FRANDly negotiations: national Courts apply the Huawei v. ZTE framework

The Bucharest Court of Appeal and the Regional Court of Düsseldorf have recently issued two decisions concerning the enforcement of standard essential patents (SEPs) in the telecommunication industry. The decisions (which have been made available by Comparative Patent Remedies: see here and here, also for their English translation) are particularly interesting in that they apply the framework depicted by the CJEU in the Huawei v. ZTE case (C-170/13, full text here) with regard to the availability of injunctive relief for SEPs encumbered by FRAND (Fair, Reasonable and Non-Discriminatory) commitments. As is well known, according to the Huawei v. ZTE decision, a SEP holder, before asking an injunction against an alleged infringer, must present him a specific and detailed FRAND license offer (Huawei v. ZTE, par. 63). In the absence of such a FRAND license offer, seeking an injunction may amount to an abuse of dominant position under Art 102 TFEU (Huawei v. ZTE, par. 77). But what if the infringer does not respond to the SEP holder’s offer? Is the FRAND-compliance of the SEP holder’s offer still to be verified, in order for the injunction to be granted?

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The Romanian case

In 2014, Vringo, Inc., an Israeli non-practicing entity (NPE), obtained from the Tribunal of Bucharest a preliminary injunction against ZTE Romania on the basis of a patent essential to the 4G/LTE standard. The decision was upheld by the Bucharest Court of Appeal. In particular, in the case at stake, Vringo had offered a license to ZTE Romania and ZTE Romania did not respond to the offer.

Later on, ZTE Romania filed a motion to have the above preliminary injunction lifted on the grounds of its alleged inconsistency with the Huawei v. ZTE framework. However, both the Tribunal and the Court of Appeal of Bucharest dismissed the petition. In particular, by decision of 28 October 2015, the Court of Appeal stated that, precisely in the light of Huawei v. ZTE, when the alleged infringer does not respond to the SEP holder’s offer (but the same applies to the case of a non-FRAND counter-offer), the SEP holder cannot be deemed to be abusing its dominant position. It seems from the line of reasoning of the decision that the Bucharest Court did not verify the FRAND-compliance of Vringo’s offer, and deemed it sufficient that ZTE Romania failed to present a FRAND counter-offer for an injunction to be granted.

The German case

The approach of German Courts is different. In an order of 13 January 2016, the Higher Regional Court of Düsseldorf held that the alleged infringer is not required to propose a FRAND counter-offer if the one it received is not FRAND-compliant. In other words, the Court has, first of all, to verify whether the patent owner’s offer is FRAND. Only if this condition is met, it will check if the counter-offer is FRAND-compliant too. Therefore, the alleged infringer who receives a non-FRAND offer and does not respond cannot be subject to an injunction under the Huawei framework and, if sued before a Court, he can simply object that its counterparty did not respect the FRAND “etiquette” provided by the CJEU. Obviously, the patent holder would still have the chance to prove before the Court that its offer was actually compliant to FRAND terms and conditions, and to obtain an injunction.

The same approach was recently adopted by the Regional Court of Düsseldorf too, in its decision of 31 March 2016 (English  translation  of  the  relevant  excerpts made available by Comparative Patent Remedies blog here). In this case, concerning a patent essential to the AMR-WB standard for 3G communications, the Court specifically assessed the FRAND nature of the patent holder’s offer, although it was undisputed that the alleged infringer had not proposed a counter-offer.

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The German approach seems to be preferable. Since, under the Huawei v. ZTE framework, a FRAND-compliant offer by the patent holder is mandatory, Court should not issue injunctions without a prior assessment of the FRAND nature of the patent holders’ offers. Should this assessment be omitted, the burden of estimating a fair offer would shift from the patent holder – the only one who has the very instruments to calculate a fair royalty rate according to “comparable licensing agreements” – to the alleged infringer. So that, in order to avoid an injunction, the alleged infringer will most likely present a very high counter-offer. This seems to stifle the pro-competitive effects of the Huawei v. ZTE framework.

Stefano Vignati

(IPlens’ guest)

The pictures of notorious people may be used on commercial websites without their consent (or, at least, this is what the court of Bologna said)

In 1992, for the first time in more than 141 years of America’s Cup, an Italian boat was able to dispute the famous sailing race, so becoming famous all over the world as the first boat from a non-English speaking team to fight for the victory. Not only the most passionate sailors know that the boat was “Il Moro di Venezia”, Paul Cayard its skipper and that the sailing team was leaded by Raul Gardini.

This story was re-evoked in a proceeding for violation of image and personality rights started by Paul Cayard and the heirs of Raul Gardini before the Court of Bologna (full text here) to stop the unauthorized use of pictures, names and logos of Il Moro di Venezia and its protagonists on a commercial website (and related promotional Facebook pages) managed by a brand called “Il Moro di Venezia” that was unrelated to the sailing team of the famous boat.

According to the Court, however, the personality rights of an individual, that include the ways in which such individual is presented to the public, shall reflect the social perception that common people have of his/her personality and is not violated insofar as there is no misinterpretation of his/her intellectual ideological, ethic and professional heritage, as it emerges from his/her personal story as known.

Moreover, with particular reference to the names and images of Il Moro di Venezia and its team that were used on the website, the Court affirmed that the plaintiff had no right to stop their use on the basis that the contested elements were not used as trademarks and the link created with them on the resistants’ web pages was not abusive or detrimental of other rights.

The Court seems to recall the case law affirming that, besides misrepresentation, there is a further case when there could be violation of personality rights. Reference is made to the cases where the image and name of an individual are used in advertising in association with a brand, in so far as their use suggests a patronage to the brand which, instead, is lacking. A parallelism with trademark law could be found in the provisions inhibiting to deceive the public about the qualities of a sign and to create in the consumers’ mind an association between a notorious trademark and a product, thus taking an unfair advantage of said trademark.

This further case was, however, excluded by the Court of Bologna. It thus seems, by reading this decision, that anyone can make use of the names and images of third parties, also on a website aimed at promoting their commercial activity, when such person is depicted as the society expects him/her to be, suggesting a support of the related brand. This, even if a link between such person and the activity is created in the public in absence of any will from the depicted one or, as it was in the present case, with his/her express disapproval.

Many decision, on the contrary, affirmed that any individual has the right to control the uses of his/her name, image and any other aspect of his identity, even if the same were made available to the public with their previous consent, because the interested party could not approve their further use and, in particular, a commercial connection suggesting that he/she is connected to a brand (see Supreme Court decision of 6 December 2013, no. 27381; Court of Milan, decision of 21 May 2002 and Court of Rome, decision of 15 September 2007).

It’s a bit scary thinking about the consequence of the decision of the Court of Bologna that seems to be very permissive as to the possible uses of names and pictures of a person. It would be reasonable, we believe, extending the concept of distortive use as including the use on a commercial website that has not been approved by the person in question or, even worst, is expressively discouraged.

Court of Bologna, decision No. 2637/2015, 9 September 2015, Ivan Gardini, Eleonora Gardini, Maria Speranza Gardini and Paul Pierre Cayard v. Punta della Maestra S.r.l., Overseas Property LLC, Yacht Club Il Moro di Venezia and Rama S.n.c.

Personal data processing for marketing purpose under the new GDPR: consent v legitimate interest and Recital 47 – first thoughts

Under EU privacy law, we are used to think about “opt-in consent” as the ground normally used to legitimise the processing of personal data for marketing purposes (i.e. you can market individuals only with their explicit consent to do so). “Opt-out mechanisms” (i.e. you can market individuals if you have previously given the option not to receive communications) are instead an exception allowed only (i) for using email addresses already obtained by the data controller in the context of the sale of a product/service and (ii) for direct marketing of its own similar products or services, i.e. excluding direct marketing of third party’s products (see Article 13 of Directive 2002/58/EC – “E-Privacy Directive”).

The General Data Protection Regulation (“GDPR”) apparently has strengthened this approach (although it does not formally repeal the E-Privacy Directive, the latter will be soon amended to conform with it – otherwise a dual regime would make little sense). Personal data shall be processed on the basis of the consent of the data subject or some other legitimate basis including “legitimate interest” (Recital 40).

Consent (as the rule)

The GDPR requires consent to be a clear affirmative act, freely given, specific, informed and unambiguous, whereas “silence, pre-ticked boxes or inactivity” cannot instead constitute consent (Recital 32). Moreover, Article 7 states that data subjects have the right to withdraw consent at any time and such withdrawal shall be easy as to give consent. Thus, at a first reading, it seems that the GDPR lives no more rooms for opt-out mechanisms.

New exceptions are set out although limited. Recital 32 states that affirmative acts include (i) choosing technical settings for information society services (cookie settings on a browser?); or (ii) another conduct which clearly indicates in this context the acceptance of the processing (a form of implied consent?). Additionally, Article 7 states that consent is not necessary for subsequent “compatible” processing operations. Recital 50 says that compatibility should be assessed in light of the link between the processing purposes, the reasonable expectations of the data subjects, the nature and the consequences of further processing and the existence of appropriate safeguards for the data. Further example of lawful compatible operations are processing for archiving purposes, scientific or historical research purposes, or statistical purposes (we assume scientific statistics without commercial nature, i.e. no big data analysis).

Legitimate Interest

On the other hand, among the other legitimate basis legitimising the processing Article 6 counts the “legitimate interest”. Interest is the stake or benefit that the controller (or a third party) has in the processing of data. Similarly to Directive 95/46/EC (see Article 7, letter f), the GDPR excludes the legitimacy of controller’s interest when it is overridden by the interests or fundamental rights of the data subject. In sum, the legitimate interest requires a true balancing test between the interest of the controller and the data subjects rights. This test shall also take into account reasonable expectations of data subjects and their particular relation with the data controller

What is new in the GDPR is Recital 47 stating that “the processing of personal data for direct marketing purposes may be regarded as carried out for a legitimate interest”. Does this mean that data subject’s consent is no more required for processing personal data for marketing purposes?

Some helpful indications are provided by the Working Party’s opinion on the notion legitimate interest (WP 6/2014 – the Working Party – “WP” – is the EU Privacy Advisory Body). Actually the WP already acknowledged that direct marketing and marketing research can constitute a valid legitimate interest under Directive 95/46/EC, and provided suggestions on how to conduct the balancing test. In marketing activities the object of the balancing test is about companies’ interest in knowing their customers and promoting their products against individuals’ interest not to be unduly monitored and spammed.

In general, the outcome of the test depends mainly on:

  • the intrusion/impact the processing entails (e.g. in case of profiling operations and combined analysis on vast amounts of data the intrusion is significant, and thus the test probably negative); and
  • the safeguards put in place by the data controller, and particularly the mechanisms to object to the processing and opt-out solutions.

The WP considered the outcome of the test in the following examples:

y general marketing by post to users of a food-delivery mobile app, when: (i) data are gathered when the user used the app to place a food-order; (ii) the app included an easy-to-use tool to opt-out from marketing ; (iii) limited information collected and used for marketing, i.e. contact details only (name, postal address); (iv) the marketing is operated by post and concerns similar products to those purchased (thus meeting users’ expectations) – the data and the context are of relatively innocent nature.

x targeted marketing (both online/offline) to users of a food-delivery mobile app combined with other data: same situation above, but: (i) the app uses users’ recent order history (a 3-year period), additionally combined with location data and browsing history via the mobile phone, and the data from a supermarket operated by the same company running the app; (ii) marketing is targeted based on the order history and operated both online and offline; (iii) the app lacks a user-friendly information and an easy-to-use opt-out tool – the data and the context are intrusive and there is a strong impact on users.

In conclusion

The WP’s opinion provides further examples that however confirm the above reasoning. In sum, it appears that in fact “soft” marketing can rely on the legitimate interest rule (substantially aligned to the opt-out exception of Article 13 of E-Privacy Directive), whereas advanced marketing (targeted emails, location based advertising, automated calling systems, etc.) always require consent.

The line between the two categories is not always clear. In those cases, relying on legitimate interest to justify marketing requires demonstration that the outcome of the test is positive (see Recital 69), due to low intrusion of that particular marketing and/or safeguards that are in place (e.g. mechanisms to access or modify personal data; or in case of free services which are in fact “paid” by allowing the use of personal data, alternative basic versions which do not require processing of data for marketing). In addition, Article 13 of the GDPR requires a clear mention of the legitimate interest pursued by the controller within the privacy notice.

Francesco Banterle

Oracle v Google: fair use defense saved web developers!

On 26 May 2016 a jury in the District Court for the Northern District of California unanimously upheld that Google’s use of Oracle’s APIs constitutes a “fair use” under the U.S. Copyright Act (full text here). The battle between Oracle and Google begun in 2010 when Oracle sued Google for using JAVA APIs, owned by Oracle, without permission. API stands for Application Programming Interface and is a set of instructions which allows different types of software to communicate to each other. When Google started the implementation of its Android Operating System (OS), despite writing its own version of JAVA, it copied some features of Oracle’s APIs in order to facilitate app developers, already familiar with them, in writing programs for Android. Therefore Oracle claimed a copyright on JAVA APIs  and the infringement of the copyright by Google.

On 31 May 2012 Judge Alsup (Northern District of California) ruled that APIs cannot be subject to copyright under the U.S. Copyright Act (full text here) which does not protect purely functional things, i.e. “process, system or methods of operation” (17 U.S. Code § 102). He motivated that in the situation at issue the taxonomy “is composed entirely of a system of commands to carry out specified computer functions”, therefore, “to accept Oracle’s claim would be to allow anyone to copyright one version of code to carry out a system of commands and thereby bar all others from writing their own different versions to carry out all or part of the same commands”. Oracle appealed and on 9 May 2014 the U.S. Court of Appeals for the Federal Circuit reversed the ruling (full text here), establishing that JAVA APIs are copyrightable, while leaving open the possibility of a “fair use” defense in Google’s favor. In reaching its conclusion, the Federal Circuit underlined that “a set of commands to instruct a computer to carry out desired operations may contain expression that is eligible for copyright protection”. Therefore, even if a computer program is functional by definition, according to the Court, can be protected by copyright as long as it is original and its underlying idea could have been expressed in multiple ways by the author. On October 2014, Google filed a petition to the U.S. Supreme Court requesting the review of the Federal Circuit’s decision. The U.S. Supreme Court denied Google’s petition on June 2015. Therefore, the case returned to the District Court and a jury agreed that Google’s re-implementation of JAVA APIs is protected by fair use.

This decision constitutes a big relief for all developers out there which are used to re-implement each other’s APIs in performing their everyday work. A different finding by the jury could have caused a chaos in the “programmer’s world” as it could have been the begin of numerous copyright claims with a consequent slowdown of the IT progress, at least in the long run. Nevertheless, the most founded decision was Judge Alsup’s ruling in 2012, when he ruled that computer programs cannot be protected by copyright law. In fact, all programs are functional for their own nature, therefore the consideration that the same functional scope can be performed by a variety of software is without relevance in order to establish the copyrightability of computer programs. What matters from a juridical standpoint is that in computer programs there is not an actual (but only a fictious) dichotomy between idea and expression (which is the core requirement for copyrightability), instead the two merge with the consequence that APIs should not be protected by copyright, as Judge Alsup’s ruled in 2012. Nevertheless, Oracle plans to appeal, let’s see what’s next!

Elisabetta Coronel Vera

(IPlens’ guest)

District Court for the Northern District of California, 26 May 2016, Oracle America, Inc. v. Google, Inc.

The Court of Rome reintroduces the notion of “active hosting provider”: new uncertainties on the ISP liability rules

By a decision published on 27 April 2016, the Court of Rome held TMFT Enterprises LLC- Break Media (“Break Media“) liable for copyright infringement for the unauthorized streaming of audiovisual content owned by Reti Televisive Italiane S.p.A. (“RTI“).

Break Media argued that it was a passive hosting provider because it merely stored information at the request of a recipient of its service. Pursuant to Article 14 of the E-Commerce Directive 2000/31/CE, as implemented in Italy by Legislative Decree 70/2003, hosting providers are not liable for stored information if they are unaware of its illegal nature. Moreover they are not required to remove illegal content unless ordered to do so by the competent public authorities.

Further, the provider outlined that the notice sent by RTI was generic, failing to report the location (URL) where the infringing content were placed. Therefore, it imposed no legal obligation to inform the competent authorities under Article 17 of the Directive and no liability for contributory copyright infringement could be found.

In addressing the hosting provider’s arguments, the Court of Rome found the website owner to be liable.

In line with the previous Italian case law (cf. Court of Rome, October 20 2011, VVBcom.Limited and Choopa LLC; Court of Milan May 19 2011, RTI v Yahoo! Italia and Court of Milano, January 20 2011, RTI v ItaliaOnline Srl) the Court of Rome applied the distinction between active and passive hosting providers, based on the analysis of the activities performed by the entity in question.

The decision held that if a hosting provider is directly involved in the website’s operations by allowing users to upload videos and other content, it is deemed to manage the information and content that its users provide. In this case, the ISP would be regarded as an active hosting provider, subject to a duty to remove illicit content if so requested by the rights’ holder.

On the contrary, if a hosting provider merely provides storage and connectivity to specific websites, and plays no active role in managing information online, it should be regarded as a passive hosting provider, which is not jointly liable with website owner for copyright infringement unless it fails to comply with a removal order issued by the competent administrative or judicial authorities or is aware of the illicit nature of the content on the hosted website and fail to alert the competent authorities.

According to the Court, Break Media was an “active hosting” of media content. Indeed, the activity of Break Media was not limited to the activation of technical procedures for enabling the content to be loaded to the platform (“passive hosting”), but provided a complex service of advertising exploitation of the content.

As a result, the liability exemptions established by Article 14 of the E-Commerce Directive were not applicable.

Although RTI’s notice demanding the removal of the infringing materials from the platform did not identify the specific location of the content to be removed, the defendant was effectively aware of the infringing nature of the content. This knolwedge was deemed enough in order to affirm the provider’s liability.

Based on the above, the Court condemned the provider to pay damages for € 115,000, approximately corresponding to € 1.300 for each minute of unauthorized publication.

Reintroducing principles affirmed by the aforementioned case law, the current decision distanced from the decision of the European Court of Justice on the SABAM case (24 November 2011 in Case C‑70/10, Scarlet Extended SA v. SABAM et al.) according to which national authorities are prohibited from adopting measures which would require an ISP to carry out general monitoring of the information that it transmits on its network.

Based on the SABAM jurisprudence, the Court of Appeal of Milan, January 7 2015, overturning the Court of Milan first instance decision in the case RTI v. Yahoo! Italia, took the view that the distinction between ‘active’ and ‘passive’ hosting providers should be regarded as misleading, being envisaged in neither the E-Commerce Directive nor in the Italian implementing Legislative Decree 70/2003. Consequently the fact that an ISP provides for services to organize contents published by its users should not change its role.

The issue provides matter of clarification for the Supreme Court.

For further comments look at the interesting analysis carried out by Maria Letizia Bixio on dimt.it

Jacopo Ciani

Court of Rome, 27 April 2016, Reti Televisive Italiane S.p.A. v. TMFT Enterprises LLC- Break Media

MISLEADING FOOD (WINE) INDICATIONS STIGMATIZED BY THE ITALIAN COMPETITION AUTHORITY

In a recent decision (full text in Italian here), the Italian Competition Authority (“AGCM”), which is competent also for misleading advertising under the Italian Consumer Code, sanctioned the famous Italian high-quality food retailer Eataly, the wine distributor Fontanafredda, and the association Vino Libero for having marketed a series of wine bottles bearing the sign Vino Libero (“Free Wine”).

Vino Libero is an association promoted by Eataly which counts a series of wine producers, with an alleged “ethic” project of sustainable agriculture and oenology. Actually Vino Libero wines are not sulphites-free, however the maximum dosage thereof is lower by at least 40% than the limit set by EU Regulation 606/2009 (in fact, sulphites limits set by Vino Libero disciplinary are quite similar – a little lower – to those of the organic wine set out by EU Regulation 203/2012).

During a preliminary phase the AGCM considered the expression Vino Libero misleading and invited the parties to adopt an additional claim that must follow each mark Vino Libero: “free from synthetic fertilizers, free from herbicides and free from at least 40% of sulphites than the limit set by law. After having found that Eataly and Fontanafredda failed to fully respect the commitments on the additional claim, the AGCM issued a final decision and fined them.

Indeed, the AGCM held that the expression Vino Libero on a wine bottle, without further specifications, can effectively lead consumers to believe the wines bearing that mark are totally absent chemical fertilizers, herbicides and – above all – sulphites. Thus misleading them about the initiative Vino Libero and the actual presence of sulphites. In this regard, the AGCM excluded that the mere mandatory indication on the label about positive presence of sulphites (required by EU Regulation 1169/2011) is able to reduce the deceptive effect of the sign Vino Libero.

The AGCM’s reasoning is well grounded and stands against marketing initiatives playing with organic evocations. However, the optimal solution to put an end to the debate on sulphites would consist in imposing on wine producers stricter obligations to list ingredients and dosage on the labels.

Francesco Banterle

Italian Competition Authority (“AGCM”), decision No. 25980 of 13 April 2016, bulletin n. 15 of 9 may 2016

Are Concept stores eligible for copyright protection?

With a decision issued on 13 October 2015 (full text in Italian here), the Court of Milan stated that concept stores are eligible for copyright protection, even if they consist of a simple and straightforward design.

magi

The decision is the last of a long court-battle fought between two companies active in the cosmetics field.

Here the relevant facts. Kiko S.r.l., one of the protagonists in the Italian market of cosmetics, contacted an architectural firm asking them to project the interiors of their new stores, to be innovative and strongly distinctive. When the project was completed, approximately 300 stores were opened in Italy with a minimalist design, featuring essential symmetries and clear lines.

Afterwards, Wjcon S.r.l., one of Kiko’s competitors, opened a number of new stores in Italy that, according to Kiko, recalled the concept, design and colours characterizing the project of its stores.

Various decisions followed, with different reasoning and that, in essence, declined any type of copyright protection to the concept of Kiko’s stores. In 2010, by a decision as of 3 May 2010 (full text in Italian here), the Court of Milan rejected Kiko’s copyright and design infringement claims, resulting from the copying of all the essential features of its retail stores arguing that Kiko and Wjcon’s stores were similar only for details that were common and not distinctive in the field of cosmetics’ stores.

A similar ruling was issued a couple of years later by the Court of Rome (decision of 5 September 2012, full text in Italian here), that rejected Kiko’s copyright infringement claim, arguing that concepts stores do not fall under the scope of protection of copyright law, unless they have artistic value. The decision maintained that concept stores could not be protected under copyright law as works of architecture, but only as designs. Given that Italian Copyright Law provides that designs could enjoy copyright protection insofar as they present artistic value, the existence of a valid copyright on Kiko’s stores was excluded. As a matter of fact, the latter did not prove the existence of such a value for its stores.

With the October decision the Court of Milan followed a third approach. In short, the Court rejected the arguments according to which Kiko’s concept stores’ features were not original since they were common in the field and consisted of functional elements (and, hence, not copyrightable), and clearly affirmed that interior designs may be protected as works of architecture under copyright law as long as it is possible to identify an original act of creation.

According to the Court, originality may not be excluded even if the project consists in essential or simple features, part of the cultural heritage of the field, since the threshold for originality for concept stores is not different from the usual one, which is indeed quite low.

With particular regard to interior designs, originality must be recognized every time the project is not merely functional and the choice, coordination and organization of the singular elements of the store are arranged to obtain a new and creative final result.

In the Court’s view, Kiko’s shops were undeniably characterized by creative elements and their overall concept was peculiar and original. Even if such elements were already known in the field, originality may be inferred from the fact that no competitor had ever arranged before the features of Kiko’s shops in such a way. The fact that Wjcon copied the overall impression of Kiko’s concept stores, with merely minor differences, is not relevant in excluding copyright infringement considering that almost all the original solutions of the project where copied.

A distinct solution – in-between the approach requesting artistic value and the one satisfied with a low originality – had previously been adopted by a third group of decisions, granting copyright protection to interior design only when the architectural elements composing it were inextricably bound to the real estate and, nevertheless, original (see Court of Milan decision of 31 May 2006, Court of Milan decision of 10 July 2006 and Court Catania decision of 17 June 2000).

The complexity of the protection of concept stores under copyright law is demonstrated by the number of different theories proposed by the various decisions and is further confirmed by the provisional decree issued by the Court of Appeal of Milan as of 26 January 2016, where the October decision of the Court of Milan has been appealed by Wycon. The Court of Appeal decided to suspend the enforceability of the Court ’s decision, recognizing that the protection of concept stores under copyright law is a complex issue.

A last note: recently, also EUIPO Board of Appeal had the chance to examine Kiko’s shop and, with a decision dated 29 March 2016 (proceeding no. R 1135/2015-1), declared it not eligible for protection also under trademark law. We’ll see what’s next.

Maria Luigia Franceschelli

Court of Milan 13 October 2015, RG n. 80647/2013, Kiko S.r.l. vs Wjcon S.r.l.

Competition law’s application to patent settlement agreements: the first UK decision

When a pharmaceutical patent expires, the patent owner will normally face the competition of ‘generic‘ versions of the patented drug, which often means a dramatic fall in the originator product’s prices as well as an impending revenue cliff.

GlaxoSmithKline (hereinafter “GSK”) faced such a situation with regard to its patented anti-depressant product, Seroxat®, one of its best selling medications during the 2001-2004 time period. In 2001, a number of generics producers were taking steps to enter the market with their own versions of the product. GSK responded to the threat by commencing proceedings against two generics producers, Alpharma Limited (Alpharma) and Generics (UK) Limited (GUK), for breaching its patents.

Rather than taking the matter to trial, the parties proceeded to settle the case. The settlement terms included GSK paying certain sums to the generics producers and appointing them as its distributors of Seroxat®. In return, the generics producers agreed not to launch their own products into the UK market.

On the 12th of February 2016, the Competition and Markets Authority (former Office of Fair Trading) ran out an investigation against GSK and the generic companies finding that they had entered into anti-competitive reverse-payment settlements agreements for breaches of Chapter I of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 81 of the Treaty Establishing the European Community, TEC) (see the CMA press release at https://www.gov.uk/government/news/cma-fines-pharma-companies-45-millionfull, text of the decision yet to be published). The CMA found that the agreements effectively prevented the generic competitors from entering the paroxetine market and deprived the National Health Service of price falls averaging 70 per cent. Therefore it characterised the arrangements as a cartel and as an abuse of dominance by GSK.

The decision culminates in total fines of just under £50 million including a fine of £37.6 million against GSK. The size of the fine is itself significant: it is the second largest to have been imposed on an individual company by the UK competition authorities.

This is the first UK decision to consider the application of competition law to patent settlement agreements. However, the pharmaceuticals sector is not new to the attention of the competition authorities.

In the U.S., the FTC’s efforts to combat harmful reverse-payment settlement agreements resulted in the Supreme Court’s landmark decision in FTC v. Actavis, Inc., 133 S. Ct. 2223 (June 17, 2013), which held that these settlements are subject to antitrust scrutiny.

At the EU level, patent settlement were thoroughly reviewed in the Pharmaceutical Sector Inquiry, a report of the European Commission published on 8 July 2009 and followed by yearly Monitoring Reports (full texts here http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/).

In 2013, the EU Commission fined Danish pharmaceutical company Lundbeck €93.8 million and its generic competitors €52.2 million following an investigation which found that Lundbeck had concluded deals with them to unlawfully prevent the market entry of competing generic versions of its branded citalopram, a blockbuster antidepressant, following the expiry of its patents (full text here http://ec.europa.eu/competition/antitrust/cases/dec_docs/39226/39226_8310_11.pdf).

Essentially, the Commission considered that Lundbeck had paid substantial sums to the generic competitors in return for a delay in launching generic products onto the market. Now Lundbeck is appealing against the Commission decision and a judgment is expected later this year.

In 2014, the European Commission fined the French pharmaceutical company Servier and five generics companies a total of 427.7 million (EUR). In that case, Servier implemented a strategy to exclude competitors and delay the entry of cheaper generic versions of its bestselling blood pressure medicine, perindopril. Since its patent protection came to an end generics companies started developing their own products, Servier challenged them and subsequently settled the cases, paying the generics companies to stay out of the market. Also Servier’s appeal against the Commission’s findings is currently before the European General Court.

Waiting for the outcomes of these rulings, the case at stake seems to fall squarely within the territory that the EU consistently considers as giving rise to an “object” or automatic infringement of EU and EU national competition law (cf. Guidelines on the application of article 101 TFEU (ex Article 81 TEC) to technology transfer agreements, 2014/C 89/03 of 28.3.2014). Indeed, the misuse of the patent settlements to restrict competition emerges clearly looking at the direction of the transfer of value. In genuine patent litigation settlement, any payment will tipically flow from the alleged infringer to the patentee. Here, on the contrary, it is the patentee which provides compensation to the infringer. This deal is a straight horizontal agreement in restraint of competition, which would be equally unlawful if it had been stipulated by two producers of generics. As Prof. Ghidini outlines in Profili evolutivi del diritto industriale, 2015, 426, the deal is unlawful not because it concerns a patent, but due to the payment for delaying the product’s entry in the market (cfr. Abbott A.F., Michel S.T., The right balance of competition policy and intellectual property: A perspective on settlement of pharmaceutical patent litigation, IDEA, 2006, 46).

It remains to be seen what further repercussions GSK may face from this case. It is possible that the Department of Health and any other customers of the product could consider to launch a claim for recovering loss they may have suffered because of the amount Seroxat® was overpriced as a result of GSK’s conduct.

Jacopo Ciani

 

UK Competition and Market Authority, 12 February 2016, CMA v. GlaxoSmithKline plc  and others, CE/9531-11

The Kit Kat case: the famous chocolate bar doesn’t deserve to be protected as a trademark

On 20 January 2016 the England and Wales High Court (Chancery Division) issued its final decision on the Kit Kat case (the text is available here) dismissing the appeal filed by Société des Produits Nestlé SA (Nestlé) against the decision by which the Trademark Office rejected the trademark application for registration of the famous four stripes chocolate bar.

Preliminarily, it must be emphasized that the trademark application rejected by the Office concerned the three-dimensional sign corresponding to the shape of Nestlé’s four-finger KIT KAT product without the KIT KAT logo normally embossed onto each of the fingers of the product. This circumstance was decisive for both the decision of the English Court and that of the EU Court of Justice to which the former had applied for a preliminary ruling.

  kitkat

The dispute started in 2011 when Cadbury UK Ltd (Cadbury) filed a notice of opposition against Nestlé’s trademark application for infringement of

  • Article 3.1 lett. b) and lett. e), sub i) and ii) of Directive 2008/95/EU, according to which a trademark which is devoid of any distinctive character or which consists exclusively of the shape which results from the nature of the goods themselves or the shape of goods which is necessary to obtain a technical result shall not be registered or, if registered, shall be liable to be declared invalid, and
  • Article 3.3 of Directive 2008/95/EU, which provides that the registration shall not be refused or the trademark shall not be declared invalid if following the use which has been made of the trademark, it has acquired (before or after the date of application for registration or after the date of registration) a distinctive character (the so called “secondary meaning“).

In 2014 the England and Wales High Court (Chancery Division) addressed the CJEU for a clarification, in order to determine the appeals filed both by Nestlé and Cadbury against the Trade Marks Registry of the United Kingdom Intellectual Property Office’s decision issued in 2013. In its  decision, the Office had held that the Nestlé’s trademark was devoid of inherent distinctive character and had not acquired a distinctive character in relation to all goods covered by the application except for “cakes” and “pastries” and that the trademark consisted exclusively of the shape which was necessary to obtain a technical result.

 The CJEU’s decision

The Court of Justice’s decision was delivered on 16 September 2015 (available here) and has undergone many critics probably because it has determined the rejection by the English Court of the registration of the famous chocolate bar.

The decision, on one hand, is convincing where it states that the proof of the use of a shape trademark can be given also through the proof of the use as part of another trademark or in conjunction with such a mark (Nestlé’s trademark application for registration concerned, as said,  the shape of the bar without the KIT KAT logo). On the other hand, by affirming that the occurrence of  “secondary meaning” can be ascertained only by proving that the relevant class of persons (that is the “average consumer of the category of goods or services in question, who is reasonably well-informed and reasonably observant and circumspect”, and not also the trader) perceive the goods or services designated exclusively by the trademark applied for, as opposed to any other mark which might also be present, as originating from a particular company, the Court has given a very restrictive interpretation of the function of the trademark, since it seemingly excludes that the association of the shape with the trademark owned by the company is enough to assess the acquisition of the distinctive character.

The Court was requested of a preliminary ruling also about the obstacles under Article 3.1 lett. e) of Directive 2008/95/EU. On this point, it confirmed its previous case law according to which the grounds for refusal of registration set out by the provision operate independently of one another and it is sufficient that one of them is fully applicable to the shape at issue for precluding registration as a trademark of a sign consisting exclusively of the shape of goods (even in a case such the KIT KAT one), where that shape contains three essential features, one of which results from the nature of the goods themselves (the basic rectangular slab shape of the Nestlé’s chocolate bar) and two are necessary to obtain a technical result (the presence of the grooves running along the length of the bar, which, together with the width of the bar, determine the number of ‘fingers’).

 The English Court’s decision

However, in its final decision the English Court not only ignored the issue concerning the necessity to obtain a technical result but didn’t consider the case law, also recalled by the Court of Justice, according to which a sign which is refused registration under Article 3.1 lett. e) of Directive 2008/95/EU can never acquire a distinctive character (that is a “secondary meaning”) for the purposes of Article 3.3 (see C-299/99 Philips case, point 57 and 75; C-53/01 Linde case, point 44, C-371/06 Benetton case point 23-28 and C-48/09 Lego case point 47). Thus, the Court dismissed the appeal exclusively on the basis of the lack of proof of the consumer’s perception of the goods as originating from Nestlé.

Both decisions evidence, once again, how difficult is to validly register shape trademarks – especially shape trademarks concerning amorphous products like those in the food industry (however, the Court of Justice confirmed that the criteria for assessing the distinctive character of three-dimensional trademarks consisting of the shape of the product itself are not different from those applicable to all other categories of trademarks).

                                                                                                             Sara Caselli

England and Wales High Court (Chancery Division), 20 January 2016, Société Des Produits Nestlé SA v. Cadbury Uk Ltd

Max Mara gets patent protection for jeans’ pockets which fit better to wearers’ body shapes.

By judgment no. 472 of 14 January 2016, the IP Court of Milan (Judges Mr Marangoni, Mrs Dal Moro and Mrs Giani) ruled that jeans produced by Germani Group and distributed by Il Passatempo infringed Max Mara’s italian patent on “a pocket for clothing” that can “enhance and shape the forms of the wearers, with particular reference to the gluteus area”.

The Court dismissed the defendants’ exception of patent invalidity, based on the alleged lack of inventive step. A three-dimensional pocket that well adapts to the body constitutes an appropriate technical solution for a very clear technical problem: the reduction of the jeans unpleasant aesthetic effect of flattening and the increase in comfort. “This technical solution involves an inventive step, since for a person in the art it was not evident from the state of the art.

The Court recognized that the patent infringement amounted also to unfair competition for contrast with professional ethics principles under art. 2598 no. 3) Italian Civil Code.

With reference to the distributor, the Court excluded its exemption from liability because unaware of the infringing nature of the saled product. Since intellectual property rights are subject to a system of publicity, the Court argued that market operators are presumed to be aware of their existence. As a consequence, the sale of i
nfringing goods amounts to infringement unless the distributor gives evidence that he was unaware, without his fault, of the infringement. That was not the case, since the distributor continued in marketing the infringing product even after the date of notification of the summons.

As regards the assessment of damages, the Court ordered the defendants to return the profits derived from the sale of the infringing products pursuant to art. 125 Italian Code of Industrial Property. This remedy was granted notwithstanding that Max Mara had not provided any evidence of the alleged damages and loss of profits. Even if the infringement does not give rise to damages, in any case it cannot enrich its authors, which will have to return their profits.

The decision seems to set the inventive step’s threshold required to get patent protection at a particularly low level. The related risk is that the same owner could claim different protections in relation to the same products. Indeed, in connection with the same jeans, design or even trademark protection could be successfully invoked as well.

Court of Milan, 14 January 2016, n. 472, Max Mara v. Germani Group et al. 

 

Jacopo Ciani