Showing posts with label jurisdiction. Show all posts
Showing posts with label jurisdiction. Show all posts
Off piste? ECJ decides Austrian Supreme Court's ‘Adwords’ jurisdiction question in Wintersteiger
This summary is not available. Please
click here to view the post.
No infringement dispute, no appellate jurisdiction in hypothetical breach of contract claim
Authors: John J. Thuermer and Bart A. Gerstenblith (Finnegan)
Laboratory Corporation of America Holdings v Metabolite Laboratories, Inc., 599 F.3d 1277 (Fed. Cir. 2010)
Citation: Journal of Intellectual Property Law & Practice (2010) doi: 10.1093/jiplp/jpq144
An issue of patent law must be disputed in a suit based on state contract law in order for the Federal Circuit to have appellate jurisdiction.
Legal context
In this appeal from a declaratory judgment action in the US District Court for the District of Colorado, the US Court of Appeals for the Federal Circuit considered whether it had subject matter jurisdiction where the declaratory defendant's hypothetical breach of contract claim did not arise under federal patent law or raise a substantial question of patent law.
Facts
Competitive Technologies, Inc. (CTI) owned US Patent No. 4,940,658, which claimed a method for detecting folate deficiencies by assaying total homocysteine levels.
The license agreement
The license agreement at issue between Metabolite Laboratories, Inc. (‘Metabolite’) and Laboratory Corporation of America Holdings (‘LabCorp’) consisted of two licenses. The first was a patent license. Operating under a license from CTI, Metabolite sublicensed the patent to Hoffmann-LaRoche, Inc., which later became LabCorp. The sublicense covered four types of assays, including homocysteine assays, and required LabCorp to pay CTI royalties of 6% of its net sales for assays that infringed the patent.
The second license was a know-how license. Metabolite developed know-how consisting of protocols and software that enabled automated assay testing. Metabolite licensed its know-how to LabCorp in conjunction with the patent sublicense and received 21.5% of LabCorp's net sales of licensed assays as royalties. The license agreement defined ‘licensed assays’ as assays using ‘methods and materials falling within the claims of the licensed patents’. ‘Licensed patents’, in turn, was defined to include the patent. LabCorp did not have to pay know-how royalties if it used Metabolite's know-how on unlicensed assays or if LabCorp referred the assays to Metabolite for processing. Additionally, the license agreement provided that it could be terminated in-whole or in-part if LabCorp or another party developed a more profitable non-infringing assay.
Procedural history
In an earlier litigation between the parties (Metabolite I), Metabolite sued LabCorp for patent infringement and breach of the license provisions pertaining to homocysteine assays after LabCorp used a third-party assay and stopped paying royalties. LabCorp contended that its use of the third-party assays did not infringe the patent and were not therefore ‘licensed assays’ within the terms of the license agreement. The jury, however, found that LabCorp breached the license agreement because the third-party assays infringed the patent and LabCorp failed to pay royalties. On appeal (Metabolite II) the Federal Circuit agreed, finding that LabCorp's refusal to pay royalties constituted a material breach that could have terminated the homocysteine assay provisions of the license agreement. Thereafter, LabCorp outsourced the testing to a third party that had an independent license from CTI to perform the assays.
In the current case (Metabolite III), LabCorp sued Metabolite for a declaratory judgment that it did not breach the license agreement by using Metabolite's know-how and outsourcing the testing. LabCorp's declaratory complaint raised a contract claim and averred that the district court had diversity jurisdiction. In response, Metabolite filed several counterclaims. Thereafter the parties filed competing motions for summary judgment, although Metabolite chose to pursue only its breach of contract counterclaim.
On summary judgment, the district court determined that the only issue in the case was whether the know-how license survived the breach of the patent license. The district court found that, because the license agreement could be severed and terminated for individual licensed assays, LabCorp had terminated the provisions of the license agreement (patent and know-how licenses) pertaining to homocysteine assays by not paying royalties for the third-party assays (even though the other provisions of the license agreement may have remained in force because LabCorp continued to make royalty payments for the other licensed assays). Thus LabCorp's outsourcing of the homocysteine assays did not breach the license agreement since the provisions applying to that assay had been terminated. Accordingly, the court granted LabCorp's motion for summary judgment.
Analysis
Metabolite appealed to the Federal Circuit. LabCorp filed a motion to transfer the appeal to the Tenth Circuit (the regional circuit court for cases originating in the District of Colorado), arguing that the Federal Circuit lacked appellate jurisdiction. The Federal Circuit denied LabCorp's motion but permitted the parties to address the jurisdictional issue in their merit briefs.
The majority opinion
A panel majority found that the Federal Circuit did not have jurisdiction over the appeal. The majority began by reviewing the scope of its appellate jurisdiction. First, 28 USC § 1295(a)(1) gives the Federal Circuit exclusive appellate jurisdiction over patent cases arising under 28 USC § 1338. Second, the Federal Circuit also has jurisdiction where a party's right to relief necessarily depends on the resolution of a substantial question of federal patent law: Christianson v Colt Indus. Operating Corp., 486 US 800 (1988). Examples of substantial questions of federal patent law include issues of inventorship, infringement, validity, and enforceability.
To determine if an action arises under federal patent law in the context of a declaratory judgment action the Federal Circuit looks to the hypothetical well-pleaded complaint that the declaratory defendant would have brought had it initiated suit. The majority concluded that because (i) Metabolite I and II determined that LabCorp infringed the patent and (ii) neither party disputed whether the outsourced assays infringed in Metabolite III, Metabolite's hypothetical complaint would have raised a breach of contract claim rather than a patent infringement claim arising under section 1338.
Additionally, the majority did not find that Metabolite's right to relief (for its hypothetical claim) necessarily depended on a substantial question of federal patent law despite the definition of ‘licensed assays.’ To prove its hypothetical breach of contract claim, Metabolite would not have to prove infringement because neither party argued that LabCorp's outsourced assays differed from the assays previously found to infringe. Thus, while breach of the license agreement was, on its face, conditioned on proof of infringement, this was not the typical ‘case within a case’ because infringement was established prior to the time of the hypothetical complaint (cf. Air Measurement Tech., Inc. v Akin Gump Strauss Hauer & Feld, LLP, 504 F.3d 1262, 1272 (Fed. Cir. 2007: proof of infringement required to prevail on a malpractice claim; US Valves, Inc. v Dray, 212 F.3d 1368, 1372 (Fed. Cir. 2000: proof of infringement required to prevail on a breach of contract claim). Consequently, the majority determined that Metabolite's claim did not depend on a substantial question of federal patent law and that the Court lacked appellate jurisdiction.
The dissent
Judge Dyk dissented on two independent grounds. First, under a ‘look through’ approach, Judge Dyk asserted that a claim, which implicates a prior judgment involving a patent, also arises under section 1338 based on a res judicata theory. Under that theory, Metabolite I and II provided the jurisdictional basis for the present appeal.
Second, Judge Dyk believed that Metabolite's hypothetical claim raised a substantial question of patent law because Metabolite I and II had not determined whether the outsourced assays infringed the patent and the parties disputed infringement at the time of the hypothetical claim. In his view, the majority improperly focused on a time after the filing of Metabolite's hypothetical complaint rather than at the time of filing as required by Supreme Court precedent. Thus he would have found these facts to present a ‘case within a case’ because Metabolite's hypothetical contract claim hinged upon whether the outsourced assays infringed the patent.
The majority's response
First, the majority distinguished the cases upon which Judge Dyk relied to support his ‘look through’ argument. In particular, the majority found that those cases were distinguishable from the federal question context of the present dispute before the Court. Second, the majority found that Judge Dyk improperly relied on a post-complaint document, the Final Pre-Trial Order, in Metabolite III to support his view that infringement was disputed, rather than focusing on the time Metabolite would have filed its hypothetical claim.
Practical significance
First, it may be beneficial to license unpatented proprietary information and patented technology separately. In particular, Metabolite might have structured the license agreement to provide know-how royalties that were not contingent on using the patented technology to avoid having to prove infringement as part of a breach of contract claim. Second, the decision reinforces the ongoing need to consider possible appellate venues when drafting complaints and responding to declaratory judgment actions. Ironically, although Metabolite appealed to the Federal Circuit in this instance, it is unlikely that Metabolite wanted to dispute infringement as it would then have to prove an additional element of its breach of contract counterclaim (ie that the outsourced assays fell within the definition of ‘licensed assays,’ and, thus infringed the patent). Third, the decision reiterates that the mere mention of a patent is insufficient, in and of itself, to confer Federal Circuit jurisdiction.
Laboratory Corporation of America Holdings v Metabolite Laboratories, Inc., 599 F.3d 1277 (Fed. Cir. 2010)
Citation: Journal of Intellectual Property Law & Practice (2010) doi: 10.1093/jiplp/jpq144
An issue of patent law must be disputed in a suit based on state contract law in order for the Federal Circuit to have appellate jurisdiction.
Legal context
In this appeal from a declaratory judgment action in the US District Court for the District of Colorado, the US Court of Appeals for the Federal Circuit considered whether it had subject matter jurisdiction where the declaratory defendant's hypothetical breach of contract claim did not arise under federal patent law or raise a substantial question of patent law.
Facts
Competitive Technologies, Inc. (CTI) owned US Patent No. 4,940,658, which claimed a method for detecting folate deficiencies by assaying total homocysteine levels.
The license agreement
The second license was a know-how license. Metabolite developed know-how consisting of protocols and software that enabled automated assay testing. Metabolite licensed its know-how to LabCorp in conjunction with the patent sublicense and received 21.5% of LabCorp's net sales of licensed assays as royalties. The license agreement defined ‘licensed assays’ as assays using ‘methods and materials falling within the claims of the licensed patents’. ‘Licensed patents’, in turn, was defined to include the patent. LabCorp did not have to pay know-how royalties if it used Metabolite's know-how on unlicensed assays or if LabCorp referred the assays to Metabolite for processing. Additionally, the license agreement provided that it could be terminated in-whole or in-part if LabCorp or another party developed a more profitable non-infringing assay.
Procedural history
In an earlier litigation between the parties (Metabolite I), Metabolite sued LabCorp for patent infringement and breach of the license provisions pertaining to homocysteine assays after LabCorp used a third-party assay and stopped paying royalties. LabCorp contended that its use of the third-party assays did not infringe the patent and were not therefore ‘licensed assays’ within the terms of the license agreement. The jury, however, found that LabCorp breached the license agreement because the third-party assays infringed the patent and LabCorp failed to pay royalties. On appeal (Metabolite II) the Federal Circuit agreed, finding that LabCorp's refusal to pay royalties constituted a material breach that could have terminated the homocysteine assay provisions of the license agreement. Thereafter, LabCorp outsourced the testing to a third party that had an independent license from CTI to perform the assays.
In the current case (Metabolite III), LabCorp sued Metabolite for a declaratory judgment that it did not breach the license agreement by using Metabolite's know-how and outsourcing the testing. LabCorp's declaratory complaint raised a contract claim and averred that the district court had diversity jurisdiction. In response, Metabolite filed several counterclaims. Thereafter the parties filed competing motions for summary judgment, although Metabolite chose to pursue only its breach of contract counterclaim.
On summary judgment, the district court determined that the only issue in the case was whether the know-how license survived the breach of the patent license. The district court found that, because the license agreement could be severed and terminated for individual licensed assays, LabCorp had terminated the provisions of the license agreement (patent and know-how licenses) pertaining to homocysteine assays by not paying royalties for the third-party assays (even though the other provisions of the license agreement may have remained in force because LabCorp continued to make royalty payments for the other licensed assays). Thus LabCorp's outsourcing of the homocysteine assays did not breach the license agreement since the provisions applying to that assay had been terminated. Accordingly, the court granted LabCorp's motion for summary judgment.
Analysis
Metabolite appealed to the Federal Circuit. LabCorp filed a motion to transfer the appeal to the Tenth Circuit (the regional circuit court for cases originating in the District of Colorado), arguing that the Federal Circuit lacked appellate jurisdiction. The Federal Circuit denied LabCorp's motion but permitted the parties to address the jurisdictional issue in their merit briefs.
The majority opinion
A panel majority found that the Federal Circuit did not have jurisdiction over the appeal. The majority began by reviewing the scope of its appellate jurisdiction. First, 28 USC § 1295(a)(1) gives the Federal Circuit exclusive appellate jurisdiction over patent cases arising under 28 USC § 1338. Second, the Federal Circuit also has jurisdiction where a party's right to relief necessarily depends on the resolution of a substantial question of federal patent law: Christianson v Colt Indus. Operating Corp., 486 US 800 (1988). Examples of substantial questions of federal patent law include issues of inventorship, infringement, validity, and enforceability.
To determine if an action arises under federal patent law in the context of a declaratory judgment action the Federal Circuit looks to the hypothetical well-pleaded complaint that the declaratory defendant would have brought had it initiated suit. The majority concluded that because (i) Metabolite I and II determined that LabCorp infringed the patent and (ii) neither party disputed whether the outsourced assays infringed in Metabolite III, Metabolite's hypothetical complaint would have raised a breach of contract claim rather than a patent infringement claim arising under section 1338.
Additionally, the majority did not find that Metabolite's right to relief (for its hypothetical claim) necessarily depended on a substantial question of federal patent law despite the definition of ‘licensed assays.’ To prove its hypothetical breach of contract claim, Metabolite would not have to prove infringement because neither party argued that LabCorp's outsourced assays differed from the assays previously found to infringe. Thus, while breach of the license agreement was, on its face, conditioned on proof of infringement, this was not the typical ‘case within a case’ because infringement was established prior to the time of the hypothetical complaint (cf. Air Measurement Tech., Inc. v Akin Gump Strauss Hauer & Feld, LLP, 504 F.3d 1262, 1272 (Fed. Cir. 2007: proof of infringement required to prevail on a malpractice claim; US Valves, Inc. v Dray, 212 F.3d 1368, 1372 (Fed. Cir. 2000: proof of infringement required to prevail on a breach of contract claim). Consequently, the majority determined that Metabolite's claim did not depend on a substantial question of federal patent law and that the Court lacked appellate jurisdiction.
The dissent
Judge Dyk dissented on two independent grounds. First, under a ‘look through’ approach, Judge Dyk asserted that a claim, which implicates a prior judgment involving a patent, also arises under section 1338 based on a res judicata theory. Under that theory, Metabolite I and II provided the jurisdictional basis for the present appeal.
Second, Judge Dyk believed that Metabolite's hypothetical claim raised a substantial question of patent law because Metabolite I and II had not determined whether the outsourced assays infringed the patent and the parties disputed infringement at the time of the hypothetical claim. In his view, the majority improperly focused on a time after the filing of Metabolite's hypothetical complaint rather than at the time of filing as required by Supreme Court precedent. Thus he would have found these facts to present a ‘case within a case’ because Metabolite's hypothetical contract claim hinged upon whether the outsourced assays infringed the patent.
The majority's response
First, the majority distinguished the cases upon which Judge Dyk relied to support his ‘look through’ argument. In particular, the majority found that those cases were distinguishable from the federal question context of the present dispute before the Court. Second, the majority found that Judge Dyk improperly relied on a post-complaint document, the Final Pre-Trial Order, in Metabolite III to support his view that infringement was disputed, rather than focusing on the time Metabolite would have filed its hypothetical claim.
Practical significance
First, it may be beneficial to license unpatented proprietary information and patented technology separately. In particular, Metabolite might have structured the license agreement to provide know-how royalties that were not contingent on using the patented technology to avoid having to prove infringement as part of a breach of contract claim. Second, the decision reinforces the ongoing need to consider possible appellate venues when drafting complaints and responding to declaratory judgment actions. Ironically, although Metabolite appealed to the Federal Circuit in this instance, it is unlikely that Metabolite wanted to dispute infringement as it would then have to prove an additional element of its breach of contract counterclaim (ie that the outsourced assays fell within the definition of ‘licensed assays,’ and, thus infringed the patent). Third, the decision reiterates that the mere mention of a patent is insufficient, in and of itself, to confer Federal Circuit jurisdiction.
Exclusive jurisdiction clauses and anti-suit injunctions
Authors: David Wilson and Joanna Silver (Herbert Smith LLP)
Skype Technologies SA v Joltid Ltd & others [2009] EWHC 2783 (Ch), Lewison J, 6 November 2009 (Chancery Division, England and Wales)
Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq015
The High Court, England and Wales, considered whether to grant an anti-suit injunction to restrain US proceedings where an agreement between the parties contained an exclusive jurisdiction clause in favour of the English courts and proceedings in England had already been commenced. Lewison J assessed recent developments in the law relating to anti-suit injunctions and concluded that an anti-suit injunction, although a discretionary measure (which ECJ case law considers an interference with the jurisdiction of another court), was appropriate in this case.
Legal Context
Article 23(1) of Council Regulation (EC) No 44/2001 (the ‘Brussels Regulation’) provides:
Further, where a court has jurisdiction under the Brussels Regulation (eg under Article 2, because the defendant is domiciled in that jurisdiction), discretionary considerations such as those relating to forum non conveniens (eg harm suffered in another jurisdiction or location of witnesses) cannot play a part in any decision about whether that jurisdiction should stay its proceedings (Owusu v Jackson [2005] QB 801). Also, a court with jurisdiction under the Brussels Regulation should not restrain a party from commencing or continuing proceedings before a court of another Member State; ECJ case law indicates that it is for each court to rule on whether it has jurisdiction to resolve the dispute before it (Turner v Grovit [2005] 1 AC 101; West Tankers Inc v Allianz SpA [2009] 3 WLR 696).
Facts
Skype, domiciled in Luxembourg, offered free-to-download software that enabled users to communicate over the internet. Joltid, a BVI company, owned certain software that was integral to Skype's business. Skype and Joltid entered into a written agreement, by which Joltid granted Skype a worldwide licence to use a form of its software, the object code, but retained sole control of the source code. Clause 19.1 of the licence stated:
Joltid subsequently registered its copyright in the source code in the USA and commenced proceedings in the USA against Skype and its various investors (which were not parties to the licence) for copyright infringement. Skype claimed that these US proceedings were in breach of clause 19.1 of the licence and sought an anti-suit injunction in the UK proceedings to restrain them.
Since Skype was domiciled in Luxembourg, Article 23(1) applies in relation to clause 19.1 of the licence. Lewison J began by assessing whether the claims against Skype in the US proceedings fell within the scope of clause 19.1. Joltid argued that its claims in the US proceedings did not arise out of the licence since they were predicated on the assumption that the licence had been terminated. Lewison J rejected this interpretation as unduly narrow. Interpretation of a jurisdiction clause is a matter of national law (Benincasa, Knorr-Bremse (supra)), and in Fiona Trust, Longmore LJ in the Court of Appeal, applauded by Lord Hoffmann in the House of Lords, stated that ‘the words "arising out of" should cover "every dispute except a dispute as to whether there was ever a contract at all"’. Lord Hoffmann added that clause construction should start from the assumption that commercial parties are likely to have intended that all disputes are to be decided by the same tribunal. Accordingly, Lewison J concluded that the US proceedings initiated by Joltid did relate to a dispute covered by clause 19.1.
The court then considered whether Skype was entitled to an anti-suit injunction to prevent any further steps being taken in the US proceedings. Lewison J began by agreeing with Skype that, following Owusu, the UK court should not decline to exercise its exclusive jurisdiction under Article 23(1) on the basis of discretionary considerations such as forum non conveniens and that the UK proceedings should not therefore be stayed in favour of the US proceedings.
Lewison J rejected Skype's argument that the tests for staying domestic proceedings and granting anti-suit injunctions were ‘two sides of the same coin’ and that it followed that, if the court could not stay its own proceedings, it must grant an anti-suit injunction. In Turner and West Tankers, the ECJ held that where proceedings are initiated in another Member State in breach of a jurisdiction or arbitration clause, a court should not grant an anti-suit injunction; it is for each court to rule on whether it has jurisdiction to resolve the dispute before it. Skype argued that this line of authority only applies where both jurisdictions are Member States, but Lewison J rejected this. He noted that Skype's argument that there was no discretion to stay the UK proceedings was founded on Owusu, where the ECJ drew no distinction between Member and non-Member States. Thus if Skype was right about this issue, the ECJ's approach to anti-suit injunctions must also be equally applicable in the case of non-Member States.
Nonetheless Lewison J concluded that, as a matter of discretion, an anti-suit injunction should be granted. Since there was no dispute that the licence was valid, even if terminated, there was a breach of clause 19.1 and the court would need a good reason before declining to enforce by injunction the parties' contractual bargain on jurisdiction. There was no such reason here. Lewison J considered that the standard forum non conveniens arguments prayed in aid by Joltid should be given little weight where, as here, the parties to an agreement of worldwide application deliberately agreed an exclusive jurisdiction clause appointing a neutral territory, and where such factors were eminently foreseeable when the parties entered into the licence. Otherwise, the clause would be deprived of its intended effect since, the more ‘neutral’ the forum chosen, the less importance the parties must have placed on its convenience for any particular dispute.
Another important factor was whether the grant or refusal of the injunction would enable all disputes between the parties to take place in a single forum. In this case, the court's decision either way could not avoid the risk of parallel proceedings; following Owusu, the court could not stay the UK proceedings, but it had no jurisdiction to restrain the US proceedings in respect of the parties that did not have the benefit of the exclusive jurisdiction clause.
Analysis
These proceedings afforded an opportunity to consider the availability of anti-suit injunctions against parallel proceedings in non-EU Member States.
As discussed in this judgment, the ECJ has held that an anti-suit injunction prohibiting a party from bringing proceedings in another Member State in breach of an exclusive jurisdiction or arbitration clause is an inadmissible interference with the jurisdiction of that court and inconsistent with the principles of mutual trust that underlie the Brussels Regulation (Turner, West Tankers). Although Lewison J did not explain why the court retained its discretion to grant an anti-suit injunction in this case, the decision is consistent with Shashoua v Sharma [2009] EWHC 957 (Comm), in which Cooke J held that West Tankers did not impact upon the use of anti-suit injunctions in relation to proceedings brought in non-Member States; West Tankers sought to ensure the uniform application of the Brussels Regulation and the ‘free movement’ of judgments across the EU, so did not apply to proceedings before a non-Member State court. Similarly, Lewison J exercised the court's discretion to grant an anti-suit injunction to restrain proceedings brought in a non-Member State. Accordingly, anti-suit injunctions remain available to restrain such proceedings in non-Member State courts.
Practical Significance
It is beneficial to both IP owners and licensees to have certainty as to where a dispute will be resolved or litigated, and to know that all disputes will be brought in the same jurisdiction; indeed, this is the purpose of an exclusive jurisdiction clause.
This case indicates that, at least where parallel proceedings are commenced in a non-EU Member State, the English courts are willing to enforce an exclusive jurisdiction clause by granting anti-suit injunctions where appropriate. In exercising the court's jurisdiction, Lewison J rejected arguments relating to forum non conveniens on the basis that it is eminently foreseeable to parties to a global licence agreement that whichever jurisdiction they choose, it may not be the most convenient for a particular dispute for at least one party.
However, as emphasized by the ECJ in Turner and West Tankers, under the Brussels Regulation it is for the courts in each EU Member State to rule on whether it has jurisdiction to resolve the dispute before it. This results in the availability of anti-suit injunctions to enforce an exclusive jurisdiction clause currently depending on where alternative proceedings are initiated.
Skype Technologies SA v Joltid Ltd & others [2009] EWHC 2783 (Ch), Lewison J, 6 November 2009 (Chancery Division, England and Wales)
Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq015
The High Court, England and Wales, considered whether to grant an anti-suit injunction to restrain US proceedings where an agreement between the parties contained an exclusive jurisdiction clause in favour of the English courts and proceedings in England had already been commenced. Lewison J assessed recent developments in the law relating to anti-suit injunctions and concluded that an anti-suit injunction, although a discretionary measure (which ECJ case law considers an interference with the jurisdiction of another court), was appropriate in this case.
Legal Context
Article 23(1) of Council Regulation (EC) No 44/2001 (the ‘Brussels Regulation’) provides:
If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise ...Whether a dispute falls within an agreed jurisdiction clause is a question of interpretation of that clause and, even in the context of the Brussels Regulation, must be decided according to national law (Benincasa v Dentalkit Srl [1997] ETMR 447; Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake Products GmbH [2008] FSR 30). The starting point when analysing jurisdiction clauses is an assumption that commercial parties agreeing such clauses intend that any disputes arising out of the relationship are to be decided in the same, agreed forum (Fiona Trust & Holding Corp v Privalov [2007] UKHL 40).
Further, where a court has jurisdiction under the Brussels Regulation (eg under Article 2, because the defendant is domiciled in that jurisdiction), discretionary considerations such as those relating to forum non conveniens (eg harm suffered in another jurisdiction or location of witnesses) cannot play a part in any decision about whether that jurisdiction should stay its proceedings (Owusu v Jackson [2005] QB 801). Also, a court with jurisdiction under the Brussels Regulation should not restrain a party from commencing or continuing proceedings before a court of another Member State; ECJ case law indicates that it is for each court to rule on whether it has jurisdiction to resolve the dispute before it (Turner v Grovit [2005] 1 AC 101; West Tankers Inc v Allianz SpA [2009] 3 WLR 696).
Facts
Skype, domiciled in Luxembourg, offered free-to-download software that enabled users to communicate over the internet. Joltid, a BVI company, owned certain software that was integral to Skype's business. Skype and Joltid entered into a written agreement, by which Joltid granted Skype a worldwide licence to use a form of its software, the object code, but retained sole control of the source code. Clause 19.1 of the licence stated:Any claim arising under or relating to this Agreement shall be governed by the internal substantive laws of England and Wales and the parties submit to the exclusive jurisdiction of the English courts.In March 2009 Joltid, claiming that Skype had breached the licence by using and accessing the source code, purported to terminate it. In response, Skype commenced proceedings in England, claiming that the purported termination was invalid and the licence remained in force. Skype accepted that it had used the source code, but denied this was a breach. According to Skype, Joltid had supplied the source code rather than the object code. This amounted to a variation of the licence. If not, Joltid was estopped from alleging breach or had waived the right to demand strict compliance. In response, Joltid sought a declaration that the licence was validly terminated, as well as an injunction and financial remedies.
Joltid subsequently registered its copyright in the source code in the USA and commenced proceedings in the USA against Skype and its various investors (which were not parties to the licence) for copyright infringement. Skype claimed that these US proceedings were in breach of clause 19.1 of the licence and sought an anti-suit injunction in the UK proceedings to restrain them.
Since Skype was domiciled in Luxembourg, Article 23(1) applies in relation to clause 19.1 of the licence. Lewison J began by assessing whether the claims against Skype in the US proceedings fell within the scope of clause 19.1. Joltid argued that its claims in the US proceedings did not arise out of the licence since they were predicated on the assumption that the licence had been terminated. Lewison J rejected this interpretation as unduly narrow. Interpretation of a jurisdiction clause is a matter of national law (Benincasa, Knorr-Bremse (supra)), and in Fiona Trust, Longmore LJ in the Court of Appeal, applauded by Lord Hoffmann in the House of Lords, stated that ‘the words "arising out of" should cover "every dispute except a dispute as to whether there was ever a contract at all"’. Lord Hoffmann added that clause construction should start from the assumption that commercial parties are likely to have intended that all disputes are to be decided by the same tribunal. Accordingly, Lewison J concluded that the US proceedings initiated by Joltid did relate to a dispute covered by clause 19.1.
The court then considered whether Skype was entitled to an anti-suit injunction to prevent any further steps being taken in the US proceedings. Lewison J began by agreeing with Skype that, following Owusu, the UK court should not decline to exercise its exclusive jurisdiction under Article 23(1) on the basis of discretionary considerations such as forum non conveniens and that the UK proceedings should not therefore be stayed in favour of the US proceedings.
Lewison J rejected Skype's argument that the tests for staying domestic proceedings and granting anti-suit injunctions were ‘two sides of the same coin’ and that it followed that, if the court could not stay its own proceedings, it must grant an anti-suit injunction. In Turner and West Tankers, the ECJ held that where proceedings are initiated in another Member State in breach of a jurisdiction or arbitration clause, a court should not grant an anti-suit injunction; it is for each court to rule on whether it has jurisdiction to resolve the dispute before it. Skype argued that this line of authority only applies where both jurisdictions are Member States, but Lewison J rejected this. He noted that Skype's argument that there was no discretion to stay the UK proceedings was founded on Owusu, where the ECJ drew no distinction between Member and non-Member States. Thus if Skype was right about this issue, the ECJ's approach to anti-suit injunctions must also be equally applicable in the case of non-Member States.
Nonetheless Lewison J concluded that, as a matter of discretion, an anti-suit injunction should be granted. Since there was no dispute that the licence was valid, even if terminated, there was a breach of clause 19.1 and the court would need a good reason before declining to enforce by injunction the parties' contractual bargain on jurisdiction. There was no such reason here. Lewison J considered that the standard forum non conveniens arguments prayed in aid by Joltid should be given little weight where, as here, the parties to an agreement of worldwide application deliberately agreed an exclusive jurisdiction clause appointing a neutral territory, and where such factors were eminently foreseeable when the parties entered into the licence. Otherwise, the clause would be deprived of its intended effect since, the more ‘neutral’ the forum chosen, the less importance the parties must have placed on its convenience for any particular dispute.
Another important factor was whether the grant or refusal of the injunction would enable all disputes between the parties to take place in a single forum. In this case, the court's decision either way could not avoid the risk of parallel proceedings; following Owusu, the court could not stay the UK proceedings, but it had no jurisdiction to restrain the US proceedings in respect of the parties that did not have the benefit of the exclusive jurisdiction clause.
Analysis
These proceedings afforded an opportunity to consider the availability of anti-suit injunctions against parallel proceedings in non-EU Member States.
As discussed in this judgment, the ECJ has held that an anti-suit injunction prohibiting a party from bringing proceedings in another Member State in breach of an exclusive jurisdiction or arbitration clause is an inadmissible interference with the jurisdiction of that court and inconsistent with the principles of mutual trust that underlie the Brussels Regulation (Turner, West Tankers). Although Lewison J did not explain why the court retained its discretion to grant an anti-suit injunction in this case, the decision is consistent with Shashoua v Sharma [2009] EWHC 957 (Comm), in which Cooke J held that West Tankers did not impact upon the use of anti-suit injunctions in relation to proceedings brought in non-Member States; West Tankers sought to ensure the uniform application of the Brussels Regulation and the ‘free movement’ of judgments across the EU, so did not apply to proceedings before a non-Member State court. Similarly, Lewison J exercised the court's discretion to grant an anti-suit injunction to restrain proceedings brought in a non-Member State. Accordingly, anti-suit injunctions remain available to restrain such proceedings in non-Member State courts.
Practical Significance
It is beneficial to both IP owners and licensees to have certainty as to where a dispute will be resolved or litigated, and to know that all disputes will be brought in the same jurisdiction; indeed, this is the purpose of an exclusive jurisdiction clause.
This case indicates that, at least where parallel proceedings are commenced in a non-EU Member State, the English courts are willing to enforce an exclusive jurisdiction clause by granting anti-suit injunctions where appropriate. In exercising the court's jurisdiction, Lewison J rejected arguments relating to forum non conveniens on the basis that it is eminently foreseeable to parties to a global licence agreement that whichever jurisdiction they choose, it may not be the most convenient for a particular dispute for at least one party.
However, as emphasized by the ECJ in Turner and West Tankers, under the Brussels Regulation it is for the courts in each EU Member State to rule on whether it has jurisdiction to resolve the dispute before it. This results in the availability of anti-suit injunctions to enforce an exclusive jurisdiction clause currently depending on where alternative proceedings are initiated.
ECJ rules on jurisdiction for IP licence disputes
Author: Paul Joseph (Freshfields Bruckhaus Deringer)
Citation: Journal of Intellectual Property Law & Practice 2009 4(9):616-617; doi:10.1093/jiplp/jpp118
Falco Privatstiftung and Thomas Rabitsch v Gisela Weller-Lindhorst, Case C-533/07, Court of Justice of the European Communities, 23 April 2009
The European Court of Justice (‘ECJ’) has ruled that an IP licence does not constitute a contract for ‘the provision of services’ under Article 5(1)(b) of the Brussels Regulation. One of the other grounds of jurisdiction (most likely defendant's domicile) must be applied instead.
Legal context
Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‘Brussels Regulation’) harmonizes the rules on jurisdiction among the courts of the EU. Article 2 sets out the basic rule that a person domiciled in a Member State should be sued in the courts of that Member State. This basic rule is supplemented by the rules on special jurisdiction set out in Article 5 which provide various additional grounds for jurisdiction in the courts of other Member States, for example the court of the place where a tort is committed (Article 5(3)) or the court of the place where a trust is domiciled (Article 5(6)).
Article 5(1) states that a person may be sued
Analysis
The ECJ held that as the Brussels Regulation itself does not define the concept of a contract for ‘the provision of services’, it must be interpreted in light of the origins and objectives of the Regulation; namely to establish highly predictable rules of jurisdiction and achieve legal certainty.
On a common sense approach, the concept of ‘services’ implies that the ‘provider’ at least carries out a particular activity in return for remuneration. The ECJ took the view that the owner of an IP right does not perform any particular activity in granting a licence to a third party to use that right, but merely undertakes not to challenge the use of that right by that third party.
The ECJ backed up its reasoning by pointing out that the main jurisdictional rule under the Brussels Regulation is that a party should be sued in the country of its domicile (Article 2). Since the rules on special jurisdiction set out in Article 5 should be narrowly interpreted, Article 5(1)(b) should be confined to the special cases of true contracts for the sale of goods or the provision of services and not to other activities that only arguably fall under such headings. As stated explicitly in Article 5(1)(c), if Article 5(1)(b) does not apply then the general rule in Article 5(1)(a) (that the court of the place where the main obligation is to be performed has jurisdiction) would apply. The Higher Regional Court had earlier ruled that this would result in German, not Austrian jurisdiction (since the main obligation, the payment of the debt, was to take place in Germany).
In response to a further question referred by the Austrian Supreme Court, the ECJ added that, in determining questions of jurisdiction, the courts must continue to have regard to the principles established in the case law of the ECJ on Article 5(1) of the Brussels Convention (notwithstanding that having been superseded by the Brussels Regulation). As the Advocate General pointed out, the additions to Article 5(1) made in the Brussels Regulation should be seen as merely taking into the account the interpretation through case law provided by the Court to the same provision of the Brussels Convention.
Practical significance
It is trite but true that contractual parties who wish to be certain about court will take jurisdiction over contractual disputes need to deal with the point explicitly in the contract by way of an exclusive jurisdiction clause. This judgment does not change that. Nor does the judgment explain how the courts should deal with a situation where a contract contains both an IP licence and also an obligation to provide goods or services. Take the example of a distribution agreement under which the principal both provides goods to the distributor and also grants a trade mark licence enabling the distributor to market those goods under the appropriate brands. Would the court of the distributor's domicile be required to take jurisdiction over a dispute involving the supply of goods under Article 5(1)(b) but not over the brand licence? It might depend on how the payment obligations are structured—an interesting point perhaps for the academically inquisitive or those that are attracted to litigation spanning several years. Everyone else should stick to exclusive jurisdiction clauses.
Correspondence: Email: paul.joseph@freshfields.com
Citation: Journal of Intellectual Property Law & Practice 2009 4(9):616-617; doi:10.1093/jiplp/jpp118
Falco Privatstiftung and Thomas Rabitsch v Gisela Weller-Lindhorst, Case C-533/07, Court of Justice of the European Communities, 23 April 2009
The European Court of Justice (‘ECJ’) has ruled that an IP licence does not constitute a contract for ‘the provision of services’ under Article 5(1)(b) of the Brussels Regulation. One of the other grounds of jurisdiction (most likely defendant's domicile) must be applied instead.
Legal context
Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‘Brussels Regulation’) harmonizes the rules on jurisdiction among the courts of the EU. Article 2 sets out the basic rule that a person domiciled in a Member State should be sued in the courts of that Member State. This basic rule is supplemented by the rules on special jurisdiction set out in Article 5 which provide various additional grounds for jurisdiction in the courts of other Member States, for example the court of the place where a tort is committed (Article 5(3)) or the court of the place where a trust is domiciled (Article 5(6)).
Article 5(1) states that a person may be sued
(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
– in the case of the sale of goods, the Member State where, under the contract, the goods were delivered or should have been delivered;
– in the case of the provision of services, the Member State where, under the contract, the services were provided or should have been provided
(c) if subparagraph (b) does not apply then subparagraph (a) applied.
The text of Article 5(1) of the Brussels Regulation expands on and supersedes Article 5(1) of the earlier Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (the ‘Brussels Convention’). The Brussels Convention simply contained the wording in Article 5(1)(a) of the Brussels Regulation and did not include the extra detail in 5(1)(b).
Facts
The case concerned the exploitation of rights in the music of Johann (Hans) Hölzel, better known by his stage-name ‘Falco’. Falco was an Austrian rap, pop, and rock musician who had sprung to international fame through his 1986 hit single ‘Rock me Amadeus’. Falco died in a road traffic accident in 1998 at the age of 40. The claimants were both domiciled in Austria: Thomas Rabitsch, a former band member, and Falco Privatstiftung, a foundation established to manage the copyright in Falco's works. The defendant domiciled in Germany was Gisela Weller-Lindhorst, a media seller. The parties entered into a licence agreement under which the defendant was licensed to distribute in Germany, Austria, and Switzerland a video recording of a Falco concert. The defendant did this but also engaged in the allegedly unlicensed distribution of audio recordings of Falco's music in these territories.
The claimants brought proceedings against the defendant for the non-payment of royalties in relation to the video recordings, and a copyright infringement claim in relation to the audio recordings.
The courts' findings on jurisdiction and the key question referred to the ECJ are summarized in the table below.
Facts
The case concerned the exploitation of rights in the music of Johann (Hans) Hölzel, better known by his stage-name ‘Falco’. Falco was an Austrian rap, pop, and rock musician who had sprung to international fame through his 1986 hit single ‘Rock me Amadeus’. Falco died in a road traffic accident in 1998 at the age of 40. The claimants were both domiciled in Austria: Thomas Rabitsch, a former band member, and Falco Privatstiftung, a foundation established to manage the copyright in Falco's works. The defendant domiciled in Germany was Gisela Weller-Lindhorst, a media seller. The parties entered into a licence agreement under which the defendant was licensed to distribute in Germany, Austria, and Switzerland a video recording of a Falco concert. The defendant did this but also engaged in the allegedly unlicensed distribution of audio recordings of Falco's music in these territories.
The claimants brought proceedings against the defendant for the non-payment of royalties in relation to the video recordings, and a copyright infringement claim in relation to the audio recordings.
The courts' findings on jurisdiction and the key question referred to the ECJ are summarized in the table below.
| |||||||||||||||
Analysis
The ECJ held that as the Brussels Regulation itself does not define the concept of a contract for ‘the provision of services’, it must be interpreted in light of the origins and objectives of the Regulation; namely to establish highly predictable rules of jurisdiction and achieve legal certainty.
On a common sense approach, the concept of ‘services’ implies that the ‘provider’ at least carries out a particular activity in return for remuneration. The ECJ took the view that the owner of an IP right does not perform any particular activity in granting a licence to a third party to use that right, but merely undertakes not to challenge the use of that right by that third party.
The ECJ backed up its reasoning by pointing out that the main jurisdictional rule under the Brussels Regulation is that a party should be sued in the country of its domicile (Article 2). Since the rules on special jurisdiction set out in Article 5 should be narrowly interpreted, Article 5(1)(b) should be confined to the special cases of true contracts for the sale of goods or the provision of services and not to other activities that only arguably fall under such headings. As stated explicitly in Article 5(1)(c), if Article 5(1)(b) does not apply then the general rule in Article 5(1)(a) (that the court of the place where the main obligation is to be performed has jurisdiction) would apply. The Higher Regional Court had earlier ruled that this would result in German, not Austrian jurisdiction (since the main obligation, the payment of the debt, was to take place in Germany).
In response to a further question referred by the Austrian Supreme Court, the ECJ added that, in determining questions of jurisdiction, the courts must continue to have regard to the principles established in the case law of the ECJ on Article 5(1) of the Brussels Convention (notwithstanding that having been superseded by the Brussels Regulation). As the Advocate General pointed out, the additions to Article 5(1) made in the Brussels Regulation should be seen as merely taking into the account the interpretation through case law provided by the Court to the same provision of the Brussels Convention.
Practical significance
It is trite but true that contractual parties who wish to be certain about court will take jurisdiction over contractual disputes need to deal with the point explicitly in the contract by way of an exclusive jurisdiction clause. This judgment does not change that. Nor does the judgment explain how the courts should deal with a situation where a contract contains both an IP licence and also an obligation to provide goods or services. Take the example of a distribution agreement under which the principal both provides goods to the distributor and also grants a trade mark licence enabling the distributor to market those goods under the appropriate brands. Would the court of the distributor's domicile be required to take jurisdiction over a dispute involving the supply of goods under Article 5(1)(b) but not over the brand licence? It might depend on how the payment obligations are structured—an interesting point perhaps for the academically inquisitive or those that are attracted to litigation spanning several years. Everyone else should stick to exclusive jurisdiction clauses.
Correspondence: Email: paul.joseph@freshfields.com
Subscribe to:
Posts (Atom)