The matter at hand
This preliminary ruling concerns the question of whether a licensee is required to pay royalties pursuant to a license agreement relating to the use of a patent that was revoked (with retroactive effect) at some point during the term of the licence agreement.
More specifically, the referring court was unsure whether this is compatible with the provisions of Article 101 TFEUTreaty on the Functioning of the European Union (which prohibits cartels and other agreements that could disrupt free competition within the internal market), in so far as it requires the licensee to pay royalties for the use of a revoked patent and thereby places the licensee at a ‘competitive disadvantage’ compared to competitors.
The referring court therefore asked the ECJ whether Article 101(1) TFEUTreaty on the Functioning of the European Union must be interpreted as precluding the imposition on the licensee of an obligation to pay a royalty for the use of a patented technology for the entire period during which that agreement was in effect in the event of the revocation or non-infringement of patents protecting that technology.
The judgment of the ECJ
The ECJ recalls that it has already ruled in Ottung (C-320/87), in the context of an exclusive licence agreement, “that the obligation to pay a royalty, even after the expiry of the period of validity of the licensed patent may reflect a commercial assessment of the value to be attributed to the possibilities of exploitation granted by the licence agreement, especially when that obligation to pay was embodied in a licence agreement entered into before the patent was granted (…). In such circumstances, where the licensee may freely terminate the agreement by giving reasonable notice, an obligation to pay a royalty throughout the validity of the agreement cannot come within the scope of the prohibition set out in Article 101(1) TFEUTreaty on the Functioning of the European Union (paragraph 39).
“That assessment is based on the finding that that royalty is the price to be paid for commercial exploitation of the licensed technology with the guarantee that the licensor will not exercise its industrial-property rights. As long as the licence agreement at issue is still valid and can be freely terminated by the licensee, the royalty payment is due (…) ” (paragraph 40).
The ECJ reasons that the solution stemming from the Ottung judgment applies a fortiori in the situation at issue in the main proceedings: “If, during the period in which a licence agreement is in effect, the payment of the royalty is still due even after the expiration of industrial property rights, the same applies, a fortiori, before the validity of those rights has expired.” (paragraph 41).
On this basis, the ECJ rules that “Article 101(1) TFEUTreaty on the Functioning of the European Union must be interpreted as not precluding the imposition on the licensee, under a licence agreement such as that at issue in the main proceedings, of a requirement to pay a royalty for the use of a patented technology for the entire period in which that agreement was in effect, in the event of the revocation or non-infringement of a licenced patent, provided that the licensee was able freely to terminate that agreement by giving reasonable notice.”