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Settlement Agreement Clause Not to Challenge Patent Validity May be Void in Europe

By William F. Heinze

Thanks to the IPKat for pointing out Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake Products GmbH [2008] EWHC 156 (Pat), a ruling of England and Wales Patents Court where judge Mr Justice Lewison stated that "There is at the least a good arguable case that, even if KBS UK are bound by the non-challenge [to patent validity] clause (which in my judgment they are not) that clause is void because it contravenes article 81 EC:"

. . . 48. Mr Vanhegan submitted that in any event the non-challenge clause is void as being a contravention of article 81 EC. In Windsurfing International Inc v European Commission [1988] F.S.R. 139 the ECJ considered the effect of a non-challenge clause in a patent licensing agreement. It said:

"[89] The seventh of the clauses which the Commission regards as incompatible with Article 85(1) relates to the obligation on the licensees not to challenge the validity of the licensed patents.

[90] On that point, Windsurfing International argues that the interest of the public in an essentially free system of competition, an interest which in any event was protected by the thorough and extensive patent application procedure provided for by the German legislation, was better served by a no-challenge clause making it easier to be granted a licence by the patentee.

[91] The Commission, however, takes the view that even where a licensee is only able to challenge a patent because of the information which has become available to him as a result of his privileged relationship with the licensor, the public interest in ensuring an essentially free system of competition and therefore in the removal of a monopoly perhaps wrongly granted to the licensor must prevail over any other consideration.

[92] It must be stated that such a clause clearly does not fall within the specific subject-matter of the patent, which cannot be interpreted as also affording protection against actions brought in order to challenge the patent's validity, in view of the fact that it is in the public interest to eliminate any obstacle to economic activity which may arise where a patent was granted in error.

[93] It must therefore be held that the obligation referred to in paragraph (3) of Article 1 of the decision constitutes an unlawful restriction on competition between manufacturers."

49. In Bayer AG and Maschinenfabrik Hennecke GmbH v. Süllhöfer [1990] F.S.R. 300 the ECJ held that it made no difference that the non-challenge clause was contained in an agreement settling litigation. The court said:

"[14] In the Commission's view, an undertaking not to challenge an industrial property right included in a licensing agreement should, in principle, be considered to be a restriction of competition. Such a clause is, however, compatible with Article 85(1) of the EEC Treaty when it is included in an agreement whose purpose is to put an end to proceedings pending before a court, provided that the existence of the industrial property right which is the subject-matter of the dispute is genuinely in doubt, that the agreement includes no other clauses restricting competition, and that the no-challenge clause relates to the right in issue.

[15] The point of view put forward by the Commission cannot be accepted. In its prohibition of certain agreements between undertakings, Article 85(1) makes no distinction between agreements whose purpose is to put an end to litigation and those concluded with other aims in mind. It should also be noted that this assessment of such a settlement is without prejudice to the question whether, and to what extent, a judicial settlement reached before a national court which constitutes a judicial act may be invalid for breach of Community competition rules.

[16] A no-challenge clause included in a patent licensing agreement may, in the light of the legal and economic context, restrict competition within the meaning of Article 85(1) of the EEC Treaty.

[17] In regard to that context, it should be pointed out that there is no restriction on competition when the licence granted is a free licence in as much as, in those circumstances, the licensee does not suffer from the competitive disadvantage involved in the payment of royalties.

[18] Nor does a no-challenge clause contained in a licence granted subject to payment of royalties restrict competition when the licence relates to a technically outdated process which the licensee undertaking did not use."

50. In the present case it is common ground that both KBS and Haldex are part of an oligopoly in the field of braking systems for commercial vehicles and that their trade is conducted throughout the EU. On the face of it, therefore, a non-challenge clause is likely to distort competition and affect trade between member states. There is no uestion in the present case of a free licence. Nor is it possible to say that the technology in question is outdated, since Haldex relies on the two patents as preventing the commercialisation of the SV3801 valve. . . .

Full post as published by I/P Updates on February 19, 2008 (boomark / email).