WHAT HAPPENED

  • On February 14, 2017, Integra agreed to purchase Johnson & Johnson’s Codman neurosurgery business (excluding Codman’s neurovascular and drug deliver businesses) for $1.045 billion.
  • Seven months later, on September 25, 2017, the Federal Trade Commission (FTC) agreed to clear the transaction subject to the parties divesting five neurosurgical tools and associated assets including the relevant intellectual property (IP), manufacturing technology and know-how, and research & development (R&D) information related to the five tools. Additionally the buyer of the divested assets can freely negotiate to hire any employees that worked on sales, marketing, manufacturing, or R&D for the divestiture products. The parties must also supply Natus Medical Incorporated (Natus) with cranial access kits often sold with the divestiture assets until Natus can start sourcing them independently.
  • The FTC required that the parties divest the following medical devices:
    • Intracranial pressure monitoring systems, which measure pressure inside the skull. The FTC determined that Integra (68 percent) and Codman (26 percent) combined market share in the United States would be 94 percent and that only fringe competitors with limited presence would have remained.
    • Cerebrospinal fluid collections systems, which drain excess cerebrospinal fluid and monitor pressures within the fluid. The FTC found that Integra (57 percent) and Codman (14 percent) would combine for 71 percent market share in the United States and would have reduced the number of significant competitors from three to two.
    • Non-antimicrobial external ventricular drainage catheters, which funnel excess cerebrospinal fluid form the brain to cerebrospinal fluid collection systems to relieve intracranial pressure. Here, the FTC said Integra (29 percent) and Codman (17 percent) are the number two and three competitors accounting for 46 percent of the market in the United States and would have reduced the number of significant competitors from three to two.
    • Fixed pressure valve shunts, which are used to treat excessive accumulation of cerebrospinal fluid. The FTC found that Integra (23 percent) and Codman (15 percent) were the number two and three competitors would control 38 percent of the US market and, again, that the number of competitors would have been reduced from three to two.
    • Dural grafts, which are used to repair or replace the membrane that surrounds the brain and spinal cord and keep cerebrospinal fluid in place. The FTC determined that the merger would have reduced the number of significant competitors from four to three with Integra (66 percent) and Codman (nine percent) combining for 75 percent market share.
  • Under the terms of the settlement, the parties must divest within 10 days of closing to Natus, which is a global health care company with an existing neurology business including systems that are complementary to the divestiture assets.

Continue Reading THE LATEST: Integra Forced to Divest Neurosurgical Tools to Gain FTC Clearance

Reversing long-standing Federal Circuit precedent, the United States Supreme Court has now held that a patentee extinguishes its patent rights on a product upon its sale of that product, regardless of (1) whether the patentee placed a restriction on the sale (prohibiting reuse or resale), or (2) whether the sale occurred within the United States.

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On January 13, 2017, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) issued updated Antitrust Guidelines for the Licensing of Intellectual Property (the Guidelines). The revised Guidelines follow nearly half a year of consideration and public commentary. According to the FTC, the updates were “intended to modernize the IP Licensing Guidelines without changing the agencies’ enforcement approach with respect to intellectual property licensing or expanding the IP Licensing Guidelines to address other topics.” In that vein, the modest updates to the Guidelines affirm that the antitrust agencies still believe that IP issues do not require an altered analysis and that the licensing of intellectual property is generally procompetitive.”

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On December 2, 2016, the Supreme Court of the United States granted cert in a key case regarding the scope of the patent exhaustion doctrine, or “first sale doctrine,” as it relates to (1) sales of a patented item subject to restrictions on post-sale use and (2) authorized sales of a patented article outside of the United States. The US Supreme Court’s resolution of this case will have important implications for secondary markets for patented products and global commerce.

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On 8 September 2016, the General Court of the European Union upheld the European Commission’s decision in which the antitrust regulator imposed fines of approximately EUR 150 million on Lundbeck and a number of generic companies for entering into reverse settlement agreements which delayed the entry of cheaper generic versions of a blockbuster antidepressant.

The Commission had first hinted that patent settlement agreements causing delayed generic entry might be problematic in its 2009 report on the Pharmaceutical Sector Inquiry. Continue Reading EU Court Confirms European Commission’s Decision on Pay-for-Delay Agreements

On October 6, the Federal Trade Commission (FTC) released its report on patent assertion entity (PAE) activity. The report is the result of research that began in September 2014 to address a gap in the agency’s understanding of PAEs, how they operate and how policies can be developed to reduce nuisance litigation. The study focused on PAE practices, including acquisition, litigation and licensing. The FTC recommends that policymakers address asymmetries in PAE litigation through various procedural and substantive reforms.

Read the full article here.

On 8 September 2016, the General Court of the EU (GCEU) handed down five judgments upholding a decision by the Commission of 19 June 2013 imposing fines on Lundbeck, an originator company, and Merck (the parent company of Generics), Arrow, Alpharma and Ranbaxy, four generic companies. The Commission found that the companies had entered into anticompetitive “pay-for-delay” settlement agreements whereby Lundbeck paid a lump sum to the generic companies in exchange for their agreement to delay their entry on the market for Citalopram, an anti-depressant drug.

This ruling is notable in that it is the first time that the GCEU has been asked to rule on patent settlements between originators and generic companies. The GCEU upheld the Commission’s reasoning, noting that the Commission’s reasoning in this case reflects the provisions of its Guidelines on the application of Article 101 of the Treaty on the Functioning of the EU (TFEU) to technology transfer agreements.

Continue Reading General Court of the EU Confirms Fines Imposed on Lundbeck and Generic Drug Manufacturers for Entering into Patent Settlements

On 7 July 2016, the Court of Justice of the European Union (CJEU) handed down a judgment on whether Article 101 of the Treaty on the Functioning of the European Union (TFEU) must be interpreted as precluding effect being given to a licence agreement requiring the licensee to pay royalties for the use of a patent which has been revoked (Sanofi-Aventis v. Genentech, Case C-567/14).

Background

In 1992, Hoechst granted a licence to Genentech for a human cytomegalovirus enhancer. The licensed technology was subject to one European patent and two patents issued in the United States. In 1999, the European Patent Office revoked the European patent.

Under the licence agreement with Hoechst, Genentech was obliged to pay a one-off fee, a fixed annual research fee and a running royalty based on sales of finished products. Genentech never paid the running royalty, however, and in 2008 it notified Hoechst and Sanofi-Aventis (Hoechst’s parent company) that it was terminating the licence. Hoechst and Sanofi-Aventis believed that Genentech had used the enhancer to manufacture its blockbuster drug Rituxan and was therefore liable to pay the running royalty on its sales of that drug.

Sanofi-Aventis initiated two separate actions. In the United States, it brought an action alleging that Genentech infringed the two US patents. The US courts ultimately decided that there was no infringement of the patents in question. Sanofi-Aventis also submitted an application for arbitration against Genentech before the International Court of Arbitration to recover the royalties.

In the arbitral award, the sole arbitrator held that Genentech had manufactured Rituxan using the enhancer and that the company was therefore required under the licence to pay Sanofi-Aventis the running royalties. According to the arbitrator, the commercial purpose of the licence was to avert all litigation on validity. Thus, payments already made under the licence could not be reclaimed, and payments due had to be made regardless of whether the patent had been revoked or was not infringed.

Genentech brought an action before the Paris Court of Appeal seeking annulment of the arbitral award. The company relied on public policy arguments, claiming that a requirement to pay for the use of technology that Genentech’s competitors could use without charge put Genentech at a competitive disadvantage and contravened Article 101 TFEU. The Paris Court of Appeal stayed the proceedings and made a preliminary reference to the CJEU.

CJEU Judgment

The CJEU explained that royalties reflect the parties’ assessment of the value that is attributable to the possibility of exploiting licensed technology, and that this assessment may still apply after expiry of the period of validity of the patent. The court referred to established case law (Case 320/87 Ottung) and held that, where the licensee is free to terminate the licence agreement by giving reasonable notice, an obligation to pay a royalty throughout the validity of the agreement (i.e., not the validity of the IP rights) does not fall within the purview of the Article 101(1) TFEU prohibition.

The CJEU argued that Article 101(1) TFEU does not prohibit the imposition of a contractual requirement providing for payment of a royalty for the exclusive use of a technology that is no longer covered by a patent, on condition that the licensee remains free to terminate the contract. In this respect, the court noted that a royalty reflects (i) the price that is paid for the commercial exploitation of the licensed technology and (ii) a guarantee that the licensor will not enforce its IP rights against the licensee. As such, if the licence agreement is still valid and can be freely terminated by the licensee, the royalty payment is due even if the period of validity of the IP rights in question has expired.

Concluding remarks

This judgment by the CJEU highlights a number of practical considerations that licensors and licensees should be aware of when negotiating and concluding licence agreements.

First, licence agreements ought to expressly provide for what should happen with respect to the payment of royalties where and if the patents in question are revoked.

Second, if a licensor intends to extract royalties for patents that are no longer protected, the licence agreement should expressly state that the licensee is free to terminate the agreement by giving reasonable notice. Licensors should also ensure that licensees are not otherwise restricted in using the licensed technology following termination of the licence agreement. In order to limit antitrust scrutiny, licensors should consider including (e.g., in the preamble of a licence agreement) a brief commercial explanation of why royalties are charged for unpatented technology.

Third, if negotiations regarding royalties for unpatented technology prove difficult (e.g., because of the licensee’s bargaining power), licensors may consider applying a lower royalty rate following expiry of patent protection. Doing so would ensure that the licence agreement remains valid after expiry of the IP rights.

Fourth, extra caution is required when concluding international licence agreements that have a US element. This is because US law does not permit licensors to collect royalties accruing after patent expiry.

On 20 April 2016, the European Commission (Commission) cleared, under its merger control rules, the acquisition of Equens and PaySquare by Worldline subject to, amongst others, a commitment to license technology to any customer interested, at Fair, Reasonable and Non-Discriminatory (FRAND) conditions.

Worldline is a French provider of payment services and terminals, financial processing and software licensing and e-transactions services. Equens offers a number of services across the value chain of both payments processing and cards processing services. Its fully-owned subsidiary, PaySquare, provides merchant acquiring services.  This transaction combines two large payment systems operators, active across the full value chain in both payment processing and card processing services.

The EU antitrust regulator was concerned that the acquisition would have raised certain issues with respect to, in particular, merchant acquiring services in Germany.  The Commission’s market investigation revealed that Worldline’s Poseidon software and modules are used by the majority of German network service providers (including PaySquare), there are no other readily available alternatives to Poseidon and post-transaction, Worldline would have the ability and the incentives to favour its new subsidiary PaySquare, in terms of price and quality, over other network service providers relying on Poseidon.

In order to address the Commission’s concerns, the companies offered a commitment to grant licenses for the Poseidon software on FRAND terms during a period of 10 years. Specifically, this commitment consists of the following elements:

  • The granting of a license for Poseidon and its modules to third-party network service providers under FRAND terms and capping of the maintenance fees
  • A monitoring mechanism to ensure compliance with FRAND terms by a licensing trustee and by a group composed of network service providers
  • Giving access to the Poseidon source code under certain conditions
  • Transferring the governance of the ZVT protocol, on which most German point of sale terminals run, to an independent not for profit industry organisation

The Commission’s decision to accept this commitment is interesting for a number reasons; the Commission generally has a strong preference for structural rather than behavioural undertakings, FRAND obligations are typically applicable to technologies that are standardised, and this case presents the first time that a commitment to licence on FRAND terms has been used as a remedy under the EU Merger Regulation.

On April 13, 2016, the US District Court for the District of Delaware denied InterDigital’s motion to dismiss an antitrust suit filed by Microsoft (Microsoft Mobile, Inc. v. InterDigital, Inc., Case No. 15-cv-723-RGA).  In the suit, Microsoft alleged that InterDigital engaged in an unlawful scheme to acquire and exploit monopoly power over standard essential patents (SEPs) required for 3G and 4G cellular devices.  Specifically, Microsoft asserted that InterDigital falsely promised to license its 3G and 4G SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms in order to ensure its SEPs were included in standards set by the European Telecommunications Standards Institute (ETSI).  According to the complaint, InterDigital failed to live up to its commitment to FRAND licensing terms, and instead acquired monopoly power in the 3G and 4G cellular technology markets and used that power to demand supra-competitive royalties, “double-dip” royalty demands, and has pursued “baseless” International Trade Commission litigation against Microsoft and others.

In its motion to dismiss, InterDigital asserted that Microsoft failed to adequately plead a Sherman Act § 2 monopolization claim, namely that Microsoft failed to show that InterDigital possessed and exercised monopoly power and failed to adequately allege injury.  The court disagreed, finding Microsoft’s allegations to be materially similar to those found to be sufficient by the Third Circuit in Broadcom Corp. v. Qualcomm Inc. (2007).  With respect to monopoly power, the court found that Microsoft’s allegations as to the necessary technology standards, market entry barriers, and InterDigital’s market share to be sufficient.  The court found that allegations of an “intentional false promise” to license technology on FRAND terms, which was relied upon in selecting the technology for inclusion in mandatory standards, and breach of such promise was “sufficient to show anticompetitive conduct.”

As to injury, InterDigital asserted that its litigation activity was protected by the Noerr-Pennington doctrine.  The court held that injury was sufficiently pled, and that the Noerr-Pennington doctrine did not immunize InterDigital as its scheme, as alleged by Microsoft, would have been “ineffective without the threat of litigation” and therefore it was properly included in Microsoft’s anticompetitive scheme allegations.

This latest ruling demonstrates that prospective licensees may be able to raise antitrust claims against SEP holders when negotiations fail and litigation ensues.