Vestel Elektronik Sanayi Ve Ticaret as v Hevc Advance LLC

JurisdictionEngland & Wales
JudgeHacon
Judgment Date21 October 2019
Neutral Citation[2019] EWHC 2766 (Ch)
CourtChancery Division
Docket NumberCase No: HP-2019-000008
Date21 October 2019
Between:
(1) Vestel Elektronik Sanayi Ve Ticaret AS
(2) Vestel UK Limited
Claimants
and
(1) Hevc Advance LLC
(2) Koninklijke Philips NV
Defendants

[2019] EWHC 2766 (Ch)

Before:

HIS HONOUR JUDGE Hacon

(Sitting as a Deputy High Court Judge)

Case No: HP-2019-000008

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INTELLECTUAL PROPERTY LIST (ChD)

PATENTS COURT

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Colin West and Maxwell Keay (instructed by EIP Europe LLP) for the Claimants

James Segan (instructed by Powell Gilbert LLP) for the First Defendant

Meredith Pickford QC and Andrew Scott (instructed by) Bristows LLP for the Second Defendant

Hearing dates: 2 and 3 October 2019

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

HIS HONOUR JUDGE Hacon

Hacon Hacon Judge

Introduction

1

In this action the second claimant (‘Vestel UK’) seeks relief for alleged abuse of a dominant position by the defendants. This is in a market relating to patents claiming inventions used in the manufacture of high definition televisions. The first claimant (‘Vestel Turkey’) is the parent company of the group of which Vestel UK forms part. I will refer to them collectively as ‘Vestel’.

2

The first defendant (‘Advance’) is domiciled in Delaware. By an order dated 4 February 2019 Deputy Master Linwood gave Vestel permission to serve the claim form and particulars of claim on Advance at the address of its agent for service of process in Delaware. The second defendant (‘Philips’) is domiciled in the Netherlands and was served without the permission of the court under the terms of Regulation (EU) 1215/2012 (‘ Brussels I Recast’).

3

Advance and Philips each seeks a declaration that this court has no jurisdiction over the claim against it in this action. There is also an application by the claimants for permission to amend their particulars of claim to deal with an argument raised by the defendants.

4

Colin West and Maxwell Keay appeared for Vestel, James Segan for Advance, and Meredith Pickford QC and Andrew Scott for Philips.

Background

5

Vestel form part of a Turkish-based group of companies (‘the Vestel Group’) which sells electronic consumer products, including televisions. The Vestel Group is one of the largest manufacturers of TVs in the world although the majority of its products are supplied to and sold under the brands of companies such as Toshiba, Hitachi, JVC, Telefunken, Bush and Panasonic.

6

In 2013 a new video compression standard was set up under the auspices of two standards setting organisations (‘SSOs’): the International Telecommunications Union and the International Organisation for Standardisation. The standard is known as ‘High Efficiency Video Coding’, or more usually ‘HEVC’ and is sometimes referred to as ‘H.265’. It allows significantly better data compression, thereby reducing the quantity of data required to maintain the same video quality or to improve video quality while using the same amount of data. TVs which are made to display high definition broadcasts, such as 4k sets, must in practice be compatible with HEVC.

7

Patents have been declared by their respective owners to be essential to the HEVC standard. Advance was set up to administer a patent pool for standard essential patents (‘SEPs’) relating to HEVC (‘the Advance Pool’). Philips is one of the participating patentees.

8

Advance is used as a convenient means by which its member patentees can collectively license their SEPs under fair, reasonable and non-discriminatory (‘FRAND’) terms. In Unwired Planet International Ltd v Huawei Technologies Co Ltd [2018] EWCA Civ 2344; [2018] RPC 20, Lord Kitchin explained (at [3]) the value to consumers of the standards set up by SSOs, in that case the European Telecommunications Standards Institute (‘ETSI’) which promulgates standards used in the manufacture of mobile phones. He continued:

“[4] As the European Commission has recognised, SEPs can be of great value to their holders. These holders can expect a substantial revenue stream from their SEPs as the standard for which they are essential is implemented in products sold to millions of consumers. This revenue stream is supported by the fact that alternative technologies which do not meet the standard may well disappear from the market. But the potential for anti-competitive behaviour is obvious. The owner of a SEP has the potential ability to ‘hold-up’ users after the adoption and publication of the standard either by refusing to license the SEP or by extracting excessive royalty fees for its use, and in that way to prevent competitors from gaining effective access to the standard and the part of the telecommunications market to which it relates. ETSI and other SSOs therefore require the owners of SEPs to give an irrevocable undertaking in writing that they are prepared to grant licences of their SEPs on fair, reasonable and non-discriminatory (‘FRAND’) terms. This undertaking is designed to ensure that any technology protected by a SEP which is incorporated into a standard is accessible to users of that standard on fair and reasonable terms and that its owner cannot impede the implementation of the standard by refusing to license it or by requesting unfair, unreasonable or discriminatory licence fees.

[5] As we shall explain, the negotiation of licences for SEPs on FRAND terms may be far from straightforward, however. The owner of a SEP may still use the threat of an injunction to try to secure the payment of excessive licence fees and so engage in hold-up activities. Conversely, the infringer may refuse to engage constructively or behave unreasonably in the negotiation process and so avoid paying the licence fees to which the SEP owner is properly entitled, a process known as ‘hold-out’.”

9

Advance has drawn up the terms of the licence under which its members are willing collectively to license their SEPs. It has no authority to grant a licence on any other terms save with the permission of its members. However, potential licensees, sometimes referred to as ‘implementers’ of the standard, may approach any of the members of the pool and negotiate an individual licence.

10

There is another pool of SEPs relating to HEVC administered by another entity: the ‘MPEG LA pool’. The two pools are not mutually exclusive; many patentees have their SEPs in both pools. There is at least one other HEVC patent pool, the Velos Media pool. It is referred to in the Particulars of Claim but did not figure in the arguments.

11

Vestel accept that companies in its group require a licence under the HEVC SEPs. Starting in April 2017 Vestel attempted to negotiate a licence from Advance. On 18 May 2018 Advance sent to Vestel a copy of Advance's draft Patent Portfolio Licence Agreement (‘the PPL’) which included the royalty rates.

12

In the meantime Vestel agreed licence terms with MPEG LA and thereby, according to Vestel, have a licence already in respect of about 81% of the SEPs in the Advance Pool.

13

Vestel say that the terms offered by Advance have royalty rates many times higher than the rates offered by MPEG LA even though MPEG LA has the larger patent pool and accordingly are non-FRAND. Advance, they say, has refused to offer a licence with lower royalties. Advance's PPL contains terms other than the royalty rates which are also objectionable to Vestel but such further terms were of peripheral relevance to this hearing.

14

In parallel with their negotiations with Advance, Vestel approached Philips to discuss a licence under the SEPs owned by Philips. In July 2018 Philips offered a royalty tied to that offered by Advance, scaled down according to the proportion of the Advance Pool SEPs owned by Philips but with an uplift associated with licences granted by individual SEP proprietors. Vestel say that the Philips terms are also non-FRAND. No agreement has been reached either with Advance or Philips.

15

In the passage from Unwired Planet quoted above Lord Kitchin identified the problem of ‘hold-out’ by a potential licensee of SEPs, with which that and other cases have been concerned. The present case is apparently the first to reach the English courts in which the reverse problem, as Vestel see it, has arisen. Vestel say that Vestel Turkey is willing to take a licence from Advance and/or Philips along with other individual owners of SEPs from which it has no licence through MPEG LA but it has been met with intransigence from both Advance and Philips: non-FRAND terms have been offered on the basis that Vestel can either take them or leave them.

16

On 18 January 2019 this action was brought, apparently to break the deadlock. The means chosen is a claim that Advance and Philips have abused their dominant position in breach of art.102 of the Treaty on the Functioning of the European Union (TFEU) and/or s.18 of the Competition Act 1998. For simplicity I will refer only to art.102.

17

On the same day, 18 January 2019, Vestel sent to Advance a counter-offer in the form of marked-up amendments to Advance's PPL. Vestel say that their amended version is FRAND. The counter-offer has not been accepted.

The claim

The relevant market

18

A convenient starting point in a claim for abuse of a dominant position is to identify the relevant market in which the defendant is said to be dominant. The Particulars of Claim state that each SEP in issue is a monopoly right. The pleading continues:

“70. In the premises:

(i) Each declared SEP incorporated within the HEVC standard constitutes its own market (or, to put the same point in different language, the market for licences for each such patent is a separate market to the market for licences for any other such patent); and

(ii) The patentee of each such declared SEP holds a dominant...

To continue reading

Request your trial
3 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT