Sometimes a Euro-Defence does work: Samsung v Ericsson

European Commission
Author: Amio Cajander
Source Wikipedia
Creative Commons Licence

A Euro-defence is an answer to a claim for the infringement of an intellectual property or other right under national law based on the primacy of European Union law. In the early days of our membership of what used to be called the European Economic Community such defences were pleaded quite regularly and they often succeeded. Probably the high water mark was Magill  (Radio Telefis Eireann and Others v Commission of the European Communities [1995] 4 CMLR 718, [1995] EUECJ C-241/91P, [1995] EMLR 337, [1995] All ER (EC) 416, [1995] ECR I-743, [1995] FSR 530, [1998] Masons CLR Rep 58) where the Court of Justice held that the enforcement of broadcasters' copyrights constituted an abuse of a dominant position within the meaning of art 86 of the Treaty of Rome (now art 101 of the Treaty on the Functioning of the European Union as it has now become).

Such defences are now raised much less frequently partly because judges are astute to them but mainly because of harmonization of national intellectual property law and the development of the doctrine of exhaustion of rights. Nevertheless, the principle that Union law prevails over national law has never disappeared. The decision of the Court of Appeal in Samsung Electronics Co Ltd and Another v Telefonaktiebolaget LM Ericsson and Others [2016] EWCA Civ 489 allowing Samsung Electronic Co. Ltd and its UK subsidiary''s appeal against the striking out of its competition law defence by Mr Justice Birss in Unwired Planet International Ltd v Huawei Technologies Co Ltd and Others [2015] EWHC 2097 (Pat) (21 July 2015) is a reminder that a Euro-defence can still succeed.

The point arose in a patent infringement claim by Unwired Planet International Ltd. against members of the Huawei, Samsung and Google groups of companies. Unwired had obtained all but one of the patents upon which it relied from Telefonaktiebolaget LM Ericsson. Ericsson had worked with the European Telecommunications Standards Institute ("ETSI") to set a standard known as SEP. It was alleged that anyone using the SEP standard would inevitably fall within one or more of those patents. As a condition for incorporating the patents into the SEP, Ericsson promised ETSI to grant licences to third parties on fair, reasonable and non-discriminatory ("FRAND") terms. Samsung argued that Ericsson had not complied with that condition and thus the agreement to assign of the patents to Unwired ("the MSA" or "master sale agreement") was void under European and English competition law.

Mr Justice Birss summarized the issue thus at para [6] of his judgment:
"Ericsson participated in the standard setting process in Europe involving ETSI. Ericsson therefore declared its SEPs to ETSI as essential under the ETSI IPR policy and gave a FRAND undertaking. The breaches of Art. 101 TFEU which fall to be considered on this application relate to the MSA whereby Ericsson transferred the patents to Unwired Planet. I will return to them below. On the basis of the breaches of Art 101, the transfer of the patents is said to be void and so Unwired Planet has no title to sue. Samsung has a patent licence from Ericsson which was entered into in 2014. Samsung contends that since the patents which came from Ericsson in fact still belong to Ericsson, they are covered by the 2014 licence. The proceedings include a counterclaim by Samsung for an indemnity under the 2014 licence to cover any sums due to Unwired Planet. Samsung also alleges that the patents are still under Ericsson's control even if not owned by it (the "control defence"). By that alternative route Samsung contends the patents are licensed under the 2014 licence, alternatively that Ericsson has a duty to procure a licence, even if they are owned by Unwired Planet."
The breaches of competition law were pleaded as follows:
"First, that in transferring patents to Unwired Planet, there was a failure to ensure the complete, proper and effective transfer of an enforceable FRAND obligation. Second, that by dividing Ericsson's patent portfolio into two parts (Ericsson retains patents itself and transferred some to Unwired Planet) in the way that it did a breach of competition law has taken place in that unfair higher royalties will be earned and competition will be restricted or distorted. Third, that certain terms in the MSA are stand alone infringements of Art 101."
As the parties to the MSA were Ericsson and Unwired Planet Inc. and Unwired Planet LLC, Samsung had to join them to the action as 11th and 9th and 10th parties respectively.

Ericssson applied to strike out the claim against itself and Unwired  under CPR 3.4 or summary judgment under CPR Part 24. It argued that the first contention was hopeless because the MSA contained a clear obligation to offer FRAND terms and that Unwired had made a FRAND declaration to ETSI. His Lordship agreed at para [24] of his judgment in respect of the first contention but refused to strike out the second and third.

Samsung appealed against the striking out of its first contention. It accepted that the MSA contained a number of provisions which ensured that Unwired was subject to FRAND obligations but argued that the MSA failed fully to transfer the FRAND undertakings in two respects. First, it argued that the FRAND obligations in the MSA were not enforceable by third parties. Secondly, it argued that he MSA did not fully transfer Ericsson's FRAND obligation.

The Court of Appeal rejected the argument that the FRAND obligations of the MSA were unenforceable in paragraphs [36] and [37] of Lord Justice Kitchin's judgment:
"[36] ....... Ericsson submits and I agree that Samsung's position on this issue is entirely artificial. Not only has UP made a FRAND declaration to ETSI in the same terms as that of Ericsson but it has also pleaded in these proceedings that the declaration is enforceable by Samsung and by any other potential licensee. The only party in these proceedings disputing that it can enforce UP's FRAND declaration is Samsung itself.
[37] Drawing the threads together, it can be seen that ETSI has addressed the competition concerns which arise from the transfer of SEPs from one company to another by requiring the transferor to include in the relevant transfer documents appropriate provisions to ensure that the FRAND undertaking of the transferor is binding upon the transferee......"
 The Court then considered Samsung' s second argument at para [45]:
"Samsung contends the judge has here fallen into error for his reasoning fails to take into account that Ericsson's and UP's position robs FRAND of much of its substantive content. It points out, entirely correctly, that if the original owner of a SEP licenses it to a first licensee then it must adopt non-discriminatory terms when licensing it to a second licensee, for otherwise competition between the licensees is likely to be distorted. Its argument then proceeds as follows. Suppose that the original owner now transfers the SEP to a new owner. When dealing with a third licensee, the new owner must also adopt non-discriminatory terms, judged by reference to the terms struck by the first owner, for otherwise competition between the third licensee and the first and second licensees is again liable to be distorted. Furthermore, if the second owner does not need to take into account the first owner's licensing conduct, SEP owners could contract out of the non-discriminatory part of FRAND by transferring their SEPs to new corporate entity shells, not bound by their original FRAND undertakings."
Ericsson tried to answer that argument with the following illustration:
"Consider a business that acquires a portfolio of SEPs from a number of different sources over a period of years and gives a FRAND declaration to ETSI in respect of them all. When that business comes to negotiate terms for a licence to that entire SEP portfolio, it cannot possibly ensure that the terms which it offers are the same as or are no more onerous than the terms upon which the SEPs have been licensed by all of their different previous owners. It would present that business with an impossible task."
Though he saw force in Ericsson's contentions Lord Justice Kitchin concluded at [50] that Mr Justice Birss had erred. He recognized that this is a developing area of law and it was arguable that in the circumstances of this case art 101 of the Treaty required the effective transfer to Unwired of Ericsson's FRAND obligation so that Unwired could not obtain more favourable terms from its licensees than Ericsson could itself have obtained. The learned Lord Justice also found "a degree of inter-relationship between this aspect of the first defence and the second and third defences" which Mr Justice Birss had allowed to go to trial.  In Lord Justice Kitchin's view it was "arguable that the matters complained of act together to allow Ericsson to circumvent its own FRAND obligations by increasing licence fees and weakening the competition between Ericsson and other users of its SEPs."

The upshot was that it
"was arguable that in breach of Article 101 TFEU the MSA agreements fell short of a full transfer of the non-discrimination aspect of Ericsson's FRAND obligation and that the anti-competitive nature of this breach renders the MSA agreements as a whole anti-competitive and void."
Sir Timothy Lloyd and Lord Justice Tomlinson agreed and the Court allowed the appeal.

Should anyone wish to discuss this case or patent or competition law in general, he or she should call me on 020 7404 5252 during office hours or send a message through my contact form.


Popular posts from this blog

What to do about the new Practice Direction - Pre-Action Conduct

Difference between US and UK Copyright Law

Obviousness - Hospira v Cubist Appeal