While many think COVID-19 is something from the past, it’s far from that in patent courts. A fierce battle on the technology behind the vaccines is going on. As we mentioned in another post, in August 2022, Moderna sued Pfizer and BoiNtech in Germany, the UK and the US for infringement of some of its key patents, later supplemented with litigation in Belgium, the Netherlands and Ireland.
One of the defences of Pfizer and BioNTech in those cases is that they did not infringe on Moderna’s patents because Moderna made a pledge to not enforce its COVID-19 related patents. On 8 October 2020 Moderna put out a public statement that said:
While the pandemic continues, Moderna will not enforce our COVID-19 -related patents against those making vaccines intended to combat the pandemic. Further, to eliminate any perceived IP barriers to vaccine development during the pandemic period, we are also willing to license our intellectual property for COVID-19 vaccines to others for the post-pandemic period.
The UK High Court recently decided on the effects of Moderna’s pledge (Moderna v. Pfizer and BioNTech [2024] EWHC 1648 (Pat)). The outcome relies to a large extent on the specific wording of Moderna’s statement, so without diving too deeply into it, this is what was said:
[T]he whole essence of a patent is that it confers a monopoly right to prevent others from exploiting the patented invention with that right only being enforceable by legal action against anyone infringing that right. Therefore, when a patentee says to another person that it will not “enforce” a patent, the fair interpretation of such a statement is that the other may exploit the patent without consequence since the monopoly rights that are the essence of the patent are not being asserted. Viewed objectively, I see no real difference between such a statement and a statement that a patentee “consents” to the exploitation of the patent.
As a consequence, Pfizer/BioNTech had a non-contractual consent to perform acts that would otherwise infringe the patents until the date that Moderna revoked the statement.
What is the legal impact?
According to the High Court a commitment to not enforce a patent is the same as actual consent to exploiting the invention, what is commonly known as a licence. Now conventional legal wisdom is that one can agree to merely tolerate a third party’s use of patented technology in a covenant not to sue, without giving consent. To actually obtain consent, a third party has to obtain a licence.
These, supposedly different, legally instruments are thought to allow modulating the degree of control over products put on the market by the third party. Without consent, the patentee does not exhaust its rights and keeps control over products put on the market. But by granting a licence and giving consent, the patent owner exhausts its rights and the control over products put on the market by the licensee. The result of this difference is that when a patent owner signs a covenant not to sue with a supplier of components, the patent can still be enforced against someone who assembles products in which these components are used.
But the High Court’s decision implies that there is no difference and that this conventional thought is wrong.
Is this in line with other countries?
In the US, this thinking which was already decided 15 years ago by in the decision in TransCore, LP v. Electronic. Transaction Consultants Corp., No. 2008-1430 (Fed. Cir. Apr. 8, 2009) in which the United States Court of Appeals for the Federal Circuit stated:
A patentee, by license or otherwise, cannot convey an affirmative right to practice a patented invention by way of making, using, selling, etc.; the patentee can only convey a freedom from suit. … a non-exclusive patent license is equivalent to a covenant not to sue.
That decision cites the almost one century old, but not widely known, precedent of the US Supreme Court in De Forest Radio Tel. Co. v. United States, 273 U.S. 236 (1927):
Any language used by the owner of the patent or any conduct on his part exhibited to another, from which that other may properly infer that the owner consents to his use of the patent in making or using it, or selling it, upon which the other acts, constitutes a license, and a defense to an action for a tort.
A similar line was adapted by the German Supreme Court in the IP Bridge vs HTC case (ECLI:DE:BGH:2023:240123UXZR123.20.0). The German Supreme Court said that:
An agreement in which the patent proprietor undertakes not to assert any claims against the contracting party on the basis of the patent leads in principle to exhaustion in relation to products placed on the market on the basis of this agreement. It is generally irrelevant whether … an agreement is to be qualified as a license agreement under German law or under the contractual statute applicable to the effects under the law of obligations. Rather, the decisive factor is that the patent proprietor makes it sufficiently clear that it will not assert any rights from the patent against its contractual partner.
The German Supreme Court only added the nuance that there must be some expression of intent by the patent owner, because :
Non-intervention against patent infringing acts or mere tacit tolerance of them is not sufficient … Therefore, it must always be carefully examined whether an agreement contains such consent.
Now what will this mean in practice?
It obviously does open more defences against accusations of patent infringement by arguing that the patent owner somehow gave consent.
And an international context, it does bring yet unresolved legal questions on the mutual obligations of licensee and licensor. For example in Germany and France, a patent license is viewed as a right into the patented invention, similar to renting a tangible item, and therefore implying (unless contractually disclaimed) obligations like keeping the patent in force, warranting absence of third party rights and actual workability of the invention. Now, if a patent is just a right to sue, and a license nothing more than a commitment to refrain from doing so, there are probably more profound consequences on the relationship between license and licensor.
But there is a direct commercial impact because this difference is lies behind patent monetization schemes that run over all levels of the supply chain. Details of a recent example in the telecom sector that ended up in litigation in Germany can be found in a decision of the Karlsruhe court of appeal: OLG Karlsruhe, decision 6 U 104/18 of 25 November 2020, ECLI:DE:OLGKARL:2020:1125.6U104.18.00. Here, IP Bridge signed covenants not to sue with semiconductor manufacturers selling chipsets, so not giving explicit consent to put them on the market. IP Bridge then asked mobile phone manufacturer HTC to take a licence to the same patents for making phones that used these chipsets.
So one of the effects of the high court decision is that patent monetization schemes can rely less on legal wizardry to extract revenue streams over the entire supply chain. IP managers therefore have to reconsider their business models, diversify patent portfolios and rethink their licensing practices. Careful mapping of the supply chain and targeting the sweet spot to optimise monetization returns becomes more important. Instead of focussing on general patent portfolio licensing, more complex schemes involving different types of rights may be needed, as well as restructuring patent portfolios into separate sub-portfolios targeting different products in order to be able to license to different levels of the supply chain.
And there may be an impact on other industries, like telecom and high-tech industries. Moderna’s pledge is similar to FRAND-commitments common in those industries. The commitments are public statements made by a patent owner of patents essential to industry standards (SEP - “standard essential patents”) saying that the patent owner is willing to grant licenses on FRAND (“fair, reasonable and non-discriminatory”) conditions.
There has already been a lot of discussion and litigation around FRAND commitments, mainly on whether licenses offered were fair, reasonable and non-discriminatory, but also on aspects like the binding nature of those statements and the possibility that patent owners still sue infringers, and the decision confirms that statements about licensing or not enforcing patents are legally binding.
In the context of SEP’s and FRAND commitments, courts in the European Union so far relied on complicated competition law to put limitations around the negotiations between patent owners and the users of the standards. But competition law does not provide power to decide the conditions of FRAND or bind into a contract. Although the interplay between FRAND commitments and national patent law will remain complex and dependent on precise wording of the statements, the High Court’s decision implies that the statements are binding like a contract, and provides courts with an instrument to prescribe more specific licensing conditions and impose licenses.