On Friday 27 May, the Court of Appeal handed down an important judgment on the interplay between competition law and the licensing of essential patents.

This is part of a landmark patent infringement case where Unwired Planet, a “patent assertion entity” that has acquired from Ericsson certain “standard essential patents” (“SEPS”) used in smartphones and network equipment, has sued Samsung, Google and Huawei for infringing the SEPS (Google has largely settled out).

Ericsson continues to derive licensing income from the patent assertion entity, on an ongoing basis.  Among other things, it is contended that Ericsson is seeking to circumvent its own obligations to license its patents on Fair Reasonable and Non Discriminatory (“FRAND”) terms by using a “privateer”.  Ericsson has been joined to the action.  Samsung and Huawei have raised various competition law defences, under Articles 101 and 102 TFEU.

In the High Court, Birss J. struck out one of Samsung’s Article 101 TFEU defences.  This related to the complaint about the effectiveness of the transfer from Ericsson of its obligation to license essential patents on FRAND terms.  Samsung argued, among other things, that the content of Ericsson’s original “non-discrimination” obligation would be circumvented by Ericsson transferring the patents to the patent assertion entity, without the new entity needing to have regard to Ericsson’s duty of non-discrimination.  The High Court ruled that this contention should be struck out: it was enough for Unwired Planet to make a fresh FRAND declaration of its own.

The Court of Appeal has overruled the High Court on this issue.  It has accepted that Samsung has an arguable case that the arrangement whereby Ericsson transferred the SEPs to Unwired Planet is in breach of Article 101 TFEU and void because of the failure to ensure that Unwired Planet would respect the non-discrimination aspect of Ericsson’s FRAND obligation.  It upheld the Judge on another aspect of the complaint, however, which related to whether the transfer of the patents had given prospective licensees the same enforceable rights to insist on FRAND terms as such persons used to have against Ericsson, when Ericsson owned and licensed the patents directly.

In his judgment, Lord Justice Kitchin (with whom Lord Justice Tomlinson and Sir Timothy Lloyd agreed) recognised that this is a developing area of the law which has received recent attention from the Court of Justice of the EU and the European Commission.  He accepted Samsung’s argument that it has a realistic prospect of persuading the trial judge that it would be anti-competitive for Unwired Planet to be able to charge licence fees which are significantly higher than those which Ericsson itself charged and which would have been discriminatory having regard to Ericsson’s existing licensees had Ericsson sought to charge them directly.  He recognised that these higher licence fees could distort or restrict competition in downstream markets to the detriment of consumers.

Lord Justice Kitchin also accepted the inter-relationship between Samsung’s non-discrimination argument and its other competition law defences, in particular the argument that Ericsson strategically sold part of its portfolio of essential patents to Unwired Planet, while keeping a close ongoing involvement in the monetization of those patents.  He considered that Samsung has an arguable case that Ericsson has sought to circumvent its own FRAND obligation and simultaneously benefit from the increased licence fees.

Samsung’s various competition law arguments will be considered at the 13 week trial, due to commence in October 2016.

Samsung is represented by Jon Turner QC, Meredith Pickford QC, Laura Elizabeth John and James Bourke.

The full judgment is available here.

Iiyama Benelux BV & Ors v Schott AG & Ors

Mr Justice Mann has dismissed claims brought by iiyama in respect of cartels concerning Cathode Ray Tubes (CRTs) and CRT Glass, on the basis that the claims fall outside the territorial scope of EU competition law. The claimants were subsidiaries of iiyama, mostly based in Europe, and alleged that they had purchased completed computer monitors which incorporated CRTs and CRT Glass and which had been subject to cartels. The claims relied on EU competition law, and were initially brought on the basis of two infringement decisions made by the European Commission in relation to CRTs and CRT Glass respectively. However, it later transpired that the CRTs and Glass which were ultimately purchased by the claimants had originally been sold in Asia, and only arrived in Europe through a supply chain with a number of intervening stages.

The Defendants (who were variously parties to the Commission’s decisions relating to CRTs and CRT Glass) applied to have the claims struck out, or for summary judgment, or to have permission to serve out of the jurisdiction set aside, all on the basis that the claim was not properly arguable.

Mann J found that the claim against the Glass Defendants failed because the cartel found by the Commission related only to Europe, and did not cover supplies of CRT Glass in Asia. It was not possible to see how the EU cartel affected sales in Asia, and although the claimant alleged that there might be a worldwide cartel, no such cartel had been found by the Commission, and no such cartel was pleaded.

The Court also found that the claims against both the CRT and Glass defendants fell outside the territorial scope of EU competition law, considering two doctrines of EU law – the implementation doctrine and the qualified effects doctrine. The claimants could not rely on the implementation doctrine, which required that the cartel was implemented in the EU because the relevant sales of Glass and CRTs had been made in Asia. The claimants also could not rely on the qualified effects doctrine – i.e. that the cartel had foreseeable, immediate and substantial effects in the EU – because the supply chain by which they had acquired the products was not immediate.

Tim Ward QC and Rob Williams acted for Schott instructed by Travers Smith LLP. Daniel Beard QC acted for Samsung SDI instructed by Allen & Overy LLP.

The full judgment is available here.

Case C-547/14 R (Philip Morris Ltd and others) v Secretary of State for Health

Case C‑477/14 Pillbox 38 (UK) Ltd v Secretary of State for Health

Case C‑358/14 Poland v Parliament and Council

On 4 May 2016, the Court of Justice of the European Union delivered its judgments in three cases concerning the Tobacco Products Directive (Directive 2014/40/EU). The revised Directive was adopted in April 2014 and provides for a wide range of restrictions concerning tobacco packaging, flavouring and e-cigarettes.

In Philip Morris, a preliminary reference from the Administrative Court, the Court held that the Article 24(2) of the Directive permitted Member States to maintain or introduce further requirements in relation to aspects of the packaging of tobacco products which were not harmonised by the Directive and that was consistent with Article 114 TFEU, which was to be regarded as the correct legal base for the Directive.  The Court rejected arguments by the tobacco companies that the Directive was a disguised public health measure.  It held that the EU Legislator was permitted to use the internal market approximation base under Article 114 TFEU whilst, at the same time, ensuring a high level of human health protection.

The Court also considered the legality and proportionality of several packaging restrictions imposed by the Directive. It upheld Article 13(1), which prohibits the display of any element or feature which might promote, or give a misleading impression with regard to, the product, including factual information about the product, its elements or characteristics, whether or not the information concerned is factually accurate. For example, the tobacco manufacturers had complained that this would prevent them referring to taste, smell, any flavourings or the fact that their product had improved biodegradability, organic or low tar or nicotine contents.  The Court held that a high level of health protection requires that consumers should not be encouraged to consume tobacco products by means of information which, although factually accurate, they may interpret as meaning that the risks associated with their habits are reduced or that the products have certain benefits.

The Court also assessed the proportionality of other packaging requirements, including the ban on flavoured tobacco and the requirement that new combined visual and pictorial health warnings should cover at least 65% of the front and back of the packet.  The Court rejected arguments that those requirements were manifestly inappropriate or went go beyond what was necessary to attain the objective of improving the internal market for tobacco and related products, taking as a base a high level of protection of human health, especially for young people. The Court also found that the other questions referred by the Administrative Court had disclosed no factors affecting the validity of certain other parts of the Directive.

In Pillbox 38, another preliminary reference from the Administrative Court, the Court considered whether the various requirements and restrictions imposed by Article 20 of the Directive on the construction, marketing and advertising of e-cigarettes were compatible with EU law. The Court again concluded that the question referred to it by the Administrative Court disclosed no factors affecting the validity of Article 20.

In Poland v Parliament and Council, the Polish government had brought an action to annul the provisions of the Directive which prohibited the use of flavouring in cigarettes, including menthol. The Court dismissed the application.

The judgment in Philip Morris is available here, the judgment in Pillbox 38 is available here, and the judgment in Poland v Parliament and Council is available here.

Ian Rogers QC and Eric Metcalfe appeared on behalf of the United Kingdom in all three cases. Anneli Howard appeared for Joh. Wilh. von Eicken GmbH, one of the tobacco manufacturers joined as an interested party in the Philip Morris case.

The cases have been widely reported in the national and international press, including the Times, the New York Times and the BBC.

The action brought by British American Tobacco UK Ltd and others v Secretary of State for Health for the annulment of the Standardised Packaging of Tobacco Products Regulations 2015 was dismissed by Mr Justice Green in the High Court on 19 May.

One of the main purposes of standardised packaging is to render cigarette and hand rolling tobacco packaging and presentation less attractive to the eye and to the touch, especially to young people, and thus to reduce the number of young people starting to smoke and to make it easier for existing smokers to quit.  A key central argument by the tobacco companies in the case was that the Regulations, which will come into force on 20 May, are said to deprive the manufacturers of their trade marks on cigarette and hand rolling tobacco packaging.

The main complainants were the four tobacco multinationals. They claimed that the Regulations infringed a large number of provisions of EU and international law, including Article 1 of the First Protocol to the ECHR (on the right to property), the provisions on the free movement of goods within the EU, the Community Trade Mark Regulation and TRIPS. A range of arguments concerning the interpretation of the Revised Tobacco Products Directive and proportionality were also pursued by various manufacturers of tipping paper (the part of the paper which encloses the cigarette filter).

Mr Justice Green rejected each argument advanced by the claimants in a judgment of nearly 400 pages.  This judgment, which is one of the first in the world on standardised packaging measures, is likely to be highly influential in many jurisdictions. A number of countries have stated their intention to adopt standardised packaging measures similar to those in the UK.

Action on Smoking and Health (ASH), the tobacco control NGO, intervened in support of the Secretary of State for Health.

The judgment may be found here.

Ian Rogers QC, Julianne Kerr Morrison and Nikolaus Grubeck appeared on behalf of the Secretary of State for Health.

Peter Oliver and Ligia Osepciu appeared on behalf of ASH.

The CMA today announced that it has taken a decision finding an infringement of Chapter I of the Competition Act 1998 by Ultra Finishing Limited, a leading supplier of bathroom fittings.  A penalty of £786,668 has been imposed (reduced from £1,032,502 to reflect the compliance programme and early settlement).  The infringement concerned the advertising and setting of prices for online sales.  The CMA had earlier announced the settlement agreement in this case.

In its press release the CMA explains that it has awarded a further 5% discount to Ultra for setting up a compliance programme.  The programme “includes a clear commitment to competition law compliance by the Ultra Board, including an external statement to that effect, which has been published on Ultra’s website. The company will also roll out tailored compliance training for all employees, and has put in place a detailed procedure to identify, assess and mitigate competition law risks. Ultra will review the compliance programme on an annual basis and submit a report on its compliance activities to the CMA each year for the next three years.”  This is a useful indication of the type of compliance programme that the CMA is likely to regard as appropriate in other cases where a discount is sought for setting up such a programme.

The CMA also states that it has issued warnings to other suppliers in the sector for similar practices, and warns that it is prepared to issue further infringement decisions and warnings in future.  In particular, it warns retailers (who were not subjected to any finding of infringement in this case) that they, too, may be fined in future cases of resale price maintenance, and draws attention to its leniency programme.  The CMA’s message is clear: if you are a retailer who pressurises your supplier to “crack down” on online discounting by your competitors, or if you are yourself subjected to such a crackdown, you should go to the CMA – or else you are at risk of being fined.

George Peretz QC advised Ultra Finishing Limited throughout the CMA’s investigation.