Dutch Court Rejected FRAND Defence

(IPRinfo 3/2010)

Wim Helwegen
Researcher, IPR University Center

In a judgment of 17 March 2010, the District Court of The Hague addressed whether the infringer of a patent right can rightfully claim that a patent cannot be enforced because the infringer meets the terms of a FRAND license.

Philips is the proprietor of European patent 0 397 238, relating, inter alia, to an information recording system and European patent 1 066 628, relating to a record carrier and apparatus for scanning the record carrier.

The former patent is essential to the CD-R standard and the latter patent is essential to the DVD+R standard. SK Kassetten (”SK”) had sold and offered for sale CD-R and DVD+R discs in the Netherlands until at least December of 2009. SK purchased these discs from its subsidiary Global Digital Disc GmbH & Co KG and from producers in Taiwan, China and India.

Because SK did not have a license for either of the patents, Philips requested the District Court of The Hague for an injunction against SK. SK employed a multitude of defenses, such as disputing the Dutch court’s jurisdiction, disputing the patents’ novelty and inventiveness, exhaustion and denying that its products infringed Philips’s patents. None of those defenses were even remotely successful.

SK further argued that Philips could not enforce its patent rights in this case because SK, in its own view, was entitled to a compulsory license on FRAND terms because it, again in its own view, complied with the requirements of such a license.

The FRAND defense was rejected on three grounds
SK’s FRAND defense was rejected for three main reasons. First of all, the court held that allowing SK’s defense would lead to a situation in which a patent holder cannot enforce its rights if an infringer merely claims to be entitled to a compulsory license. Such a situation would not be in accordance with the system for compulsory licenses as intended by the Dutch legislator.

The system for compulsory licenses intended by the legislator and applied in practice is that patent rights are only unenforceable if a license actually exists; compulsory licenses can only take effect after their conclusion between the involved parties or after being handed down by a court. The only exception is that certain compulsory licenses can have a retrospective effect, but that issue did not arise in the case at hand.

Second, the court noted that SK’s reasoning would lead to legal uncertainty. The situation where the patent holder and potential licensor do not agree on whether or not a claim for a license is justified and which terms and royalties are FRAND is certainly not uncommon. Hence, it is desirable from a perspective of legal certainty only to bar the enforcement of a patent if the license actually exists and not before that point.

SK failed to request a license from Philips
Finally, the court held that because Philips is the holder of a patent right that SK wants to use, SK should have taken the initiative to request a license from Philips. The offer should have taken place before SK brought its infringing products to the market, or at least as soon as SK knew or could reasonably assume that its discs infringed Philip’s patent.

If Philips had refused the license, SK could have brought the case before a court in order to obtain a compulsory license.
As far as there was an urgent need involved for SK, it could have requested an interim relief proceeding (”kort geding”). However, SK opted to enter the market without any authorization from either Philips or the court and only offered Philips to take a license on FRAND terms after being summoned before a court.

Moreover, SK’s rights were sufficiently safeguarded because it would have been entitled to compensatory damages in case of an unwarranted refusal to license by Philips.

The criteria of the ”Orange Book” case were not applicable
The decision clearly differs from the Orange Book judgment of the German Federal Supreme Court (BGH, 6 May 2009, KZR 39/06). The BGH allowed the alleged infringer to use the patented invention if, shortly put, the alleged infringer makes the patent holder an unconditional offer to license the invention on FRAND terms and already complies with the conditions of the license, which as far as the payment of royalties is concerned can be done by securing the payment.

The Dutch court did not apply the reasoning of the Orange Book judgment because, for the reasons mentioned above, it would not be in accordance with patent law, it would create legal uncertainty and because the interests of SK are sufficiently safeguarded by the possibility to obtain a compulsory license through a court.

Moreover, the district court of The Hague noted that SK would be equally unsuccessful if the Orange Book criteria would be applied because SK admitted that it did not pay any royalties or secure a payment for the royalties due, as required by the Orange Book judgment.

The judgment ”Koninklijke Philips Electronics N.V. v. SK Kassetten GmbH & Co. KG, Infringement, FRAND, District Court The Hague, The Netherlands, 17 March 2010, Joint Cases No. 316533/HA ZA 08-2522 and 316535/HA ZA 08-2524” is posted (in Dutch) on the comment article on the web site of eplawpatentblog.com on 17 March 2010: http://www.eplawpatentblog.com/eplaw/2010/03/nl-philips-v-sk-kasetten-frand.html

In addition to the decision database of The Federal Supreme Court of Germany (BGH)
(http://www.bundesgerichtshof.de/cln_136/DE/Entscheidungen/EntscheidungenBGH/entscheidungenBGH_node.html) the s.c. ”Orange Book” judgment (Urteil vom 6. Mai 2009 – KZR 39/06 – Orange-Book-Standard ) is available via many patent-related web sites, for instance ”Patentrecht”:
http://www.patentrecht.justlaw.de/urteile/bgh-39-06.pdf

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