Vestel UK Ltd & Anor v HEVC Advance LLC & Koninklijke Philips NV

The claimants, collectively known as Vestel, brought an action against defendants Advance and Philips for relief from an Article 102 abuse of a dominant position in relation to standard essential patents and licence fees.

Advance and Philips have been successful in their application for a declaration that the English Patents Court had no jurisdiction to hear the claim. The application came on before His Honour Judge Hacon (sitting as a judge of the High Court) on 2 and 3 Oct 2019, with judgment being given on 21 Oct 2019.

Background
Vestel form part of a Turkish-based group of companies, which is one of the largest manufacturers of TVs in the world. In 2013 a video compression standard was set up known as ‘High Efficiency Video Coding’ (or alternatively “HEVC”). The standard allows for significantly better data compression than previous standards.

Advance administers a patent pool which includes standard essential patents (SEPs) relating to HEVC. Philips is one of the participating patentees. Advance is used as convenient way for patentees to collectively licence their SEPs on fair, reasonable and non-discriminatory (FRAND) terms, though potential licensees can also approach patentees directly to negotiate a licence. There is also another patent pool covering HEVC patents known as the ‘MPEG LA pool’, administered by another entity.

Vestel accepted from the outset that companies in its group require a licence under the HEVC SEPs. It had licenced many HEVC patents from the MPEG LA pool, but still required a licence for some Advance patents. Vestel felt that the terms offered by Advance and Philips were not FRAND; Advance and Philips disagreed, and refused to amend the terms offered.

The Claim
To break the deadlock, Vestel brought a claim for abuse of a dominant position in breach of Art.102 of the Treaty on the Functioning of the European Union (TFEU).

Neither defendant is domiciled in the UK. Advance is domiciled in Delaware, so in February 2019 Vestel were granted permission to serve the claim form and particulars on Advance in Delaware. Philips is domiciled in the Netherlands and were served under the Brussels I Recast regulations. In response, Advance and Philips sought a declaration that the UK court had no jurisdiction over the claim in this action.

Jurisdiction against Philips (domiciled in the Netherlands)
Philips applied for a declaration that the UK courts had no jurisdiction on the ground that Art. 4 (1) of the Brussels I Recast legislation requires persons domiciled in an EU member state to be sued in the courts of that state, unless the claim falls within one of the other provisions of the regulation. As Phillips is incorporated in the Netherlands, they argued the action should have been brought there.

Vestel sought to rely on Article 7(2) of the Brussels I Recast, which provides jurisdiction to bring an action in another Member State if the harm or damage which has occurred (or may occur) is in that other jurisdiction. The judge noted that it is established case law that damage arising from an abuse of a dominant position under Art. 102 may provide a basis for jurisdiction under Art.7(2).

He reviewed the case law and concluded that in the context of an allegation of anticompetitive conduct, jurisdiction will be conferred on the courts of the place where damage to the claimant arising from the conduct occurs if two requirements are satisfied. First, the damage must be initial, as opposed to consequential, i.e. it must be direct damage suffered by the claimant. Secondly, the market said to be distorted by the anticompetitive conduct must be in the Member State in which the direct damage to the claimant is alleged to have occurred (or in which it would occur).

The judge found that, on the evidence, there was no credible basis to conclude that Vestel UK had suffered or would suffer any damage arising out of the alleged abuse of a dominant position by Philips. If Vestel were to be sued and subsequently to enter into a licence which was set by the court, then this would be on FRAND terms and could not constitute damage. He therefore held that the court did not have jurisdiction in relation to Vestel’s claim against Philips.

Jurisdiction against Advance (domiciled in the US)
Vestel sought to rely, unsuccessfully in each case, on four different gateways under the UK Civil Procedure Rules to establish jurisdiction against Advance:

• Gateway 9 (damage is sustained within the jurisdiction or from an act committed in the jurisdiction)

As with Philips, the judge found no damage was possible in relation to Vestel having to take a FRAND licence. An alternative argument relating to the uncertainty of the final royalty rate was also run by Vestel, but the judge felt (i) there was insufficient evidence clarifying the risk of significant damage and (ii) in any event, the damage could be mitigated by practical steps such as setting aside royalties at the level claimed by Advance until the court made its determination.

• Gateway 11 (the subject matter of the claim relates wholly or principally to property within the jurisdiction)

Only 2.43-4.9% of the patents in the pool designated the UK, so HHJ Hacon concluded that the subject matter was not wholly or principally in the UK.

• Gateway 3 (joining a third party who is a necessary and proper party to an existing claim)

This gateway would have come into play if jurisdiction had been established against Philips under Brussels I. Given that Vestel’s arguments relating to jurisdiction of the courts over Philips failed, gateway 3 was irrelevant.

• Gateway 4A (claims arising out of the same or closely connected facts)

In a similar way gateway 4A was irrelevant as none of the claim succeeded, but HHJ Hacon noted that he would have found it difficult to accept this argument regardless because he felt it required a further cause of action rather than multiple elements to the same claim (as was the case here). The judge also noted that he would not in any event have allowed the part of Vestel’s claim which sought to limit Advance’s and Philips’ ability to seek injunctive relief in foreign courts, citing comments made by the Court of Appeal in TQ Delta v ZyXEL about “an exercise in jurisdictional imperialism”.

Having found that there was no evidence of damage to Vestel, it followed that there was no reasonable prospect of success in the claim. Given the finding that Vestel’s claim fell within none of the gateways the question of forum non conveniens did not arise, as this only provides discretion not to hear a case where there is jurisdiction (and not the other way around).

Conclusion
The applications by Advance and Philips were therefore successful, and the court had no jurisdiction over the claims against either of them in this action.

The full judgment can be accessed here.

Elsa Glauert and Amy Crouch, Simmons & Simmons LLP