iStock_000052002718_XXXLargeOn 11 April 2016, the German Federal Cartel Office (FCO) announced that the German League Association (Ligaverband) and the German Football League (Deutsche Fußball Liga, DFL) have committed that no single pay-TV buyer can win exclusive live broadcasting rights to Bundesliga league games for the 2017/2018–2020/2021 seasons. The FCO made this “No Single Buyer” rule a precondition to green-light the proposed tendering model. Currently Sky Deutschland holds all domestic live broadcasting rights for Germany’s top football leagues until the end of the 2016/2017 season, having won the last tender in 2012.

Sources say that the DFL opposed the “No Single Buyer” rule, but the FCO stood firm in this effort to foster competition. FCO president Andreas Mundt voiced concerns that, as long as there was only one holder of live rights in the market, innovative competition—especially from internet-based broadcasters—might be restricted.

The DFL will be inviting tenders for 17 different audiovisual media rights packages, eight of which concern domestic live broadcasting. The tendering model sets forth that if one bidder acquires all live broadcasting rights packages to the Bundesliga games, an over-the-top (OTT) package will be offered. This OTT package will include the rights for live transmissions of three games per match day (one on Saturday, two on Sunday), but only via the web and the mobile web. So:

  • either the rights to transmit Bundesliga live games across all technologies—satellite, DTT (digital terrestrial transmission), cable/IPTV (Internet Protocol Television), web and mobile web—are allocated among different providers
  • or, in case of a single buyer of all live packages, one third of the games can be watched via web and mobile-web streaming on a second provider’s platform.

If the live packages were divided among different providers, consumers would not necessarily need to subscribe to more than one pay-TV service to view all of the games. A single provider could still offer all live broadcasts by sublicensing any rights it did not win itself.

What’s Next?

The DFL said on its website that it aims to conclude the auction of Bundesliga live broadcasting rights for the 2017/2018–2020/2021 seasons in early June 2016, before the start of the UEFA Euro 2016 football tournament. Experts expect the DFL to generate 1.1–1.5 billion euros per season from the broadcasting rights.

iStock_000024234069_Large

The exclusive rights conferred by a patent may be subject to limitations based on competition law. For example, patents that have been declared essential to an industry standard (so-called standard essential patents, “SEP(s)”) shall be made available for licensing to all third parties under fair, reasonable and non discriminatory (“FRAND”) terms in order to comply with Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) which sets forth that any abuse of a dominant position within the internal market shall be prohibited. This interface between patent and competition law is an area of potential friction and has been a matter for the courts for some years.

On 16 July 2015, the Court of Justice of the European Union (“CJEU”) (C-170/13) issued a ruling that provides guidance on some issues, in particular, on how courts should deal with patent holders seeking injunctions on the basis of an (alleged) infringement of a SEP. The case involves Chinese telecommunication giant Huawei asserting a European patent, allegedly essential to the ‘Long Term Evolution’ (LTE) standard, against Chinese rival company ZTE. Huawei is a member of the European Telecommunication Standards Institute (“ETSI”), notified the patent to that institute and, thus, made a commitment to grant licenses to third parties on FRAND terms pursuant to the ETSI Intellectual Property Rights Policy. Since discussions between the parties regarding the conclusion of a licensing agreement on FRAND terms were unsuccessful, Huawei brought an action for infringement against ZTE before the District Court of Düsseldorf, seeking, inter alia, an injunction prohibiting continuation of the (alleged) infringement. The District Court stayed the proceedings and asked the CJEU to provide guidance on whether and under which circumstances this conduct of Plaintiff – the assertion of SEPs subject to FRAND commitments – could be considered an abuse of a dominant market position.

Previous decisions in this regard: The German “Orange Book” decision

In a decision issued on 6 May 2009 (KZR 39/06), known as the “Orange Book” decision[1], the German Federal Court of Justice (“BGH”) ruled that a SEP holder may file an action for injunctive relief without any prior duties to actively engage in licensing negotiations. The alleged infringer may, however, defend itself by arguing that the SEP holder refuses to license the SEP on fair and reasonable terms (so-called ‘compulsory license defense’). However, the BGH further held that a party may only rely on the compulsory license defense, if it meets the following two conditions:

(i) the party seeking the license must submit a binding and unconditional offer to the SEP holder which the latter cannot reject without unfairly hindering the party seeking the license or acting discriminatorily; and

(ii) if the party seeking the license uses the patent prior to the conclusion of a license agreement, it must pay (or at least security deposit) the corresponding license fees which would be due under such license agreement.

Essentially, these conditions would place the party seeking the license in the position it would be in, if a license had already been granted. Therefore, the party seeking the license, inter alia, would have to pay or at least deposit license fees at a point in time when a license agreement has not yet been concluded. While the BGH did not specify how the amount of license fees to be paid or deposited is to be calculated, it stated that it should be “in any event adequate”, leaving the risk to make insufficient payments or security deposits with the party seeking the license.

Previous decisions in this regard: Decisions of the European Commission

Two decisions of the European Commission (“EC”) issued on 29 April 2014 (cases AT.39985 and AT.39939) also deal with the concept of abuse of a dominant position in the context of SEPs. In both cases, the SEP holders had committed to ETSI to grant licenses under the patents on FRAND terms. The EC clarified that when a SEP holder has made such commitment and a competitor has expressed genuine willingness to obtain a license under FRAND terms, invoking the patent may constitute an abuse of a dominant market position.

While the German Orange Book Standard primarily puts the burden on the alleged infringer, the EC takes the SEP proprietor up on its responsibility to conclude a licensing agreement: the party seeking a license does neither have to submit a binding and unconditional licensing offer, nor pay (or deposit) any royalties for using the SEP in advance of the conclusion of a FRAND term license agreement. The mere willingness on the part of the alleged infringer to acquire a license on FRAND terms may be sufficient to consider an application for injunctive relief by a SEP holder an abuse of a dominant market position.

The CJEU decision

In the Huawei vs. ZTE case, if the District Court of Düsseldorf were to follow the German Orange Book decision, it would likely conclude that there was no abuse of a dominant market position, since the alleged infringer had neither made an unconditional licensing offer nor made any payments for the use of the patent. However, if the District Court of Düsseldorf was to apply the position of the EC, it would likely hold Plaintiff’s conduct an abuse of a dominant position, since Plaintiff had committed to licensing the patent on FRAND terms and the Defendant was seemingly willing to take a license under such terms.

Seeking to ensure a fair balance between maintaining free competition and the requirements to safeguard the proprietor’s intellectual property rights, the CJEU clarified the circumstances under which an undertaking can be viewed as a “willing licensee”, and which actions shall be taken by the SEP holder in order to avoid having its conduct considered an abuse of a dominant market position:

(i) a SEP holder that has committed to grant a license to third parties on FRAND terms must, prior to bringing an action seeking an injunction or the recall of products, alert the alleged infringer of the infringement, specifying why the SEP holder believes the patent to be infringed;

(ii) the alleged infringer, on the other hand, must express its willingness to conclude a license agreement on FRAND terms;

(iii) the SEP holder must then present to the alleged infringer a specific, written offer for a license agreement on FRAND terms, specifying, in particular, the royalty fee and how it is to be calculated;

(iv) the alleged infringer shall diligently respond to the SEP holder’s offer in accordance with recognized commercial practices in the field and in good faith.

If the SEP holder respects the conditions indicated above and the alleged infringer continues to use the patent and does not respond diligently to the SEP holder’s offer, then any actions of the SEP holder seeking an injunction or the recall of products shall not constitute an abuse of a dominant position. If no agreement can be reached between the parties on the amount of royalties, they may, by mutual agreement, request the amount to be determined by an independent third party (e.g. an arbitral tribunal). Another interesting issue is the affirmation of the competitor’s right to challenge the validity of the SEP. Such challenge shall have no impact on the status of the competitor as a “willing licensee”, even if licensing negotiations are ongoing.

Conclusion

The CJEU strikes a balance between the patent owner-friendly position taken by the BGH in the Orange Book case and the position of the European Commission. The CJEU clarifies rights and obligations of SEP holders and “willing licensees”, and provides effective guidance on how undertakings should conduct negotiations to avoid pitfalls in this area of intersection between patent and competition law.

[1] For a complete report on this decision see https://www.mayerbrown.com/files/Publication/e00a482e-89be-4c39-92c7-bdba2f7d3d3f/Presentation/PublicationAttachment/f2799e36-85d9-442c-9c1a-88a510a33d09/Patent_Update_%20Zwangslizenzeinwand.pdf.