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 Article 101 or 102 of the 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 (ECJ) 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 an important decision from the Court of Appeal decision in the Unwired Planet fair, reasonable and non-discriminatory (FRAND) litigation (see Section IV.iii), together with rulings in other FRAND cases, such as TQ Delta v. Zyxel (see Section IV.ii). The decision of the ECJ in respect of the reference in the appeal of the CMA's decision to fine GlaxoSmithKline plc (GSK) and two generic pharmaceutical companies for entering into alleged 'reverse payment' or 'pay-for-delay' patent settlements is still awaited (see Section VI.iii).
Policy debate in UK competition law unsurprisingly continues to be 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) of the 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) of the TFEU. That period was due to expire on 29 March 2019 but has now been extended until 31 October 2019.
The European Union (Withdrawal) Act 2018, passed on 26 June 2018 (but amended to take account of the change in exit date), provides for the repeal of the European Communities Act 1972 from the date of Brexit day (or the end of any transitional period approved by the UK Parliament), but also provides that EU law – including the competition provisions – will be 'retained' as at the date on which Brexit occurs. ECJ judgments pre-dating Brexit will continue to be binding in domestic law at least as to the meaning and effect of any retained EU law, save that the Supreme Court may now depart from the precedent set by them (in the same way as the Supreme Court may depart from the precedent set by its own judgments). Parliament has also approved the Competition (Amendment etc.) (EU Exit) Regulations 2019, which have been drafted to operate in the event of a 'no deal' scenario. They provide that EU block exemption regulations (which are currently applied 'in parallel') will be continued in UK domestic law. They also provide for the revocation of Section 60 of the CA 1998, which obliges the CMA and UK courts to interpret UK competition law consistently with EU competition law (and to have regard to decisions of the European Commission); the new Section 60A instead only requires the CMA and UK courts to avoid inconsistency between their decisions and pre-exit EU case law, and further provides that they may depart from such pre-exit EU case law where it is considered appropriate in the light of particular circumstances. If this provision comes into force, it opens up the prospect of longer-term regulatory divergence. It is likely in any event that there will be a significant degree of continuing cooperation between the CMA and the EU Commission, although the precise contours of the future regulatory relationship still remain unclear.
In the short term, however, the law remains unchanged: 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 ECJ 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 The remainder of this chapter sets out the law as it stands at the time of writing.
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 Regulation3 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 of the 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 include4 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,5 allocation of markets or consumers, restrictions on the licensee exploiting its own technology rights, and restrictions on either party's engagement in research and development unless the restriction is indispensable. Slightly different hardcore restrictions are identified in the case of non-competing undertakings.6 Certain individual obligations, such as an obligation not to challenge the validity of EU intellectual property rights, are also excluded from protection.7 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.8 However, it can be abusive where certain criteria laid down in ECJ case law9 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)10 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).11
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,12 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.13 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.14 Licences granted by pools are likely to be incompatible with Article 101 of the TFEU where they contain any hardcore restrictions listed in Article 4 of the TTBER 2014.15 Conversely, the creation and operation of the pool, including licensing out, will generally comply with Article 101(1) of the 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.16 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.17 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 Regulation18 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) of the 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) of the 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 the absence of EU decisional practice and case law regarding whether an 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.19
In Huawei Technologies co Ltd v. ZTE Corp & ZTE Deutschland GmbH,20 AG Wathelet hinted in his Opinion of 20 November 201421 that there could be a presumption that an SEP holder was dominant, rebuttable by 'specific, detailed evidence' to the contrary. The German court had, however, referred no question on dominance and the ECJ took no view on the point.22 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,23 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. The Court of Appeal upheld that finding of dominance on appeal.24 The Court of Appeal's decision is itself being appealed to the Supreme Court.
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 brought a follow-on claim in the UK Apple v. Qualcomm proceedings arising out of this decision (see further Section IV.iii), but those proceedings have now settled.
Huawei v. ZTE (ECJ)
It was also in Huawei v. ZTE that the ECJ set out the circumstances under which the holder of an 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 of the TFEU. Like AG Wathelet,25 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,26 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:27 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.28 One of the allegations made by the defendants against Unwired Planet was that in seeking an injunction it was acting contrary to Article 102 of the TFEU.
Birss J observed in the context of an application for summary judgment in this case29 (considered further at Section IV.iii) 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'.30 In that decision, he explained31 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.32 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.33
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.34 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.35
At trial,36 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.37
In the remedies judgment,38 he granted what he called a 'FRAND injunction', explaining:39 '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.40 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.41 One of the allegations made by Huawei42 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 of the 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.43 Birss J granted permission to appeal on this point44 but the Court of Appeal upheld his judgment, and stated that, following the procedural steps set out by the ECJ in Huawei v. ZTE creates a 'safe harbour' that protects SEP holders, but failing to follow those steps does not necessarily mean that there has been an abuse of a dominant position.45 Huawei has been given permission to appeal to the Supreme Court.
TQ Delta v. Zyxel (Carr J)
Following a decision of 11 March 2019 in which he held that one SEP, due to expire on 25 June 2019, was valid, essential and infringed,46 Carr J was asked to decide whether an injunction should be granted and if so on what terms. Despite the proximity of the date of patent expiry, Carr J granted the injunction, without even any carve-out to permit Zyxel to supply certain orders.47 He found that Zyxel's approach had been one of 'hold-out' and that they should not be permitted to benefit from this strategy. It follows that the courts consider that both sides have obligations in FRAND negotiations: the SEP holder must offer licences on FRAND terms, but the potential licensee must also negotiate and act as a willing licensee.
An earlier, unusually lengthy, procedural judgment in this case, handed down on 19 February 2019,48 is also noteworthy; Carr J ordered the experts to meet in advance of trial to determine which patents were essential, rejecting Zyxel's 'excessive' estimate of trial length, and refusing to alter the trial date to take account of counsel availability. These steps enabled the trial date of September 2019 to be kept. This robust approach is an indication that the English courts are determined to take steps to streamline the process of bringing FRAND cases to trial and prevent defendants from engaging in delaying tactics.
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 2015,49 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 and the Court of Appeal in the form of the Unwired Planet judgments – though that guidance remains subject to Huawei's pending appeal to the Supreme Court. 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 to the Court of Appeal. In his judgment of 24 April 2015,50 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 2015,51 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 of the 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 point52 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.53 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.54
Birss J addressed the 'what is FRAND' issue at Paragraphs 83–626 of the main judgment in the Unwired Planet proceedings.55 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 of the 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'.56 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 granted permission to appeal on the issue of whether only one FRAND rate exists in any given case.57 On this point, the Court of Appeal departed from his view, on the basis that concepts such as 'fairness' and 'reasonableness' do not sit well with such a rigid approach.58
As to the exercise of working out what is and is not FRAND, Birss J 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.59 Birss J granted permission to appeal to Unwired Planet in respect of his treatment of the benchmark rate.60 The Court of Appeal, upholding Birss J's approach, held that the non-discrimination limb of the FRAND undertaking requires the setting of a benchmark rate by reference to the overall value of the portfolio.61
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.62 Birss J granted permission to appeal on this point.63 The Court of Appeal, dismissing the appeal, held that it was not necessary to set a rate equivalent to that offered to any other similarly situated licensee.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 of the 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.65 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'.66 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 an SEP licence in one country to an SEP licence in another had by its nature a foreclosure effect.67 Birss J granted permission to appeal on this point.68 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.69 The Court of Appeal upheld the judgment of Birss J, concluding that an SEP holder in the position of Unwired Planet can satisfy its FRAND obligations by offering a global licence to its patent portfolio, and an injunction restraining infringement in the UK may be available if a global licensing offer is rejected.70
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.71 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).72
UK courts have also recently handed down other important decisions in respect of jurisdiction.
Carr J in Conversant Wireless Licensing v. Huawei Technologies & ors73 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's decision was upheld by the Court of Appeal74 but Huawei has received permission to appeal to the Supreme Court.
The Apple v. Qualcomm proceedings also saw an initial jurisdictional ruling from Morgan J.75 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 was that Apple's central FRAND claim was not allowed to proceed, although Apple's follow-on claim was. Those proceedings have now settled.
iv Anticompetitive or exclusionary royalties
In the main Unwired Planet judgment,76 Birss J rejected77 a suggestion that Unwired Planet had abused its dominant position under Article 102 of the 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'.78 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.79 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.80 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.81 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.82 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.83
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.84 Other intellectual property remedies include rebranding85 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.86 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.87 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.88
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.89
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 ITT Promedia NV v. Commission,90 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 Protégé International Ltd v. Commission.91 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
The AstraZeneca AB v. Commission case92 remains the leading case. The Commission had made an infringement decision against AstraZeneca, finding that it had breached Article 102 of the 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 ECJ substantially upheld the Commission's findings. As to (1), the ECJ made it clear that a misleading statement will not suffice on its own, but the consistent conduct in this case did.93 As to (2), the ECJ explained that Article 102 functions as a constraint on dominant undertakings' conduct even where they are otherwise acting within their rights under the regulations.94 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 200995 and recommended the strengthening of competition law action.96
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 of the 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.97 The Commission found that the agreements breached Article 101 of the TFEU (both as to their object and as to their effect) and that Servier's conduct also breached Article 102 of the 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 GSK and two generic pharmaceutical companies, Generics (UK) Ltd (GUK) and Alpharma Ltd, in an alleged 'value transfer'/pay-for-delay/reverse payment case.98 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 of the 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 2017.99 The CAT handed down its judgment on 8 March 2018, indicating that it had decided to refer questions to the ECJ in respect of each of the central issues. It made its Order for a preliminary reference to the ECJ 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 ECJ on this point;100
- 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 ECJ needed to be made;101
- infringement by effect: the CAT decided that it was necessary to refer a question to the ECJ 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;102
- 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 ECJ on this point;103 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 ECJ on abuse.104
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').105 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. Since then, the debate has moved on to contemplate the possibility of a 'no-deal' Brexit, the consequences of which would likely be even more significant. 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 or no-deal 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,106 together with the guidance that has been published to assist stakeholders in the event of a no-deal Brexit.107
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, with the forthcoming Supreme Court decisions on appeal in the Unwired Planet and Conversant proceedings; there are also several SEP/FRAND cases listed to be heard in 2019 and the early part of 2020, including the TQ Delta case mentioned above. The ECJ 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.
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 Regulation (EU) No. 316/2014 (the TTBER 2014).
4 TTBER 2014, Article 4(1).
5 Commission Guidelines on technology transfer agreements (2014), Paragraphs 103 and 104.
6 TTBER 2014, Article 4(2).
7 TTBER 2014, Article 5.
8 Cases C-241/91 P etc., RTE and ITP v. Commission  ECR I-743 (the Magill case), Paragraph 49.
9 The Magill case, Paragraphs 54–56; Case T-201/04 Microsoft v. Commission  ECR II-3601 (Microsoft v. Commission), Paragraphs 331–334.
10 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).
11 Microsoft v. Commission, Paragraphs 758 and 763; Guidance on Commission's enforcement priorities in applying Article 82 to exclusionary conduct (2009), Paragraph 79.
12 See recital 7 of the TTBER 2014 and the Commission Guidelines on technology transfer agreements (2014), Paragraph 56.
13 Commission Guidelines on technology transfer agreements (2014), Paragraphs 244–273.
14 id., Paragraphs 244–247.
15 id., Paragraph 267(d).
16 id., Paragraph 261.
17 id., Paragraphs 62 and 63.
18 Regulation (EU) No. 330/2010.
19 Case AT.39985, Commission Decision, C(2014) 2892 final, recital 561. A parallel case involving Samsung's licensing practices was settled by the giving of commitments: Case AT.39939, C(2014) 2891 final.
20 Case C-170/13.
21 ECLI:EU:C:2014:2391, Paragraph 58.
22 Judgment of 16 July 2015, ECLI:EU:C:2015:477.
23  EWHC 711 (Pat).
24  EWCA Civ 2344, Paragraphs 213–229.
25 At Paragraphs 47–52 of his Opinion.
26 At Paragraphs 59–73 of the 16 July 2015 judgment.
27  EWHC 214 (Pat), Paragraphs 101–112.
28  EWHC 3366 (Pat), affirmed  EWCA Civ 266;  EWHC (Pat).
29  EWHC 1029 (Pat).
30 id., Paragraph 20.
31 id., at Paragraph 29.
32 id., Paragraphs 75 and 76.
33 id., Paragraph 77.
34  EWHC 711 (Pat), Paragraphs 7 and 8.
35 id., Paragraphs 13 and 14.
36  EWHC 711 (Pat).
37 id., Paragraphs 166 and 167.
38  EWHC 1304 (Pat).
39 id., at Paragraph 20.
40 id., Paragraph 21.
41  EWHC 711 (Pat).
42 id., discussed at Paragraphs 674–755.
43 id., Paragraph 795.
44  EWHC 1304 (Pat), Paragraph 65.
45  EWCA Civ 2344, Paragraphs 211–290.
46  EWHC 562 (Ch).
47  EWHC 745 (Pat).
48  EWHC 353 (Pat).
49  EWHC 1704, Paragraph 9.
50  EWHC 1029 (Pat).
51  EWHC 2097 (Pat).
52  EWCA Civ 489.
53  EWHC 711 (Pat), Paragraph 10.
54 id., Paragraphs 11 and 12.
55  EWHC 711 (Pat).
56 Paragraph 153.
57  EWHC 1304 (Pat), Paragraph 62.
58  EWCA Civ 2344, Paragraphs 118–125.
59 See  EWHC 711 (Pat), Paragraphs 475 and 476.
60  EWHC 1304 (Pat), Paragraph 68.
61  EWCA Civ 2344, Paragraphs 130–176.
62  EWHC 711 (Pat), Paragraphs 481–521.
63  EWHC 1304 (Pat), Paragraph 64.
64  EWCA Civ 2344, Paragraphs 177–207.
65  EWHC 711 (Pat), Paragraphs 524–572.
66 id., Paragraph 543.
67 id., Paragraph 550.
68  EWHC 1304 (Pat), Paragraph 62.
69  EWHC 711 (Pat), Paragraphs 581 and 794, and  EWHC 1304 (Pat), Paragraph 4.
70  EWCA Civ 2344, Paragraphs 30–129.
71  EWHC 711 (Pat), Paragraph 593.
72 id., Paragraphs 796–802.
73  EWHC 808 (Pat).
74  EWCA Civ 38.
75  EWHC 1188 (Pat).
76  EWHC 711 (Pat).
77 id., at Paragraphs 756–784.
78 id., Paragraph 784.
79 id., Paragraphs 785–791.
80 See generally the Commission's Consolidated Jurisdictional Notice (2007), Paragraph 24.
81 OFT1254, 'Merger Assessment Guidelines' (2010), Paragraph 3.2.4.
82 Merger Regulation, Articles 2(2) and 2(3).
83 OFT1254, 'Merger Assessment Guidelines' (2010), Paragraph 5.8.5.
84 Commission's notice on remedies (2008), Paragraph 38; CC8, 'Merger Remedies: Competition Commission Guidelines (2008), Paragraph 3.29.
85 Commission's notice on remedies (2008), Paragraph 39.
86 id., Paragraphs 61–66 and 130.
87 CC8, 'Merger Remedies: Competition Commission Guidelines (2008), Paragraphs 2.7 and 3.28.
88 id., 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.
89 CC8, 'Merger Remedies: Competition Commission Guidelines (2008), Paragraphs 2.7 and 3.33.
90 Case T-111/96  ECR II-02937.
91 Case T-119/09, ECLI:EU:T:2012:421.
92 Case C-457/10 P, ECLI:EU:C:2012:770.
93 id., Paragraphs 61–100.
94 id., Paragraphs 114–156.
95 For example, in Paragraphs 507–522.
96 Paragraphs 1,564–1,577.
97 See Commission Guidelines on technology transfer agreements (2014), Paragraphs 238 and 239.
99 The judgment, order for reference and other key documents including appeal summaries and transcripts of the hearing.
100 See – and – of the judgment.
101 See – of the judgment.
102 See – of the judgment.
103 See – of the judgment.
104 See – of the judgment.
105 'The United Kingdom's exit from and new partnership with the European Union' (Cm 9417) (2 February 2017).
106 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. 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.
107 See the CMA's 'Mergers and Antitrust Guidance', published on 18 March 2019, and the European Commission's 'Notice to Stakeholders on the Withdrawal of the United Kingdom and EU Competition Law', published on 25 March 2019.