SanDisk - in the wrong country?

How many people forget that Europe's Border Measures Regulation is potentially a powerful tool against not only small-scale counterfeiters and fakers but also against big-time possibly non-infringing competitors too? SanDisk Corporation v Koninklijke Philips Electronics and others [2007] EWHC 332 (Ch), an England and Wales Chancery Division of Mr Justice Pumfrey yesterday (posted today in full on BAILII) is a case in point.

Philips and others owned a number of MP3 patents licensed by Sisvel. Most MP3 makers were licensees of these patents. SanDisk, a US company, imported and sold MP3 players for which no Sisvel licences had been granted in the EU. SanDisk refused SanDisk's offer of a licence and instead applied to the Patents Court (England and Wales) for the revocation of five patents, four of which were said by Sisvel to be essential for anybody who wants to make and/or sell an MP3 player in the EU. SanDisk also started proceedings in March 2006 for declarations relating to essentiality and non-infringement. Philips and friends counterclaimed for infringement (the trial date is fixed for February 2008).

In retaliation, Sisvel sought and obtained Border Detention Orders under Regulation 1383/2003, the result being that all MP3 players except those originating with a manufacturer or destined for a consignee whose name appears upon a list will be detained at its point of entry to the EU for ten days, during which Sisvel can sue for patent infringement in order to prevent the goods detained being released and entering free circulation in the EU. These orders have resulted in pending proceedings for infringement against SanDisk in Germany and the Netherlands (non-border-related infringement proceedings are also outstanding in Germany and Italy). There were also some very embarrassing high-profile seizures of allegedly infringing SanDisk MP3s at trade fairs.

SanDisk maintained that Sisvel and the owners of the patents it administers had a dominant position which, it argued, was being abused by Sisvel's policy of harassment. This abuse being a wrong under Article 81 and 82 of the EC Treaty, interim injunctive relief against its enforcement activities was sought. Sisvel argued that there was no jurisdiction to grant interim relief in this sort of situation.

Mr Justice Pumfrey dismissed the action in no uncertain terms, holding that

"the only part of this dispute which could conceivably support the grant of interlocutory relief is unarguably bad. For this reason, and also because of the extraordinary delay which has already taken place both before the issue of this application and this hearing, I would in any event refuse any form of interim relief" (para.57).

The judge did not enthusiastically endorse the notion that English Courts even had jurisdiction, except in respect of claims and counterclaims involving UK patents:

“Sisvel is an Italian company, and the Patentees are registered respectively in the Netherlands, France, France and Germany. Accordingly, the question whether and in what circumstances the English court has jurisdiction is to be determined according to the provisions of … the Brussels Regulation. The basic rule … is that a defendant is to be sued in the courts of the Member State where that person is domiciled (Article 2). The exceptions provided for by Sections 2 to 7 of Chapter II of the Brussels Regulation constitute the only exceptions to this rule; and, so far as this case is concerned, the only relevant rule is the special jurisdiction conferred by Article 5. … Sisvel, …can … be sued in Italy, and there is little question that the Patentees could be joined to such proceedings under Article 6(1) which provides that a person domiciled in a Member State may also be sued, where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings. Because none of the Defendants are domiciled in England and Wales (see Article 60), this possibility is not open to SanDisk in this jurisdiction, who must establish that a special jurisdiction is available”.

The fact that the patentees only licensed through Sisvel and did not negotiate licences invidividually could not be said to have damaged SanDisk in England and Wales:

”SanDisk is in fact trading in the UK with a very substantial proportion of the available market in MP3 players. On the assumption that it is legitimate to consider the damage arising in these unusual circumstances to arise from any general inhibition on trade within England and Wales caused by the fact that SanDisk does not enjoy a lawful licence, I cannot see where the damage accrues other than to SanDisk in Delaware. It follows, I think, that the first alleged abuse cannot, if established, give rise to jurisdiction under Article 5(3) in England and Wales”.

As for tying both essential and non-essential patents together,

"it seems … impossible to allege either that Sisvel insists upon including non-essential patents within the scope of the licence, or that the licence extends to MPEG-1 Video patents, or that the royalty rate for MP3-compliant memory cards is excessive”.

Two allegations of misuse of the patent system by Sisvel were given short shrift:

Right: the Border Terrier, specially trained to detect unlicensed MP3s at their point of entry to the EU

“ The first is a suggestion … that the Defendants have … widened the scope of the patent protection which they enjoy after their initial disclosure of the scope of their patents in the process of adoption of the MPEG-1 Audio Standard. This extension of scope is alleged to have been effected by certain divisional and sub-divisional patents. I believe all of these divisional and sub-divisional patents are sought to be revoked in the concurrent patent proceedings on the ground that they include "added matter", but the addition of matter to a disclosure is not the same thing as the extension of protection. Nonetheless, …I do not follow why this causes immediate loss to SanDisk in England and Wales. The best that can be said, I suppose, is that the royalty demanded might be lower if the patents did not form part of the licensing package, but it is not clearly explained why they are material if there is a real "blocking" patent remaining: after all, one blocking patent is sufficient.

The second category … complains that these patents were applied for, the Defendants knowing them to be potentially invalid. The result is said to be that the rights are wider than that which can be derived from the "legitimate scope of the initial patent disclosure" in order to prevent competition in the market for the licensing of patents essential to the manufacture, EEA sale and EEA importation of MP3 players. Again, accepting that within the scope of this plea is a contention in relation to the impact of the patents so obtained upon trade in MP3 players (and MP3-compliant memory cards) in England and Wales, I cannot discern any grounds upon which it may be said that immediate loss is suffered by SanDisk in the jurisdiction…”.

Was Sisvel’s use of the Border Measures Regulation an employment of "sham, vexatious and harassing legal and administrative actions"? In a word, no. It’s for IP owners to enforce their rights in the knowledge that the validity of those rights and the making of orders in respect of them can be challenged at any time. The judge added:

”Assuming that it is possible to invoke these administrative actions in an abusive manner, as for example by relying upon a patent positively known to be invalid, the damage resulting from the abuse itself is plainly suffered in the Member State in which the Border Detention Order has been effected. There is no Border Detention Order in the United Kingdom. Assuming that the allegations made in the Particulars of Claim are wide enough to include the contention that the Border Detention Orders have been employed in the countries where such an order has been obtained without any belief in the validity of the underlying patent rights, and with a view to consolidating the dominant position enjoyed by Sisvel and/or the Patentees in the licensing market, the position still appears to me to be that no immediate loss is suffered by SanDisk in the United Kingdom. The effect of exercise of these orders is, however, that infringement actions are on foot in Germany and the Netherlands. Plainly, the initial stages of the tort or delict of which complaint is made took place in the jurisdictions where the Border Detention Orders were obtained”

There’s more in the judgment than is covered in this posting, as the IPKat is the first to concede—and it’s a fertile field for study of the interface of IP enforcement with EU and UK competition law; particularly good is the bottom line that the pursuit of IP enforcement through normal legal means against a large, rich and successful company is not easily going to be characterised as an infraction of the no ganging-up rules of Article 81 and no bullying under Article 82.

Merpel says, did you spot the judge’s rueful comment on the recent ECJ rulings on cross-border litigation in Europe? He said:

”While all the patents in question derive from the same European patent applications, it is a consequence of the way in which European patent applications mature into domestic patents in the designated contracting states that enforcement has regrettably to be undertaken state by state. Nor is it possible to litigate infringement for all designated states in one only of them: if validity is or will come into issue, it is now settled that the only available manner of enforcement is on a country-by-country basis – see Case C-4/03 GAT v LUK [2006] FSR 45 and Case C-539/03 Roche v. Primus [2007] FSR 5. The consequence of these cases is that if a patentee possessing a bundle of European patents granted upon a single European patent application wishes to enforce them, it must do so on a state-by-state basis. So, not only do I not consider that there is arguably an abuse in such a manner of proceeding, but any loss caused by enforcement in this matter equally affects SanDisk on a state-by-state basis, and, as I understand it, no complaint is made of the various proceedings in England and Wales”.

Excellent book on the Border Measures Regulation here … with its own website here