On 7 July 2016, the Court of Justice of the European Union (the
"ECJ") issued its judgment on a request for a preliminary
ruling from the Paris Court of Appeal, which had enquired whether
Article 101 TFEU precludes a licensee from paying royalties
pursuant to a licensing agreement when the patent which is the
subject of that licensing agreement has been held invalid (Case
C-567/14, Genentech v Hoechst).
The case concerns a long-standing patent dispute relating to a
licence agreement signed in 1992 between Behringwerke, the licensor
(of which Sanofi-Aventis Deutschland, a subsidiary of Hoechst, is a
successor), and Genentech (a subsidiary of Roche). The licence
agreement provided for running royalties in the amount of 0.5%
based on the manufacture of a medicine incorporating a patented
substance even if, in the country of manufacture, the patent was
subsequently found to be invalid.
In 2008, Hoechst commenced ICC arbitration proceedings for the
payment of royalties, subsequent to which Genentech was ordered to
pay over € 108 million plus interest dating from 1998.
Genentech then requested the Paris Court of Appeal to set aside the
arbitration award arguing that ordering the payment of running
royalties is contrary to Article 101 TFEU and the principle of free
competition, as the licensee must bear unjustifiable costs for a
technology which is no longer patented and is thus accessible
On 9 December 2014, the Paris Court of Appeal made a request for
a preliminary ruling to the ECJ for clarification (see VBB on
Competition Law, Volume 2015, No. 2,available at
www.vbb.com). In March 2016, Advocate General Wathelet
delivered his opinion in which he opined that Article 101 TFEU is
not breached if the commercial purpose of the licence agreement is
to avoid patent litigation, provided the licensee is able to
terminate the licence by giving reasonable notice and retains
freedom of action after termination (by, for example, challenging
the validity or the infringement of the patent) (see VBB on
Competition Law, Volume 2016, No. 3,available at
In its judgment, the ECJ established that the beneficiary of a
patent licence must pay the agreed royalty for the use of
technology, even where such use does not give rise to an
infringement, or where the technology is deemed never to have been
protected following the annulment with retroactive effect of the
First, the ECJ clarified that the question from the Paris Court
of Appeal not only refers to the case of a revocation of patents,
but also to the case of non-infringement of the licensed patents,
since Genentech had argued in the main proceedings that it was
required to pay the running royalty in the absence of any
infringement, contrary to the terms of its licence agreement.
Second, the ECJ recalled the existence of old case law on the
issue of exclusive licence agreements (namely, case 320/87 Kai
Ottung v Klee & Weilbach), which determines 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 the
obligation to pay is embodied in a licence agreement entered into
before the patent was granted. In other words, a royalty is the
price to be paid for commercially exploiting patented technology
whilst ensuring that the licensor will not bring legal proceedings
for an infringement against the licensee. The ECJ crucially added
that if the licensee may freely terminate the agreement by giving
reasonable notice, an obligation to pay a royalty throughout the
validity of the agreement cannot fall under the prohibition set out
in Article 101 TFEU.
The ECJ therefore concluded that EU competition rules do not
prohibit the imposition of a contractual requirement providing for
payment of a royalty for the exclusive use of technology that is no
longer covered by a patent, as long as the licensee is free to
terminate the contract. According to the ECJ, if the licence
agreement is still valid and can be freely terminated by the
licensee, the royalty payment is due, even where
industrial-property rights derived from patents which are granted
exclusively cannot be used against the licensee due to the fact
that the period of their validity has expired.
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The European Commission recently published a draft directive to grant greater enforcement powers to national competition authorities (NCAs).
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