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
The Court of The Hague held that SK Kassetten infringed several essential patents owned by Philips, relating to CD and DVD technology. SK Kassetten argued – under reference to the Orange Book decision of the German BGH – that it was entitled to a license uncer FRAND terms, and that this would preclude Philips from enforcing its patents. The Court of The Hague does not feel that the criteria for the assessment of FRAND-defences as established in the Orange Book decision should be applied under Dutch law. The reasoning of the Court will be integrally cited (in English) below.
6.18 On the basis of the foregoing, it must be concluded that SK infringed upon EP 238. This means that the (injunctive) relief sought by Philips must in principle be awarded.
6.19 SK’s argument that it is entitled to a license under EP 238 on Fair Reasonable and Non-Discriminatory (herafter: FRAND) terms, cannot lead to a different conclusion. To the contrary of SK’s belief, the alleged entitlement to a FRAND-license is not a permit to infringe upon Philips’ patent rights. If the alleged entitlement would have actually been converted into a license, SK would naturally be free to use the patented technology. However, as long as SK does not have a license, there is in principle no ground to allow SK the use of the patented technology, nor to prevent Philips from enforcing its patents.
6.20 A system wherein the existence of a mere entitlement to a “compulsory license under cartel law”, as SK qualifies its claim, would prevent a patentee from enforcing its rights, also does not suit the system for compulsory licenses as envisaged by the legislator. The rights to a compulsory license as arranged for in article 57 Dutch Patent Act are also not valid before a license agreement has actually been concluded, or before a Court decision which has res judicata has been obtained [..].
6.21 Allowing the use of patented technology or preventing the enforcement of a patent right on the basis of a mere entitlement to a FRAND-license, would moreover lead to legal uncertainty. As long as the alleged entitlement is not converted into an actual license, it is uncertain for both parties if the alleged entitlement is justified, let alone that it is clear what the license terms will be. There will be frequent cases of such uncertainty, as parties regularly will have different opinions regarding the answer to the question which terms, and especially which royalty rates, are FRAND. Therefore, also in view of legal certainty a system is desirable wherein the right to enforce a patent only strands after a party actually has a license.
6.22 From the nature of the case, Philips’ consent to the license, or a Court decision that substitutes such consent is required for the conversion of the entitlement to a FRAND-license as claimed by SK into an actual license. SK can therefore not effectuate the alleged entitlement unilaterally by offering Philips to take a license under FRAND-terms, as it has done in its statement of defence. Before engaging in its trade in discs, or from the moment that it was aware or reasonably should have been aware that by doing so it was infringing, SK should have requested Philips for a license under FRAND-terms. If Philips would have refused, it could have initiated legal proceedings in which it could have claimed that Philips would be condemned to yet grant a license under terms which are FRAND in SK’s view, of to negotiate a license. SK has not done so. Not before its statement of defence in the current action has SK put forward that it “wishes to be admitted to a license agreement”, but it has up to this day not filed a (counter)claim. Moreover, it must be questioned whether SK really wishes to be admitted to a license agreement, as it itself states that it has already ceased its trade in full.
6.23 That Philips can enforce its patent as long as SK does not have a license, also does not in itself bring about an unjustifiable restriction of SK’s trade. Firstly, it is SK that wishes to use the patented technology. In view thereof, it may be expected of SK that it takes the initiative and timely arranges for a license. Secondly, the period that Philips could have prevented SK from entering the market in spite of the alleged entitlement to a license, would not have had to last long. If SK would have had an urgent interest in its claim to entitlement to a FRAND-license, it would have been able to claim a provisional license in preliminary injunction proceedings. It has not done so. Thirdly, Philips’ right to enforcement does not preclude that – if it would later on turn out that the claimed entitlement to a license is just – Philips would need to compensate SK for the damages it had suffered as a result of the unjustified rejection to conclude a license.
6.24 In light of the foregoing, it must be concluded that Philips can enforce its patent against SK, also in case it would for argument’s sake be held that SK would be entitled to a license. This in principle does not constitute abuse of dominance in the sense of antitrust law, nor does it otherwise lead to an unlawful or unreasonable act, given the fact that SK knew that the technology used by it was protected by Philips’ patent rights, and that it nevertheless did not convert its claimed entitlement to a license into an actual license. It cannot be excluded that this would under certain circumstances be different, but such circumstances have not been argued nor have appeared in this case.
6.25 The Court is aware that with the abovementioned ruling it deviates from the criteria which have been developed for the assessment of so-called FRAND-defences by the German Bundesgerichthof (herafter: BGH) in the Oprange Book decision (BGH 6 May 2009, KZR 39/06, b9 7936). According to the BGH, in an infringement case the defence that the defendant is entitled to a FRAND-license holds water if – in sum – the defendant has unconditionally offered the patentee to take a FRAND license and the defendant is already executing the conditions thereof, in so far as it concerns the royalty obligations, if so wanted by putting up security. From the foregoing it follows that the court is of the opinion that this decision of the BGH applied to the Dutch situation (i) flies in the face of patent law (compare findings 6.19 and 6.20) (ii) brings about legal uncertainty (compare finding 6.21) and (ii) is unneccesary for the protection of the legitimate interests of the defendant (compare finding 6.22 and 6.23). [..]”
Read the judgment (in Dutch) here.