Has Via had its Chips? - High Court Uphold’s Intel’s Right to Refuse Licenses for Pentium IV

Intel's aggressive strategy to use its intellectual property rights to maintain a lead over its licensees is back on track following a significant victory in the English High Court on 14 June 2002 against one of its former Taiwanese licensees, Via Technologies. Via raised certain defences founded on the Treaty of Rome (so-called “Eurodefences”). These were rejected by the Court.

 

Intel’s Licensing Strategy

Intel's licensing strategy reached a low point in 1998 when the US Federal Trade Commission (FTC) brought a complaint of unfair competition against the company for abuse of monopoly by denying or threatening to deny certain customers (Digital Equipment Corporation, Intergraph and Compaq) access to certain critical technical information otherwise available to its other licensees (see Refusals to License Intellectual Property Rights and Monopoly “Coverage” by Richard H Stern, 1998 EIPR 390). In that same year, a US district court in Alabama issued a preliminary injunction in favour of Intergraph forcing Intel to supply the necessary technical information to Intergraph.

Intel has, brick by brick, rebuilt its strategy with: a settlement of the FTC complaint in March 1999; a reversal of the Alabama district court decision by the United States Court of Appeal for the Federal Circuit in November 1999; an end to investigations by the EC Commission in February 2002 and now summary judgment in Intel’s favour in this English High Court patent action (Intel v Via High Court, 14 June 2002, unreported).

 

History of the Dispute with Via

Between 1998 and 1999, Via was the licensee of Intel's P5 chipsets, for use with Intel's Celeron and Pentium II processors at a royalty of £3 per chipset, but Intel was careful to restrict the licensed technology to just the Pentium II generation of chips and prohibited certain improvements which effectively froze the licence at that generation of technology. In turn, Intel enjoyed a licence under future patents owned by Via in a 5-year capture period.

A dispute arose between the parties in June 1999. Via introduced chipsets compatible with Pentium Pro and Pentium III microprocessors (which use Intel’s P6 microprocessor architecture). Intel terminated Via's Pentium II license and brought proceedings against Via and others in California, the UK and Singapore. On 30th June 2000, the parties settled the dispute and Via agreed to pay Intel $50 million and submit certain disputed issues to an arbitrator who ruled that the parties should grant cross-licences for P5 and P6 chipset patents (Pentium II and III technology).

Intel’s offer would restrict Via from upgrading until 6 months after Intel. Future Via patents were to be cross-licensed

At the end of 2000, Intel granted various licences for Pentium IV compatible chipsets, and negotiations with Via over a Pentium IV chipset licence began. The royalty was to be $4 per unit. Intel also demanded various restrictions on the ability of a licensee to improve on the technology in any way that might allow him to catch up with Intel or acquire leverage over Intel. The terms of the proposed licenses included:

1. A restriction on Via’s ability to increase its microprocessor bus speed above a certain limit until such time as products of such speed had been made available by Intel for at least 6 months;

2. Restrictions on Via from providing support for other (connected but otherwise unpatented) chipsets until such time as an Intel product containing such feature or function had been on the market for at least 6 months; and

3. A requirement that Via cross-license royalty-free future (unspecific and speculative) patents owned in a 5-year capture period.

The parties failed to reach agreement during 2001, and Via went ahead with

the manufacture of chipsets compatible with the Pentium IV microprocessor.

Intel interpreted this act as a repudiation of the Pentium III chipset licence, terminated that licence and commenced patent infringement proceedings.

 

Via’s Eurodefences

There is no great surprise in the failure before the High Court of Via’s various patent infringement defences founded on the Treaty of Rome (so-called “Eurodefences”). In fact we know of no such defence that has succeeded before an English Court in a case involving intellectual property. But this has not stopped a chorus of calls across Europe to force patent owners to license patents and copyright in circumstances where the patents or copyright are considered essential to some actual or alleged standard. Through this recent decision, the High Court gave a firm signal that it will not lend its voice to this chorus

 

The High Court Proceedings

Via alleged that the bringing of the proceedings was an abuse by Intel of the exercise of its intellectual property rights, precluding Intel (by estoppel or otherwise) from enforcing its rights because the only licence terms on offer would, according to Via, infringe Article 81(1) of the Treaty of Rome and therefore be unlawful. The Court dismissed these competition law aspects of the defence through summary judgment for Intel.

Intel attempted to argue that a principle can be derived from British Leyland Motor v TI Silencers [1981] 2 CMLR 75 in which British Leyland was refused an interim injunction against manufacture by TI Silencers of vehicle spare parts that infringed British Leyland's copyright in drawings, where British Leyland's policy was to license the copyright only in exchange for royalties that included payments in respect of articles not protected by the copyright.

Via may have a strong wish to compete but fell far short of desperately needing a license

The British Leyland ruling was under Articles 30 and 34 of the Treaty of Rome (quantitative restriction on imports) and had opened the possibility that, upon proper proof at trial, the Court would not grant an injunction against an infringer who "desperately needed" a licence for his business purposes and was willing to pay a reasonable royalty if the only licence on offer proved to be one that would be in breach of community law. The Court in the present case considered that Via may have a strong wish to compete with Intel but the evidence presented on the economic effect of it not being able to manufacture and sell Pentium IV chipsets fell far short of an allegation that it "desperately needed" such a licence to allow it to trade at all.

The Court ruled that it would be disproportionate and contrary to commonsense to allow an infringer to infringe on payment of a reasonable royalty just because an offer of a licence had been made which (if accepted) would result in an infringement of Article 81. The Court took the view that if such an unlawful licence were entered into, the licence as a whole would be null and void under Article 81(2) with the result being that there would be no licence. In the view of the Court, it would be odd for the offeree to be treated so much more favourably if he were to reject the offer and then infringe the intellectual property rights.

On the cross-licence aspects of the Intel agreement on offer, the Court did not see any triable issue in Via's allegations that the imposition of a cross-licence was anti-competitive. Via attempted to argue that Intel's licensing policy would, if permitted under Article 81, allow it to improve its competitive position vis-à-vis Via and other manufacturers of X86 microprocessor products at no cost to Intel, and that this would reduce or cancel the incentive for Via (and other licensees) to continue investing in research and development, and that this would distort competition by stifling innovation. The Court considered this argument to be purely formulaic, since every licensor could say that granting a licence reduces or cancels its incentive to continue investment and research and that it may therefore lose its innovative edge and its position in the market. The Court held that a cross-licence in the circumstances of the case is not per se anticompetitive.

The Court considered the earlier decisions of Philips Electronics v Inman [1999] FSR 112 under which it was held to be at least arguable that the intent behind bringing infringement proceedings may be to force prospective licensees to accept a standard licence with no opportunity for negotiation, and that if such a licence infringed Article 81 (e.g. because the royalties were excessive or discriminatory), a Court might decline to grant relief to the licensor for patent infringement. The Court did not find that case to be any more illuminative than the British Leyland v TI Silencers case, which at least explored the egregious circumstances under which such relief might be refused. The circumstances identified in British Leyland included:

i) the desperation of the trader needing the licence in order to trade;

ii) the imposition by the licensor of royalty payments in relation to unrelated products not protected by copyright or other intellectual property rights; and

iii) the peculiarity of the intellectual property right in question (which, in British Leyland, was special to United Kingdom law and not available elsewhere in Europe).

The Court did not make a final decision on the rationale and scope of British Leyland and did not attempt to explore the scope of the Philips case.

The Court referred also to the case in the European Court of IMS Health v Commission T-184/01R 26 October 2001 (order of President of Court of First Instance) in which the Commission found that the refusal by IMS of access to a particular copyright work (the "brick structure" of a regional sales data service in Germany) was likely to eliminate all competition since, without it, it was not possible to compete in the relevant pharmaceutical and healthcare distribution market. The Commission ordered interim measures requiring IMS to license its competitors, but that decision of the Commission was overruled by the European Court of First Instance. The Court of First Instance concluded that the Commission had incorrectly extended the principle set out in joined European Court of Justice cases C-241/91 and C-242/91, RTE and ITP v Commission and Magill [1995] 4 CMLR 718 (commonly referred to as Magill) and the three exceptional circumstances that must all be present for the enforcement of copyright to be an abuse of a dominant position. Those circumstances are that:

i) there is a distinct market for a new product separate from the market for the copyright products of the copyright owners,

ii) there is no justification for refusal of licences, and

iii) the conduct of the copyright owners has the effect of reserving to themselves the secondary market.

The Court of First Instance concluded that the Commission had extended that principle in circumstances where the new competitor was willing to offer, at most, new variations of the same services and on the same market as the dominant undertaking. (The Commission had ruled that refusal to license such rights where the protected work constitutes a de facto industry standard amounted to an abuse). As that decision will not come before the European Court on appeal, there is no imminent prospect of the principles of Magill being extended.

The Court in Intel also considered the "essential facilities" case C-7/97 Oscar Bronner v Media Print [1998] ECRI-7791. The doctrine of essential facilities originates in US antitrust law, and under this doctrine courts are prepared to force parties who have control over facilities (such as ports and sewerage) to license those facilities where they are essential for others to compete in the marketplace. In Bronner the “essential facility” was a home delivery network controlled by a newspaper group which refused to allow a publisher of a competing newspaper to use the network. Though not an intellectual property case, the Court in Intel v Via found that Bronner throws light on the "exceptional circumstances" requirement of Magill.

From Magill, Bronner and the Commission's Decision in IMS, the Court found that one of the essential elements in the exceptional circumstances requirement is the elimination of all competition in the relevant market. In the present case, the alleged dominant undertaking (Intel) had granted licences to others and was not the only player in the market. The Court found that it was not sufficient for Via to say that Intel and its licensees are less innovative than Via for it to overcome the substantial hurdle set by these cases.

 

Other Disputes Between Intel and Via

As well as the chipset patent infringement suit ("the Chipset Action"), there were two other ongoing proceedings between the parties.

First, there was a complaint filed by Via on 12 September 2001 (shortly after settlement of the P6 chipset licence) alleging anti-competitive practices by Intel and breach of Article 81 (prohibiting agreements between undertakings that restrict competition) and Article 82 (prohibiting abuse of a dominant position). The complaint to the Commission was withdrawn on 14 January 2002 (as it was seen to be an obstacle to the timely conclusion of the UK High Court case) and shortly thereafter the Competition Commissioner, Mario Monte, announced that his office's investigation would be dropped (USA Today, 4 February 2002).

Second, there was a dispute over Intel's refusal to license certain patented "Zero Insertion Force" socket technology which Intel was phasing out after the Pentium III generation of processors. Via wanted to license this technology to satisfy a demand from Pentium III owners to upgrade their computers without having to purchase an entire Pentium IV motherboard. This later dispute "the CPU Action" raised certain Eurodefences which were heard and discussed in the same ruling as the Chipset Action.

 

Comment

Significance to the Licensing Industry

Of interest in this case is not just the quashing of the Eurodefences and the "essential facilities" doctrine in the case of patents, but also the upholding of the terms in Intel's licence underpinning its strategy to maintain its market lead. None of the terms is blacklisted or even greylisted under the European Commission’s Technology Transfer Block Exemption (the TTBE), but before the Commission signalled an end to any investigation it would not have been beyond the bounds of possibility that the benefit of the block exemption might be withdrawn (TTBE Article 7).

The Court did not firmly close the door on extending the principles of Magill from the field of copyright to the field of patents. As in the case of Philips v Inman, the Court did not rule out that, if the necessary elements of domination or anti-competitive effect are properly pleaded, these defences might survive to full trial. Mr Justice Lawrence Collins set out the three elements from Magill which would need to be proven at trial for such a defence to succeed and added that these elements will not be satisfied unless there is an elimination of all competition in the relevant market, which will not be the case if the patentee has already licensed another supplier into the marketplace.