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The payment of royalties in case of annulment or non-infringement of the patent

Estimated time to read this article
2 min
Date of publication
13 September 2016
Fernand De Visscher
Commercial Law, Civil Law and Consumer Law, Intellectual Property

In the court decision of 7 July 2016 (C-567/14, Genentech) the Court of Justice of the European Union reaffirmed the solution as presented by the Court in its decision of 12 May 1989 (C-567/14, Ottung): the prohibition on anti-competitive agreements (article 101, §1 TFEU) does not affect the contractual obligation of a fee for the use of a technology that is not or is no longer covered by a patent, on the condition that the licensee is at every moment in the possibility to end the existing agreement.

The Court had already stated that such a clause could be the reflection of the value parties give from a commercial point of view to the exploitation possibilities the license agreement is about.

In the most recent case, the question was treated from a small different point of view, but the solution firmly stayed the same. The Court underlined the importance of the fact that a licensee is free to end the agreement at all time.

The license concerned (1992) covered a worldwide non-exclusive license regarding certain technology, which was protected by a European and two American patents. The European patent was declared null and void several years after by the OEB (1999), while the American patents, although likewise attacked, remained in place.

Next, the licensee ended the agreement, while the American patents were still applicable.

In this case, the Court regarded the two American patents, which protected the technology concerned as the only relevant patents: the patents were not declared null and void, but the Court held that the licensor did not use the patents after the termination of the agreement (counterfeit).

The dispute arose because the licensee failed to pay the royalties as was foreseen by the license agreement. When considering the dispute before him, the arbitrator accepted the responsibility of the licensee to pay the royalties. The punishment he had foreseen was the subject of an action for annulment with the Court of Appeal in Paris, which was asked to render a judgment regarding the compatibility of the solution rendered by the arbitrator with article 101, §1 TFEU (prohibition on anti-competitive agreements).

The arbitrator had reached its solution taking into account the German law regarding license agreements. He was of the opinion that the commercial purpose of the parties was to lighten the risk on the licensee to face infringement proceedings of the licensor, while using the technology. This view was opposed to the opinion of the licensee, who argued that with the absence of infringement, no compensation needed to be paid.

Thus, the relevant question comprised of knowing if article 101, §1 TFEU precludes that an obligation within such an agreement is put on the licensee to pay a compensation fee for use of the technology, in the period when a license is applicable, while an annulment of the patent is still a possibility or, like in the case at hand, a declaration non-infringement of the patents, which protect this technology, by other parties.

The Court of Justice pointed out that the solution put forward in the decision of 12 May 1989 is a fortiori applicable in this case. While a license agreement is in force, the payment is due, even after the patent expires. Thus, this also applies when the patent is still in force (which was in casu the situation, the American patents stayed applicable until termination of the license agreement by the licensee and were not declared null and void).

In our opinion two main elements played a role when the Court considered the case, being on the one hand, the fact that in German law regarding license agreements, a non-infringement has no influence on the payment of the royalties. The reason is that the commercial purpose of the parties consists in protecting the licensee for the risk for infringement. On the other hand, another element is the fact that the licensee has the possibility, as was in the previous case, to terminate the agreement at every moment.

The payment of royalties regarding a patent, while it has become inapplicable or declared null and void, or when there is no infringement, primarily is debated in the framework of anti-competitive restrictions. As the reasoning of the case clearly indicates, the particularities of every separate case will have to be considered.

Fernand de Visscher