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UK: CJEU Ruling on Anti-Trust Status of Arbitral Award over Patent Licence Dispute

by Lorna Brazell (Osborne ClarkeUK)

Genentech, Inc. v Hoechst GmbH/ Sanofi Aventis GmbH (Case C-567/14)

The Court of Justice of the European Union has ruled that a patent licence was compatible with European anti-trust rules under Article 101 TFEU, even though Genentech had to continue to pay a running royalty on sales of MabThera notwithstanding the revocation or non-infringement of the licensed patents.

The dispute, over non-payment of royalties between 1992 and 2008, had been referred to an arbitrator who had awarded Hoescht €100m despite the fact that, by the date of the ruling, the patents in question had been revoked and a declaration of non-infringement made.

The CJEU applied its 1989 decision in Ottung where it had held that the obligation to continue paying royalties after expiry of the licensed patent did not infringe Art.85(1) of the Treaty, because the agreement in that case reflected a “commercial assessment of the value to be attributed to the possibilities of exploitation granted by the licence agreement.” The agreement also, crucially, contained a provision that the licensee was free to terminate the contract on notice.

The European judges afford the highest priority to the individual licence agreement the parties have negotiated. In addition to this emphasis on contractual freedom, the CJEU stresses the general principle that once a contract is concluded, it is to be adhered to. Genentech’s commercial interest in being able to use, for the duration of the licence agreement, the licensed technology without running the risk of patent litigation is in their view independent of the validity of the patent. As long as the licence agreement at issue is still valid and can be terminated by the licensee, the royalty payment is due even if the industrial property rights derived from the patents which are granted exclusively cannot be used against the licensee due to the fact that (in Ottung) the period of their validity has expired.

The CJEU noted that under applicable (German) law, a finding that Genentech’s use of the licensed technology did not infringe the patents in question has no effect on the enforceability of the royalty for the period prior to termination of the licence. But since Genentech was free to terminate the agreement at any time, the obligation to pay the royalty during the period when that agreement was in effect does not constitute a restriction of competition within the meaning of Art.101(1) TFEU. The arbitrator was therefore entitled to make the award.

The decision can be expected to affect the structure and content of licence agreements. Licensees could consider concluding separate agreements for different patents instead of entering into an overall contract covering the use of various protected technologies. Separate agreements would allow licensees to terminate particular contracts relating to specific patents which prove not to be necessary for their product, or which become invalidated during the term of the agreement. Similarly, payment obligations should be clearly defined and specify the consequences of the patent being invalidated during the term of the agreement.

For arbitral tribunals, the position remains that international arbitral awards must be compatible with EU law and, consequently, it may be necessary to apply EU law when interpreting and applying the contract in issue.