Hoffmann Eitle - München, London

06.05.2009 -

Federal Court of Justice: “Compulsory License Objection” Is In Principle Admissible in Patent Infringement Suits

Press release no. 95/2009 issued by the Federal Court of Justice regarding compulsory license objections

(English translation by Hoffmann · Eitle; Link: juris.bundesgerichtshof.de)

Manufacturers that produce a product according to a patented industry standard but without a license can defend their case when confronted with a legal action by the patent proprietor by filing a “compulsory license objection under anti-trust law”. The user of a patent can assert by this that the patent proprietor is abusing its market-dominating position when denying permission to use the patent. The user must demonstrate that he has unsuccessfully tried to obtain a license at reasonable conditions and that the patent proprietor by refusing to issue a license is violating anti-trust law which prohibits discrimination against other companies or their impediment without substantive reason. However, the user may only use the patent in anticipation of the license agreement unlawfully denied if he fulfils the obligations arising from the agreement he is seeking. In particular, this means that he has to pay a reasonable license fee to the patent proprietor or he at least has to guarantee payment thereof. This has been decided today by the Anti-trust Chamber of the Federal Court of Justice.

Koninklijke Philips Electronics N.V. (Philips) is the proprietor of a patent important for manufacturing recordable and rewritable optical data carriers (CDR and CDRW). Since this is a basic patent that all manufacturers of standard CDRs or CDRWs necessarily have to use, Philips has acquired a market-dominating position. Philips has granted numerous companies a license to the patent on the basis of a standard license agreement. The defendants manufactured and distributed CDRs and CDRWs without such a license. They objected that the license fees demanded by Philips were too high and moreover discriminatory since other companies had received more favorable conditions. In this manner they asserted Philips is abusing its market-dominating position.

The Regional Court and the Higher Regional Court ordered Defendants, on the grounds of patent infringement, to cease and desist, to provide information and to surrender the patent-infringing items for the purpose of destruction, and these courts moreover held that the defendants have the obligation to compensate Philips for damages. An appeal on a point of law was filed against this decision, but was not successful.

The Federal Court of Justice in principle admitted the “compulsory license objection under anti-trust law” with regard to the injunctive claim of the patent proprietor. The licensing practices of a market-dominating patent proprietor are subject to abuse control under anti-trust law (Art. 82 EC Treaty, Secs. 19, 20 Anti-trust Law). A patent proprietor may not discriminate a company that wishes to conclude a license agreement so as to be able to offer products on the market dependent on the patent by demanding without substantive reason higher license fees from this company than from another company. If the patent proprietor violates this non-discrimination provision, said patent proprietor will not be allowed to enforce its injunctive claim under patent law. In this case, a legal action based on the patent as well as the refusal to conclude the offered license agreement constitutes an abuse of the market-dominating position.

However, according to the decision pronounced today, the unlawful rejection of the license agreement offered to the patent proprietor does not give the discriminated company the right to continue to use the invention gratuitously. If production under the patent should have been commenced without said party having enforced by legal action its claim to conclusion of a license agreement, the discriminated company must act as if the patent proprietor had already accepted the offer regarding a license agreement. This means that the costs for using the patent will have to be calculated at regular intervals and that the license fees resulting from this calculation will have to be paid to the patent proprietor or at least deposited for the benefit of the patent proprietor. The patent proprietor can otherwise have a court prohibit the patent infringement. If the company is not prepared to pay the consideration it would be obliged to pay under a non-discriminating license agreement, the patent proprietor will not be committing an abusive act if it prosecutes its injunctive claim based on the patent.

It is often particularly difficult to calculate the amount of a license fee (still) admissible under anti-trust law. Since the company in need of a license does not know which amount constitutes a reasonable license fee, the Federal Court of Justice has deemed it to be admissible that the patent proprietor may be offered an unspecified license fee, instead of a specific license fee, that patent proprietor may determine at its equitable discretion. At the same time, the company in need of a license will have to deposit an amount corresponding at least to the objectively reasonable license fee or an even higher amount. Thus, the patent infringement suit can in many cases be relieved of the dispute regarding the amount of the license fee. If necessary, the licensee can later file an action requesting review as to whether the license fee set by the patent proprietor is within the limits drawn under anti-trust law. If a sufficient amount has been deposited, it will suffice for rejection of the patent-infringement action that the court establishes that the patent proprietor has the obligation to accept the offer of a license agreement and has to set the license fee at its equitable discretion.

In the case to be decided, the adjudication of the defendants was valid since defendants had not even paid the license fee of 3% they believed they owed nor had defendants deposited the corresponding amounts they owed to Philips. Under these circumstances, the Federal Court of Justice did not have to decide whether Philips had abused its market-dominating position by demanding a higher license fee.

Judgment of 6 May 2009 – KZR 39/06 – Orange-Book-Standard

Regional Court Mannheim – Judgment of 12 September 2002 – 7 O 35/02

Higher Regional Court Karlsruhe – Judgment of 13 December 2006 – 6 U 174/02 (GRUR RR 2007, 177)

Karlsruhe, 6 May 2009

Press Office of the Federal Court of Justice
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