- The
Claimant ("Intel") designs and makes microprocessors or central processing
units ("CPUs") for use in personal computers ("PCs") under
the well known brand names such as Pentium and Celeron. It also makes chipsets
for use in PCs. The first defendant ("Via") also makes CPUs and chipsets
for use in PCs. Intel and Via are competitors in the world wide market for such
components though it is Intel which, by a wide margin, enjoys the dominant position
in that market.
- On
27th September 2001 Intel instituted two actions in the Patents Court ("the
Chipset Action" and "the CPU Action") alleging that Via was infringing
five of Intel’s patents by various acts in relation to Via’s CPUs or chipsets.
On 12th December 2001 Via served its defence and counterclaim in each action.
It denied the validity of each of the patents relied on and denied that it had
infringed any valid claim in any of them. In addition it raised defences under
Articles 81 and 82 of the EC Treaty and the corresponding provisions of Competition
Act 1998. So far as they remain material they are that, in the Chipset Action,
(a)
Bringing these proceedings is an abuse by Intel of the exercise of intellectual
property rights and/or Intel is estopped or otherwise precluded from obtaining
the relief sought in these proceedings;
(b)
The refusal of Intel to grant a licence to Via either at all or on lawful or reasonable
terms is an abuse of a dominant position and Intel is not entitled to the relief
sought;
and, in the CPU Action,
(c)
The refusal of Intel to grant a licence to Via either at all or on lawful or reasonable
terms is an abuse of a dominant position and Intel is not entitled to the relief
sought;
(d)
Intel's refusal to licence Via in respect of the patents in suit is abusive because
it forms part of a plan to withdraw from the market certain products for which
there is a continuing demand, and to force consumers and users to adopt a new
and more expensive technology.
- On
21st December 2001 Jacob J ordered that the actions should be tried in three stages,
namely the Chipset Action Patent Issues, the CPU Action Patent Issues and the
Competition Issues in both the Chipset Action and the CPU Action. They were fixed
to be heard in December 2002, February 2003 and, subject to Intel’s application
for, amongst other relief, summary judgment in respect of the Competition Issues,
May 2003 respectively.
- Intel’s
applications for summary judgement under CPR Rules 3.4(2) and 24.2 were heard
by Lawrence Collins J in April 2002. By his order made on 14th June 2002 Lawrence
Collins J awarded Intel summary judgment on each of the competition issues. He
gave Via permission to appeal in the Chipset Action in relation to part of issue
(a) but refused permission to appeal in relation to all other competition issues
in the Chipset Action and all competition issues in the CPU Action. By its appellant’s
notice issued on 28th June 2002 Via appeals from the order of Lawrence Collins
J to the extent that he gave it permission and seeks permission to appeal on all
but one of those for which permission was refused. We heard full argument from
both Intel and Via on all such issues whether or not permission to appeal had
been granted.
The
Facts
- The
CPU is the component of a PC which executes the arithmetical or logical functions
that make up a computer programme. The Chipset is a group of microchips which
determine which data, from which source and in which order the CPU is to process.
Random Access Memory ("RAM") is the main memory storage device for the
data required to be processed. A bus is an electronic pathway by means of which
the various components of a PC communicate with one another. The bus between the
CPU and the Chipset is called the host bus. The CPU, Chipset, RAM and host bus,
together with many other components, are fixed to the motherboard. One of the
attachments by which CPUs are fixed to the motherboard is called "Socket
370".
- In
about 1981 IBM introduced its PC on an open architecture basis, that is to say
publishing its specification and encouraging other manufacturers to make similar
PCs. The CPU in the IBM PC, called the 8086, was made by Intel, a Delaware Corporation.
Successive generations of the CPU, 186, 286, 386 and so on are described collectively
as x86 CPUs. The x86 CPUs have been made and sold by Intel to IBM and other makers
of PCs under the names such as Celeron and Pentium. The operating software used
by the IBM PC was made by Microsoft. It too has gone through a number of subsequent
generations, such as Windows 3.x, Windows 95 and Windows 98. It is important that
subsequent generations of CPU and operating software should be compatible with
earlier generations and each other. Thus all of them must be able to respond to
what is called "the x86 instruction set".
- It
is the basic complaint of Via that in recent years the open architecture of the
early PCs has been transformed by Intel into a proprietary system. Via suggests
that this has been done by patenting the standard conventions relating to how
a PC operates whereby components and software made by one producer are compatible
with those of others. The effect, so it is suggested, is that a manufacturer such
as Intel can prevent a rival from making its own components compatible with those
of Intel thereby limiting the production of independent technology. This, it is
contended, is what Intel seeks to do in the Chipset Action and the CPU Action
because the patents in suit relate not to the overall design of a CPU or Chipset
but to specific features of them which interact with other components. Thus, the
two patents in suit in the Chipset Action relate to the protocols which enable
the CPU to communicate with the Chipset in a way each will understand. The three
patents in suit in the CPU Action relate to the conventions or protocols which
enable the CPU to interact with the operating software, almost invariably a version
of Windows.
- As
I have indicated, Intel was incorporated in the State of Delaware, USA. It is
the largest designer and maker of x86 CPUs in the world, accounting for about
80% of sales for each year between 1996 and 2000 (both inclusive). It also makes
Chipsets for use with its x86 CPUs. For the years 1996 to 1998 (both inclusive)
its Chipsets accounted for about 100% of the market. Between 1998 and 2000, its
share of the world-wide market in Chipsets declined to about 75%. Of the remaining
25% about 19% was picked up by Via.
- Via
is a company incorporated in Taiwan. It was established in 1992 and has about
600 employees. It designs and makes components for PCs. On 24th November 1998
it entered into a Chipset Licensing Agreement with Intel ("the CLA")
regulating the terms on which it could use the patents of Intel in the design
and manufacture of its own chipsets for use with the Celeron and Pentium II CPUs
made by Intel. One of the terms on which it got the licence from Intel was that
it should grant to Intel a licence in relation to its own patents. In 1999 Via
acquired the business of Cyrix Technologies. It then started or expanded its production
of CPUs.
- In
June 1999 Intel purported to terminate the CLA. It contended that Via had broken
its terms in using the licensed technology. Intel instituted proceedings against
Via in the US, Singapore and England. These proceedings were settled in June 2000.
Via entered into a revised CLA ("the Revised CLA") with Intel extending
the licence granted by the CLA to cover new products. A number of issues were
referred to an arbitrator. The award was given in February 2001. The arbitrator
concluded that Via had not broken the CLA but, in purporting to terminate it without
sufficient cause, Intel had. As the result of the arbitration, the licence was
made reciprocal in its scope, each party being permitted to make chipsets using
the other's licensed technology.
- On
12th September 2000 Via complained to the EC Commission that Intel was refusing
to license its patents to Via so as to enable the latter, in particular, to make
chipsets compatible with Intel's forthcoming Pentium 4 CPUs. Such CPUs were launched
on the market in December 2000. At the end of 2000 and the beginning of 2001 Intel
entered into a number of licences with third parties for the manufacture and sale
of chipsets compatible with its Pentium 4.
- On
10th January 2001 Intel produced to Via the form of a further revised CLA ("the
draft CLA") it was prepared to grant to Via. The draft CLA contains two provisions
to which Via objects. By the first ("the Market Division term") Via
is limited in the application of the licensed technology to chipsets compatible
with Pentium 4 CPUs. In other words if Intel produce an improved version of the
Pentium 4 CPU Via cannot use the licensed technology to make a chipset compatible
with that improved CPU. By the second ("the Asymmetric Licence") Via
is obliged to grant to Intel a licence for the unrestricted use of all its patents
and technology relating to both its chipsets and its CPUs but receives in return
a licence from Intel related only to its chipsets and then only for use in connection
with chipsets compatible with Pentium 4 CPUs.
- These
proceedings were instituted on 27th September 2001. Subsequently, on 14th January
2002, Via withdrew its complaint to the EC Commission. On 3rd May 2002 the EC
Commission closed its investigation into the matters of which Via had complained.
The
Chipset Action
- Intel
relies on UK Patent No. 2 287 162B and European Patent (UK) No. 694 849 B1. As
their titles indicate they relate to a method and apparatus for the transmission
of information by means of a type of bus called a wired-or bus, and to a method
for performing bus transactions in a computer system. They are alleged to have
been infringed by the disposal, use and supply of Via’s Apollo P4X226 chipsets
on and after 10th September 2001. Via served its defence and counterclaim on 12th
December 2001. In paragraphs 64-79 and its particulars of objection it denied
that the patents in suit were valid or if valid were infringed and counterclaimed
for orders for revocation and associated relief.
- The
defences with which we are concerned are set out in paragraphs 1-51. Their nature
is apparent from paragraphs 1 to 3 which are in the following terms:
"1. Paragraphs
1 and 2 of the Particulars of Claim are admitted.
A. Bringing
these proceedings is an abuse by the Claimant of the exercise of intellectual
property rights and/or the Claimant is estopped or otherwise precluded from obtaining
the relief sought in these proceedings
2. The
bringing of these proceedings by the Claimant is unlawful and/or the Claimant
is estopped or otherwise precluded from obtaining the relief sought in these proceedings
because:
(a) the Claimant is prepared to grant a licence to the First Defendant in respect
of the patents in suit only on terms that would create an infringement of article
81(1) EC and/or section 2(1) of the Competition Act 1998 ("the Chapter 1 prohibition")
and
(b) these proceedings form part of an attempt by the Claimant to compel the
First Defendant to enter into a licence agreement that would infringe article
81(1) EC and/or the Chapter 1 prohibition.
The
Defendants further refer to and rely on sections D and E below.
B. The
refusal to grant a patent licence to the First Defendant either at all or on lawful
and/or reasonable terms is an abuse of a dominant position contrary to article
82 EC and/or section 18 of the Competition Act 1998 and the Claimant is not entitled
to the relief sought by it in these proceedings or any of it.
3. As
a result of exceptional circumstances, the Claimant's refusal to grant a licence
to the First Defendant in respect of the patents in suit either at all or on lawful
and/or reasonable terms is an abuse by it of a dominant position contrary to article
82 EC and/or section 18(1) of the Competition Act 1998 ("the Chapter 11 prohibition").
The Defendants further refer to and rely on sections D and F below."
- Paragraphs
5 to 36 contain allegations relating to PCs and the background to which I have
briefly referred. Particular reference should be made to a number of specific
allegations. Thus:
a)
Paragraphs 9 to 11 allege that x86 CPUs are not technically interchangeable with
other CPUs so that they comprise a separate economic product for a world-wide
market in which Intel has a dominant position.
b)
Paragraphs 13 to 25 deal with chipsets, their importance to the quick and efficient
working of a PC and the need for compatibility with the CPU. It is alleged that
the previous open architecture of the x86 CPUs was changed when in 1996 Intel
introduced its Pentium Pro model using new sockets and altering the host bus.
Since that time, it is alleged, Intel has asserted that any independent chipset
manufacturer must get a licence from Intel authorising the making of chipsets
compatible with its x86 CPUs. It avers that there is a separate product market
in chipsets for use with Intel's x86 CPUs which is world wide. It asserts Intel
has a dominant position in that market which "is crucially buttressed by
its control over the award of patent licences to third parties" (paragraph
25).
c)
Paragraphs 26 to 30 deal with the introduction of the Pentium 4 in November 2000.
Via alleges that Intel asserts that Via must have a licence if it is to make chipsets
compatible with the Pentium 4.
d)
Paragraphs 31 to 34 deal with the Asymmetric Licence and paragraphs 35 and 36
refer to the Market Division term. With regard to the latter it is averred in
paragraph 35 that the effect of the Market Division term would be that Via would
be prevented from supplying chipsets for use with a "Pentium 4A" regardless of
how arbitrary or trivial the modification over the Pentium 4 might be and irrespective
of whether any modification to Via’s chipset would be required.
- Section
E, comprising paragraphs 37 to 41, is described as
"Competition
law defence 1: bringing these proceedings is an unlawful attempt by [Intel] to
compel [Via] to enter into an agreement contrary to Article 81(1) EC and/or the
Chapter I prohibition."
Paragraphs
37 to 39 contain detailed allegations of how acceptance of the Asymmetric Licence
would distort competition within the common market and the United Kingdom in both
x86 CPUs and chipsets compatible therewith. In paragraphs 40 and 41 Via alleges
how acceptance of the Market Division term would distort competition in the Common
Market and the United Kingdom.
- Section
F, comprising paragraphs 42 to 51 contains the allegations relevant to what is
described as
"Competition
law defence 2: the refusal to grant a patent licence at all or on lawful or reasonable
terms is an abuse of a dominant position contrary to Article 82 EC and/or s.18
Competition Act 1998."
It
is re-iterated that Intel has a dominant position in the world-wide market in
both x86 CPUs and x86 Intel-compatible chipsets. Via asserts (para 44) that the
patents in suit constitute industry standards for the chipset market so that "it
is impossible for other undertakings to enter or compete at all with [Intel] on
that market unless they can make use of the technology in question". Paragraph
45 sets out in some detail how the refusal to grant a licence on lawful or reasonable
terms and bringing infringement proceedings constitutes an abuse of Intel’s dominant
position by (a) preventing the emergence of new types of x86 compatible chipsets,
(b) partitioning the market in x86 compatible chipsets by relegating licensees
to trailing edge technology and (c) thereby prejudicing consumers and users by
preventing Via and others from the development of new improved products and/or
lower prices from those supplied by Intel.
- Paragraph
46 contains a number of further allegations of abuse by Intel of its dominant
position by abandoning the open architecture of the earlier x86 CPUs and refusing
to license Via or others except on terms which perpetuate its dominant position
thereby partitioning the market in x86 compatible chipsets and inhibiting further
developments. Paragraph 47 alleges the consequential prejudice to consumers and
users. Paragraph 48 recognises that, in the absence of "exceptional circumstances",
the owner of an intellectual property right, including one in a dominant position,
is entitled to refuse to licence others. Via contends that the facts and matters
alleged in paragraphs 44 to 47 amount to exceptional circumstances for the purposes
of that principle.
The
CPU Action
- In
the CPU Action Intel relies on three UK patents nos 2 230 118, 2 261 753 and 2
326 494. They relate to an invention for controlling memory misalignment; to "selective
re-initialisation of processor state" relating to switching between operational
modes of the CPU; and to an invention relating to the MMX technology which is
an addition to the x86 instruction set to enable the CPU to deal with graphics
and multi-media applications. In their particulars of infringement Intel allege
the infringement of these three patents by Via’s CPUs which it introduced to the
market in early 2001.
- In
paragraphs 27 to 38 of its defence and its particulars of objection Via contends
that the patents in suit are invalid and, insofar as valid, not infringed. In
paragraph 2 it claims that
"[Intel’s]
enforcement of its intellectual property rights in these proceedings and/or its
refusal to grant a licence to [Via] in respect of the patents in suit on lawful
and/or reasonable terms is an abuse by it of a dominant position contrary to Article
82 EC and/or s.18(1) Competition Act 1998."
In
paragraphs 3 to 11 Via refers to the PC industry and the market for Windows compatible
CPUs in substantially the same terms as in the Chipset Action.
- Paragraphs
12 to 20 support what is described as
"Competition
law defence 1: [Intel’s] refusal to licence [Via] in respect of the patents in
suit is abusive because it forms part of a plan to withdraw from the market certain
products for which there is a continuing market demand, and to force customers
and users instead to adopt a new and more expensive technology which many consumers
neither want nor need."
- This
complaint relates to a device called the "Socket 370" whereby a CPU
is attached to the motherboard so as to make contact with the built-in wires and
data bus. Socket 370 was designed and has the effect of facilitating the upgrade
or replacement of the x86 CPU for which there is a significant demand. Via alleges
that Intel’s Pentium 4, launched in November 2000, does not use a Socket 370 with
the consequence that the motherboard and other components designed for use with
it are incompatible with and more expensive than those designed for use with Socket
370. Via alleges that Intel intends to establish the Pentium 4 as the mainstream
x86 CPU and to phase out its Socket 370 range altogether in 2002. In paragraph
19 Via alleges that Intel has refused to grant it a licence under the patents
in suit on any or any lawful or reasonable terms for the purpose of eliminating
Socket 370 CPUs so that consumers will be unable easily or inexpensively to upgrade
their CPUs. Via alleges that the market for x86 CPUs is world wide and is thereby
abused by Intel.
- Paragraphs
21 to 25 support what is described as
"Competition
law defence 2: [Intel’s] refusal to licence its patent rights in these proceedings
is abusive because those rights relate to technology constituting an industry
standard and competitors cannot otherwise access the x86 processor market and
because the exercise of those rights unjustifiably prevents the marketing by [Via]
of a unique product."
- Via
alleges the importance of x86 CPUs being compatible with the latest version of
Windows operating systems. Via asserts (para 22) that each of the patents in suit
relate to industry standards with the consequence (para 23) that "it is impossible
for competitors [of Intel] to access the market for x86 [CPUs] at all without
making use of the relevant inventions.". In addition Via relies on a new
format, an enhanced ball grid array ("EBGA"), incorporated in its CPU
of which complaint is made. Via asserts that EBGA is a unique and valuable product
which it will be unable to market without a licence from Intel.
- Via
contends (para 25) that the facts and matters referred to in paragraphs 21 to
24 constitute "exceptional circumstances" for the purposes of the principle
to which I have already referred in paragraph 19 above. It claims that Intel’s
refusal to grant a licence to use the patents in suit on lawful and reasonable
terms both eliminates competition in respect of a substantial part of the product
market and prevents the emergence of a valuable new product. It contends that
such conduct has no justification and constitutes an abuse by Intel of its dominant
position on the x86 CPU market whereby trade in the relevant places may be affected.
The
judgment of Lawrence Collins J
- In
its application Intel sought an order under CPR 3.4(2) striking out these defences
as being an abuse of the process of the court. As the judge had already concluded
that Intel was entitled to summary judgment in respect of them he did not decide
this part of the application. But he indicated (paragraph 187) that had it arisen
he would have heard argument on whether to direct a preliminary issue. There is
no cross-appeal on this point with the consequence that the compromise of the
1999 proceedings and the complaint of Via to the EC Commission made in September
2000 have no direct relevance to anything we have to decide.
- In
paragraphs 1 to 87 of his judgment the judge set out the background. In paragraph
94 he set out the principal issues before him. They were, so far as still relevant
before us, the following:
a)
The circumstances in which the bringing of proceedings for patent infringement
may be barred and in particular whether they may be barred if their object is
to compel the defendant to enter into a licence agreement on terms which may infringe
Article 81 and/or s.2(1) Competition Act 1998;
b)
Whether the terms of the draft CLA arguably infringe Article 81 and/or s.2(1)
by requiring Via to enter into
(i)
the Asymmetric Licence, and/or
(ii)
the Market Division term.
c)
The circumstances in which the refusal of a licence may amount to an abuse of
a dominant position under Article 82.
- I
will set out in greater detail later the reasoning of the judge in relation to
many of the issues which were argued before us. But at this stage it is convenient
to summarise the judge’s conclusions alone. They were:
a)
The decision of this court in British Leyland v TI Silencers [1981] CMLR
75 probably went no further than holding that infringement proceedings may not
be brought by the owner of an intellectual property right if he is abusing that
right in order to enforce unrelated terms on a trader who "desperately"
needs a licence in order to trade. The case for Via did not fall within that principle
because
(i)
its evidence on the economic effect of not being able to make Pentium 4 chipsets
fell short of establishing that "it desperately needs a licence to allow
it to trade",
(ii)
Via does not suggest that Intel is putting pressure on it to agree such terms.
No
final decision on the rationale and scope of British Leyland was needed
unless the Asymmetical Licence and the Market Division term were arguably contrary
to Article 81(1). [para 115]
(b)
The Asymmetric Licence point failed because Via’s pleading is formulaic and so
devoid of specificity that it fails to give rise to a triable issue. [para 130]
(c)
The Market Division term was a limit on Via’s ability to make certain products,
not on the persons to whom they might be sold. Accordingly Via had no real prospect
of establishing that it was restrictive of competition under Article 81(1) or
s.2(1) Competition Act. [para 142]
(d)
The refusal by an owner of an intellectual property right to grant a licence can
only amount to an abuse of a dominant position in "exceptional circumstances".
There is nothing in the decisions of the European Court of Justice or of the Commission
to suggest that it is seriously arguable that the owner of a patent, which will
eliminate competition, may not refuse a licence merely on the ground that the
applicant needs it in order to make use of the invention. [para 173]
(e)
Via had not made factual allegations in the Chipset Action which could amount
to exceptional circumstances within the existing jurisprudence of the European
Court of Justice [paras 177 and 178] because
(i)
there are other competitors of Intel in the market,
(ii)
it had not claimed that it was prevented from introducing a new product or variation
of an existing product.
(f)
Via had not pleaded facts in the CPU Action which could amount to exceptional
circumstances because it only alleges that Socket 370 will be phased out in the
future and does not plead that Intel is refusing or will refuse to supply a demand.
[para 184]
The
Issues
- As
I have indicated Lawrence Collins J gave Via permission to appeal only in respect
of the issue whether the Market Division term gave rise to a defence based on
the decision of this court in British Leyland. But that was not the issue
primarily argued before us. The issues before us and the order in which they were
argued were:
(1)
Whether and if so when the owner of an intellectual property right, who is in
a dominant position for the purposes of Article 82, is under an obligation not
to exercise that right so as to exclude others from the market or a substantial
part of the market.
(2)
Whether the owner of an intellectual property right, whether or not he is in a
dominant position, may lawfully exercise his right to license it on terms (ie
the Asymmetric Licence and Market Division term) which are either wider than necessary
to define the extent his exclusive right has been surrendered or are distortive
of competition.
(3)
Whether it is a defence to an action for infringement of a patent that its enforcement
would enable the owner of the patent to act in breach of Articles 81 or 82.
- I
will deal with the issues in that order. But, first, it is necessary to set out
the terms of Articles 81 and 82 and to draw attention to certain principles applicable
to all the issues. Articles 81 and 82 (formerly 85 and 86) are in the following
terms
"81.1.
The following shall be prohibited as incompatible with the common market: all
agreements between undertakings, decisions by associations of undertakings and
concerted practices which may affect trade between Member States and which have
as their object or effect the prevention, restriction or distortion of competition
within the common market, and in particular those which:
(a) directly
or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit
or control production, markets, technical development, or investment;
(c) share
markets or sources of supply;
(d) apply
dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(e) make
the conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection
with the subject of such contracts.
2.
Any agreements or decisions prohibited pursuant to this Article shall be automatically
void."
"82.
Any abuse by one or more undertakings of a dominant position within the common
market or in a substantial part of it shall be prohibited as incompatible with
the common market in so far as it may affect trade between Member States.
Such
abuse may, in particular, consist in:
(a) directly
or indirectly imposing unfair purchase or selling prices or other unfair trading
conditions;
(b) limiting
production, markets or technical development to the prejudice of consumers;
(c) applying
dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(d) making
the conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection
with the subject of such contracts."
- There
are principles of general application to which I should refer. First, in paragraph
90 of his judgment Lawrence Collins J referred to the fact that what he described
as Euro-defences are not in some special category but do demand careful scrutiny
so as to avoid defences without merit going to what is likely to be a long and
expensive trial. He also noted that cases involving Articles 81 and 82 often raise
questions of mixed law and fact which are not suitable for summary determination.
I would endorse both those propositions, but I would add two notes of caution.
First, until the patent issues raised in the Chipset Action and the CPU Action
have been determined the extent of the exclusivity conferred by the patents in
suit on Intel and of the inhibition imposed on Via as a consequence is unknown.
Both will depend on which claims in which patents are valid. Second, where it
can be seen that the jurisprudence of the European Court of Justice is in the
course of development it is dangerous to assume that it is beyond argument with
real prospect of success that the existing case law will not be extended or modified
so as to encompass the defence being advanced.
- The
first of those notes of caution prompted an exchange between the members of the
court and counsel for Intel which led to an application by the latter for the
appeal and applications to be adjourned until after the conclusion of the trial
of the patent issues. After hearing argument from both sides we indicated that
we rejected the application and would give our reasons in our judgments on the
appeal and applications in due course.
- The
reason I considered that the application should be rejected is, basically, that
it came too late. The order for separate trials was made by Jacob J on 21st December
2001 in the knowledge that Intel was seeking summary judgment on the Euro-defences.
If it were thought that the trial of the patent issues should precede that of
the Euro-defences then the point should have been taken then or, at the latest,
when the applications for summary judgment came before Lawrence Collins J on 11th
and 12th April 2002. Though the point may have been made before Jacob J it was
not pursued. It was not made at all to Lawrence Collins J. It is too late now.
- The
other principles of general application to which I would refer at this stage are
the tests to be satisfied if summary judgment is to be given under CPR Rule 24.2.
They are that Via has no real prospect of succeeding on the Euro-defence and there
is no other compelling reason why that Euro-defence should be disposed of at a
trial. A real prospect is to be contrasted with one which is fanciful, Swain
v Hillman [2001] 1 AER 91. A Euro-defence which is likely at some stage to
be the subject matter of a reference is likely also to be one which for that reason
should only be disposed of at a trial. In most cases it is not necessary or appropriate
to refer the point to the European Court before all the relevant facts have been
ascertained by the national court.
Abuse
of a dominant position
- It
is well recognised that there is a tension between the European Community rules
of competition contained in Articles 81 and 82 and the intellectual property rights
conferred by national systems of law which, by Article 295, must not be prejudiced
by the Treaty. Thus in relation to the former in ITT Promedia NV v European
Commission [1998] ECR II 2941, 2987 para 139 the Court of Justice stated
"It follows from
the nature of the obligations imposed by Article 86 of the Treaty that, in specific
circumstances, undertakings in a dominant position may be deprived of the right
to adopt a course of conduct or take measures which are not in themselves abuses
and which would even be unobjectionable if adopted or taken by non-dominant undertakings
(see, to that effect, Case 322/81 Michelin v Commission [1983] ECR 3461,
paragraph 57). Thus, the conclusion of a contract or the acquisition of a right
may amount to abuse for the purposes of Article 86 of the Treaty if that contract
is concluded or that right is acquired by an undertaking in a dominant position
(see, to that effect, Case T-51/89 Tetra Pak v Commission [1990] ECR 11-309,
paragraph 23)."
By
contrast, in Volvo v Veng [1988] ECR 6211, 6235 para 8 the Court of Justice
stated in relation to the right of the owner of an intellectual property right
"It
must also be emphasised that the right of the proprietor of a protected design
to prevent third parties from manufacturing and selling or importing, without
its consent, products incorporating the design constitutes the very subject-matter
of his exclusive right. It follows that an obligation imposed upon the proprietor
of a protected design to grant to third parties, even in return for a reasonable
royalty, a licence for the supply of products incorporating the design would lead
to the proprietor thereof being deprived of the substance of his exclusive right,
and that a refusal to grant such a licence cannot in itself constitute an abuse
of a dominant position."
- Thus
the basic issue is where between the two propositions lies the dividing line.
In this connection we have been referred, as was Lawrence Collins J, to a line
of cases in which this issue has arisen. The only test of general application
to emerge is that stated in Magill (RTE and others v European Commission)
[1995] ECR I 743, 823 para 50 that
"...the
exercise of an exclusive right by the proprietor may, in exceptional circumstances,
involve abusive conduct."
No
doubt the pleader of Via’s defences had this in mind when including paras 48 and
25 in the defence in the Chipset and CPU Actions respectively. Thus the issue
before us is whether Via has pleaded facts which are capable of constituting exceptional
circumstances for the purposes of ascertaining which side of the dividing line
the exercise by Intel of its rights as patentee of the five patents in suit may
fall.
- Given
the limited nature of the issue before us it is unnecessary to do more than consider
what indications are to be gleaned from the cases to which we were referred as
to the circumstances likely to be regarded by the European Court of Justice in
this context as "exceptional circumstances".
- The
first is Volvo v Veng [1988] ECR 6211. That case concerned the infringement
of a registered design for body parts of a car. The question dealt with by the
Court of Justice predicated a dominant position from that right alone. The Court
of Justice, having expressed the principle quoted in paragraph 36 above observed
at 6235 paragraph 9 that
"It
must however be noted that the exercise of an exclusive right by the proprietor
of a registered design in respect of car body panels may be prohibited by Article
86 if it involves, on the part of an undertaking holding a dominant position,
certain abusive conduct such as the arbitrary refusal to supply spare parts to
independent repairers, the fixing of prices for spare parts at an unfair level
or a decision no longer to produce spare parts for a particular model even though
many cars of that model are still in circulation, provided that such conduct is
liable to affect trade between Member States.
As
no instance of any such conduct had been referred to by the national court the
other questions referred to the Court of Justice did not arise.
- In
Magill [1995] ECR I 743 the broadcasting authorities used the copyrights
vested in them with regard to their forthcoming programmes to prevent the publication
of such information in a new weekly TV guide. The Court of Justice considered
the existence of the abuse alleged in the light of the principle I have quoted
in paragraph 37 above and continued (p. 824)
"53. Thus
the appellants - who were, by force of circumstance, the only sources of the basic
information on programme scheduling which is the indispensable raw material for
compiling a weekly television guide - gave viewers wishing to obtain information
on the choice of programmes for the week ahead no choice but to buy the weekly
guides for each station and draw from each of them the information they needed
to make comparisons.
54. The
appellants' refusal to provide basic information by relying on national copy-right
provisions thus prevented the appearance of a new product, a comprehensive weekly
guide to television programmes, which the appellants did not offer and for which
there was a potential consumer demand. Such refusal constitutes an abuse under
heading (b) of the second paragraph of Article 86 of the Treaty.
55. Second,
there was no justification for such refusal either in the activity of television
broadcasting or in that of publishing television magazines (RTE judgment, paragraph
73, and ITP judgment, paragraph 58).
56. Third,
and finally, as the Court of First Instance also held, the appellants, by their
conduct, reserved to themselves the secondary market of weekly television guides
by excluding all competition on that market (see the judgment in Joined Cases
6/73 and 7/73 Commercial Solvents v Commission [1974] ECR 223, paragraph
25) since they denied access to the basic information which is the raw material
indispensable for the completion of such a guide.
57. In
the light of all those circumstances, the Court of First Instance did not err
in law, holding that the appellants' conduct was an abuse of a dominant position
within the meaning of Article 86 of the Treaty."
- Tiercé
Ladbroke v European Commission [1997] ECR II 923 concerned copyright in films
of horse races. Tierce Ladbroke wished to show them in its betting shops and complained
that the owners of the copyright were in breach of Article 86 in refusing to allow
it to do so. The Court of Justice rejected the complaint on the ground that no
restriction on competition in the relevant market was involved. It continued in
paragraph 131
"Even
if it were assumed that the presence of the sociétés de courses
on the Belgian market in sound and pictures were not, in this case, a decisive
factor for the purposes of applying Article 86 of the Treaty, that provision would
not be applicable in this case. The refusal to supply the applicant could not
fall within the prohibition laid down by Article 86 unless it concerned a product
or service which was either essential for the exercise of the activity in question,
in that there was no real or potential substitute, or was a new product whose
introduction might be prevented, despite specific, constant and regular potential
demand on the part of consumers (see in that connection Joined Cases C-241/91
P and C-242/91 P RTE and ITP v Commission [1995] ECR 1-743, paragraphs
52, 53 and 54)."
It
will be noted that the examples given are alternatives.
- Oscar
Bronner v Mediaprint [1998] ECR I 7791 concerned the exclusion of a publisher
of a newspaper, Oscar Bronner, from a distribution network maintained by Mediaprint.
Thus it was not a case concerning a right of intellectual property but it contains
a valuable analysis of the law by Advocate-General Jacobs and a comment by the
Court of Justice on the scope of its decision in Magill.
- The
analysis by the Advocate-General (paras 45-51) draws attention to the increasing
similarities between the doctrine of essential facilities as applied in the United
States and the practice of the European Commission under Article 82, to which
this court is to have regard pursuant to s.60(3) Competition Act 1998. In paragraphs
50 and 51 he observed
"50. It
is therefore clear that the Commission considers that refusal of access to an
essential facility to a competitor can of itself be an abuse even in the absence
of other factors, such as tying of sales, discrimination vis-à-vis another
independent competitor, discontinuation of supplies to existing customers or deliberate
action to damage a competitor (although it may be noted that in many of the cases
with which it has dealt such additional factors are to greater or lesser extent
present). An essential facility can be a product such as a raw material or a service,
including provision of access to a place such as a harbour or airport or to a
distribution system such as a telecommunications network. In many cases the relationship
is vertical in the sense that the dominant undertaking reserves the product or
service to, or discriminates in favour of, its own downstream operation at the
expense of competitors on the downstream market. It may however also be horizontal
in the sense of tying sales of related but distinct products or services.
51. In
deciding whether a facility is essential the Commission seeks to estimate the
extent of the handicap and whether it is permanent or merely temporary. The test
to be applied has been described by one commentator as 'whether the handicap resulting
from the denial of access is one that can reasonably be expected to make competitors'
activities in the market in question either impossible or permanently, seriously
and unavoidably uneconomic'. The test applied is an objective one, concerning
competitors in general. Thus a particular competitor cannot plead that it is particularly
vulnerable."
- The
Court of Justice dealt with the matter on a more limited basis. Having considered
its decision in Magill it stated at 7831 paragraph 41
"Therefore, even
if that case-law on the exercise of an intellectual property right were applicable
to the exercise of any property right whatever, it would still be necessary, for
the Magill judgment to be effectively relied upon in order to plead the
existence of an abuse within the meaning of Article 86 of the Treaty in a situation
such as that which forms the subject matter of the first question, not only that
the refusal of the service comprised in home delivery be likely to eliminate all
competition in the daily newspaper market on the part of the person requesting
the service and that such refusal be incapable of being objectively justified,
but also that the service in itself be indispensable to carrying on that person's
business, inasmuch as there is no actual or potential substitute in existence
for that home-delivery scheme."
- Finally
I should refer to IMS Health Inc v European Commission [2002] 4 CMLR 58.
That case concerned copyright in a brick structure used to divide up a country
for the purposes of market research. A competitor’s request for a licence was
turned down and he complained to the Commission. The Commission made an interim
decision requiring IMS to grant such a licence. IMS appealed. The President of
the Court of First Instance granted a stay pending a final decision on the interim
order.
- The
President noted that the Commission had interpreted the requirement in Magill
for exceptional circumstances in the light of Oscar Bronner as requiring
only that (1) the refusal of access to the facility is likely to eliminate all
competition in the relevant market; (2) such refusal is not capable of being objectively
justified; and (3) the facility itself is indispensable to carrying on business
inasmuch as there is no actual or potential substitute in existence for that facility.
The President continued at 95
"104.
In Bronner, the Court of Justice recalls, by way of "exceptional circumstances"
"found in Magill", each of the findings of the Court of First Instance
confirmed by the Court of Justice in paragraphs 53 to 56 of its judgment in Magill.
In Bronner, the Court of Justice then observes that Magill was concerned
with "the exercise of an intellectual property right". It is beyond the scope
of the review possible in the present proceedings to determine whether these passages
in Bronner, and paragraph [131] of the Court of First Instance's judgment
in Tiercé Ladbroke v Commission, support the prima facie conclusion
reached in the contested decision. Although the Commission's interpretation may
be correct, the existence of reasonable grounds for concluding that the "exceptional
circumstances" envisaged by the Court of Justice in Magill, and recalled
by it in Bronner, are concurrent cannot be excluded.
105. The
applicant's assertion, having regard to the prevailing economic theories underlying
the "essential facilities" doctrine, that this is particularly the case as regards
the condition that the impugned refusal to licence of the dominant undertaking
must prevent the appearance of a new product on a market separate from that on
which the undertaking in question is dominant constitutes a serious legal question
that merits full consideration by the Court of First Instance in the main action.
This interpretation of Magill arguably finds support in much of the case
law to which IMS refers. It would also seem to be echoed by Advocate General Jacobs
who opined, in Bronner, that Magill could "be explained by the special
circumstances of that case which swung the balance in favour of an obligation
to license."
106 Accordingly,
as there is, at the very least, a serious dispute regarding the correctness of
the fundamental legal conclusion underpinning the contested decision, i.e. that
"exceptional circumstances" exist in the present case capable of justifying the
imposition of a compulsory licence obligation, the applicant has clearly established
a prima facie case justifying relief sought."
- Counsel
for Intel submits that these cases show that there can only be exceptional circumstances
within the Magill test if all the conditions in either Magill or
IMS are satisfied. Thus, the result of the refusal must be to exclude an
entirely new product from the market (Magill) or all competition to the
patentee (IMS). He contends that neither condition is pleaded or satisfied
in this case for chipsets and CPUs will continue to be produced and competition
to Intel from those it has licensed will continue to exist.
- I
do not accept either the premise or the conclusion. With regard to the premise
Magill and IMS indicate the circumstances which the Court of Justice
and the President of the Court of First Instance respectively regarded as exceptional
in the cases before them. It does not follow that other circumstances in other
cases will not be regarded as exceptional. In particular it is at least arguable,
as the President recognised in IMS, that the Court of Justice will assimilate
its jurisprudence under Article 82 more closely with that of the essential facilities
doctrine applied in the United States. In that event there could be a breach of
Article 82 without the exclusion of a wholly new product or all competition. This
approach seems to me to be warranted by the width of the descriptions of abuse
contained in Article 82 itself.
- I
would, in any event, reject the submission of counsel for Intel that the IMS test
requires the exclusion of all competition from all sources. This was not a requirement
in Oscar Bronner which referred in paragraph 41 only to all competition
from the person requesting the service (see para 44 above). Accordingly the summary
in IMS, to which I have referred in paragraph 46 above, must be read in
that light. Were it otherwise liability under Article 82 could be simply avoided
by the grant of a licence to an unenergetic rival.
- I
do not accept the conclusion either because it appears to me that the pleadings
of Via in both the Chipset Action and the CPU Action satisfy either the Magill
or the IMS test. Thus in the Chipset Action Via pleads in paragraphs 19
and 44 that access to the market in x86 compatible chipsets is impossible without
the licence of Intel. In the CPU Action Via pleads in paragraphs 19(a) and 24
that Intel seeks to use its rights as patentee to exclude from the market both
the Socket 370 and the EGBA format.
- Accordingly
in my view it is arguable that the range of exceptional circumstances which may
give rise to the abuse by the owner of an intellectual property right of his dominant
position contrary to Article 82 can extend to the facts pleaded by Via in both
the Chipset Action and the CPU Action. Whether or not they do will depend on the
findings of fact made at the trial. In a case such as this such findings are an
essential preliminary to any reference under Article 234 EC Treaty. In those circumstances
I consider that the defence Via seeks to advance under this head has a more than
fanciful prospect of success. Further it is one which, in my view, should be disposed
of at a trial. Accordingly I would grant permission to appeal and allow the appeal
on this ground in both the Chipset Action and the CPU Action.
Agreements
contrary to Article 81
- The
second issue to which I have referred in paragraph 30(2) above arises only in
the Chipset Action. It is the basis for the contention that one or both of the
Asymmetrical Licence or the Market Division term as proposed in the draft CLA
is contrary to Article 81. It is not suggested by Via that there is a breach of
that article now, only that there will be if Via enters into a licence with Intel
in a form which contains those terms. Accordingly the issues are the effect of
those terms and whether if concluded they could constitute breaches of Article
81.
- The
relevant terms of the draft CLA are the following:
"2.3 "P4
Bus" means the external microprocessor bus implemented on the first Pentium®
4 Processor generally commercially released for sale by Intel (currently code
named Willamette). Voltage level changes to this bus without any other changes
of any kind shall also be deemed to be within the definition of P4 Bus. P4 Bus
expressly excludes any changes or modifications to this bus (other than the aforementioned
voltage changes) including without limitation changes to any bus signaling protocol
or clock speeds.
2.4 "P4
Chipset" means a product consisting of one (1) or more integrated circuits at
least one (1) of which connects directly to an Intel microprocessor through the
P4 Bus and provides (i) a data path between system memory and such microprocessor,
and (ii) a data path between a PCI or other general purpose computer bus and such
microprocessor. Notwithstanding the foregoing, P4 Chipset does not include any
product that incorporates or is designed or marketed to allow incorporation of
any of the following:
(a) a
microprocessor or substantial portions of a microprocessor of any kind; or
(b) the
capability to connect directly to any microprocessor through any bus other than
the P4 bus; or
(c) a
peripheral bus other than the P4 bus;
(d) an
Intel Bus other than the P4 bus; or
(e) the
capability to connect directly and simultaneously to more than two (2) Intel Pentium®
4 Processors.
2.5 "Patents"
means all classes or types of patents, utility models and design patents (including,
without limitation, originals, divisions, continuations, continuations-in-part,
extensions or reissues), and applications for these classes or types of patent
rights in all countries of the world (collectively "Patent Rights") that are owned
or controlled by the applicable party or any of its Subsidiaries during the Capture
Period of this Agreement, provided such applications have a first effective filing
date prior to expiration of the Capture Period and to the extent that the applicable
party or its Subsidiaries has the right to grant licenses within and of the scope
set forth herein and without the requirement to pay consideration to any third
party (other than employees of the applicable party or its Subsidiaries) for the
grant of a license under this Agreement.
2.6 "Company
Licensed Products" means any P4 Chipset that is sold by Company as Company's own
product (subject to the limitations set forth in Section 4.3) and is not sold
on behalf of another related or unrelated entity.
.......
4.1 Intel
License to Company. Subject to the terms and conditions of this Agreement,
Intel hereby grants to Company a non-exclusive, non-transferable, royalty-bearing,
worldwide license, without the right to sublicense, under Intel's Patents to:
(a)
make, use, and import, and directly or indirectly sell, offer to sell and otherwise
dispose of Company Licensed Products; and
(b)
subject to Section 4.2, have made Company Licensed Products by a third party manufacturer
for supply solely to Company for use, import, sale, offer for sale or disposition
by Company pursuant to the license granted above in Subsection (a).
.......
4.4 License
to Intel. Subject to the terms and conditions of this Agreement, Company hereby
grants to Intel a non-exclusive, non-transferable, royalty-free, worldwide license,
without the right to sublicense, under Company's Patents to make, have made, use,
and import, and directly or indirectly sell, offer to sell and otherwise dispose
of products made by or for Intel."
- The
Asymmetric Licence point arises on the disparity between Clauses 4.1 and 4.4.
As will be seen the licence from Via is under "Company’s Patents" and
without limitation whereas the licence to Via is limited by reference to "Company’s
Licensed Products". Via contends that this gives rise to an asymmetry in
two directions. First, Via has, but Intel has not, granted a licence for use of
its patents in the making of CPUs. Second, the licence to Via limits the use of
the technology to x86 chipsets compatible with Intel’s original Pentium 4 CPUs.
The second relates more properly to the Market Division term and I will deal with
it in that context.
- The
judge concluded that first point was open to Via notwithstanding the apparent
allegation that the vice in the licence from Via to Intel was the fact that it
was free of charge. He considered in the light of the terms of the Technology
Transfer Regulations (EC) 240/96 that a cross-licence was not per se anti-competitive.
His conclusion in paragraph 130 was
"But
VIA’s pleading of the vice of the cross-licence is so devoid of specificity that
it falls plainly within that category of Euro-defences which is so vague and imprecise
that it does not really amount to a serious allegation at all. The starting point
is that a cross-licence in the circumstances of this case is not per se
anti-competitive. The fact that VIA’s licence to Intel would not be restricted
in the same way as Intel’s licence to VIA does not in itself make it anti-competitive.
Nor does the mere fact that VIA is innovative, and is one of the only 3 significant
suppliers of x86 microprocessors, raise a triable issue that Intel’s acquisition
of its technology would be anti-competitive. VIA’s pleading is purely formulaic,
since every licensor could say that granting a licence reduces or cancels its
incentive to continue investment and research, and that it may therefore lose
its innovative edge and thereby its position in the market. This is pure unparticularised
assertion or argument. If it had any commercial substance, facts would have been
pleaded to support it. In my judgment there is no triable issue on the validity
of the cross-licence in the draft CLA."
- This
is disputed by counsel for Via. He contends that the Technology Transfer Regulations
recognise that a cross-licence may be anti-competitive and that it has been properly
pleaded that this one is. He relies on paragraphs 33, 37, 38 and 44 of the defence
and counterclaim in the Chipset Action. Both submissions are challenged by counsel
for Intel.
- The
Technology Transfer Regulations start by exempting certain licences of patents
and know-how from Article 81(1). But by Article 5.1(3) and 5.2(2) the regulation
does not apply to cross-licences between competitors which are not reciprocal.
Given the evident disparity between the subject matter of the licence from Via
to Intel and that from Intel to Via, it is in my view arguable with real prospects
of success that the Technology Transfer Regulations do not cure the objection
based on asymmetry.
- With
regard to the pleadings I agree with the judge that the asymmetry point is open
to Via. The heading to paragraphs 31 and following and paragraph 34 refer to the
Asymmetric Licence in terms. Paragraph 33 expressly draws the distinction between
Intel’s licence enabling Via to make chipsets compatible with the Pentium 4 and
Via’s licence extending to all its patent rights enabling Intel to make unrestricted
commercial use of them. I do not think that the references in paragraph 37(b)
to "free of charge", "no cost to itself" and "free"
are sufficient to exclude the asymmetry on which Via relies.
- Paragraphs
37, 38 and 39 plead in detail the anti-competitive effects on which Via relies.
They include the allegations that the Asymmetric Licence would, if agreed to,
"reduce
or cancel the incentive for Via to continue investing in research and development
and that would distort competition by stifling invention"
in
relation to both chipsets and CPUs. In paragraph 38(b) Via asserts that it would
be at risk of being driven from both the x86 CPU market and the x86 compatible
chipset market, thereby affecting the structure of competition in the market.
- No
doubt, in one sense, these assertions are formulaic but it does not follow that
they are on that account defective. Given that they are alleging a future hypothetical
state of affairs they cannot be as specific as a pleading of past or present fact.
If details are required then they may be obtained under CPR Rule 18.1, though
the contents of the expert’s reports would seem to be the more appropriate method.
For my part I do not consider that the pleading in relation to the Asymmetric
Licence is so defective as to warrant summary judgment on that issue being given
against Via.
- I
turn then to the Market Division term. This arises from the effect of the definitions
which bear on the meaning of "Company Licensed Products" by reference
to which the licence from Intel is limited. Counsel for Via contends that such
products are inevitably limited by the definition of "P4 Bus" which,
by means of the definition of "P4 Chipset", is introduced into the definition
of "Company’s Licensed Products". This is not disputed by counsel for
Intel. But he submits that the limitation so derived is a restriction on manufacture
and not subsequent sale and the words "or marketed" are mere surplusage.
If, as he submits, it is the former alone then it could not constitute an infringement
of Article 81.
- This
is disputed by Counsel for Via. He instances the case of a chipset made under
the licence and compatible with the P4 CPU. In his submission the terms of the
draft CLA would permit its making but would preclude its sale to a purchaser for
use with an improved version of the P4 with which it is also compatible. In this
way, he submits, the Market Division term has the effect of regulating the market
in the P4 chipsets after and separately from their manufacture. In these circumstances
the words "or marketed" in the definition of P4 Chipset are intended
and effective.
- For
my part I do not feel that terms such as these are suitable for interpretation
on an application for summary judgment. The surrounding circumstances or matrix
are of crucial importance. On the face of it the limitation is in respect of the
licence contained in clause 4.1. That permits sales direct or indirect and other
dispositions of Company Licensed Products. The limitation imported from the definition
of "P4 Bus" is likewise a limitation on sales as well as manufacture.
If this is correct then the effect of the Market Division term is to preclude
Via, having legitimately used Intel’s licensed technology to make a chipset, from
selling it to a person for use with an improved version of the P4 CPU. I do not
consider that the construction on which counsel for Via relies can be dismissed
as without real prospect of success
- Counsel
for Intel submits that such a construction is not open to Via either on its pleadings,
its arguments in the court below or its notice of appeal. Counsel for Via disagrees.
In my view the point is certainly open to Via on its pleading. Paragraphs 35 and
40(a) refer to it in terms as a restriction on supply. Similarly in relation to
the notice of appeal paragraphs 15 and 17 (b) clearly relate to a restriction
on supply in contrast to a restriction on making.
- In
summary in my view Via has a real prospect of success in establishing that the
Asymmetric Licence confers on Intel rights in relation to Via’s patents concerning
CPUs over and above what could be regarded as reciprocal and the Market Division
term does seek to regulate the sales of P4 Chipsets independently of their making.
Would such terms infringe Article 81?
- Both
parties addressed us at some length on the ambit of the decision of the European
Court of Justice in Windsurfing International Inc v European Commission
[1986] ECR 611. This case concerned sailboards. In essence a sailboard consists
of a rig, comprising a mast, sail and spars, and a board, comprising a hull and
centre-board. The case concerned the terms of a licence under a German patent
in relation to the rig. The European Commission regarded the patent as covering
the rig alone, not the complete sailboard. The Court of Justice considered that
they were right to do so.
- The
licence under that patent contained four relevant terms, namely (1) to fit licensed
rigs only to approved boards, (2) to market the rigs only in combination with
boards as complete sailboards, (3) to fix to the boards notices indicating that
they were made under licence from the patentee and (4) to pay royalties on net
sales or rental income derived from complete sailboards. Each of these terms was
considered by the European Court of Justice in the context of its compatibility
with Article 85.
- With
regard to the first of those provisions the Court of Justice observed (para 46)
that the discretion to approve the board to which the rig must be attached
"would
in effect enable a licensor to impose his own selection of models upon the licensees,
which would be contrary to Article 85."
- In
the case of the second the Court of Justice reiterated (para 57) that the patent
must be regarded as covering the rig alone
"That
being the case, it cannot be accepted that the obligation arbitrarily placed on
the licensee only to sell the patented product in conjunction with a product outside
the scope of the patent is indispensable to the exploitation of the patent."
- With
regard to the third the Court of Justice considered (para 73)
"Despite
Windsurfing International’s contention that it was not the object of the clause
to distort competition but merely to convey the information....that the production
and sale of sailboards were made possible by a licence from Windsurfing International,
it is nonetheless true that by requiring such a notice Windsurfing International
encouraged uncertainty as to whether or not the board too was covered by the patent
and thereby diminished the consumer’s confidence in the licensees so as to gain
a competitive advantage for itself."
The
Court of Justice held (para 74) that such a provision was incompatible with Article
85.
- The
provision for the calculation of royalties on the basis of the selling price of
the complete sailboard was held (para 67) to be
"of
such a nature as to restrict competition with regard to the separate sale of boards,
which were not covered by the German patent, but not the sale of rigs."
- In
my view this case clearly establishes the second of the propositions advanced
by counsel for Via that a licence term is incompatible with Article 81 if it seeks
to regulate the commercial market by controlling not only what is made with the
licensed technology but also the use which is made of it thereafter. That is clearly
the basis of the holding of the European Court of Justice in relation to the second
term. It follows that the Market Division term, construed as I have accepted it
can be, is incompatible with Article 81.
- The
first proposition advanced by counsel for Via is that the exclusivity conferred
by a patent may not be used to license the invention on terms which restrict or
distort competition in some respect going beyond what is strictly necessary to
define the extent to which exclusivity is thereby surrendered. The conclusions
of the Court of Justice in relation to all four clauses can be read in that way.
For my part I consider that the principle is better expressed as recognising that
an anti-competitive term collateral to licensing acts which would otherwise constitute
an infringement must be justified, if at all, on its own merits and not because
of its inclusion in a licence of an intellectual property right. In that sense
the Asymmetric Licence is collateral to the licence from Intel to Via. Via alleges
it to have the anti-competitive effect to which I have already referred. At this
stage the only justification advanced by Intel is its inclusion as one of the
terms of the licence Intel is prepared to grant in respect of its own patents.
In my view that cannot justify the grant of summary judgment in its favour.
- In
summary, I conclude that Via has a real prospect of success in demonstrating that
both the Asymmetric Licence and the Market Division term would be incompatible
with Article 81 if contained in an agreement or undertaking. Via has not relied
on any such agreement or undertaking. The possibility of an infringement of Article
81 in these respects appears to be to be relevant, if at all, in the context of
the third issue to which I have referred in paragraph 30 above. That issue, to
which I now turn, depends on the application of the decision of this court in
British Leyland Motor Corporation Ltd v TI Silencers Ltd [1981] 2 CMLR
75.
British
Leyland
- In
that case British Leyland sought to enforce its copyright in design drawings to
inhibit TI from supplying replacement parts for cars made by British Leyland.
TI denied the alleged breach of copyright. Amongst other defences it contended
that the licence terms imposed by British Leyland on its licensees were in breach
of Articles 30, 34, 36, 85 and 86 of the EC Treaty. Walton J considered that British
Leyland were doing no more than making "ordinary use" of their copyright
and that the paragraphs in the defence relying on those articles did not raise
an arguable case in such a way as to afford a defence to the infringement claim.
TI appealed. Templeman LJ with whom Lawton and Brandon LJJ agreed considered that
Walton J was wrong.
- In
paragraphs 7 and 8 at pp. 78, 79 Templeman LJ said
(7) ".....But
if English legislation, though not invalid, is used or abused by British Leyland
in a way and by means of activities which themselves create a breach of the Treaty
of Rome, then British Leyland may not be able to obtain all the relief to which
they would otherwise be entitled.
(8) If,
for example, it was proved in evidence that the owners of English copyright were
only prepared to grant a licence on terms which created, or helped to create,
a breach of Community law, this court, I apprehend, would not grant an injunction
against an infringer who desperately needed a licence for his business purposes
and was willing to pay a reasonable royalty for the privilege, but was unwilling
to accept or assist or acquiesce in any breach of Community law. The court could
award damages in lieu of an injunction based on a reasonable royalty, or the court
could accept an undertaking by the defendant to pay a reasonable royalty to be
assessed if not agreed. The court would strive to prevent any breach of Community
law while, at the same time, preserving for the copyright owner the benefit of
and the right to make, in the learned judge’s words, ‘the ordinary use of their
copyright.’ But I do not accept that the court would lend countenance to an argument
that the ordinary use of copyright included a use which enabled the owner of the
copyright to flout European Community law."
- Lawrence
Collins J reached no final decision on the rationale and scope of this decision
because he considered that the Asymmetric Licence and Market Division term were
not arguably contrary to Article 81. I have reached a contrary conclusion on the
latter points and must, therefore, reach some conclusion with regard to the ambit
of British Leyland. For that purpose I will start with the observations
of Lawrence Collins J.
- Having
set out the passage in the judgment of Templeman LJ which I have quoted in paragraph
76 he observed that the decision had been applied in two later cases, Holleran
v Daniel Thwaites plc [1989] 2 CMLR 917 and Philips Electronics NV v Ingman
[1998] 2 CMLR 839, but in the context of actual agreements which were or were
alleged to infringe Article 81. He accepted that, as established in Bayer AG
v European Commission [2001] 4 CMLR 4, an unaccepted offer which if accepted
would be incompatible with Article 81 was not itself an infringement of Article
81. He did not consider that Templeman LJ had decided otherwise.
- In
paragraphs 113 to 115 Lawrence Collins J said
"113. Nevertheless
the legal rationale of British Leyland is not easy to isolate. It seems
to follow from VIA’s argument that it means that wherever the holder of an intellectual
property right offers a licence on terms which offend Article 81, and the offeree
is faced with accepting the terms or not carrying on the business in relation
to articles which are the subject of the right, then the offeree cannot be sued
for infringement if he offers a reasonable royalty. But in my judgment, there
are two reasons why this cannot be right. First, it would be contrary to common
sense, and wholly disproportionate, for every unaccepted offer of a licence, which
(if accepted) would have infringed Article 81, to result in an offeree who wished
to manufacture the goods in question being entitled to infringe on payment of
a reasonable royalty. Secondly, if the offer were accepted, and the unlawful restrictions
were accepted, those restrictions would be null and void under Article 81(2),
and it is likely that they would not be severable (see below, section XXI) with
the result that there would, once again, be no licence. It is odd that the offeree
is to be treated so much more favourably if he rejects the offer and then infringes.
114. Consequently
I do not consider that British Leyland necessarily leads to the result
in all cases that the offeree automatically obtains a licence on its own terms
if a patent holder proposes a licence which contains terms which offend against
Article 81(1) and which the offeree rejects. The case had the following special
features: first, the intellectual property right was special to United Kingdom
law; second, the defendants would not have been able to carry on their business
at all unless they could make body panels for British Leyland cars and therefore
desperately needed a licence; third, Templeman LJ emphasised that it was arguable
that the use of a copyright monopoly granted in respect of one article did not
justify the copyright owner insisting, as a condition of granting a licence, on
a royalty applicable to articles over which no copyright existed, and he concluded
that on the assumed facts "it does not seem to me that that what British
Leyland are attempting to do can accurately be described as the normal use of
copyright" (at 89); fourth, as Neuberger J said in Sandvik (at 788)
British Leyland was seeking to put pressure on the body panel manufacturers to
agree arguably illegal terms.
115. I
doubt if British Leyland goes any further than holding that infringement
proceedings may not be brought where the holder of the intellectual property right
is abusing that right in order to force terms unrelated to that right (such as
the royalties in that case and in Philips) on a trader who desperately
needs the licence in order to trade. I do not consider that the decision could
apply in every case in which a manufacturer wishes to gain access to the technology
of the holder of a patent who is willing to grant a licence but only on terms
which arguably infringe Article 81(1). If I am right, and even if the alleged
restrictions were in contravention of Article 81(1), VIA would not be able to
bring itself within what Templeman LJ said. First, all that VIA is really saying
in the Chipset action is that if it does not obtain a licence it will be unable
to manufacture chipsets for the Pentium 4. It may have a strong wish to compete
with Intel and its licensees in selling chipsets for the Pentium 4, but its evidence
on the economic effect of it not being able to manufacture and sell such chipsets
(in relation to which I made a confidentiality order) falls far short of an allegation
that it desperately needs a licence to allow it to trade. Second, although VIA
pleads that Intel insists on these terms, VIA does not suggest that Intel is putting
any pressure on it to agree the terms. But I need not make a final decision on
the rationale and scope of British Leyland if the alleged restrictions
are not arguably contrary to Article 81(1), and I will therefore go on to consider
that question."
- For
Via counsel contends that the principles behind British Leyland are those
normally applied by the courts in England when faced with illegality. In relation
to his contention that the conduct of Intel was in breach of Article 82 he submitted
that it is plain that the court would not lend its support to such conduct by
granting relief for patent infringement to which Intel would not have been entitled
had it granted the licence Article 82 required. I did not understand counsel for
Intel to challenge this part of the submission of counsel for Via. In my view
it is plain that if the conduct of Intel is contrary to Article 82 in the respects
alleged then such illegality may constitute a defence to any liability for infringement
or any remedy therefor.
- Accordingly
the point arises only in respect of a potential infringement of Article 81 by
the conclusion of a licence containing the Asymmetric Licence and the Market Division
term. In that respect it is similar to Philips Electronics NV v Ingman
[1998] 2 CMLR 839. In that case Laddie J struck out the defence which relied on
Article 86 but refused to strike out the defence which relied in Article 85. The
circumstances sufficiently appear from paragraph 83 at p 869 of his judgment where
he recorded that
"The
plea that the standard licence is void appears at first a little odd. The defendants
have not yet entered into such a licence. Therefore in respect of the standard
licence there is at present no relevant agreement between undertakings as required
by Article 85. [Counsel for the defendants] says that this does not matter because
it cannot be right for the court to give relief in this action which will force
the defendants to enter into an agreement which, once executed, will offend against
the Article. Furthermore, as noted above, one of the pleas advanced by the defendants
is that a purpose of these proceedings is to force prospective licensees – not
just these defendants – to accept a licence of the patents on the terms of the
standard licence."
- Laddie
J considered that, in the light of the reply of the plaintiff, it was arguable
that the proceedings had been brought, inter alia, to force the prospective licensees
to accept a standard licence. In paragraph 93 on p 873 he concluded that
"...it
is at least arguable that the purpose of these proceedings is to force the defendant
or others to enter into standard licences. If such licences offend against the
Treaty of Rome, then it is at least arguable that the court may decline to give
the plaintiff all the relief it seeks in its writ."
- Counsel
for Via criticises the reasoning of Lawrence Collins J on the basis that he distinguished
British Leyland on inadequate grounds. Counsel for Intel submits that British
Leyland is distinguishable because there is no suggestion in this case that
the form of licence offered to Via is a standard form nor does it have the effect
of excluding from the market products not covered by the patent. He re-iterated
the points to which Lawrence Collins J referred in paragraph 113 of his judgment,
quoted in paragraph 79 above. Counsel for Via responds by pointing out that British
Leyland is a decision of this court and binding on us with regard to its ratio.
He contends that the logical conundrum to which the judge referred in paragraph
113 of his judgment envisages that the consequence of infringing Article 81 is
"voidness" rather than "voidability" and appears to ignore
the penal consequences of concluding an agreement in contravention of Article
81.
- I
start with the special features the judge considered (paragraph 113) distinguishes
this case from British Leyland. First, I do not see why it should make
any difference that the intellectual property right in question was special to
the United Kingdom. Most, if not all, intellectual property rights are conferred
by national law. Second, Article 81 applies to any agreements having as their
object or effect the prevention, restriction or distortion of competition. The
existence of "a desperate need" describes the severity of the restriction;
it does not determine its existence. The third distinction cannot be maintained
if the Asymmetric Licence and the Market Division term are found to have the meanings
I have held to be arguable. The fourth appears to me to be not dissimilar to the
second.
- These
considerations also undermine the two reasons given by the judge in paragraph
115 of his judgment for considering that Via does not fall within the principle
expounded by Templeman LJ. For the reasons I have already given Via is saying
a good deal more than the case attributed to it by the judge. Even if it be the
case that Intel is not putting pressure on Via to agree to the terms it puts forward
I do not see why that fact should undermine any defence which might otherwise
exist.
- But,
like the judge, I remain concerned at the commonsense aspect of Via’s case to
which he referred in paragraph 113 of his judgment. Why should Intel be in a worse
position than it would have been if the licence containing the Asymmetric Licence
and the Market Division term had been concluded? Counsel for Via suggests that
the comparison to be made is not between no licence and an unlawful licence but
between no licence and a lawful licence.
- Ultimately
I am unpersuaded that the position is so clear as to justify granting Intel summary
judgment on this issue. First, the appeal to commonsense can be made in every
case of a threat to enter into an illegal agreement. In such a case it can be
said that there is no occasion for the intervention of the court because the contract,
if made, will be unlawful. In many cases that may be true but it will not be true
in all cases. Particular circumstances, such as the potential effect on third
parties, may well justify the intervention of the court. Second, in this case,
for the reasons I have given there is also the defence under Article 82. If the
willingness to grant licences but only on terms which involve breaches of Article
81 is part of the abusive conduct of which complaint is made then I see no reason
why those facts may not be relied on both for the purposes of the defence under
Article 82 and as a free-standing defence under Article 81. Third, unless I am
prepared to say that Laddie J was wrong in Philips Electronics, and I am
not, then at least arguably there is a defence under Article 81 even if there
is none under Article 82. Fourth, even if the case under Article 81 is insufficient
to found a defence to liability it may yet constitute a defence to the remedies
of injunction, delivery up and an account of profits. The conduct of Intel will
have demonstrated that it does not seek to prevent the use of its invention; rather
it seeks to exploit it by licensing others to make chipsets compatible with its
own technology. If some of the terms of that licence are invalid then the proper
remedy may be thought to be to make Via pay proper compensation as opposed to
preventing it from using the technology on a normal commercial basis.
- For
all these reasons I would also grant permission to appeal and allow it so that
the Article 81 defences may be reinstated.
Conclusion
- The
ingredients of computer technology, patent infringement and Articles 81 and 82
EC Treaty make a somewhat indigestible dish. Inevitably the court becomes buried
in the minutiae of whichever ingredient is being considered. So it is appropriate
to stand back and consider the result. Are the defences under Articles 81 and
82 ones for which Via has real prospects of success? Are there other compelling
reasons why these defences should only be disposed of at a trial? In my view the
answer to both questions is in the affirmative.
- The
issues in relation to Articles 81 and 82 only arise if the patents in suit are
both valid and infringed. At this stage it is impossible to say whether any and
if so which claims in any of them is both valid and infringed. Until it has been
determined that at least one of them is the issues relating to Articles 81 and
82 are hypothetical. Moreover unless and until it has been determined which claims
in the patents in suit are valid the extent to which any of the patents in suit
is capable of restricting competition and therefore capable of giving rise to
infringements of Articles 81 and 82 is uncertain. If the issues under Articles
81 and 82 do arise then it seems likely that at some stage a reference to the
European Court of Justice will be necessary. Such a reference cannot be made at
this stage because it is not necessary to enable the court to dispose of this
appeal and should not be made at any stage before the facts have been determined.
- If
what Via alleges is made out then the dominance of Intel in the world-wide market
in the important and developing technology for PCs is buttressed by its enormous
portfolio of patents and restrictive licensing policy. This may be true of others
but in the case of this technology the commercial and technical requirement for
compatibility of hardware and software confers on the industry leader an even
more impregnable position.
- For
all these reasons I would
a)
allow the appeal for which Lawrence Collins J gave permission;
b)
give permission to appeal and allow the appeal for all the other issues for which
permission was sought in the Appellant’s notice except those relating to the claims
for relief contained in paragraphs (6) and (7) of the prayer for relief in Via’s
counterclaim in Action HC 01 2 C04135;
c)
discharge paragraphs 1, 2, 4 and 5 of the order of Lawrence Collins J made on
14th June 2002;
d)
direct the parties to apply to Jacob J for further directions as to the conduct
of these actions.
Lord
Justice Mummery :
- I
agree that the appeal should be allowed for the reasons given by the Vice Chancellor.
- In
cases of this novelty, which are conducted on this scale, it is important to stand
back from the detail and consider the matter in the round. My provisional view
at this stage of the litigation is that the defence under Article 82 is stronger
than that under Article 81 and that there are serious difficulties in the way
of either of the competition defences eventually succeeding at trial. But it is
too soon to have sufficient confidence in the ultimate outcome to decide summarily
that the defences have no real prospect of success.
- I
am not confident about the direction of future developments in the Court of Justice
in this area. No one has yet asked for a reference. The Court has no jurisdiction
to make a reference at this stage, as it impossible to say, ahead of the determination
of the issues of validity and infringement of patent at trial, that a ruling on
the interpretation of Articles 81 and 82 is necessary in order to decide the cases.
Indeed, it will never be necessary to try the competition defences at all, if
the validity or infringement defences succeed.
- VIA
has not raised the Euro defences to attack the existence of the patent rights
or to challenge every use of them. This is not a straightforward case of an alleged
infringer simply being refused a licence by the patent holder. The more complex
question is, given Intel’s assumed dominance in the markets for microprocessors
and chipsets, is it abusing that dominance by adopting a policy for the exploitation
and enforcement of its large portfolio of patent rights, which has the effect
of distorting competition in the EC? Magill indicates that, in exceptional circumstances,
the exercise of an exclusive intellectual property rights (e.g. by unjustifiably
refusing to grant copyright licences to competitors, who cannot produce a competing
product without a copyright licence) can constitute an abuse of a dominant position.
This question necessarily involves a factual investigation into Intel’s licensing
policy (whom it licenses or refuses to license, in what circumstances, on what
terms and restrictions) and an examination of the effects of the implementation
of the policy on competition from other products in the relevant market, which
has special features of "industry standard" requirements and needs for
compatibility of components with hardware and software technology. A trial is
needed to establish the facts and to resolve the question. The momentous issues
raised by the proceedings are not simply questions of law suitable for summary
treatment.
Tuckey
LJ:
- I
agree that the appeal should be allowed for the reasons given in both judgments.