Public interest in finality of litigation and competition rules: getting the balance right

United Kingdom

In Adobe Systems Incorporated v Netcom Online.Co.UK Ltd ([2012] EWHC 446 (Ch), March 2 2012), Mr Justice Warren (Chancery Division of the High Court of England and Wales) has considered a consent agreement that had become not so much the end of an old dispute as the beginning of a new one.

Adobe Systems Incorporated sued Netcom Online.Co.UK Ltd for infringement of its Community and United Kingdom trademarks on the grounds that Netcom had sold genuine Adobe products that had not been placed on the market in the European Union by Adobe or with its consent. The proceedings were settled by consent order shortly before trial, which was to have been before Mr Justice Arnold in April 2011, the order providing for an inquiry as to the damages.

Netcom then sought to raise a number of issues in the damages inquiry which, it argued, showed that the order was illegal:

  • Since the Adobe products in question had been supplied by an authorised distributor outside the European Economic Area (EEA) to someone within it, that amounted to Adobe's consent to the products being put on the market in the EEA and the trademark rights in those goods were therefore exhausted.
  • Adobe had abused its dominant position by charging abusively high prices for its products.
  • The consent order itself constituted an anti-competitive agreement. Accordingly, the consent order should be set aside on the basis of common mistake or unlawfulness in light of the issues now raised.

The judge was unmoved by Netcom's entreaties. In his view:

  • If there had not been a consent order and, at trial, Arnold J had made exactly the same order, it would not have been open to Netcom to raise these new defences at the inquiry. Since those defences were not raised at the trial, it was too late to raise them in the inquiry: this was because there was a public interest in the finality of litigation.
  • It was correct to say that, as a matter of policy, the courts should not enforce arrangements which are in breach of competition law. However, in all the circumstances, it would be wrong to let Netcom go behind the order for the inquiry so as to raise a new case requiring a mass of new evidence. By refusing this point, the court was not enforcing an unlawful agreement; it was enforcing its own order which might, if certain facts were proved and certain arguments made good, be shown to have been made incorrectly.
  • The conclusion that a strong public interest in the finality of litigation trumped the complaint that there was a breach of EU competition law could not be challenged as being unlawful since any challenge to it begged the question of whether there was a breach of EU competition law in the first place. Accordingly, if national procedural rules satisfied the general EU principle of effectiveness, a decision of the national court which had been reached in compliance with those rules was not open to challenge as an infringement of EU law.
  • There was no mistake of law concerning the exhaustion of rights issue, as the point had not even been raised.
  • Significantly for IP owners, there was no reason to think that the case law of the Court of Justice of the European Union had intended to give the impression that consent orders would be open to attack, so far as they concerned damages agreed by the parties for an acknowledged breach of some property right, on the basis of an infraction of competition law.

What is interesting in this case are the comments of the judge on the balance between the strong public interest in the finality of litigation and the powerful dissolving effect of European competition rules on commercial agreements. Dispute settlement agreements in IP cases are a fertile soil for the planting of agreements that, whether intentionally or inadvertently, fall foul of EU competition rules.  The danger is compounded where the settlement has the effect of granting a licence on terms that do not sit comfortably with the Technology Transfer Block Exemption.

Jeremy Phillips, IP consultant to Olswang LLP, London

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