The Knorr, the merrier

Another decision that nearly slipped beneath the IPKat's whiskers for good was Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake Products GmbH [2008] EWHC 156 (Pat), a ruling of England and Wales Patents Court judge Mr Justice Lewison (full text available on BAILII).

Knorr, an English wholly-owned subsidiary of a German company, was part of a group of companies that manufactured brake systems -- as did a German company, Haldex. Knorr's parent company had developed a valve which, said Haldex, infringed its European patent. Haldex began infringement proceedings in Germany, where Knorr's parent proposed to initiate invalidity proceedings against the European patent's German emanation. The dispute was settled by an agreement that conferred jurisdiction on the patent disputes division of the Dusseldorf (Germany) regional court. Under this agreement Knorr's parent promised not to challenge the validity of Haldex's patents.

Knorr subsequently developed a new valve, which was to be made in the UK for the British market. To be on the safe side, Knorr sought an acknowledgement of non-infringement from Haldex and, on receiving none, applied for a declaration of non-infringement. According to Knorr, both the fact of the jurisdiction agreement and its content, and in particular the question whether it bound Knorr as a subsidiary of its parent, had to be determined under Council Regulation 44/2001 (the Judgments Regulation). Haldex disagreed. In its opinion, once the existence of a jurisdiction clause was established as a matter of the autonomous law of the Regulation, its scope -- and in particular the question who was bound by it -- was to be determined by the applicable national law, which in this case was German law.

Lewison J chose to keep the litigation in England. In his opinion:

* Whether Knorr was bound by the jurisdiction clause was governed by the Regulation, not by German law (applying the fairly obscure and oft-forgotten ECJ ruling in Case C-269/95 Benincasa v Dentalkit).

* Knorr was not itself a party to the settlement agreement, nor was it even suggested that it was a successor to the rights and obligations of its parent.

* The argument that Knorr was bound by the jurisdiction clause was itself based entirely on principles of German law, which was not, so far as British law was concerned, applicable in this case.

* Even if German law were the applicable law, Knorr was still not bound by the settlement agreement.

The IPKat says, the most interesting part of this case is the judge's comments on the effect of the no-challenge clause by which Knorr's parent promised not to attack the validity of Haldex's patents. He said:

"49 In Bayer AG and Maschinenfabrik Hennecke GmbH v. Süllhöfer [1990] F.S.R. 300 the ECJ held that it made no difference that the non-challenge clause was contained in an agreement settling litigation. The court said:

"[14] In the Commission's view, an undertaking not to challenge an industrial property right included in a licensing agreement should, in principle, be considered to be a restriction of competition. Such a clause is, however, compatible with Article 85(1) of the EEC Treaty when it is included in an agreement whose purpose is to put an end to proceedings pending before a court, provided that the existence of the industrial property right which is the subject-matter of the dispute is genuinely in doubt, that the agreement includes no other clauses restricting competition, and that the no-challenge clause relates to the right in issue.

[15] The point of view put forward by the Commission cannot be accepted. In its prohibition of certain agreements between undertakings, Article 85(1) makes no distinction between agreements whose purpose is to put an end to litigation and those concluded with other aims in mind. It should also be noted that this assessment of such a settlement is without prejudice to the question whether, and to what extent, a judicial settlement reached before a national court which constitutes a judicial act may be invalid for breach of Community competition rules.

[16] A no-challenge clause included in a patent licensing agreement may, in the light of the legal and economic context, restrict competition within the meaning of Article 85(1) of the EEC Treaty.

[17] In regard to that context, it should be pointed out that there is no restriction on competition when the licence granted is a free licence in as much as, in those circumstances, the licensee does not suffer from the competitive disadvantage involved in the payment of royalties.

[18] Nor does a no-challenge clause contained in a licence granted subject to payment of royalties restrict competition when the licence relates to a technically outdated process which the licensee undertaking did not use."

In the present case it is common ground that both KBS and Haldex are part of an oligopoly in the field of braking systems for commercial vehicles and that their trade is conducted throughout the EU. On the face of it, therefore, a non-challenge clause is likely to distort competition and affect trade between member states. There is no question in the present case of a free licence. Nor is it possible to say that the technology in question is outdated, since Haldex relies on the two patents as preventing the commercialisation of the SV3801 valve.

I do not have to decide whether KBS UK are right in their contentions, but I do consider that they have the better of the argument. There is at the least a good arguable case that, even if KBS UK are bound by the non-challenge clause (which in my judgment they are not) that clause is void because it contravenes article 81 EC. "

Merpel says, the principle that a contested IP right will not be challenged is one that is often implied or, more frequently expressed, in settlement agreements. But it is really necessary to look behind the form of the agreement and consider the genuine substance of the dispute. The validity of a patent is routinely called into question by an alleged infringer, but that may be as much for strategic or nuisance value in the litigation as because there is any serious risk of the patent being invalid. It would be harsh if a clause that was designed to make peace between parties on the infringement issue were to have serious consequences in terms of EU and national competition law. Tufty says: well, if the validity of the patent wasn't really an issue in the first place, there's no harm in saying that the alleged infringer remains free to challenge it, is there?

How brakes work here