The patent-antitrust interface: comparing US and European approaches

August 2020  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2020 Issue

At first glance, the rules governing the patent-antitrust interface in the US and Europe seem similar. In both jurisdictions there are legislative provisions relating to agreements in restraint of trade (in the US, Section 1 of the Sherman Act and Section 3 of the Clayton Act; in Europe, Article 101 of the Treaty on the Functioning of the European Union (EU)) and on improper acts by those having market power in a particular sector of the economy (in the US, Section 2 of the Sherman Act and Section 7 of the Clayton Act; in Europe, Article 102 of the Treaty on the Functioning of the EU.

The application of these provisions to patents has, however, differed on the two sides of the North Atlantic, for example with respect to what is permitted in patent licensing and in treatment of standards essential patents (SEPs). At least to some extent, these differences may result from different views as to the nature of a patent right.

The nature of the patent right

The first patent law, that of Venice in 1474, was part of a package of measures intended to convert Venice from a trading economy to a manufacturing one as its monopoly of trade between the Eastern and Western Mediterranean was eroded by increased Ottoman control of the Eastern Mediterranean littoral. The English Statute of Monopolies of 1623 limiting the right of the Crown to grant monopolies to patents for new manners of manufacture explicitly limited even this right to a requirement that the grant of the patent would not be generally inconvenient in its economic effects. In Europe, therefore, patents have generally been viewed as tools of economic policy. The position in the US is less clear. The Constitution gives Congress the power to promote the progress of useful arts by ‘securing’ for limited times to inventors the exclusive right to their discoveries. An argument can be made that this shows an intent to break with the English ‘economic incentive’ approach deriving from the Statute of Monopolies and that, in providing that Congress should ‘secure’ inventor’s rights in their inventions rather than ‘grant’ them rights to their inventions, the Constitution adopts an implicit recognition of a natural property right to the products of one’s own brain. This would be consistent with the writings of Locke and Rousseau which were influential on American thinking at the time. In April 2018, the US Supreme Court in Oil States Energy Services LLC v. Greene’s Energy Group LLC, specifically declined to address the question of whether patents were private property rights whose protection from seizure is protected by the Fifth Amendment to the Constitution.

How do these differences in approach play out in practice?

In the US, there are no special rules relating to patents under the Sherman or Clayton Acts. Ever since the Supreme Court’s 1926 decision in US v. General Electric Co., a ‘patent rule of reason’ has been applied so that: “conveying less than the title to the patent, the patentee may grant a licence to make use and vend an article under the specifications of his patent for any upon any condition, the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure”.

As a practical matter, few conditions have been found to go beyond what is reasonably within the reward to which the patentee is entitled. Agreements have been found to raise problems where patent infringement actions have been settled by the patent owner paying an alleged infringer to delay its entry into the market. This was quite common at one time in the pharmaceutical sector (so-called ‘pay for delay’ cases), but has become less common since the Supreme Court’s 2013 decision in which it upheld the right of the Federal Trade Commission (FTC) to challenge such settlements, but also held that the parties had the right to defend such agreements as being reasonable, for example that the magnitude of the payment was proportionate to the anticipated cost of litigation.

Turning to the application of Section 2 of the Sherman Act and Section 7 of the Clayton Act, the focus has been on improper acquisition of market power, for example by obtaining patents through ‘fraud on the Patent Office’, seeking to assert patent rights when knowing the patents in question are invalid and purchasing patents in a field where one already has a monopoly or near monopoly position.

The European position

Europe, on the other hand, has always seen something special about patent rights. The Paris Convention for Protection of Industrial Property, the drafting of which was primarily in the hands of Europeans, has, since 1883, accepted that member countries may provide that the grant of a patent may carry with it obligations on the owner, for example to use the patented invention within the country, that do not apply to other property rights, such as an obligation to use the patented invention.

Differences in statutory language between the US and the EU

It is important to note specific differences between the wording of the US statutes and the corresponding articles of the EU treaty.

With respect to the restraint of trade issue, Section 1 of the Sherman Act applies broadly to contracts in restraint of trade or commerce among several states or with foreign nations, but is normally construed applying a rule of reason that makes it difficult and expensive to apply. Article 101 of the Treaty on Functioning of the EU applies to agreements which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, but, subject to certain limitations, also provides for grant of an exemption where the agreement, for example, contributes to promoting technical progress while allowing consumers a fair share of the resulting benefit.

With respect to the market power issue, as noted above the Sherman and Clayton Act provisions focus largely on improper acquisition of market power whereas Article 102 of the Treaty on the Functioning of the EU addresses any abuse of a dominant position.

European specifics

In applying Article 101 to intellectual property transactions, the EU and its predecessors have adopted a series of regulations relating to technology transfer agreements, the most recent being that of 2014. These regulations have granted an exemption from the application of the prohibitions of Article 101 for various types of provision common in technology licensing agreements. Early versions of the regulation kept the exempt provisions to a minimum. The 2014 version distinguishes between agreements between competitors and non-competitors as to what is permitted and irrespective of this considers provisions such as a requirement to assign or grant an exclusive licence on any improvement made by the licensee to the licensor. The US would hold that if this is what the parties have bargained, there is no reason for competition authorities to intervene.

In cases such as Magill (2004) and Microsoft (2004), the European Court of Justice has made it clear that if a refusal to grant a licence under an intellectual property right prevents a secondary market from developing and this affects consumers in a negative way, such refusal can constitute abuse of a dominant position under Article 102. Again, since such situations do not relate to acquisitions of assets, the US would see this as a legitimate use of the IP holder’s rights.

Conclusion

US law is much less likely than European law to impose limitations on parties’ freedom to contract as they wish without the need to consider effect on competition. This difference in approach may be about to create problems in dealing with patents whose use is essential to comply with an industry standard – that is, SEPs.

In December 2019, the US Department of Justice (DOJ) and the US Patent and Trademark Office (PTO) issued a joint statement that no “special set of legal rules” apply to SEPs, and decision makers are able to assess appropriate remedies based on current law and relevant facts, but noted that a commitment made by a patent owner, the (standard development organisation’s) intellectual property policies, and the individual circumstances of licensing negotiations between patent owners and implementers all may be relevant in determining remedies for infringing an SEP, depending on the circumstances of each case. Separately from this, the DOJ has made it clear that it sees questions relating to the use of SEPs as arising under contract law rather than competition law.

In Europe, in its 2015 decision in Huawei v. ZTE, the Court of Justice of the European Union held that questions of breach of Article 102’s provisions on abuse of a dominant position could arise in the context of enforcement of SEPs unless prior to bringing that action, the patent owner, first, alerted the alleged infringer of the infringement complained about and, second, if the alleged infringer expressed its willingness to conclude a licensing agreement on fair, reasonable and nondiscriminatory terms, presented to that infringer a specific, written offer for a licence on such terms, and where the alleged infringer continues to use the patent in question and the alleged infringer did not diligently responded to that offer.

Cases involving Qualcomm currently before the Ninth Circuit Court of Appeals in the US and involving Unwired Planet currently before the UK’s Supreme Court may shed further light on these situations.

John Richards is of counsel at Ladas & Parry LLP. He can be contacted on +44 (0)20 7353 2680 or by email: jrichards@ladas.com.

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BY

John Richards

Ladas & Parry LLP

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