lies behind it is an attempt to divide up the market in the EU contrary to the provisions on free movement”. A breach of the Treaty isn’t enough – there must be a sufficient connection between the exercise of the right and the unlawful agreement in question.

Floyd LJ cited Lord Sumption’s warning in Oracle that this sort of ‘Euro-defence’ “must be scrutinised with some care” due to the risk of litigation devaluing intellectual property rights by increasing the cost and delay associated with their enforcement. In that case of course, the Euro-defence was rejected on the grounds that the unlawful conduct relied on was collateral to the particular rights which the claimant was seeking to enforce.

Scope for Commission activity?

A further point of note is that the evidence adduced in this case showed the difficulty of actually obtaining a foreign commercial card.  FAPL accepted that there is an arguable case that foreign broadcasters are still behaving as if they are bound not to provide commercial cards outside their national territories, and that if Mr Luxton had used a commercial card, he would have had an arguable defence that it authorised him to communicate the copyright works to the public in the UK. (Whether this defence would succeed may be the subject of further litigation in the future). 

Cross-border access to digital services is a central part of the Commission’s Digital Single Market Strategy and this is evidently an area in which the Commission is willing to take action – see our thoughts on the Commission’s investigation into Paramount’s pay-TV licensing practices here. This is certainly a space worth keeping an eye on in the future, as if it continues to prove difficult to obtain foreign commercial cards, thereby defeating attempts to deliver digital services across borders, there may be grounds for action by the Commission.

Breaking news – General Court confirms Lundbeck decision and fine

The General Court of the EU has upheld the European Commission decision fining Lundbeck and a number of generic companies in relation to patent settlement agreements.  At the time of writing, the full text of the decisions has not been published.

What we do know

  • The Commission’s Lundbeck decision found a restriction of competition by object only.  The recent trend towards a more restrictive interpretation of the ‘object’ category (which we discussed in the context of patent settlements here) has not prevented this novel finding being upheld by the General Court.
  • Would-be generic entrants are therefore held to be potential competitors of the patentee (Lundbeck), despite the existence of patent protection held by Lundbeck.  The fact that they had possibilities for entering the market, including through an at-risk launch, is regarded as a form of potential competition.  (Having been brought up to respect the blocking power of patents, this is something I expect to find troubling for some time to come…)
  • The fine has been upheld in full – no credit has been given for the novelty of the decision.
It is still unclear how closely the General Court has followed the Commission’s reasoning – to judge by the press release, it appears likely that the legal analysis is closely aligned.  (See our discussion of the decision itself here.)  Other than for the parties themselves, the judgment will be of immediate interest for the parties to the Paroxetine litigation in the UK: as reported here, an appeal of the CMA’s decision in that matter is due to take place before the Competition Appeal Tribunal early next year.  This decision is likely to be welcome news to the CMA… Meanwhile, companies entering into agreements settling patent litigation will need to continue to pay very careful heed to the competition rules when deciding on the terms of market access for generic products.

The General Court’s press release is available here.

Sophie Lawrance

This summer’s (not so) light reading – the CMA’s published Paroxetine decision (GSK/generics)

Some 6 months after issuing its infringement decision against GSK and a number of generic companies, the CMA has released a non-confidential version.  This comes in at a weighty 717 pages.  

Other than the grounds of appeal (on which we reported in the final paragraphs of this post), this is the first chance for companies and their advisors who weren’t involved in the proceedings to see the approach the CMA has taken, and to compare it with the current Commission approach.  First impressions are that the CMA has closely aligned itself with the Commission’s patent settlement decisions, such as Lundbeck**. The CMA and the parties will therefore be particularly keen to see the General Court’s forthcoming judgment in that case – indeed, the case management directions set down by the Competition Appeal Tribunal in the appeal proceedings against the CMA’s decision require the parties to prepare submissions on the relevance of the GC’s judgment to the case.

For those who aren’t keen on such weighty holiday reading, but can’t stand the suspense, below are a few pointers to the parts of the CMA’s legal reasoning which may be worth dipping into:

  • Paragraphs 1.3  1.20: A high level summary of the decision for those who only have an appetite for some light reading.
  • Paragraphs 3.65 – 3.84: The CMA’s view of patents, expanded upon at paragraphs 6.19-6.22.  The Windsurfing case law on the ‘public interest’ in removing ‘invalid patents’ is key: patents are treated as ‘probabilistic’ (although the term isn’t used) and are not guaranteed to be valid. Like the Commission, the CMA treats legal challenges to patent validity as part of the competitive process, and argues that the market is ‘in principle’ open to generic entry after expiry of patent protection over an API.  
  • Paragraphs 4.17 – 4.26: Overview of the market definition section which finds that, while other antidepressants may be substitutable for paroxetine, consumption patterns suggest that the actual competitive constraint is limited.  For market definition geeks, the full analysis is at paragraphs 4.29 – 4.97.  It is notable that paroxetine’s position within the ATC features only briefly, with the focus being on actual competitive constraints, including a ‘natural events’ analysis to look at the relative impact of generic entry in relation to the candidate competitor molecules (such as citalopram – the subject of the Lundbeck decision), and entry by generics of paroxetine itself (see para 4.73 in particular).
  • Once the narrow market definition is established, there isn’t much suspense as to the dénouement of the dominance ‘chapter’ (paragraphs 4.98 – 4.127).  In this context, the section on why the PPRS does not constrain pharmaceutical companies’ dominance is again unsurprising, but perhaps worth a read (paragraphs 4.124 – 4.126).
  • Paragraphs 6.1 – 6.9 and 6.204 – 6.206 contain a summary and the conclusion of the ‘object assessment’ under Article 101/Chapter I: while generally Lundbeck-esque, the reference to “the effective transfer from GSK [to GUK/Alpharma] of profit margins” strikes me as a novel way of expressing an old idea.
  • Paragraphs 7.1 – 7.3, 7.61 – 7.62 and 7.114 – 7.115 contain the summary and conclusions of the effects assessment under Article 101/Chapter I.  Even though the agreements were actually operated in the market, the CMA has confined itself to looking at their ‘likely’ effects – presumably to try to account for the fact that the outcome of the discontinued litigation is unknowable. It also concludes that the agreements assisted GSK to “preserve its market power” (paragraphs 7.63 – 7.64 and 7.116 – 7.117).
  • Leading on from that conclusion, paragraphs 8.1 – 8.3 summarise the case on abuse of a dominant position.  Central to the abuse case is the concept of inducement by GSK.  The allegations span not only the agreements in respect of which fines are issued under Article 101, but also an agreement with IVAX (for those with time on their hands, Annex M seeks to explain the discrepancy). GSK raised a number of objective justification arguments, notably around its right legitimately to defend its patent rights and to defend the company’s commercial position.  Paragraphs 8.61 – 8.67 reject these arguments, in particular on the basis that the conduct was not ‘competition on the merits’ (as per AstraZeneca) and that the conduct “went beyond the legitimate exercise of its patent rights to oppose alleged infringements”.  
  • Finally, and again for the more technically minded, at paragraphs 10.43 – 10.53, the relevance of the Vertical Agreements Block Exemption is dismissed, on the basis that the agreements were between potential competitors rather than being true ‘vertical’ arrangements.  At paragraphs 10.54 – 10.97, the parties’ Article 101(3) exemption arguments are also dismissed (spoiler alert: the exemption criteria are not found to have been fulfilled).  One curiosity is the lack of an infringement decision in relation to the agreement between GSK and IVAX.  This was held to benefit from the (now repealed) UK-specific Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000 (now repealed).  In other words, that agreement is treated as vertical, unlike those between GSK and each of the other generic companies, even though the decision recites that IVAX did have plans to launch its own paroxetine generic.  The difference appears to be based on the context in which the agreements were reached: whereas the agreements with GUK and Alpharma related to the settlement (deferral) of litigation, that was not the case for the supply deal agreed with IVAX.  This is addressed at paragraphs 10.36 – 10.47 and in Annex M.
The paragraphs listed above focus on the legal analysis.  Those who prefer their reading less dry will want to look also at the descriptions of the agreements, and will note in particular that the ‘settlements’ considered in the decision did not finally resolve the litigation, but rather deferred it for the duration of the agreements entered into by GSK and the generic companies. Those who like tales of retribution will wish to read about the calculation of fines in section 11 – note that GSK received separate fines in relation to each of the agreements and the abuse of dominance.

The appeal hearing before the CAT is due to start next February, and to last for around a month.  By that time, the General Court will have issued its rulings in the various appeals against the Commission’s Lundbeck decision – which will doubtless be another weighty 
read for the Autumn.

** For more on Lundbeck, please see here (the abridged version) or here (the full analysis).  

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…

Brexit: What it means for competition law Q&A

As the dust begins to settle on the momentous events that unfolded in the early hours of Friday 24 June, focus inevitably turns to the practical implications of what happens next.  Many articles have already been written on this subject and no doubt many more will follow.  The honest position today is that no-one can predict precisely what the long-term future holds for the UK because there is still no clarity as to which Brexit path will ultimately be chosen.  At this stage however, we can narrow the most likely options down to the following five:

  1. Leave the EU, but remain a member of the EEA (often referred to as the ‘Norwegian model’);
  2. Leave the EU, rejoin EFTA, but stay outside the EEA (often referred to as the ‘Swiss model’);
  3. Leave the EU, but join an EU customs union (often referred to as the ‘Turkish model’);
  4. Leave the EU, but negotiate individual trade terms (often referred to as the ‘Canadian model’); or
  5. Leave the EU and fall back on WTO trade terms.

Which of these routes prevails in the long-term will determine to what extent (if at all), the EU competition rules continue to apply in the UK.  Broadly speaking, Option 1 would result in no change to the status quo as regards competition law, whereas all the others would result in greater autonomy for a UK regime, potentially operating entirely separate from, but in parallel to, the EU regime.

However, the immediate consequence of the Prime Minister’s decision to resign, initiate a leadership election and to leave the decision as to when to invoke the EU’s timetable for exit under Article 50 to his successor, has given everyone a certain breathing space with which to survey the options.  Unspoken amongst these is the possibility that a UK general election will follow in the autumn, which could mean that all bets are off, including potentially even Brexit itself.

Q.   What is the immediate impact of the Brexit vote on UK competition law

A.   Nothing is likely to change at all in the short or medium term.  The prevailing national UK and EU competition regimes will remain in full force.

Q.   What about longer-term?

A.   Again, in practice, the short answer is likely to be that very little will change.  That is of course the case should the UK remain with the EEA.  Beyond that, the UK competition rules will remain in full force, operating in parallel to the EU regime.  Businesses with international operations will continue to be bound by EU rules as regards their trade within the EU.

Q.   Business relies on the legal certainty and guidance arising from the EU’s system of block exemptions.  What will happen to these assuming EU law no longer applies?

A.   The UK no longer has any national block exemptions, relying instead on the application of ‘parallel exemptions’ meaning that the EU block exemptions result in parallel exemptions from UK competition law prohibitions in addition to the EU prohibitions.  Assuming a total exit from the EU competition regime, these would no longer automatically apply and the UK would need to consider implementing new national exemptions.  Where the UK is no longer part of the single market, this could well have the result that certain limitations in the application of the block exemptions are removed (i.e. those dealing with territorial restrictions aimed at protecting parallel trade and the single market).

Q.   What happens to merger notifications?

A.   The UK’s existing merger control regime is likely to remain, although it is possible that in the longer term its voluntary nature may come under increasing pressure.  There are, however, likely to be two main effects arising directly from Brexit should EU law no longer apply in the UK.  First, there will be an increase in mergers being notified to the UK as it will no longer be possible to rely on the one-stop shop principle inherent in the EU merger regulation regime.  Mergers raising any substantive issues in the UK that would previously have fallen under the exclusive jurisdiction of Brussels will therefore require parallel notification in the UK.  Second, it is to be expected that there may be a fall in the number of mergers notified in Brussels because UK turnover will no longer count towards the EU jurisdictional criteria.  As one of the EU’s largest economies, the removal of UK turnover may therefore be expected to have a non-negligible impact.

Q.   What happens to UK competition litigation concerning EU infringements?

A.   In the short term, we see little or no change.  The doctrine of acquired rights will mean that the UK courts will continue to apply the law as it applied at the relevant time - for competition damages litigation, this will be the time of the infringement giving rise to the cause of action for damages.  In future, Brexit will have implications for the implementation of the Damages Directive dealing with follow-on actions – however, given that the deadline for implementation is 27 December 2016, it seems most likely that the UK will still be a full member of the EU and hence that this will be implemented.  As with all EU legislation given effect by national implementing legislation, the UK will need to consider whether and how to adopt and/or amend.  As regards follow-on damages, it remains to be seen how the UK legislature and courts will treat EU infringement decisions for the purposes of establishing liability.

Q.   What steps should business take now to ensure continued compliance?

A.   Understandably, businesses operating in the UK will be concerned to ensure not only that they remain fully compliant with whatever legal obligations arise as a result of Brexit but also that compliance costs can be kept to a minimum.  Pragmatically, and whatever the final outcome, the message today is one of ‘no change’.  The EU regime remains in full force for the foreseeable future and whatever the decisions that will be taken over the course of the next few months, it seems highly unlikely that substantive alterations will be made to the base rules of the game when it comes to competition compliance.

Read our previous article on Brexit here: Brexit – What next? A competition law perspective 

Sophie LawranceStephen SmithPat Treacy

Brexit – what next? A competition law perspective

Introduction

It is difficult to think of a UK statesman who did more for European unity or was more supportive of the idea of a union amongst the states of Europe than Winston Churchill and it is hence with some hesitation that we begin this article about the UK’s exit from the European Union with one of his many quotable soundbites:

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning". 

Yet that is precisely the situation facing the UK after it woke up on 24 June to the reality that it had voted decisively in favour of leaving the European Union. This has left politicians, diplomats, business and lawyers wondering what this means in practice and what happens next. Of course the nature of the position is such that the greatest certainty today remains one of uncertainty as to what happens next – although the vote to leave was clear, there is no consensus whatsoever as to what happens next.

At one extreme, EU membership could be replaced by the UK joining the European Free Trade Association and the European Economic Area (alongside Norway, Iceland and Liechtenstein). From many perspectives, including as regards competition law, this would clearly be the most straightforward, giving rise as it would to the fewest changes. This would entail a continued financial contribution to the EU budget and requirement to sign up to free movement of persons in exchange for access to the single market. UK courts would in effect continue to be bound by EU legislation and by decisions of the European courts. So far so good, but politically it is difficult to see how this squares with a Brexit campaign that has focused so overtly on immigration and repatriation of UK funds away from Brussels.

At the other extreme, the UK could seek a total exit, falling back on World Trade Organisation (“WTO”) rules to continue trading with the EU, but without access to the single market. Under this outcome, EU law would simply become another overseas jurisdiction, persuasive, but no more to the UK authorities and the courts.

At this stage it is too early to say anything definitive on which direction might ultimately be pursued. However, now that we have moved beyond the hypothetical and the UK begins its journey into uncharted waters, there are some general points to be made whatever our final destination.

Of course most aspects of UK law will be affected to a certain extent, but competition law and policy is one area where integration is perhaps its deepest and hence forms the focus of this article. Patent law and particularly work towards creation of the Unified Patent Court is also deeply and directly affected and our thoughts on the Brexit implications for the UPC can be read here.

Merger Control

EU and EEA member states benefit from the ‘one-stop’ shop of the EU Merger Regulation, meaning that transactions that meet the jurisdictional criteria may be notified and assessed in Brussels to the exclusion of national regimes. If the UK joins the EEA, there will therefore be no practical change to the current system. However, a total exit would require companies to assess whether transactions need to be conditional on UK and EU merger clearances. Whilst the UK operates a voluntary notification regime, transactions giving rise to any substantive overlaps are routinely notified in advance in the interests of legal certainty.

A total exit may therefore be expected to give rise to duplication and increased costs as international transactions with a UK element fall to be reviewed under both the UK regime and in Brussels in parallel. There are also obvious resource and hence cost implications for the UK competition authority, costs which ultimately could be expected to be passed through to business.

Cartels and investigations

The main UK competition rules concerning anti-competitive agreements and abuse of dominance broadly mirror equivalent EU provisions. There is no obvious reason why the UK would choose to use a Brexit as an opportunity to undertake wholesale revision of the competition regime and hence we envisage very little in the way of practical implications as regards the implementation of UK competition law.

However, as with merger control, the biggest impact is most likely to be one of duplication – pan-European cartels and issues will probably face parallel investigations by the UK and EU competition authorities, potentially giving rise to increased fines.

State Aid and Public Procurement

If the UK were to join the EEA it would be required to comply with the EU rules on state aid and hence the position would be one of ‘no change’. However, in the event of a ‘total exit’, the UK would no longer be bound by the rules aimed at protecting the single market and the far looser rules under the WTO would apply (e.g. prohibitions on trade subsidies). Crucially, the WTO rules would not prevent the UK subsidising ‘national champions’ and hence could result in direct Government intervention to support businesses such as Tata Steel.

The situation in relation to public procurement is similar. Whilst EEA membership would bring with it a continued obligation to comply with EU rules, a total exit would leave the UK free to create its own national rules outside of the EU regime. In practice however, it seems inconceivable that any UK system would not result in similar obligations for the award of public contracts in the interests of transparency, value for money and non-discrimination as between bidders.

Competition Policy

It is to be expected that the UK competition authorities will cease to be full members of the European Competition Network upon exit, which in the absence of separate agreements will mean a reduced UK voice in the shaping and development of competition policy at an EU level and ultimately globally. Whilst that leaves the UK free to pursue its own policy objectives, this might result over the longer term in a gradual shift away from the existing alignment with EU law as the UK regime adapts to life outside the EU. At least initially, however, we would expect any practical impact to be limited.

Competition Litigation

The position is most uncertain as regards competition litigation, particularly enforcement of damages claims. The UK had sought to position itself as a leading jurisdiction for the private enforcement of EU competition rights (alongside Germany and the Netherlands). It is to be expected that once the UK has finally left the EU, EU Commission decisions and EU law will cease to have a binding effect on the UK courts and the UK courts would consequently cease to be such an attractive forum for claimants.

But that might not be the final word – the UK remains a large market with a well-respected judicial system. Given the similarities that exist and will likely persist in the substantive provisions, it is probable that EU infringement findings will remain highly persuasive to the UK courts and hence there might actually be an increase in cases pursued in parallel in the UK and an EU court. UK courts are also adept at resolving conflict of law issues and can be expected to apply the law as it stood when the infringement took place and/or when the right to sue accrued. Hence EU competition law may continue to be of relevance in the UK Courts for some time to come, whatever the outcome on the exit negotiations.

Conclusion

And so we are now at the end of the beginning of the UK’s exit from the European Union.All we can say with certainty today is that the UK electorate has delivered a clear, if far from unanimous, mandate to its government to start the process of extricating the UK from the EU. But the main message to businesses operating within the UK can also be summed up by a historic cliché:‘Keep calm and carry on’.

At a very practical level the present system is likely to persist for some time. Furthermore, most businesses will remain subject to the same general restrictions and obligations as they do today, albeit with a greater risk of duplication and/or parallel reviews. Watch this space as we move from the end of the beginning to a new chapter in the UK’s relationship with the EU.

Sophie LawranceStephen SmithPat Treacy

The CMA still has pharma and medical devices in its sights

The CMA has been slowly but surely opening a raft of new investigations in the pharma and medical devices industries.  

It announced last week that it is investigating suspected anti-competitive conduct in the medical equipment sector under Chapter II CA 98 and Article 102 TFEU.  An initial 6-month timetable is set down, with the CMA hoping to be in a position to decide whether to take the investigation into the Statement of Objections phase by around October.

Last week also saw the CMA announce that it is investigating anti-competitive arrangements in the pharmaceutical sector under Chapter I CA and Article 102. This will follow the same timetable. 

Just a few weeks earlier, the CMA announced another separate investigation into suspected abuses of a dominant position in the pharma sector.

The CMA recently closed a possible market investigation into possible anti-competitive causes of medicines shortages and it is possible that at least some of these investigations will be shelved before more public information is made available.  However, at least two other longer-standing pharma-industry-focused investigations remain on foot, including:

  • The investigation into possible excessive prices charged by Pfizer for phenytoin sodium, which we have been following here on The CLIP Board: a formal Statement of Objections has been sent in this case, and an oral hearing held; last week Pfizer was fined £10,000 for a procedural infringement in connection with a failure to provide information, a salutary reminder for those involved in CMA investigations in any industry, as the CMA itself points out (“The imposition of an administrative penalty [on Pfizer] […] is critical to achieve deterrence, ie to impress both on the party under investigation, and more widely, the seriousness of a failure to comply with a statutory deadline, without a reasonable excuse.”…).  A decision is due in around August 2016.
  • An investigation into possible abusive discounts which is coming towards the end of its initial phase, and should be the subject of a decision to close or proceed next month.
One case which was not shelved was the Paroxetine patent settlements case (see our earlier post here).  Following the CMA’s imposition in February of £45 million of fines, it has been confirmed that GSK and all of the generics have appealed to the CAT.  The full text of the infringement decision has still not been published by the CMA, but the notices of appeal against the CMA’s decision have appeared on the website of the Competition Appeal Tribunal.  

GSK’s appeal encompasses eight separate grounds, six of which are on issues of substantive law (with two subsidiary grounds on the fining decision).  It is evident from GSK’s appeal that the CMA has followed the Commission in proceeding on the basis of both object and effect analyses in their Article 101/Chapter I infringement decisions, as well as in claiming an abuse of dominance arising from the set of facts.  GSK is unsurprisingly appealing the finding of dominance, which arose from the identification of a relevant market limited to a single molecule.
The CMA is clearly keeping a close eye on the pharmaceutical and medical industries – and we will continue to keep a close eye on the CMA’s activities in this area.

UPDATE: International spring cleaning time to review those IPR Guidelines

For those of you who read my blog post from earlier this month on the recent flurry of international IPR guidelines announcements (see here), we thought some of you might be interested in a more in depth look at the Canadian IPR Enforcement Guidelines written by Canadian law firm McCarthy Tétrault (for a link to their interesting article see here).  

The article summarises the most notable new guidance in the Canadian guidelines – namely in relation to pharma patent litigation settlements, product switching, standard setting and SEPs and patent assertion entities.  It also contains links to previous articles discussing the evolution of the guidelines.  There are many parallels to ongoing IPR policy developments in Europe but a few differences also stand out (e.g. express discussion of the potential for criminal liability for pharma patent litigation settlements (not something that has reared its head in Europe… (yet?)) and a helpful distinction between so called ‘hard’ and ‘soft’ product switching).

Competition law no bar to patent licence royalties

Advocate General Wathelet has delivered a significant Opinion on the relationship between Article 101(1) and patent licences. This arose from a disputed arbitration award between Genentech and Sanofi-Aventis, and followed a reference to the Court of Justice of the European Union (CJEU), from the Paris Court of Appeal. 

The AG noted that Article 101(1) is not there to protect the efficacy of commercial arrangements, and will be engaged only where an agreement between undertakings has the object or effect of restricting or preventing competition and affects trade between member states. 

What was the case about? 

The original arbitration concerned a dispute over unpaid royalty payments under a patent licence where one of the underlying patents had been revoked. The arbitrator found that the licensee should continue to pay royalties, notwithstanding the revocation of the patent. This was on basis that the licensee had entered into the licence to enable it to use the relevant technology without the risk of litigation. The licensee contested the award. The French Court of Appeal referred various questions to the CJEU including whether paying royalties for a revoked patent had put the company at a competitive disadvantage to competitors who had not been required to pay for the technology and therefore infringed Article 101(1).

What about Article 101 and Patent royalties?

Wathelet commended the reasoning in Ottung (1989 CJEU) that an obligation to pay royalties in a licensing agreement after patent expiry “may infringe Article 101(1) TFEU where the licence agreement either does not grant the licensee the right to terminate the agreement by giving reasonable notice, or seeks to restrict the licensee’s freedom of action after termination.” 

Applying that approach, Wathelet considered that there was no infringement of Article 101(1) here, as Genentech was freely able to terminate the agreement with a “very short” notice period of two months, and its “freedom of action was not restricted in any way during the period after termination, and it was not subject to any clause preventing it from challenging the validity or infringement of the patents at issue”. He also observed that the licence contained no restrictions on the licensee’s ability to set prices or conduct research.

The AG therefore held that Article 101(1) was not engaged and that Genentech should pay Hoechst EUR 110 million in back royalties even though a licensed patent had been revoked. In the circumstances:  “the mere use of the technology at issue during the term of the licence agreement was sufficient to trigger the obligation to pay”. 

The position taken by the Advocate-General reflects the views set out in the Technology Transfer Guidelines (paragraph 184) which regards royalty arrangements in technology licences as generally outside the scope of Article 101 and falling into the realm of commercial negotiation.
 
Arbitration disputes and Article 101? 

The AG also confirmed that competition issues arising in the context of arbitrations can always be referred by national courts to the CJEU. 

He gave short shrift to arguments that dealing with Article 101(1) issues through the  preliminary ruling process would infringe French law. It had been argued that French law prevented international arbitration awards being subject to judicial review, save in circumstances where there has been a flagrant infringement of international public policy. 

The AG considered that the CJEU was bound to give a preliminary ruling upon request by a national court, unless the request related to a fictitious dispute, or was on general or hypothetical questions, where the questions to the CJEU bore no relation to the facts.

So where does the case leave patentees?

This case is important for many patent owners and licensees, as it clarifies that Article 101(1) is not a bar to enforcing a licensing agreement and receiving royalties even when a licensed patent has been declared invalid (or, by implication, expired). 

This is in direct contrast to the US Supreme Court’s decision in Kimble v Marvel of June 2015, which confirmed that a patent holder cannot charge royalties for the use of his invention in the US after its patent term has expired. 

It will be interesting to see the CJEU’s final decision, as AG opinions are only persuasive (but in practice usually followed).

Genentech Inc. v Hoechst GmbH, formerly Hoechst AG, Sanofi-Aventis Deutschland GmbH (Case C-567/14).

CJEU judgment in Huawei v ZTE (Case C-130/13): theory and practice (1: Theory)

Judicial desk-clearing at the Court of Justice before the 2015 summer recess included the handing down of judgment in Huawei v ZTE.  Cases are often described as “eagerly awaited”, but this is genuinely one which has had owners and users of standard essential patents (SEPs) on the edge of their seats.  And there are a lot of SEPs out there, as the judgment observes. 

Having been involved in a number of cases relating to the enforcement of SEPs (on both sides of the fence), we would predict that there will be a considerable mismatch between the theory and practice.  This first post takes a look at the theory.  A second post will follow shortly where we’ll consider some areas where the judgment perhaps doesn’t resolve all the difficulties.

But let’s look first at the theory:

The overall approach of the judgment remains in line with the recommendations of Advocate General Wathelet, who espoused a “middle path” between the interests of owners of standard essential patents and those of SEP users (as discussed in our earlier post on this subject). 

In accordance with this, the Court outlines the applicable legal principles under both patent law and competition law: 

  • On the IP side, the Court briefly notes the relevant provisions of the EPC (Convention on the Grant of European Patents) and the Enforcement Directive (noting in particular the provision for patentees to seek injunctive relief), as well as the ETSI rules.
  • On the competition side, the judgment recalls that the exercise of an IP right will amount to an abuse of a dominant position only in exceptional circumstances – however, the circumstances of this case are rather different from prior case law due to the essentiality of the patents and the fact that irrevocable FRAND undertakings have been given. Such undertakings are said to create “legitimate expectations” on the part of implementers as to the availability of licences.  Accordingly, a refusal by a SEP holder to grant a licence may “in principle” amount to an abuse. 
The judgment then sets out a theory of how FRAND-encumbered SEPs should be litigated in the EEA. It is actually quite limited in scope – since the judgment includes an almost unconditional endorsement of the ability of SEP holders to seek damages/other financial relief, the relevance of the ruling is limited to:

  • SEP holders wishing to avoid abusing a dominant position when they seek injunctive relief against unlicensed implementers; and
  • Implementers of SEPs which wish to avoid having an injunction enforced against them. 
If no injunction is in play, the steps below simply do not apply. (Of course, for implementers, there is likely to be uncertainty about whether an injunction may be sought for a considerable period – they are therefore likely to need to comply with their ‘obligations’ under the CJEU judgment in most cases where SEP licensors seek to engage them in licensing negotiations.  Although perhaps “negotiations” is not the right word for what the CJEU proposes should occur...)

In summary, the steps required by the CJEU ruling are as follows:

Perhaps the main conclusion to be drawn at this stage is that the Court seems to have engineered something of a shift in the obligations applicable.  Even though the implementer is not subject to the special responsibilities which apply to dominant companies, it now has some clear obligations to fulfil if it wishes to avoid being subject to an injunction (provided the SEP owner has fulfilled its prior responsibilities, of course).  This could perhaps be seen as the “price” for unlicensed use of the rights.