1. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence EU-China IPR2 Project Conference on intellectual property related issues in the judicial application of competition law Dalian, June 10-11, 2010 Federal Court of Justice Karlsruhe - Germany Dr. Matthias Zigann District Court Judge Law Clerk with the Xth (Patent) Senate of the Federal Court of Justice

2. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 2 I. Claim for a compulsory patent licence 1. Legal Background 2. Standard Tight-Head Drum Case II. Compulsory licence defence in patent infringement proceedings 1. Legal Background 2. Orange Book Standard Case III. Practical Problems

3. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 3 I. Claim for a compulsory patent licence 1. Legal Background a. Patent Law Sec. 24 → Independent from anti-competitive practice → Public interest is essential → Licencee-to-be has unsuccessfully tried to obtain a licence b. Act Against Restraints of Competition Sec. 19 and 20 → Dominant market position → Abusive exploitation of dominant market position → Without (any) objective justification

4. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 4 I. Claim for a compulsory patent licence 2. Standard Tight-Head Drum Case BGH, Urt. v. 13.7.2004 – KZR 40/02, BGHZ 160, 67 – Standard-Spundfaß Federal Court of Justice, Decision of July 13th, 2004 - Case-No. KZR 40/02, IIC 2005, 741 – Standard Tight-Head Drum a. Facts of the case (1) EP 0 515 390

5. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 5 I. Claim for a compulsory patent licence 2. Standard Tight-Head Drum Case BGH, Urt. v. 13.7.2004 – KZR 40/02, BGHZ 160, 67 – Standard-Spundfaß Federal Court of Justice, Decision of July 13th, 2004 - Case-No. KZR 40/02, IIC 2005, 741 – Standard Tight-Head Drum a. Facts of the case (2) - Both produce and distribute drums for the chemical industry - Plaintiff: European Patent protecting a special kind of drum - Chemical industry standard for drums according to European Patent - Plaintiff: grants royalty-free and paid licences, but not to defendant - Royalty-free-licencees had been - together with the plaintiff - members of a group to design a new drum for the chemical industry - The plaintiff’s drum design won - Defendant counterclaims unequal treatment under Sec. 19 and 20 - Defendant desires plaintiff to be sentenced to allow the defendant to use the patent free of charge in Germany

6. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 6 I. Claim for a compulsory patent licence 2. Standard Tight-Head Drum Case BGH, Urt. v. 13.7.2004 – KZR 40/02, BGHZ 160, 67 – Standard-Spundfaß Federal Court of Justice, Decision of July 13th, 2004 - Case-No. KZR 40/02, IIC 2005, 741 – Standard Tight-Head Drum b. Decision by the Federal Court of Justice - Sec. 19 and 20 Act Against Restraints of Competition possible basis for a claim to compulsory licence - Not ruled out by Sec. 24 Patent Act - Exclusivity effect is central element of IPR (competition by substitution as opposed to imitation) - Market-dominating position by the patent proprietor is basically OK - Not OK if not by innovation but by standardization - Criteria for granting licences contradict the purpose of the Act Against Restraints of Competition - Review again by lower court: share of useless development costs justified? - Settlement?

7. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 7 II. Compulsory licence defence in patent infringement proceedings 1. Legal Background a. Civil Code Sec. 242 “The obligor must perform in a manner consistent with good faith taking into account accepted practice.” b. “dolo agit, qui petit, quod statim redditurus est” (Latin) = someone who asks for something acts in bad faith if he will have to give back immediately what he asks for

8. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 8 II. Compulsory licence defence in patent infringement proceedings 2. Orange Book Standard Case BGH, Urt. v. 6.5.2009 – KZR 39/06, BGHZ 180, 312 – Orange Book Standard Federal Court of Justice, Decision of May 6th, 2009 - Case-No. KZR 39/06, IIC 2010, 369 – Orange Book Standard a. Facts of the Case (1) EP 0 325 330

9. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 9 II. Compulsory licence defence in patent infringement proceedings 2. Orange Book Standard Case BGH, Urt. v. 6.5.2009 – KZR 39/06, BGHZ 180, 312 – Orange Book Standard Federal Court of Justice, Decision of May 6th, 2009 - Case-No. KZR 39/06, IIC 2010, 369 – Orange Book Standard a. Facts of the Case (2) - Patent: recordable and rewritable optical data carriers (CD-R and CD-RW). - Defendant: distributes CD-Rs and CD-RWs throughout Europe - Plaintiff: “Orange-Book-Standard” = patent infringement - Defendant: no infringement - Defendant: discrimination (licence fee > 3%) - Defendant: plaintiff is failing to duly enforce licence claims = 3%

10. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 10 II. Compulsory licence defence in patent infringement proceedings 2. Orange Book Standard Case BGH, Urt. v. 6.5.2009 – KZR 39/06, BGHZ 180, 312 – Orange Book Standard Federal Court of Justice, Decision of May 6th, 2009 - Case-No. KZR 39/06, IIC 2010, 369 – Orange Book Standard b. Decision by the Federal Court of Justice (1) - Patent infringement + - Antitrust law compulsory licence defence generally admissible (“dolo agit”-defence), if - Dominant market position - Dependent on the adherence to the standard (Tight-Head Drum Case) - Discrimination or unreasonably obstruction - Injunction would be abuse of dominant market position - Two further conditions:

11. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 11 II. Compulsory licence defence in patent infringement proceedings 2. Orange Book Standard Case BGH, Urt. v. 6.5.2009 – KZR 39/06, BGHZ 180, 312 – Orange Book Standard Federal Court of Justice, Decision of May 6th, 2009 - Case-No. KZR 39/06, IIC 2010, 369 – Orange Book Standard b. Decision by the Federal Court of Justice (2) - 1st Condition decent and unconditional licence agreement offer by all companies involved in patent infringement - 2nd Condition if use before licence agreement: defendant has to behave as if the patent proprietor had already accepted - account for the use on a regularly basis and - pay licence fees (royalties) resulting from accounts

12. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 12 II. Compulsory licence defence in patent infringement proceedings 2. Orange Book Standard Case BGH, Urt. v. 6.5.2009 – KZR 39/06, BGHZ 180, 312 – Orange Book Standard Federal Court of Justice, Decision of May 6th, 2009 - Case-No. KZR 39/06, IIC 2010, 369 – Orange Book Standard b. Decision by the Federal Court of Justice (3) - The judgment of the Court of Appeal against the defendant was confirmed: - Defendant had not even accounted at least for the licence fees of 3% that he owed according to his own opinion - Had not deposited a corresponding amount - All other questions left unanswered

13. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 13 III. Practical Problems 1. How to determine the amount of the licence fee? - Limited to amount resulting from the terms of an agreement that is unobjectionable under antitrust law - Different royalty rates to different product markets OK - Discrimination within product markets not OK - Quota licence: not OK if price decline - Volume licence: matter of fact finding (comparison with other - comparable - licence agreements)

14. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 14 III. Practical Problems 2. What to do if the party seeking a licence considers the patent proprietor’s licence fee claims to be excessive or the patent proprietor refuses to quantify the licence fee because he believes to be entitled to refuse to grant a licence in the patent anyway? - Offer: Licence fee to be determined by the patent proprietor - Deposit of an amount deemed appropriate - Infringement court: will dismiss patent infringement action if at least a sufficient amount is deposited - Patent proprietor determines licence fee at his reasonable discretion - Another lawsuit: court will review whether determined licence fee is appropriate - If deposited amount higher: difference goes back to licencee-to-be - If deposited amount too low: another lawsuit by patent proprietor?

15. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 15 III. Practical Problems 3. What can I do if I do not need or want to take a licence on all patents and all territories included in a patent pool? - Ask each patent owner for an individual licence - No right to ask for an individual fragment of the patent pool

16. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 16 III. Practical Problems 4. What can I do if a am denied a licence on a patent not included into an industrial standard? - Patent proprietor is basically free - But if market dominating position for other reasons he may not turn down a decent licence offer without any objectively justifiable reason. Business strategy reasons may suffice.

17. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 17 III. Practical Problems 5. Can I ask for the issuance of a preliminary injunction to grant me a compulsory patent licence? - In theory: yes. - But in daily life: compulsory licence defence faster and more efficient - However: if the legal situation is unclear, it might be convenient to ask the court for a fast evaluation on the merits

18. Compulsory Patent Licence in German Law with focus on the Antitrust Compulsory Licence Defence 18 Thank you very much for your attention! © IPR2 / Dr. Matthias Zigann 2010