The United Kingdom's substantive rules governing the application of competition law to intellectual property are contained generally within two national statutes: the Competition Act 1998 (the CA 1998) and the Enterprise Act 2002 (the EA 2002). The CA 1998 contains two main prohibitions, modelled on (and, by virtue of Section 60 of the CA 1998, to be interpreted consistently with) the prohibitions contained in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
The Chapter I prohibition (CA 1998, Section 2) prohibits any agreement or concerted practice that has the object or effect of restricting or distorting competition and that has or is capable of having an effect on trade within the United Kingdom, unless an exemption from the prohibition applies.
The Chapter II prohibition (CA 1998, Section 18) prohibits the abuse of a dominant market position that has or is capable of having an effect on trade within the United Kingdom.
Where there is additionally an effect on trade between EU Member States, the agreement or concerted practice or abusive conduct may also be prohibited by Articles 101 or 102 TFEU respectively and constitute a breach of statutory duty under Section 2 of the United Kingdom's European Communities Act 1972.
EU block exemption regulations apply 'in parallel' in UK competition law (CA 1998, Section 10), and the CA 1998 also provides for domestic block exemptions (there are none specifically applicable to intellectual property rights).
UK merger control rules are contained in Part 3 of the EA 2002, insofar as transactions are not covered by the exclusive jurisdiction of the European Commission pursuant to Regulation No. 139/2004, the EC Merger Regulation.
Further sources of law include judicial decisions (both of the European Court of Justice and the General Court and of national courts, including in particular the specialist Competition Appeal Tribunal (CAT)), and principles derived from decisions of competition authorities, including the European Commission and the United Kingdom's Competition and Markets Authority (CMA), and guidelines issued by those authorities.
II YEAR IN REVIEW
UK case law from the past year has seen the first rulings in the Apple v Qualcomm proceedings, part of the very substantial global litigation between the parties raising issues of patent and competition law (see Section IV.iii). Meanwhile, the CAT handed down its long-awaited judgment in respect of the appeal of the CMA's decision to fine GlaxoSmithKline plc and two generic pharmaceutical companies for entering into alleged 'reverse payment' or 'pay-for-delay' patent settlements in early 2018; answers, however, remain elusive, since all key questions were referred to the Court of Justice (see Section VI.iii).
Policy debate in UK competition law has unsurprisingly been dominated by the result of the referendum of 23 June 2016, in which a majority of UK voters said that the country should leave the EU (Brexit). In consequence, and in accordance with Article 50(2) TFEU, on 29 March 2017 the prime minister gave notice to the European Council of the United Kingdom's intention to leave the EU, triggering the two-year negotiating period under Article 50(3) TFEU, which may be extended by agreement. Those negotiations commenced on 19 June 2017 and continue at the time of writing.
The current draft of the European Union (Withdrawal) Bill indicates that EU block exemption regulations (which are currently applied 'in parallel') will be continued in UK domestic law, subject to modifications to be made by the relevant minister during a period of two years following the date on which Brexit occurs. Meanwhile, there is a strong prospect that the obligation under Section 60 of the CA 1998 to interpret UK competition law consistently with EU competition law will fall away, opening up the prospect of longer-term regulatory divergence. It is likely that there will be a significant degree of continuing cooperation between the CMA and the EU Commission, but the precise contours of the future regulatory relationship remain unclear.
In the short term, however, there is no change: the prevailing national UK and EU competition and intellectual property regimes both remain in full force, and, as already observed, UK courts continue to refer questions to the Court of Justice where appropriate. The United Kingdom continues to implement EU directives; for example, Directive 2014/104/EU on antitrust damages actions was implemented with effect from 9 March 2017.2
III LICENSING AND ANTITRUST
i Anticompetitive restraints
There are no UK-specific competition rules regarding technology licensing agreements. By the 'parallel exemption' route, the current EU Technology Transfer Block Exemption Regulation (Regulation (EU) No. 316/2014 (the TTBER 2014)) applies in a purely UK context in the same way as it does to agreements that may affect inter-state trade. The TTBER 2014 creates a 'safe harbour' for licensing agreements for patents, know-how or software copyright (or a mixture of these) concluded between no more than two companies with limited market power that respect certain conditions. Such agreements are deemed not to have an anticompetitive effect (or any such effect is deemed to be outweighed by their positive effects). The Commission Guidelines on the application of Article 101 TFEU to technology transfer agreements (2014) were released at the same time and contain guidance in respect of scenarios not covered by the TTBER 2014, including multilateral agreements.
The TTBER 2014 provides no protection where an agreement contains as its object (directly or indirectly and in whole or in part) a hardcore restriction: such restrictions preclude exemption. In the case of competing undertakings, hardcore restrictions include3 restrictions on a party's ability to determine price in third-party sales, limitations of output (including disincentives to produce more) other than limitations imposed on the licensee in a non-reciprocal agreement or only one licence in a reciprocal agreement,4 allocation of markets or consumers, restrictions on the licensee exploiting its own technology rights, and restrictions on either party's engagement in R&D unless the restriction is indispensable. Slightly different hardcore restrictions are identified in the case of non-competing undertakings.5 Certain individual obligations such as an obligation not to challenge the validity of EU intellectual property rights are also excluded from protection.6 Notably, non-compete obligations are permitted under the TTBER 2014, as long as the Regulation's other conditions are satisfied.
Of course, where the safe harbour of the TTBER 2014 is not available and Article 101(1) is engaged by a licence condition because it results in significant foreclosure of third-party technologies, individual assessment under Article 101(3) remains available.
ii Refusals to license
A refusal by a dominant undertaking to license an intellectual property right or to supply information, products or services subject to an intellectual property right is not in principle an abuse of a dominant position: if it were, the right holder would be deprived of the very essence of the exclusive right.7 However, it can be abusive where certain criteria laid down in Court of Justice case law8 are satisfied:
- the refusal prevents others from using certain information or products subject to that right;
- the information or product is indispensable to the exercise of a particular activity on a neighbouring market (defined according to normal principles of market definition);
- the refusal excludes effective competition on the neighbouring market;
- the refusal prevents the appearance of a new product for which there is a potential consumer demand (a requirement unique to the intellectual property rights cases), or (in a more recent formulation)9 limits technical development to the detriment of consumers; and
- there is no objective justification for the refusal, in particular with reference to the dominant undertaking's incentive to innovate.
In principle, there is a 'refusal' only where there has been a request. A response to a request that fails to address the specific matters requested may amount to a refusal, as may an agreement to license but only subject to unreasonable conditions (constructive refusal).10
iii Unfair and discriminatory licensing
Where an undertaking has a dominant position on the market, further limitations on its licensing practices may come into play; for example, as to exclusivity, and royalty and other terms (see Section IV).
iv Patent pooling
According to its recitals and according to the European Commission,11 the TTBER 2014 does not apply to agreements establishing and regulating patent pools or providing for the licensing of pooled technology to third parties, because they fail the Regulation's requirement in Article 1(1)(c) that the licence be for the purpose of production of contract goods by the licensee or its subcontractor. They are also generally multiparty arrangements.
Instead, the Commission provided detailed guidance for the assessment of technology pools in its 2014 Guidelines.12 The Commission recognises the benefits provided by technology pools (including reduction of transaction costs, setting a limit on cumulative royalties, and implementation of pro-competitive standards) but notes that there is a risk that they may amount to a price-fixing cartel or foreclose alternative technologies where they establish a de facto industry standard.13 Licences granted by pools are likely to be incompatible with Article 101 TFEU where they contain any hardcore restrictions listed in Article 4 of the TTBER 2014.14 Conversely, the creation and operation of the pool, including licensing out, will generally comply with Article 101(1) TFEU, irrespective of the parties' market position, where participation in the pool is open to all, only essential technologies are pooled, the exchange of sensitive information is limited, pooled technologies are licensed in on a non-exclusive basis and licensed out on a FRAND basis, the participants in the pool are free to challenge the validity and essentiality of the pooled technologies, and the participants in the pool remain free to develop competing products and technology.15 Even where these conditions are not satisfied, it is possible to show that the pool is pro-competitive on a case-by-case basis.
v Software licensing
The TTBER 2014 applies to agreements for the licensing of software copyright for incorporation into contract products, but not to, for example, an agreement containing terms and conditions for downloading.16 Moreover, agreements for the reproduction and distribution of software copyright-protected products are expressly treated by recital 7 of the TTBER 2014 as falling into the category of distribution agreements. They must therefore be considered with reference to the Vertical Agreements Block Exemption Regulation (Regulation (EU) No. 330/2010) and the Commission Guidelines on vertical restraints (2010).
vi Trademark licensing
The TTBER 2014 only applies to trademarks where the trademark is ancillary to a technology transfer agreement. The Commission has applied Article 101(1) to exclusive trademark licences; for example, in Davide CampariMilano SpA Agreement OJ  L 70/69, Article 101(1) TFEU was engaged by a standard form agreement granting firms exclusive licences to use the Campari trademark within their own territory and requiring them not to pursue an active sales policy elsewhere, but the agreement was exempted following individual assessment under Article 101(3) TFEU.
IV STANDARD-ESSENTIAL PATENTS
The competition law treatment of licensing practices of holders of standard-essential patents (SEPs) has been controversial for some time, and has recently become the subject of case law. A trickle of cases has slowly begun to clarify these principles at EU and national level, including in the United Kingdom.
On 29 April 2014, the European Commission adopted an infringement decision under Article 102 in respect of Motorola, finding that it had abused its dominant position by seeking an injunction against Apple in relation to its SEP, but, unusually, in its discretion imposed no fine because of the divergent views of Member States and absence of EU decisional practice and case law regarding whether a SEP holder abuses a dominant position when it seeks an injunction against a potential licensee who is not unwilling to enter into a licence agreement on FRAND terms.17
In Case C-170/13 Huawei Technologies co Ltd v. ZTE Corp & ZTE Deutschland GmbH, AG Wathelet hinted in his Opinion of 20 November 2014 (ECLI:EU:C:2014:2391), at paragraph 58, that there could be a presumption that a SEP holder was dominant, rebuttable by 'specific, detailed evidence' to the contrary. The German court had, however, referred no question on dominance and the Court of Justice took no view on the point (Judgment of 16 July 2015, ECLI:EU:C:2015:477). The position, therefore, continues to be that the assessment of dominance in SEP cases will turn on the facts of each case and is a matter for the national court or authority.
Birss J addressed the question of whether Unwired Planet possessed a dominant position at paragraphs 630–670 of the main judgment in the Unwired Planet proceedings ( EWHC 711 (Pat)), discussed further in Sections IV.ii and IV.iii. He held, on the facts, that Unwired Planet's status as an SEP owner gave it a 100 per cent market share and hence gave rise to the inference that it was dominant. The market was covered by a FRAND undertaking to the European Telecommunications Standards Institute (ETSI), the institute that issued the relevant standards, which meant that licensees did have a possibility of holding out and so it was possible that the SEP owner would not be dominant, but no economic analysis had been done that could justify that conclusion in the instant case. Unwired Planet is disputing that finding of dominance on appeal.
More recently, on 24 January 2018, the European Commission issued a decision in which it found that Qualcomm was dominant in the market for LTE baseband chipsets and had abused that dominance by making significant payments to Apple on condition that it would not buy from its rivals. The European Commission fined Qualcomm €997 million for abuse of dominance. Apple has amended its case in the UK Apple v Qualcomm proceedings to bring a follow-on claim arising out of this decision (see further Section IV.iii).
Huawei v. ZTE (ECJ)
It was also in Huawei v. ZTE that the Court of Justice set out the circumstances under which the holder of a SEP who has agreed to license it on FRAND terms can obtain an injunction against a party infringing the patent who is a willing licensee without breaching Article 102 TFEU. Like AG Wathelet (at paragraphs 47–52 of his Opinion), the Court sought to strike a balance between excessive protection for the patentee (arguably evinced by the German approach) and excessive protection for the putative licensee (the Commission approach). There is now a protocol to follow (at paragraphs 59–73 of the 16 July 2015 Judgment), under which the SEP holder must make a written offer on FRAND terms to the willing licensee, who may then make a counter-offer. Both parties must act promptly and in good faith. In the absence of a good faith counter-offer on FRAND terms, no injunction will be granted.
The relationship between FRAND proposals and injunctions has further been considered by Birss J in each of the two significant recent cases on SEPs to have come before the English courts.
Vringo v. ZTE (Birss J)
In Vringo Infrastructure Inc v. ZTE (UK) Ltd, Vringo, the owner of a global patent portfolio of SEPs acquired from Nokia relating to wireless communications infrastructure, initially contended that its global portfolio offer was FRAND and it would be entitled to an injunction unless ZTE accepted it. Birss J suggested that he was 'sceptical' about this argument ( EWHC 214 (Pat), paragraphs 101–112): even if the global portfolio licence offer was FRAND and it was not an abuse of a dominant position to make the offer, this did not appear to preclude ZTE from making a FRAND counter-offer for a licence in respect only of the SEP in question. Had Vringo itself made an offer of this type and ZTE refused to accept it, then an injunction might follow. Following the 24 April 2015 Unwired Planet decision outlined below, Vringo modified its position, stating that it was willing to offer a licence solely within the United Kingdom of the single patent at issue. Vringo maintained that it was not obliged to do so and that this offer was made voluntarily.
This concession meant that the main disagreement subsisting between the parties concerned the proper royalty rate payable for that licence (see Section IV.iii).
Unwired Planet v. Huawei & Samsung (Birss J and Court of Appeal)
The Unwired Planet International Ltd & ors v. Huawei Technologies Co Ltd, Samsung Electronics Co Ltd & ors litigation concerns patents transferred to Unwired Planet by Ericsson that have been declared essential to telecommunications standards developed by ETSI, which encourages members to give an irrevocable commitment to grant licences on FRAND terms to any of their patented technology that is adopted as part of the standard.
In 2014, Unwired Planet sued the defendants (who included Huawei and Samsung) for infringement of its patents, contending that they were both infringed and (so far as relevant) essential. It also made two open licensing proposals to the defendants: a worldwide licence under all its patents, or a worldwide licence under its SEPs only. The court has found that least two patents in the Unwired Planet portfolio are valid, infringed and essential to ETSI's standards ( EWHC 3366 (Pat), affirmed  EWCA Civ 266;  EWHC (Pat)). One of the allegations made by the defendants against Unwired Planet was that in seeking an injunction it was acting contrary to Article 102 TFEU.
Birss J observed in the context of an application for summary judgment in this case (considered further at Section IV.iii) ( EWHC 1029 (Pat)) that 'the question of whether any given licence terms are FRAND is not simply a freestanding issue. It is closely connected to the question of injunctions' (paragraph 20). In that decision, he explained (at paragraph 29) that this is a developing area of law and practice and that there are three legally relevant ways of considering whether licence terms are FRAND:
- Are the terms compliant with competition law?
- Are the terms compliant with the contractually enforceable obligation to ETSI?
- Are the terms proposed by the claimant 'equitably refusable', such that an injunction would be granted if the defendant refused to accept them? Conversely, are the terms proposed by the defendant such that a claimant obliged to license on FRAND terms would be refused an injunction if it refused to accept them?
He explained that the third, injunction-related context is distinct 'since it will also relate to the exercise of the court's discretionary power to grant injunctive remedies. Even if a patentee is not contractually obliged to ETSI to accept FRAND terms offered by a defendant, perhaps a court might refuse to grant an injunction in such a case'.
As to the two proposals made by Unwired Planet, he thought the first 'very likely to be equitably refusable' because it bundled SEPs and non-SEPs together, and the second unlikely to determine the issue of whether Unwired Planet was entitled to an injunction because the defendants had made clear that they were willing to accept FRAND licences under any patents found valid and infringed and so the issue was likely to turn on patent-specific terms advanced by either party (paragraphs 75–76). He therefore gave directions that each party should be required to state whether it was willing to make an offer for a territorial licence of the five SEPs at issue on the assumption that they were valid and essential, and if so on what terms (paragraph 77).
In consequence, in June 2015, Unwired Planet made offers for a worldwide SEP portfolio licence, a UK SEP portfolio licence, and per-patent licences for any SEPs the licensee chose (with each of the latter two licences claiming a higher royalty rate than the worldwide licence); Huawei proposed a per-patent licence limited to the UK SEPs in suit ( EWHC 711 (Pat), paragraphs 7–8). On 1 August 2016, Unwired Planet made further offers on the same terms, but at lower rates, following its settlement of certain competition law issues with Samsung (see Section IV.iii). Shortly before trial commenced, Huawei made an offer in respect of the whole of Unwired Planet's UK SEP portfolio, as well as an increased offer in respect of per-patent rates ( EWHC 711 (Pat), paragraphs 13–14).
At trial ( EWHC 711 (Pat)), Birss J held that a patentee that refused to accept an offer made on FRAND terms would be in breach of its FRAND undertaking, and an English court would refuse to grant a patentee an injunction if it refused to accept FRAND terms; conversely, a defendant who has refused a FRAND offer will not be protected from injunctions (paragraphs 166–167).
In the remedies judgment ( EWHC 1304 (Pat)), he granted what he called a 'FRAND injunction', explaining (at paragraph 20): 'A FRAND injunction should be in normal form to restrain infringement of the relevant patent(s) but ought to include a proviso that it will cease to have effect if the defendant enters into that FRAND licence.' Where, as had been agreed by the parties in this case, the FRAND licence is for a limited time (shorter than the lifespan of the relevant patent), and in any event where the FRAND licence ceases to have effect for any other reason, there will be an express liberty to apply to return to the court to address the position at the termination of the FRAND licence. If the defendant has entered into the FRAND licence, there is no need for any injunction at all (paragraph 21). The injunction was stayed pending Huawei's appeal.
Birss J addressed the question of whether Unwired Planet had abused its dominant position by reason of its conduct relating to this dispute at paragraphs 671–791 of the main judgment ( EWHC 711 (Pat)). One of the allegations made by Huawei (discussed at paragraphs 674–755) was that the litigation was premature, because Unwired Planet had not followed the conditions set out in Huawei v. ZTE, and so Unwired Planet was not entitled to an injunction. Referring to Unwired Planet's contact with Huawei prior to the issue of proceedings, to the fact that Huawei is a sophisticated organisation that could be expected to, and did, negotiate with Unwired Planet following the commencement of proceedings, and to the fact that Unwired Planet did provide the key terms of a licence offer to Huawei a few weeks after commencing proceedings, Birss J held that the litigation was not premature and Unwired Planet was not on this ground barred from seeking an injunction. He observed that this case differed from Huawei v. ZTE because the FRAND issue was separately justiciable (by reason of the undertakings given to ETSI) and Huawei did not need Article 102 TFEU to have a defence to the injunction claim. Even if he had concluded that Unwired Planet's commencement of proceedings had been premature, it would not automatically have followed that an injunction should be refused, given the lapse of time since that date (paragraph 795). Birss J has granted permission to appeal on this point ( EWHC 1304 (Pat), paragraph 65).
iii Licensing under FRAND terms
The disagreement as to the proper royalty rate in the Vringo v. ZTE case considered in Section IV.ii was substantial. Birss J explained in a judgment following a case management conference in the proceedings on 8 June 2015 ( EWHC 1704, paragraph 9) that 'the difference between £3,000 and £2.40 per unit worth £120,000 characterises the difference between the parties in terms of the royalty rates'. Vringo's position was that a FRAND royalty would be 2 per cent of the sale price of the unit. ZTE's position was that a FRAND royalty should be calculated with reference to the smallest saleable compliant part of the product. The parties' positions were therefore orders of magnitude apart and based on quite different principles of calculation. Guidance as to the appropriate starting point would have been welcome. However, the parties reached a global settlement at the end of 2015, under which ZTE received a perpetual non-exclusive licence of Vringo's entire portfolio for a one-off payment of US$21.5 million.
Guidance has now arrived from Birss J in the form of the Unwired Planet judgment. However, in the course of those proceedings, Birss J had cause to give a series of preliminary rulings on the FRAND issue, one of which went the Court of Appeal. In his judgment of 24 April 2015 ( EWHC 1029 (Pat)), he considered an application for strike-out and summary judgment by Huawei. Huawei argued that Unwired Planet's proposals were not compliant with its FRAND obligation because it was obliged to offer (1) single patent licences on request, (2) a licence under all SEPs relevant to a particular standard only, and (3) a licence under its SEPs relating to a particular territory. Birss J considered that these issues could not be resolved by summary judgment.
In his judgment of 21 July 2015 ( EWHC 2097 (Pat)), Birss J struck out a competition law defence raised by Samsung as disclosing no real prospect of success. Samsung had argued that the agreements under which the patents were transferred to Unwired Planet were prohibited by Article 101 TFEU and therefore void because they failed to fully transfer the FRAND undertaking given by Ericsson to ETSI. (Unwired Planet was not itself an ETSI member.) Birss J thought it was enough for Unwired Planet to make a FRAND declaration of its own. The Court of Appeal (Kitchin LJ, with whom Tomlinson LJ and Sir Timothy Lloyd agreed) overturned the judge's conclusion on this point ( EWCA Civ 489) because of the failure to ensure that Unwired Planet would respect the non-discrimination part of Ericsson's FRAND obligation. Birss J and the Court of Appeal, recognising that this is a developing area of law that has received recent attention from the ECJ and the European Commission, both considered that Samsung had an arguable defence to the effect that it would be anticompetitive to enable Unwired Planet to charge royalties higher than those that Ericsson would have been able to charge, and that Ericsson had sought to circumvent its own FRAND obligation through strategic sale of part of its patent portfolio to a third party.
Samsung settled with Unwired Planet and Ericsson in the summer of 2016 and discontinued its competition law counterclaim. Pursuant to that settlement, certain provisions that Samsung had contended were anticompetitive, including a provision that arguably put a floor on the royalty rate that Unwired Planet could offer, were removed from the agreement between Ericsson and Unwired Planet ( EWHC 711 (Pat), paragraph 10). Following that settlement, on 1 August 2016, Unwired Planet made new offers on the same terms as its June 2015 offers, but at lower rates ( EWHC 711 (Pat), paragraphs 11–12).
Birss J addressed the 'what is FRAND' issue at paragraphs 83–626 of the main judgment in the Unwired Planet proceedings ( EWHC 711 (Pat)). He held that the FRAND undertaking to ETSI was legally enforceable between the parties as a matter of French law and so, in this case, it was not necessary to rely on competition law to enforce the FRAND undertaking. He further held that a royalty rate may be higher than the FRAND rate but still not contrary to competition law (i.e., not excessive pricing for the purposes of Article 102 TFEU). That is, 'for competition law to be engaged, it will be necessary but not sufficient for a rate not to be the true FRAND rate' (paragraph 153). In an advance on the possibility he considered in the Vringo judgment, he has now reached the view that, in fact, there can only be one FRAND rate and set of terms in any given case – but a contract entered into on non-FRAND terms is not necessarily unenforceable, because it does not necessarily breach competition law. Moreover, the concept of FRAND applies not only to the licence terms, but to the process by which those terms are negotiated: taking an extreme or intransigent approach to negotiations would not be FRAND. However, making an offer that includes non-SEP patents, or otherwise not at the FRAND rate, is not in itself non-FRAND, as long as it does not prejudice or disrupt the negotiation. Birss J has granted permission to appeal on the issue of whether only one FRAND rate exists in any given case ( EWHC 1304 (Pat), paragraph 62).
As to the exercise of working out what is and is not FRAND, he held that determining what a willing licensor and willing licensee would have agreed on without holding out or holding up was likely to assist in deciding the question; evidence from the parties of negotiations in the industry, of comparable licences and of decisions of other courts would all be relevant. Considering comparable licences, which at least in this industry inevitably involved a degree of 'patent counting', aimed at assessing the value of relevant (as opposed to merely declared) SEPs, enabled a benchmark figure to be identified. Birss J examined in detail the different patent counting methodologies proposed by the parties' experts. This benchmark figure could then be 'cross-checked' using a 'top-down' approach looking at the total royalty burden (see  EWHC 711 (Pat), paragraphs 475–476). Birss J has granted permission to appeal to Unwired Planet in respect of his treatment of the benchmark rate ( EWHC 1304 (Pat), paragraph 68).
Birss J further held that the goal is to determine the FRAND rate by reference to the value of the patents being licensed, and so the rate does not vary depending on the identity of the licensee. However, there is no 'hard-edged' non-discrimination undertaking such that Unwired Planet was obliged to offer to Huawei the same rate it had offered to Samsung: the Samsung rate was relevant only in that it was a comparable licence ( EWHC 711 (Pat), paragraphs 481–521). Birss J has granted permission to appeal on this point ( EWHC 1304 (Pat), paragraph 64). Of course, if it could be shown additionally that the patentee was offering different rates in a manner that distorted competition, then the defendant in any event might rely on Article 102 TFEU in the usual way.
As to the territorial scope of the licence, Birss J held that a worldwide licence was FRAND and Unwired Planet were entitled to insist upon it ( EWHC 711 (Pat), paragraphs 524–572). Unwired Planet's portfolio was sufficiently large and had sufficiently wide geographical scope that a licensor and licensee acting reasonably and on a willing basis 'would regard country-by-country licensing as madness' (paragraph 543). Nonetheless, if the result would amount to unlawful bundling under competition law, then it would not be FRAND. In this case, however, given the prevalence of worldwide licensing and of assessment based on patent families, Birss J was not prepared to assume in the absence of analysis of actual effects that the tying of a SEP licence in one country to a SEP licence in another had by its nature a foreclosure effect (paragraph 550). Birss J has granted permission to appeal on this point ( EWHC 1304 (Pat), paragraph 62). Birss J was plainly frustrated with Huawei's failure to engage with Unwired Planet's worldwide licence proposals, which required him to deal with the terms of the injunction at a separate hearing ( EWHC 711 (Pat), paragraphs 581 and 794, and ( EWHC 1304 (Pat), paragraph 4).
Finally, the FRAND licence would include a term providing for back royalties, from an effective date of 1 January 2013 (when the Huawei–Ericsson licence ended), to cover proven infringements up to the date of the trial ( EWHC 711 (Pat), paragraph 593). Given Huawei's failure to agree to a FRAND licence, Unwired Planet was entitled to damages, calculated on the compensatory principle (i.e., on the basis of the FRAND rate (paragraphs 796–802)).
The appeal from Birss J's judgment was heard in the Court of Appeal in May 2018 before Kitchin, Floyd and Asplin LJJ. Guidance from the Court of Appeal in this area can, therefore, be expected in the coming year.
The Unwired Planet decision has, however, already been followed by important decisions in respect of jurisdiction.
Carr J in Conversant Wireless Licensing v. Huawei Technologies & ors ( EWHC 808 (Pat)) referred heavily to Birss J's approach. Carr J retained jurisdiction in England and Wales over a claim for jurisdiction of UK patents seeking the determination of a global FRAND rate. The Court held that the forum conveniens for the claims was England, since the claims were for infringement of UK patents, despite the fact that the Court might determine, in accordance with Unwired Planet, that the licence terms under which it would be FRAND for the parties to conclude would be on a global or portfolio-wide basis. Carr J observed that a requirement that the claimant should bring separate proceedings in each jurisdiction would be a 'hold-out charter'. Permission was given to serve out of the jurisdiction. Carr J has granted permission to appeal ( EWHC 1216 (Ch)).
The Apple v Qualcomm proceedings have also seen an initial jurisdictional ruling from Morgan J ( EWHC 1188 (Pat)). On that occasion, the High Court declined to allow Apple to bring its case alleging breach of Qualcomm's FRAND undertaking. Morgan J determined that: (1) affiliates of those who make declarations of essential patents to ETSI are not liable for breach of the terms of ETSI's IPR Policy, as a matter of the proper construction of the relevant provisions by reference to French law; (2) a claim for a declaration as to the exhaustion of rights concerns a 'claim form relating to a registered right' that may be served on a foreign party without permission at a registered service address in the UK; and (3) Gateway 4A of paragraph 3.1 of Practice Direction 6B is only available where another claim has in fact been served in reliance on one of the other stipulated gateways. The jurisdictional problem essentially arose from Apple's reliance on UK subsidiaries of Qualcomm as 'anchor' defendants entitling them to bring proceedings in the UK, even though those subsidiaries did not own the relevant patents. The effect of Morgan J's judgment is that (subject to appeal) Apple's central FRAND claim will not be allowed to proceed, although related claims will – including, for now, Apple's follow-on claim based on the European Commission's decision.
iv Anticompetitive or exclusionary royalties
In the main Unwired Planet judgment ( EWHC 711 (Pat)), Birss J rejected (at paragraphs 756–784) a suggestion that Unwired Planet had abused its dominant position under Article 102 TFEU by making offers that significantly exceeded the FRAND rate and constituted an attempt to impose an unfair selling price. Birss J held that a FRAND rate would not be abusive, but a rate can be higher than the FRAND rate without being abusive too. Further, even the making of offers significantly higher than the FRAND rate that would, if imposed, constitute excessive pricing was not abusive, since those offers 'were obviously made as a step in negotiation and did not prejudice or disrupt it' (paragraph 784). Similarly, it was not contrary to the law on tying and bundling to make a first offer that put SEPs and non-SEPs together, in the absence of evidence on the facts of the case that the patentee was trying to use the market power given by the SEPs to secure a licence under the non-SEPs (paragraphs 785–791. It may be noted that there was no disagreement between the parties on the royalty base, and so Birss J was not asked to rule on whether the FRAND rate should be calculated by reference to the smallest saleable unit, a live controversy in other jurisdictions that may feature in future UK cases.
V INTELLECTUAL PROPERTY AND MERGERS
i Transfer of IP rights constituting a merger
Under EU law, there may be a 'concentration' where only part of an undertaking is acquired, as long as that part constitutes a business with identifiable market turnover; that part can consist of the acquisition or exclusive licence (for a duration sufficient to effect a structural change in the market on a lasting basis) of intellectual property rights.18 UK regulatory guidance likewise acknowledges that intangible assets can in theory constitute an enterprise where it is possible to identify turnover directly related to the transferred intangible assets that will also transfer to the buyer.19 That concentration must then be assessed by asking whether it would significantly impede effective competition in the common market or a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.20 For example, the combination of intellectual property assets in a concentration may make expansion or entry by (potential) competitors more difficult and thereby impede effective competition.21
ii Remedies involving divestitures of intellectual property
Under both EU and UK law, proposed concentrations that raise concerns may obtain clearance through the implementation of or the commitment to implement modifications or remedies addressing the concerns.
The policy objective is that any proposed divestiture remedy should be effective in that it sufficiently enhances the acquirer's ability to compete with the merger parties and so addresses the substantial lessening in competition caused by the merger. The applicable guidance suggests that intellectual property remedies pose particular risks in this regard. There may be ongoing uncertainty where what is proposed is a licence of intellectual property rights, as opposed to an outright divestiture of intellectual property assets or of a business including intellectual property assets. Licensing may be accepted instead of divestiture where divestiture would be impossible or would impede ongoing research. However, the licensee must have the necessary resources such as sales networks to be able to use the licence to enable effective competition.22 Other intellectual property remedies include rebranding23 and, where it is at least as effective as divestiture or part of a package of other remedies, and where ongoing dispute resolution problems are adequately addressed, the grant of access to intellectual property rights (such as patents, interoperability information, or access to new releases or upgrades of technology) to competitors.24 Intellectual property remedies of this type, which may require ongoing monitoring, are more comparable to ongoing behavioural commitment remedies, which are generally regarded by the authorities as being riskier.25 Because of the risks posed by intellectual property remedies, the guidance suggests that outright divestiture of a business (including intellectual property assets and the resources needed to make use of those assets) is the preferred remedy where it is feasible.26
The UK regulator notes that international coordination with other competition authorities may be particularly important in the case of mergers critically dependent on intellectual property rights.27
VI OTHER ABUSES
i Sham or vexatious IP litigation
There remains very little case law in the area of vexatious litigation, and what case law there is sets a very high bar for what counts as abuse of a dominant position. In Case T-111/96 ITT Promedia NV v. Commission  ECR II-02937, both the Commission and the General Court considered that the mere act of entering into litigation could not constitute an abuse of a dominant position, unless a dominant firm brings an action that is 'manifestly unfounded' and brought with the aim of eliminating competition. Each of these criteria should be construed restrictively, since restraining a dominant firm from engaging in litigation constitutes a limit on its fundamental right of access to the courts.
The General Court further endorsed this approach in Case T-119/09 Protégé International Ltd v. Commission ECLI:EU:T:2012:421. Pernod Ricard had a trademark for a drink called Wild Turkey and brought proceedings against Protégé in respect of its application for registration of the Wild Geese trademark. The General Court held that this conduct was not abusive since there was a potential risk of confusion between the two brands and so Pernod's case was not manifestly ill-founded.
It might be said that these rulings cast some doubt on the approach taken by the European Commission in its Motorola decision (see Section IV).
ii Misuse of the patent process
Case C-457/10 P AstraZeneca AB v. Commission ECLI:EU:C:2012:770 remains the leading case. The Commission had made an infringement decision against AstraZeneca, finding that it had breached Article 102 TFEU by: (1) obtaining supplementary protection certificates in respect of its omeprazole-based medicine (Losec) by submitting deliberately misleading information to the patent authorities; and (2) withdrawing its marketing authorisation for Losec in the form of capsules so that generic pharmaceutical companies could not commercialise their generic omeprazole capsule products. The General Court and then the Court of Justice substantially upheld the Commission's findings. As to (1), the Court of Justice made it clear that a misleading statement will not suffice on its own, but the consistent conduct in this case did (paragraphs 61–100). As to (2), the Court of Justice explained that Article 102 functions as a constraint on dominant undertakings' conduct even where they are otherwise acting within their rights under the regulations (paragraphs 114–56). The regulations underlying both (1) and (2) have now changed. However, this judgment does provide some guidance, even though it leaves the Article 102 concept of 'competition on the merits' unelucidated.
The European Commission identified misuse of the patent process as an area of concern in its Pharmaceutical Sector Inquiry Report of 8 July 2009 (e.g., paragraphs 507–22) and recommended the strengthening of competition law action (paragraphs 1,564–1,577).
iii Anticompetitive settlements of IP disputes
In common with other jurisdictions, there has in recent years been greater scrutiny in the United Kingdom of the potential for anticompetitive effects of the settlement of patent disputes, in particular where an originator company makes a 'value transfer' to a generic company to avoid or delay the entry of generics onto the market. The European Commission has issued two pay-for-delay decisions. In 2013, it imposed fines of nearly €150 million on the Danish pharmaceutical company Lundbeck Ltd and several generic pharmaceutical producers in relation to what it found were deals to delay the market entry of cheaper generic versions of Lundbeck's branded anti-depressant medicine citalopram, which imposed an unlawful restriction by object under Article 101 TFEU. In 2014, it fined the French pharmaceutical company Servier SAS and five generic pharmaceutical companies a combined total of €427.7 million, finding that towards the end of the life of Servier's patent protection for its bestselling blood pressure medicine, perindopril, Servier implemented a strategy to delay entry onto the market of generic versions of perindopril by purchasing technology that would have assisted generics producers and then by initiating and settling patent litigation with generics producers by making certain payments and other 'value transfers' to them.28 The Commission found that the agreements breached Article 101 TFEU (both as to their object and as to their effect) and that Servier's conduct also breached Article 102 TFEU. Both decisions have been appealed and judgment from the General Court is awaited in both cases.
On 12 February 2016, the CMA made its own infringement decision (Paroxetine) against GlaxoSmithKline plc (GSK) and two generic pharmaceutical companies, Generics (UK) Ltd (GUK) and Alpharma Ltd, in an alleged 'value transfer'/pay-for-delay/reverse payment case.29 The companies were fined £45 million in total. The £37 million fine imposed on GSK was at the time the second-largest ever levied on a single company.
The decision related to conduct and agreements between 2001 and 2004 concerning GSK's branded paroxetine-based anti-depressant medicine (Seroxat), which was at the time one of GSK's bestselling medicines. During this period GSK held certain patents in relation to paroxetine. The CMA found that in 2001, various generic pharmaceutical companies, including Norton Healthcare Ltd (IVAX), GUK and Alpharma, were taking steps to enter the market with generic versions of paroxetine. GSK considered that its patents would be infringed if the generic companies brought their products to the market. It settled its differences with IVAX without commencing litigation and with GUK and Alpharma after litigation had commenced. The CMA found that these settlements involved payments and other 'value transfers' that induced the generic companies to delay their entry as competitors into the UK market for paroxetine, and that: (1) GSK and GUK thereby breached Article 101 TFEU and the Chapter I prohibition, by both object and effect; (2) GSK and Alpharma thereby breached the Chapter I prohibition, by both object and effect; (3) there was no breach of the Chapter I prohibition in respect of the settlement with IVAX because it was excluded by virtue of the then-applicable CA 1998 (Land and Vertical Agreements Exclusion Order) 2000, SI 2000/310; and (4) GSK thereby breached the Chapter II prohibition through its conduct in relation to all three settlement agreements.
GSK, GUK and Alpharma appealed to the CAT against this decision. Each disputed both liability and the size of the fine. The five-week trial took place between 27 February and 31 March 2017.30 The CAT handed down its judgment on 8 March 2018, indicating that it had decided to refer questions to the Court of Justice in respect of each of the central issues. It made its Order for a preliminary reference to the CJEU on 27 March 2018 (including a length statement of facts), covering the following central issues:
- potential competition: The CAT expressed the provisional view that the decision was correct to find that the generic companies were potential competitors of GSK, but it decided that it was necessary to refer a question to the CJEU on this point (see – and – of the judgment);
- infringement by object: One of the most controversial issues on the appeals was whether the agreements could be characterised as 'pay-for-delay' agreements and, if so, whether they gave rise to an infringement of competition law by object. A further layer of complexity was how to analyse the benefits of the agreements. The CAT considered that the question of whether the agreements had the object of restricting competition was of wide importance and the law was not free from doubt, so that a reference to the CJEU needed to be made (see – of the judgment);
- infringement by effect: The CAT decided that it was necessary to refer a question to the CJEU asking whether a real possibility that the generic companies would have succeeded against GSK in the patent litigation was sufficient to establish an infringement by effect (see – of the judgment);
- market definition: The CAT disagreed with the approach taken by the CMA in its decision, but expressed a provisional view that the decision could be supported on the alternative basis advanced by the CMA's expert at the hearing, that the expected competitive constraint of generic entry can be taken into account once such entry becomes a realistic possibility, in circumstances where the alleged abuse was targeted at those generic companies. It recognised that this approach to market definition was 'novel' and, therefore, referred a question to the CJEU on this point (see – of the judgment); and
- abuse. As the question of whether GSK had committed an abuse depended in part on the same issues as arose in the questions concerning the agreements, the CAT decided that it was also necessary to refer questions to the CJEU on abuse (see – of the judgment).
Finally, the Tribunal also dismissed the appellants' arguments in relation to the exclusion order for vertical agreements, block exemption, individual exemption, breach of the rights of defence and attribution of liability.
VII OUTLOOK AND CONCLUSIONS
Prior to the general election on 8 June 2017 (in which the Conservative Party lost its outright majority in Parliament), the government had indicated in a White Paper that Brexit would involve leaving the European Economic Area (EEA) (a 'hard Brexit').31 The consequences of such a course of action for UK competition law would be profound, with the most immediate effects being on matters of procedure and enforcement. In the long term, it may be that UK competition policy, no longer bound by the need to promote the EEA's single market, would move in a different direction from EU competition policy, so that there would be divergence on substantive law.
Speculation as to the likely outcome of the Brexit negotiations and the consequences of a hard Brexit is, however, beyond the scope of this chapter. The reader is referred to the valuable work that has been undertaken by various organisations and working groups in this regard.32
More concretely, there is the prospect in the coming year of additional judicial guidance, in particular in the important and hitherto relatively underdeveloped area of licensing under FRAND terms (the forthcoming appeal to the Court of Appeal on various important points of principle in the Unwired Planet litigation, and the related issues arising out of the Conversant v. Huawei and Apple v. Qualcomm cases). The Court of Justice judgment concerning pay-for-delay patent settlements (further to the reference made by the CAT in the Paroxetine appeal) may also be expected to provide important guidance when it arrives, albeit that it is not expected to do so in the coming year owing to the fact that the reference is still at an early stage.
1 James Flynn QC and Charlotte Thomas are barristers at Brick Court Chambers.
2 The Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017, SI 2017/385.
3 TTBER 2014, Article 4(1).
4 Commission Guidelines on technology transfer agreements (2014), paragraphs 103–104.
5 TTBER 2014, Article 4(2).
6 TTBER 2014, Article 5.
7 Cases C-241/91 P etc RTE and ITP v. Commission  ECR I-743 (the Magill case), paragraph 49.
8 The Magill case, paragraphs 54–56; Case T-201/04 Microsoft v. Commission  ECR II-3601 (Microsoft v. Commission), paragraphs 331–334.
9 Microsoft v. Commission, paragraph 647; and see Guidance on Commission's enforcement priorities in applying Article 82 to exclusionary conduct (2009), paragraph 81 ('consumer harm' is the enforcement priority).
10 Microsoft v. Commission, paragraphs 758 and 763; Guidance on Commission's enforcement priorities in applying Article 82 to exclusionary conduct (2009), paragraph 79.
11 See recital 7 of the TTBER 2014 and the Commission Guidelines on technology transfer agreements (2014), paragraph 56.
12 Commission Guidelines on technology transfer agreements (2014), paragraphs 244–73.
13 Commission Guidelines on technology transfer agreements (2014), paragraphs 244–47.
14 Commission Guidelines on technology transfer agreements (2014), paragraph 267(d).
15 Commission Guidelines on technology transfer agreements (2014), paragraph 261.
16 Commission Guidelines on technology transfer agreements (2014), paragraphs 62–63.
17 Case AT.39985, Commission Decision, C(2014) 2892 final, recital 561, accessible at http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39985. A parallel case involving Samsung's licensing practices was settled by the giving of commitments: Case AT.39939, C(2014) 2891 final, accessible at http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39939.
18 See generally the Commission's Consolidated Jurisdictional Notice (2007), paragraph 24.
19 OFT1254, 'Merger Assessment Guidelines' (2010), paragraph 3.2.4.
20 Merger Regulation, Articles 2(2) and 2(3).
21 OFT1254, 'Merger Assessment Guidelines' (2010), paragraph 5.8.5.
22 Commission's notice on remedies (2008), paragraph 38; CC8, 'Merger Remedies: Competition Commission Guidelines (2008), paragraph 3.29.
23 Commission's notice on remedies (2008), paragraph 39.
24 Commission's notice on remedies (2008), paragraphs 61–66 and 130.
25 CC8, 'Merger Remedies: Competition Commission Guidelines (2008), paragraphs 2.7 and 3.28.
26 CC8, 'Merger Remedies: Competition Commission Guidelines (2008), paragraph 3.30. However, for a recent example where the CMA ordered a lengthy (eight years, including a one-year 'blackout') exclusive licence of a brand including all associated intellectual property rights to allow the licensee to transition the existing brand to its own, see the CMA's acceptance on 20 June 2016 of final undertakings from Reckitt Benckiser (the owner of the 'Durex' brand) in respect of its acquisition of the 'K-Y' brand of personal lubricants from Johnson & Johnson: accessible at www.gov.uk/cma-cases/-reckitt-benckiser-
27 CC8, 'Merger Remedies: Competition Commission Guidelines (2008), paragraphs 2.7 and 3.33.
28 See Commission Guidelines on Technology Transfer Agreements (2014), paragraphs 238–39.
29 Press release accessible at www.gov.uk/cma-cases/investigation-into-agreements-in-the-
30 The judgment, order for reference and other key documents including appeal summaries and transcripts of the hearing are accessible at www.catribunal.org.uk/237-9158/1252-1-12-16-GlaxoSmithKline-PLC.html.
31 'The United Kingdom's exit from and new partnership with the European Union' (Cm 9417) (2 February 2017).
32 The work of the Brexit Competition Law Working Group, including its final conclusions and recommendations reached in July 2017, is accessible at www.bclwg.org. See in particular the views of Sir John Vickers, the Group's chair (Warden of All Souls College, Oxford, and former Director General/Chairman of the Office of Fair Trading (the CMA's predecessor)), on the possible future direction of UK competition policy: 'Consequences of Brexit for competition law and policy', 7 December 2016, accessible at www.bclwg.org/wp-content/uploads/2016/12/Vickers-British-Academy-7-Dec-16.pdf. See also the helpful summary by Sir Peter Roth (the current president of the CAT) of the effects on the enforcement and substance of competition law, including transitional provisions, likely to arise from a 'hard Brexit': 'Competition law and Brexit: the challenges ahead'  Comp Law 5, accessible at www.jordanpublishing.co.uk/system/froala_assets/documents/1580/CLJ_2017_01_Sir_Peter_Roth.pdf.