Herbert Smith Freehills Competition Law Moot 2016

REFERENCE TO THE COURT OF JUSTICE OF THE EUROPEAN UNION UNDER

ARTICLE 267 TFEU FROM THE RURITANIAN HIGH COURT IN THE CASE OF:

ON BEHALF OF AGAINST

Elf Co Manzana Corp

DEFENDANT CLAIMANT

D-TEAM JAEGER
 D-Team Jaeger

A. TABLE OF CONTENTS

A. Table of Contents i

B. List of Abbreviations ii

C. List of References iv

D. Statement of Facts 1

E. Questions Referred 2

F. Executive Summary of Observations 3

G. Observations on Question One 5

(I) Restriction of competition by object under Article 101(1) 5
(II) Factors in determining object restrictions 6
(III) Restriction of competition by effect under Article 101(1) 7

H. Observations on Question Two (A) 9

(I) Principles in Huawei and their applicability 9
(II) Notice and transfer of FRAND commitments 9
(III) SEP holders as NPEs 12

I. Observations on Question Two (B) 14

J. Observations on Question Three 16

(I) The indirect purchaser’s standing shall be recognised in Ruritania 16
(II) Parallel recognition of the indirect purchaser’s standing and the passing on defence 18
(III) Observations on deterrence and judicial economy 18

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B. LIST OF ABBREVIATIONS

Act Ruritanian Competition Act

Article 101 Article 101 of the TFEU
Article 102 Article 102 of the TFEU
Charter Charter of Fundamental Rights of the European Union
CJEU Court of Justice of the European Union
Claimant / Manzana Manzana Corp
Commission European Commission
Damages Directive Directive 2014/104/EU on certain rules governing actions for
damages under national law for infringements of the competition
law provisions of the Member States and of the European Union
[2014] OJ L349/1EU
Defendant / Elf Elf Co
DG Competition Directorate-General for Competition
DOJ Department of Justice
EC European Community
EC Treaty Treaty establishing the European Community
ECJ European Court of Justice
EEC European Economic Community (now the EU)
ESTI European Telecommunications Standards Institutes
EU European Union
FRAND Fair, Reasonable and Non-Discriminatory
FTC Federal Trade Commission
Huawei Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp [2015]
5 CMLR 14
IEC International Electrotechnical Commission
IPR Intellectual Property Rights
ISO International Organisation for Standardization
ITU International Telecommunication Union
Johnsson Johnsson Co
NPE Non-Practising Entity

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PAE Patent Assertion Entity

PE Practising Entity
RPM Resale Price Maintenance
SEP Standard Essential Patent
SSO Standard Setting Body
Technology Transfer Guidelines on the application of Article 101 of the Treaty on the
Guidelines Functioning of the European Union to technology transfer
agreements (2014/C 89/03)
TFEU Treaty on the Functioning of the European Union
TSO Telecommunications Standards Organisation
TTBER Commission Regulation (EU) No 316/2014 of 21 March 2014 on
the application of Article 101(3) of the Treaty on the Functioning
of the European Union to categories of technology transfer
agreements
US United States

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C. LIST OF REFERENCES

Referred to at
paragraph(s)
Case Law of the CJEU

Case C-67/13 P Groupement des cartes bancaires (CB) v European 1

Commission [2014] 5 CMLR 22
Case C-209/07 Competition Authority v Beef Industry Development Society 1
Ltd [2009] 4 CMLR 6
Case T-111/96 ITT Promedia NV v Commission [1998] 5 CMLR 491 9
Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp [2015] 5 CMLR 14 9, 10, 11, 12, 13,
20
Case C-52/07 Kanal 5 Ltd and TV 4 AB v Föreningen Svenska Tonsättares 24
Internationella Musikbyrå (STIM) [2009] 5 CMLR 18
Case C-453/99 Courage Ltd v Crehan [2001] 5 CMLR 28 30
Joined Cases C-295/04, C-296/04, C-297/04 and C-298/04 Manfredi v Lloyd 30
Adriatico Assicurazioni SpA [2006] 5 CMLR 17
Case C-557/12 Kone AG v OBB-Infrastruktur AG [2014] 5 CMLR 22 31

European Directives
Directive 2014/104/EU on certain rules governing actions for damages under 30, 34
national law for infringements of the competition law provisions of the
Member States and of the European Union [2014] OJ L349/1EU

Commission’s Guidelines and Papers

Guidelines on the application of Article 101 of the Treaty on the Functioning 2, 3, 4, 5, 24
of the European Union to technology transfer agreements [2014] OJ C
89/3
Guidelines on the Applicability of Article 101 of the Treaty on the Functioning 16
of the European Union to Horizontal Co-operation Agreements [2011]
OJ C11/1

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Guidance on the Commission's enforcement priorities in applying Article 82 20

of the EC Treaty to abusive exclusionary conduct by dominant
undertakings [2009] 2009/C 45/02
XXIVth Annual Report on Competition Policy (1994) 21
XXVIIth Annual Report on Competition Policy (1997) 21
Green Paper on Damages Actions for Breach of the EC SEC (2005) 1732 29, 33
White Paper on Damages Actions for Breach of the EC Antitrust Rules COM 29, 30, 35
(2008) 165
Commission Recommendation of 11 June 2013 on common principles for 35
injunctive and compensatory collective redress mechanisms in the
Member States concerning violations of rights granted under Union
Law [2013] OJ L201/60

Case Law of the US

General Cinema Corp v Buena Vista Distrib Co 681 F 2d 594 (9th Cir 1982) 2
Kingray Inc v NBA INC 188 F Supp 2d 1177 (SD Cal 2002) 2
Apple Inc v Motorola Mobility Inc 886 F Supp 2d 1061 (WD Wis 2012) 15
Microsoft Corp v Motorola Inc 854 F Supp 2d 993 (WD Wash 2012) 15
Automatic Radio Manufacturing Co v Hazeltine Research Inc 339 US 827 24
(1950)
Illinois Brick Co v Illinois 431 US 720 (1977) 36

Books
Richard Whish and David Bailey, Competition Law (8th Edn, OUP 2015) 1, 2, 20
Keith Maskus and Stephen A Merrill (eds), Patent Challenges for Standard- 18
Setting in the Global Economy: Lessons from Information and
Communication Technology (National Academies Press 2013)
M Marquis, P Lowe and G Monti (eds), Effective and Legitimate Enforcement 31
of Competition Law (Hart Publishing: Oxford 2015)

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Journal Articles and Research Papers

Michael J Mazzeo, Jonathan H Ashtor and Samantha Zyontz, ‘Do NPEs 4. 6. 21
Matter? Non-Practicing Entities and Patent Litigation Outcomes’
(2013) 9(4) Journal of Competition Law and Economics 879
J Gregory Sidak, ‘The Proper Royalty Base for Patent Damages’ (2014) 10(4) 4, 26
Journal of Competition Law and Economics 989
Damien Geradin, Anne Layne-Farrar and A Jorge Padilla, ‘Elves or Trolls? 6
The Role of Non-Practicing Patent Owners in the Innovation Economy’
(2012) 21(1) Industrial and Corporate Change 73
Vincenzo Denicolò, Damien Geradin, Anne Layne-Farrar and A Jorge Padilla, 6, 21
‘Revisiting Injunctive Relief: Interpreting EBay in High-Tech
Industries with Non-Practicing Patent Holders’ (2008) 4(3) Journal of
Competition Law and Economics 571
Marc Morgan, ‘Stop Looking Under the Bridge for Imaginary Creatures: A 6, 22
Comment Examining Who Really Deserves the Title Patent Troll’
(2008) 17 The Federal Circuit Bar Journal 165
Joseph Scott Miller, ‘Standard Setting, Patents, and Access Lock-In: RAND 15
Licensing and the Theory of the Firm’ (2007) 40 Indiana Law Review
351
Mark A Lemley, ‘Intellectual Property Rights and Standard-Setting 15
Organizations’ (2002) 90 California Law Review 1889
Jay P Kesan and Carol M Hayes, ‘FRAND’s Forever: Standards, Patent 17
Transfers, and Licensing Commitments’ (2014) 89 Indiana Law Journal
231
Sannu K Shrestha, ‘Trolls or Market-Makers? An Empirical Analysis of Non- 21
Practicing Entities’ (2010) 110 Columbia Law Review 114
James F McDonough III, ‘The Myth of the Patent Troll: An Alternative View 22
of the Function of Patent Dealers in an Idea Economy’ (2006) 56 Emory
Law Journal 189
Damien Geradin and Miguel Rato, ‘Can Standard-Setting lead to Exploitative 25
Abuse? A Dissonant View on Patent Hold-Up, Royalty Stacking and
the Meaning of FRAND’ (2007) 3 European Competition Journal 101

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R Polk Wagner, ‘Understanding Patent-Quality Mechanisms’ (2009) 157 25

University of Pennsylvania Law Review 2135
Joseph Farrell and Robert P Merges, ‘Incentives to Challenge and Defend 25
Patents: Why Litigation Won’t Reliably Fix Patent Office Errors and
Why Administrative Patent Review Might Help’ (2004) 19 Berkeley
Technology Law Journal 943
Firat Cengiz, ‘Passing-On Defense and Indirect Purchaser Standing in Actions 33, 37
for Damages Against the Violations of Competition Law: What Can the
EC Learn from the US?’ (November 2007) CCP Working Paper No 07-
21
C Petrucci, ‘The issues of the passing-on defence and indirect purchasers’ 33, 35
standing in European competition law’ (2008) 29(1) European
Competition Law Review 33
Robert G Harris and Lawrance A Sullivan, ‘Passing on the Monopoly 35, 36
Overcharge’ (1979) 128 University of Pennsylvania Law Review 269

Miscellaneous
International Telecommunications Union, ‘Guidelines for the Implementation 16
of the Common Patent Policy for ITU-T/ITU-R/ISO/IEC 23/04/02’
(2002)
KU Kühn, F Scott Morton and H Shelanski, ‘Standard Setting Organizations 16
Can Help Solve the Standard Essential Patents Licensing Problem’
Competition Policy International (March 2013)
European Telecommunications Standards Institute, Annex 6 ETSI Intellectual 18
Property Rights Policy, Rules of Procedure (18 November 2015)
<www.etsi.org/images/files/ipr/etsi-ipr-policy.pdf> accessed 9 April
2016
International Telecommunications Union, Guidelines for the Implementation 18
of the Common Patent Policy for ITU-T/ITU-R/ISO/IEC (23 April
2012) <www.itu.int/dms_pub/itu-
t/oth/04/04/T04040000010004PDFE.pdf> accessed 9 April 2016

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Neelie Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, Speech 20

at the Fordham Corporate Law Institute, (New York, 23 September
2005) <http://europa.eu/rapid/press-release_SPEECH-05-537_en.pdf>
accessed 9 April 2016
Patrick J Flinn, Keith E Broyles and Alston and Bird LLP, Brief for Nokia 26
Corp and Nokia Inc as Amici Curiae in Support of Reversal and in
Support of Neither Party in Apple Inc v Motorola Inc (Fed Cir, 6 May
2013)
ZTE Press Release, ‘The Licensing Policy on LTE Essential Patents of ZTE’ 26
(22 December 2008)
Ashurst, ‘Study on the Conditions of Claims for Damages in Case of 36
Infringement of EC Competition Rules’ (31 August 2004)

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D. STATEMENT OF FACTS
The Standard Setting Process: The Telecommunications Standards Organisation (‘TSO’) is an SSO
in the information and communications technology sector. Its IPR policy requires that members grant
irrevocable licences on FRAND conditions to essential IPRs to a standard, and provides that FRAND
obligations should run with the patents and bind all successors.
The SEP-Portfolio, the FRAND Declaration and the Parties: Johnsson owned a portfolio of patents
which it declared to be SEPs to the TSO and gave FRAND undertaking in respect of them. It also
sells mobile devices integrating the technology. The Claimant makes mobile devices complying with
TSO standards but does not own a portfolio of SEPs. Johnsson and the Claimant’s licensing
discussions on Johnsson’s SEPs were not finalised because of disputes on various issues. The
Defendant, not a TSO member, is an NPE and later purchased half of Johnsson’s SEP-portfolio.
The Patent Transfer Agreement between Johnsson and the Defendant (‘Patent Transfer Agreement’):
The Patent Transfer Agreement provides that the Defendant is obliged to (1) license the SEP-portfolio
charging the royalty due as a percentage of the aggregate net sales revenue of the licensee; and (2)
share the revenue it earns from licensing the patents with Johnsson – in particular, a minimum
payment, of 1.5% of the net sales revenue of the licensee, is to be made to Johnsson by the Defendant
in respect of every licence granted (‘Minimum Royalty Provision’). The Patent Transfer Agreement
made no express provision for the transfer of the FRAND commitment to the Defendant.
Dealings between the Claimant and the Defendant: Following the transfer, the Defendant notified the
Claimant that it infringed the Defendant’s SEPs and demanded royalties at 2% of net sales revenue
for products incorporating the technology. The Claimant declined and thus the Defendant,
considering that the Claimant had shown unwillingness to negotiate, sought an injunction against it.
It was granted but was subsequently withdrawn after the Claimant agreed to the Defendant’s demand.
The Claims: The Claimant claimed before the Ruritanian High Court that: (a) the Patent Transfer
Agreement breached Article 101 and is hence void; (b) the Defendant breached Article 102 by seeking
and enforcing the injunction; (c) the Defendant breached Article 102 by charging unfair and
discriminatory prices for licences; and (d) the Defendant should pay damages for loss suffered due to
violations of Article 102. The Defendant denied any infringement and alternatively relied on the
passing on defence under the EU principles of unjust enrichment, effective judicial protection and
effectiveness even though Ruritania has not yet implemented the Damages Directive. The Ruritanian
High Court has decided to stay proceedings before it and refer the following questions relating to
interpretation of Article 101 and 102 to the CJEU. It is to this end that the present hearing arises.

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E. QUESTIONS REFERRED
Question 1: Does a term in a patent transfer agreement, which provides for a minimum payment to
the vendor in respect of each licence granted by the transferee in respect of the standard essential
patents transferred, infringe Article 101? In particular, what factors are relevant in determining
whether such a provision has as its object the restriction of competition?

Question 2: In relation to Article 102

(a) To avoid committing an abuse of a dominant position, does an undertaking which acquires a
dominant position by purchasing standard essential patents subject to a FRAND declaration made
by the previous owner, have to abide by the principles laid down by the Court of Justice in Case
C-170/13, Huawei Technologies Co Ltd v ZTE Corp, even if: (i) it was unaware of the FRAND
declaration until after the date of purchase; and/or (ii) it does not operate on the market for
products incorporating the technology?
(b) Is it an abuse of a dominant position for a holder of standard essential patents to seek to collect
royalties related to the sale price of the licensee’s products without any moderation to take account
of the relative importance or value of the patents or the number of other patents that are essential
to the standard?

Question 3: In national proceedings for damages in respect of a breach of Article 102, is a national
court obliged to provide a passing on defence in order to comply with EU principles of unjust
enrichment, effective judicial protection and effectiveness?

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F. EXECUTIVE SUMMARY OF OBSERVATIONS

Question 1: The Minimum Royalty Provision under Article 101
1. In determining whether the Minimum Royalty Provision under the Patent Transfer Agreement
restricts competition by object, it must first be borne in mind that the ‘object’ category should be
interpreted restrictively by reference to existing general categories, one of them being price fixing.
As per the Technology Transfer Guidelines, the Minimum Royalty Provision does not amount to
restrictions that have as their object establishment of a fixed or minimum price level to be
observed by the Defendant in licensing the SEPs.
2. Further, there is no ground to support expansion of the ‘object box’ to cover the present facts as
the scheme in question is conceptually no different from a supply agreement where a distributor
charges its consumers at a price that recoups its costs charged by its suppliers.
3. Neither is the Minimum Royalty Provision any restriction of competition by effect because it does
not give rise to any of the negative effects on competition spelt out in the Technology Transfer
Guidelines and increase in price per se should not be conclusive as to whether it restricts
competition by effect. Alternatively, even if it restricts competition by object or effect, the four
conditions under Article 101(3) could be satisfied.
Question 2(a): Non-applicability of Huawei Principles
4. The Huawei Principles only reflect a proper balance between maintaining free competition and
safeguarding the SEP proprietors’ IPR and right to effective judicial protection in the
circumstances. They only apply when three necessary conditions are met: (1) the patent in
question being an SEP; (2) the exclusionary abuse of the SEP proprietor; and (3) the irrevocable
FRAND undertaking given to the SSO. Purchasers without notice of the FRAND commitment
are not subject to irrevocable FRAND undertakings, whereas NPEs do not generate exclusionary
abuse. Hence, the Huawei Principles shall not apply to these categories of purchasers.
5. A FRAND commitment is contractual and only binds the original SEP proprietor. The proprietor
of the SEP is responsible for ensuring the transfer of FRAND commitment by express provisions.
When the purchaser does not have notice of the FRAND commitment, it does not bind the
purchaser. It is also premature and impractical to allow the automatic transfer of a FRAND
commitment as this interpretation is unsettled in all EU jurisdictions and involves a complex legal
terrain in eliminating inconsistencies. The interpretation of FRAND commitment shall be
deferred to the SSOs and the Council of EU in formulating relevant legislation and policy.
6. When seeking an injunction, an NPE does not engage in any actual or potential exclusionary

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conduct, which is of utmost concern in the EU jurisprudence. Moreover, there is a lack of

empirical evidence that the presence of an NPE is more prone to exploitative abuse, such as patent
holdup or excessive royalties. On the other hand, NPEs being patent licensing specialists, can
encourage innovation and generate pro-competitive effects by rewarding the inventors fairly.
Question 2(b): Royalty on the basis of a percentage of sale Price not an abuse of dominance
7. The proprietor of an SEP collecting royalties on the basis of a percentage to the sale price of the
licensee’s products does not commit an abuse of dominant position per se. The correct test is
whether the royalties collected are excessive in relation to the economic value of the SEP.
8. It is well recognised that insurmountable difficulties arise in valuing SEPs on an individual basis,
because of (1) multiple firms holding SEPs and standard implementers using SEPs for diverse
purposes; (2) presence of invalid SEPs; and (3) frequent and rapid changes in SEP portfolios.
9. Valuation of SEPs without considering the value of synergies between complementary
technologies does not accurately reflect the economic value of SEPs and often results in
underestimation. A more complete economic approach of valuation is to permit the use of the
retail price of the downstream product as the royalty base.
Question 3: Passing on defence
10. The issue of the indirect purchaser standing in Ruritania should first be addressed before this
Court decides on the applicability of the passing on defence. Since the landmark judgments of
Courage and Manfredi, it is now well settled at the EU level that indirect purchasers have the
standing to sue infringers for violation of competition law including Article 102.
11. Pursuant to the EU principles of effective judicial protection and effectiveness, the indirect
purchaser standing should be granted under the Ruritanian law, which would entail a simultaneous
recognition of the passing on defence for two reasons.
12. Firstly, without the defence, infringers might be liable for multiple damages to direct and indirect
purchasers. Secondly, if indirect purchasers could adduce proof of passing on of overcharge in
suing infringers, it is procedurally unfair if infringers could not adduce the same as a defence.
13. Further, the principle of unjust enrichment requires that no one shall be compensated for harm
that he had not actually suffered. Without a passing on defence, direct purchasers would be
unjustly enriched if he had actually passed on the overcharge further down the supply chain.
14. Common arguments against the passing on defence relying on deterrence and judicial economy
have been an over-simplification of the issue and must be treated with due caution.

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G. OBSERVATIONS ON QUESTION ONE

(I) Restriction of competition by object under Article 101(1)
1. General Principle Regarding Object Restriction: As an overarching principle, the ECJ held that
the category of object restrictions should be interpreted restrictively, such that it should be applied
only to agreements ‘which reveal a sufficient degree of harm to competition’ that there is no need
to examine their effects.1 It is accordingly submitted that ‘at the very least, … the size of the object
box should not be expanded unduly’,2 even though the ECJ stated that object restrictions cannot
be reduced into an exhaustive list.3
2. Not a Vertical Price Fixing: As far as the current legal position is concerned, the Minimum
Royalty Provision does not resemble any of the vertical agreements generally categorised as being
restrictive by object. 4 In particular, being specifically enumerated as an example of anti-
competitive agreement in Article 101(1)(a) of the TFEU and a hardcore restriction under Article
4(2)(a) of the TTBER, vertical price fixing is one of the general categories of object restrictions.
In this regard, it is submitted that the Minimum Royalty Provision is by no means a vertical price
fixing or RPM agreement.
(1) As per §118 of the Technology Transfer Guidelines, which elaborates on the application of
Article 4(2)(a) of the TTBER, it is submitted that the Minimum Royalty Provision does not
have as its direct or indirect object the establishment of a fixed or minimum price level to be
observed by the Defendant in licensing the SEPs; further, the Minimum Royalty Provision
does not fall into the list of examples for indirect price fixing in the same paragraph.
(2) In any event, as per §99 of the Technology Transfer Guidelines, which is concerned with
agreements between competitors, ‘an obligation on the licensee to pay a certain minimum
royalty does not in itself amount to price fixing’. In light of the fact that the legal standard
for non-competitors is generally less stringent than that for competitors, if an obligation on a
licensee to pay minimum royalty does not amount to price fixing for competitors, it is
submitted that it should equally be the case in the context of non-competitors.
(3) There are a number of US cases which support the principle that ‘a contract giving a
distributor discretion to set the price for product but requiring the distributor to pay the
manufacturer a set percentage or minimum price as a royalty does not constitute price

1
Case C-67/13 P Groupement des cartes bancaires (CB) v European Commission [2014] 5 CMLR 22, [58].
2
Richard Whish and David Bailey, Competition Law (8th Edn, OUP 2015) §3.126.
3
Case C-209/07 Competition Authority v Beef Industry Development Society Ltd [2009] 4 CMLR 6, [23].
4
Whish and Bailey (n 2) §3.133.

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fixing’.5 It is submitted that this Court should adopt and apply this principle in the context of
patent assignment and/or licensing.
(4) Further, one of the grave concerns with RPM agreements is the elimination of intra-brand
competition, but such anti-competitive concern is non-existent on the present facts, and
accordingly it is submitted that an analogy to RPM agreements should not apply.
3. The ‘Object Box’ Should Not Be Expanded to cover the Minimum Royalty Provision even though
the ECJ determines object restrictions on a case-by-case basis. Firstly, as per §183 of the
Technology Transfer Guidelines, ‘obligations in licence agreements that are generally not
restrictive of competition within the meaning of Article 101(1)’ include ‘(e) obligations to pay
minimum royalties’. Secondly, the fact that the scheme in question is conceptually no different
from a common supply agreement where a distributor, who acts as a middleman, charges its
downstream consumers at a price that recoups its costs charged by its upstream suppliers
further evinces that the Minimum Royalty Provision is not an object restriction of any kind.
(II) Factors in determining object restrictions
4. In addition to the foregoing analysis, with reference to §159–168 of the Technology Transfer
Guidelines, other relevant factors are summarised as follows:
(1) Market Shares: Although the nature of SEPs would result in certain comparative advantages
for the parties to the Patent Transfer Agreement, §162 of the Technology Transfer Guidelines
makes it clear that ‘in the case of technology markets, market shares may not always be a
good indicator of the relative strength of the technology’;
(2) Agreement between Non-competitors: The fact that the parties to the Patent Transfer
Agreement are neither actual nor potential competitors, implies that it poses no risk of
collusion between competitors as discussed in §171 of the Technology Transfer Guidelines
or foreclosure against third parties as discussed in §172;
(3) Minimum Royalty Obligations: Relying on §183 of the Technology Transfer Guidelines,
minimum royalty obligations are not generally restrictive of competition: see ¶3 hereinabove;
(4) Nature of NPEs Not Relevant: The nature of the Defendant being an NPE should not be a
relevant factor and accordingly should not invite any differential treatment. According to a
recent study, NPEs’ awards and success rates in litigation generally do not differ significantly
from other PEs, suggesting that the modern patent assertion practice may not be

5
General Cinema Corp v Buena Vista Distrib Co 681 F 2d 594 (9th Cir 1982), [14]–[15]; Kingray Inc v NBA INC 188 F
Supp 2d 1177 (SD Cal 2002), 1191.

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fundamentally different from conventional forms of patent enforcement;6 and

(5) Calculating Royalty as a Percentage of Retail Price Not Objectionable: §184 of the
Technology Transfer Guidelines reads ‘[r]oyalty obligations may… take the form of… a
percentage of the selling price’ and that ‘it is as a general rule not restrictive of competition
that royalties are calculated on the basis of the price of the final product, provided that it
incorporates the licensed technology’. It is accordingly submitted that calculating royalty as
a percentage of retail price is not anti-competitive at all and is by any means an appropriate
assessment in the context of patent assignment and/or licensing:7 see ¶¶23-27 hereinbelow.
(III) Restriction of competition by effect under Article 101(1)
5. No Effect Restriction: §99 of the Technology Transfer Guidelines, the only paragraph that deals
with agreements creating disincentives to license below a certain price, relates to agreements
between competitors. Further, the Minimum Royalty Provision does not give rise to any of the
negative effects on competition spelt out in the Technology Transfer Guidelines8 and the effect
of increase in price per se should not be conclusive as to whether it restricts competition by effect.
(1) Repeating ¶3 hereinabove, it is submitted that the very nature of a market that involves more
than two layers means that inevitably the downstream retailers and customers would pay more
than what the upstream suppliers originally charge.
(2) It may be counter-argued that NPEs could be distinguished from distributors such that the
former adds no real economic value to the market. This counter-argument carries no force for
two reasons. Firstly, it would mean that a common supply agreement prima facie violates
Article 101(1) but is eventually saved by Article 101(3) for its ‘economic values contributed’,
which could not be the case. Secondly, in a sub-licensing agreement, it could similarly be
argued that a sub-licensor ‘adds no real economic value’, but nonetheless one would generally
not consider a sub-licensing agreement to have the effect of restricting competition.
6. Economic Role of NPEs: Further, or alternatively, NPEs play an economic role along the supply
chain, and hence should not be distinguished from distributors. Some studies suggest that the
current critical view of NPEs has overly simplified the issue and the emergence of NPEs is not

6
Michael J Mazzeo and others, ‘Do NPEs Matter? Non-Practicing Entities and Patent Litigation Outcomes’ (2013) 9(4)
Journal of Competition Law and Economics 879, 901–903.
7
J Gregory Sidak, ‘The Proper Royalty Base for Patent Damages’ (2014) 10(4) Journal of Competition Law and
Economics 989.
8
Technology Transfer Guidelines, §169 provides that the negative effects include ‘(a) reduction of inter-technology
competition; (b) foreclosure of competitors; and (c) reduction of intra-technology competition’.

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necessarily adverse to competition and could be conducive to technological innovation.9

(1) No Exclusionary Abuse: There is literature suggesting that when an SEP is held up by a PE, it
can profit by ‘shutting down’ business activities of the potential licensee (which is often the
PE’s direct competitor).10 This exclusionary abuse will result in a foreclosure effect where the
PE is able to deny profitable expansion of existing competitors, which will ultimately harm
consumers. By contrast, where the same SEP is owned by an NPE, a reasonable NPE would
reach an agreement with potential licensees to earn a positive reward from its investment.
(2) Higher Likelihood of Settlement: Empirical findings suggest that as NPEs, in particular PAEs,
have fewer reasons to bear the high costs and risks of patent litigation, settlement is more
likely when NPEs are involved because their primary aim is to gain profits from patent
acquisition (as opposed to that of deterring infringement for PEs).11
(3) Promotion of Innovation: NPEs play a specialist role in monetizing and enforcing patent rights,
especially for innovators who lack resources or expertise to enforce patents and/or prefer to
focus on invention. Consequently, inventors could save time and costs in patent enforcement
efforts and have stronger incentives to innovate through collecting royalties from assignment
or licensing agreements with NPEs.12 The very fact that the originally deadlocked deal was
struck with the Claimant following the Patent Transfer Agreement was essentially a
compelling proof that NPEs could play a role in facilitating a negotiation process.
7. Article 101(3): Even if the Minimum Royalty Provision restricts competition by object or effect,
it nevertheless satisfies the four conditions under Article 101(3) and is hence compatible with
Article 101 overall. Firstly, the Patent Transfer Agreement contributed to efficiency gains as
submitted in ¶6 hereinabove, especially in augmenting innovation incentives. Secondly, the
Minimum Royalty Provision was indispensable in adequately protecting commercial interests of
and guaranteeing sensible returns for Johnsson which had incurred substantial costs in inventing
and developing the SEPs. Thirdly, consumers could receive a fair share of benefits in terms of
technological improvement. Fourthly, competition and/or future innovation are/is not unduly
restricted as it imposes no more restriction than the inherent right to exclude of a patent, and in
any event the SEPs are accessible to anyone willing to pay the royalties at the rate charged.

9
Damien Geradin and others, ‘Elves or Trolls? The Role of Non-Practicing Patent Owners in the Innovation Economy’
(2012) 21(1) Industrial and Corporate Change 73, 93.
10
Vincenzo Denicolò and others, ‘Revisiting Injunctive Relief: Interpreting eBay in High-Tech Industries with Non-
Practicing Patent Holders’ (2008) 4(3) Journal of Competition Law and Economics 571, 588-589.
11
Mazzeo and others (n 6) 902.
12
Marc Morgan, ‘Stop Looking Under the Bridge for Imaginary Creatures: A Comment Examining Who Really Deserves
the Title Patent Troll’ (2008) 17 The Federal Circuit Bar Journal 165, 165.

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 D-Team Jaeger

H. OBSERVATIONS ON QUESTION TWO (A)

8. Defendant’s Position: It is submitted that the principles laid down in Huawei do not apply to an
undertaking which acquires a dominant position by purchasing an SEP subject to a FRAND
declaration when it (i) is unaware of the FRAND declaration until after the date of purchase; and
(ii) does not operate on the market for products incorporating the technology (i.e. an NPE).
(I) Principles in Huawei and their applicability
9. General Position: As recognised by the ECJ in Huawei, dominant firms are generally free to start
litigation against their rivals except in wholly exceptional circumstances.13
10. Summary of Huawei Principles: The ECJ held in Huawei that a proprietor of an SEP can seek an
injunction when it complies with the following requirements (the ‘Huawei Principles’):14
(1) to alert the alleged infringer of the infringement prior to bringing an action; and
(2) to present to that infringer a specific written offer on FRAND terms if the alleged infringer
has expressed its willingness to conclude a licensing agreement.
11. Rationale of Huawei Principles: In Huawei, the ECJ considered the overarching principle of
‘striking an appropriate and fair balance between maintaining free competition and the
requirement to safeguard the proprietor’s [IPR] and its right to effective judicial protection’.15
12. Necessary Conditions of Huawei Principles: The ECJ decided the proper balance on three factors:
(1) The patent at issue is essential to a standard established by an SSO;16
(2) The SEP proprietor in seeking injunction can reserve to itself the manufacture of the products
in question, thereby resulting in exclusionary abuse;17 and
(3) The irrevocable undertaking to grant licences on FRAND terms was given by the proprietor.
13. Concluding Remarks: It is accordingly submitted that the applicability of the Huawei Principles
is limited – only where the necessary conditions in ¶12 hereinabove are fulfilled – as they
represent an appropriate and fair balance that the ECJ has struck in the particular circumstances.18
(II) Notice and transfer of FRAND commitments
14. Defendant’s Position: It is submitted that when the purchaser of the SEP has no notice of the
FRAND obligation, such an obligation is not transferred to, nor binding on, the purchaser of the
SEP. Therefore, the Huawei Principles shall not apply.

13
Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp [2015] 5 CMLR 14, [46]–[47]; see also Case T-111/96 ITT
Promedia NV v Commission [1998] 5 CMLR 491, [60].
14
Huawei (n 13) [71].
15
ibid [42]. The right to effective judicial protection is guaranteed by the Charter, Articles 17(2) and 47.
16
ibid [49].
17
ibid [52].
18
ibid [59].

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 D-Team Jaeger

15. Nature of FRAND Obligation: A FRAND commitment is purely a contractual obligation as a

result of a voluntary contract entered into by the proprietor of the SEP and the SSO.19 It shall not
be interpreted as an encumbrance against the SEP. It therefore only binds the original parties to
the contract (i.e. Johnsson and TSO in the present case) and shall not be automatically
transferred with the change in ownership of the SEP.
16. Proprietor’s Responsibility for Ensuring Transfer of FRAND Obligation: The SEP proprietor who
gave an irrevocable FRAND undertaking is in the best position, and is responsible for ensuring
the transfer of FRAND obligation to the purchaser by express provisions in the transfer agreement.
(1) The Commission in the Guidelines on the Applicability of Article 101 of the Treaty on the
Functioning of the European Union to Horizontal Co-operation Agreements considered there
would be a need to require ‘all participating [IPR] holders who provide such a commitment
to ensure that any company to which the IPR owner transfers its IPR… is bound by [FRAND]
commitment, for example through a contractual clause between buyer and seller’. 20
Similarly, the earlier common policy of ITU/ISO/IEC required its members to include the
FRAND commitment with an SEP transfer.21 This rule was also recommended in an article
co-authored by three economists with top-level positions at the DG Competition, the US DOJ
and the FTC.22
(2) Where the proprietor fails to ensure transfer of FRAND obligation and a purchaser is not
aware of the FRAND obligation until after the date of purchase, the purchaser’s assent is not
obtained and thus the commitment does not bind the purchaser.
17. Absence of Notice of FRAND Obligation: The transfer of the burden created by a FRAND
obligation requires the assignee to be on notice of the FRAND commitment.23 It is therefore
submitted that when the purchaser is not aware of the FRAND obligation, it cannot bind him.
(1) When the purchaser is not and has never been a member of an SSO, it does not have actual or

19
Joseph Scott Miller, ‘Standard Setting, Patents, and Access Lock-In: RAND Licensing and the Theory of the Firm’
(2007) 40 Indiana Law Review 351, 360; see also, Mark A Lemley, ‘Intellectual Property Rights and Standard-Setting
Organizations’ (2002) 90 California Law Review 1889, 1909–18. For case law, see, Apple Inc v Motorola Mobility Inc
886 F Supp 2d 1061 (WD Wis 2012), 1083–84; Microsoft Corp v Motorola Inc 854 F Supp 2d 993 (WD Wis 2012), 999–
1001.
20
Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal
Co-operation Agreements [2011] OJ C11/1 §285.
21
International Telecommunications Union, ‘Guidelines for the Implementation of the Common Patent Policy for ITU-
T/ITU-R/ISO/IEC 23/04/02’ (2002).
22
KU Kühn and others, ‘Standard Setting Organizations Can Help Solve the Standard Essential Patents Licensing
Problem’ Competition Policy International (March 2013) 4.
23
Jay P Kesan and Carol M Hayes, ‘FRAND’s Forever: Standards, Patent Transfers, and Licensing Commitments’ (2014)
89 Indiana Law Journal 231, 297–99.

10
 D-Team Jaeger

constructive notice of the IPR policy, unless it is expressly stipulated in the transfer agreement.
When a large portfolio of patents is being transferred, it raises the transaction costs for the
purchasers to identify the SEPs and the FRAND obligation attached.
(2) It is purely hypothetical that the purchaser would have taken into account the FRAND
commitment in price negotiations and hence the FRAND obligation should bind the purchaser
on the basis of constructive notice. There is no basis to assume that the purchaser will have
taken the FRAND obligation into account when it does not actually know anything about it.
(3) The doctrine of legitimate expectation shall not extend to non-members of the SSOs, such as
the Defendant in the present case, as they do not participate in the standard-setting process
and make no representation concerning the FRAND obligation.
18. Premature for Automatic Transfer of FRAND Obligation: It is premature and impractical at the
current stage to allow automatic transfer of FRAND commitment to any purchaser regardless of
notice even when an SSO’s IPR policy states a ‘FRAND commitment runs with the patent and
binds all successors’.
(1) The interpretation of the relevant clause in the IPR policy in different jurisdictions is unsettled.
While the current IPR Policies and Guidelines of ESTI and ITU/ISO/IEC similarly state that
‘FRAND licensing undertakings… shall be interpreted as encumbrances that bind all
successors-in-interest’,24 these European SSOs recognise that the interpretation in question
may not apply in all jurisdictions, and require the SEP holder to ‘include appropriate
provisions in the relevant transfer documents to ensure that the undertaking is binding on
the transferee and that the transferee will similarly include appropriate provisions in the
event of future transfers with the goal of binding all successors-in-interest.’25
(2) The proposal that the FRAND commitment runs with the patent is a complex legal terrain,
which involves harmonising inconsistencies across jurisdictions in patent transfer issues,
identifying the patent transfer, and resolving uncertainty arising from bankruptcy of the
proprietors. It is therefore submitted that this Court should give deference to the SSOs and/or
the Council of the EU. Only after relevant supporting legislations and policies at EU level
have been formulated should this Court consider applying the proposal across jurisdictions.26

24
International Telecommunications Union, Guidelines for the Implementation of the Common Patent Policy for ITU-
T/ITU-R/ISO/IEC (23 April 2012) <www.itu.int/dms_pub/itu-t/oth/04/04/T04040000010004PDFE.pdf> accessed 9
April 2016; European Telecommunications Standards Institute, Annex 6 ETSI Intellectual Property Rights Policy, Rules
of Procedure (18 November 2015) <www.etsi.org/images/files/ipr/etsi-ipr-policy.pdf> accessed 9 April 2016.
25
ibid.
26
Keith Maskus and Stephen A Merrill (eds), Patent Challenges for Standard-Setting in the Global Economy: Lessons
from Information and Communication Technology (National Academies Press 2013) Ch 5.

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 D-Team Jaeger

(III) SEP Holders as NPEs

19. Defendant’s Position: It is submitted that the NPEs in bringing an action against infringers
merely enforce their IPRs, and do not aim at foreclosing competitors from expansion. The
overarching principle of an appropriate and fair balance tilts towards the NPE. Alternatively, it is
submitted that the anti-competitive effects allegedly generated by NPEs are uncertain or unclear,
while their pro-competitive effects could be empirically substantiated, this Court shall therefore
avoid categorical restrictions against NPEs by applying the Huawei Principles without
consideration of individual circumstances.
20. No Exclusionary Abuse of NPEs: It is submitted that an NPE should be subject to a more lenient
standard than the Huawei Principles because there is no actual or potential exclusionary abuse
under Article 102 when an NPE is seeking an injunctive relief, which implies that it creates a less
significant anti-competitive effect than a PE seeking an injunction.
(1) It is consistent with the ECJ’s view in Huawei that it was most concerned with the potential
exclusionary abuse of the injunctive relief employed by the SEP holder.27
(2) It is also consistent with the emphasis on exclusionary abuse in the Commission’s view and
the EU jurisprudence, as in the Commission’s remarks that their enforcement policy is to give
priority to exclusionary abuses, 28 the body of EU case law, 29 and the Guidance on the
Commission's Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive
Exclusionary Conduct by Dominant Undertakings.30
21. Uncertainty on Alleged Exploitative Abuse of NPEs: Regarding the alleged exploitative abuse of
an NPE seeking injunctions, there is a lack of empirical evidence that the presence of an NPE is
more prone to creating patent holdup and excessive royalties, hence a categorical restriction on
NPEs seeking injunctions should be rejected.
(1) Literature suggests that when the SEP holder is a PE in the product market, it has a stronger
bargaining position resulting from the threat of exclusionary abuse and hence it will be able
to charge the potential licensee a greater royalty than an NPE.31
(2) The allegation that NPEs use weak patents to commence frivolous litigation as a means to

27
Huawei (n 13) [52].
28
Neelie Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, Speech at the Fordham Corporate Law Institute,
(New York, 23 September 2005) <http://europa.eu/rapid/press-release_SPEECH-05-537_en.pdf> accessed 9 April 2016.
29
See generally, Whish and Bailey (n 2) Ch 5.
30
Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary
conduct by dominant undertakings [2009] 2009/C 45/02.
31
Denicolò and others (n 10) 588.

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 D-Team Jaeger

achieve excessive royalties is untenable. Empirical studies provide evidence that NPEs own
patents that are of significantly higher value and/or importance than other litigated patents.32
NPEs do not engage in abusive litigation because the success rate of NPEs is not significantly
different from that of other plaintiffs in other patent infringement suits.33 Litigation record in
the US reveals that NPEs are the same as other manufacturing patent holders, in terms of
litigation pattern and the royalties collected.34
(3) The object of NPEs is not to increase the costs of rivals but rather to yield return from its
investment. The royalty rate determined through negotiation between a potential licensee and
an NPE is purely a result of commercial decision and bargaining. As the Commission has
stated on numerous occasions that it is not a price regulator, it does not normally control or
condemn high level of prices.35 It is therefore submitted that a possible increase in royalty rate
should not be treated as anti-competitive.
22. Pro-competitive Effects of NPEs: It is submitted that there are noticeable pro-competitive effects
of NPEs in enforcing their IPRs, among which is to encourage innovation. It warrants careful
consideration in whether a categorical restriction should apply to NPEs: see ¶6 hereinabove.
(1) NPEs can provide capital and bargaining power to independent inventors and small businesses,
which are often in a disadvantaged position in developing and commercialising a product
using SEPs and/or licensing SEPs to a third party. NPEs can utilise their capital and resources
to launch credible patent litigations to raise the amount of royalty the small businesses can
obtain. NPEs maximise efficiency in that the inventors can focus on inventing while the NPEs
concentrate on enforcement and licensing of SEPs. 36 NPEs also encourage innovation by
rewarding the inventors with appropriate royalties.37
(2) NPEs can perform an important function of identifying valuable and trivial SEPs owned by
independent inventors and rewarding them accordingly. By solving the informational
asymmetry, NPEs reduce risks and uncertainties in patent transfer, and thereby facilitating
transactions.38

32
Sannu K Shrestha, ‘Trolls or Market-Makers? An Empirical Analysis of Non-Practicing Entities’ (2010) 110 Columbia
Law Review 114, 118.
33
ibid.
34
Mazzeo and others (n 6) 886–97.
35
European Commission, XXIVth Annual Report on Competition Policy (1994) §207; European Commission, XXVIIth
Annual Report on Competition Policy (1997) §77.
36
Morgan (n 12) 165.
37
James F McDonough III, ‘The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an
Idea Economy’ (2006) 56 Emory Law Journal 189, 190.
38
ibid.

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 D-Team Jaeger

I. OBSERVATIONS ON QUESTION TWO (B)

23. Defendant’s Position: It is submitted that an SEP proprietor collecting royalties on the basis of
the sale price of the licensee’s product without moderation of relative importance or value of the
patents does not constitute an abuse of dominance.
24. General Legal Position: Repeating ¶5 hereinabove, the Commission recognises that ‘it is as a
general rule not restrictive of competition that royalties are calculated on the basis of the price
of the final product’.39 Requiring the licensee to pay royalties based on a percentage of the sale
price of downstream products is not an abuse of dominant position per se in both the EU and the
US jurisprudence. The established test is whether the royalties collected are excessive in relation
to the economic value of the SEP.40
25. Impracticality of Valuation: It is widely acknowledged that, while not all SEPs are of an equal
value, valuing SEPs is notoriously difficult. Even a variety of methodologies have been proposed
by academics, practitioners, policy-makers and courts, their methods would be extremely hard, if
not impossible, to apply, especially in a context where SEP portfolios are held by multiple firms
and/or where numerous standard implementers obtain licences for diverse purposes. 41 It is
therefore submitted that the difficulty of taking into account the relative importance or value of
the SEPs or the number of other SEPs when assessing royalty rates is almost insurmountable.
(1) The SSOs’ IPR policies usually provide for voluntary declaration of SEPs without examining
whether the declared SEPs are truly essential to the standard or valid. If the number of SEPs
was to be taken into account when determining the royalty rate, this would involve an
examination of SEPs and removal of invalid ones. There is almost a unanimous agreement
among scholars in the US that patent examiners do not perform their task satisfactorily,
resulting in issuance of many invalid patents.42 Examination of the validity and essentiality of
patents will likely further complicate and add costs to the process of setting royalty rate.
(2) Furthermore, as standards evolve, the patents in a standard may expire and new SEPs may be
added, resulting from the adoption of updates or upgrades to the existing standard. Therefore,

39
Technology Transfer Guideline §184.
40
See Case C-52/07 Kanal 5 Ltd and TV 4 AB v Föreningen Svenska Tonsättares Internationella Musikbyrå (STIM) [2009]
5 CMLR 18, [28] in the context of copyright; Automatic Radio Manufacturing Co v Hazeltine Research Inc 339 US 827
(1950) 834.
41
Damien Geradin and Miguel Rato, ‘Can Standard-Setting lead to Exploitative Abuse? A Dissonant View on Patent
Hold-Up, Royalty Stacking and the Meaning of FRAND’ (2007) 3 European Competition Journal 101, 107–108.
42
For example, in R Polk Wagner, ‘Understanding Patent-Quality Mechanisms’ (2009) 157 University of Pennsylvania
Law Review 2135, 2139–45; Joseph Farrell and Robert P Merges, ‘Incentives to Challenge and Defend Patents: Why
Litigation Won’t Reliably Fix Patent Office Errors and Why Administrative Patent Review Might Help’, (2004) 19
Berkeley Technology Law Journal 943, 944–46.

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 D-Team Jaeger

the number of SEPs, as well as the proportionate shares in SEP portfolios held by right holders,
can change rapidly over relatively short periods of time. Regular review and recalculation of
royalty would be necessary in order to take into account such changes. It will result in a
significant degree of instability in royalties and surging cost of patent valuation. In particular,
a standard or product in the telecommunications sector requires incorporation of thousands of
SEPs and other patents, hence, the transaction costs in ascertaining the relevant value of a
particular SEP is extremely high.
26. Complementarity Effects of SEPs: The moderation of individual patent in question does not
adequately reflect the economic value of SEPs. Literature suggests that considering the value of
SEPs on an isolated basis in assessing the royalty rate will ignore the value that synergies between
complementary technologies create, and hence result in an inaccurate assessment of its economic
value and under-compensation of the patent holder.43 It is therefore submitted that the use of the
retail price of downstream products as the royalty base is a more complete economic approach
which would account for such complementarity effects. It is also in this context that calculation
on basis of end products’ retail price is a generally accepted norm across the industry.44
(1) In particular, in a multi-component device such as a smartphone, it is usual that the interaction
of the patented technology with other components of the downstream product generates
complementarity of demand and network effects that greatly increase the price of and the
demand for the downstream product. Therefore, the full economic value of an SEP
implemented in a complex product can only be adequately represented by a percentage of the
sale price of the downstream product.
(2) There is no absolute correlation between a royalty base consisting of the value of the
downstream product and excessive pricing. Instead, it avoids undercompensating the
proprietor of the SEPs.
27. Conclusion: Given the impracticability of assessing the value of individual patents and the
complementarity effect between different components of a downstream product, it is therefore
submitted that the base of royalty in question per se should not be regarded as an abuse of
dominance. It being the most efficient method in assessing royalty is not excessive to the
economic value of the SEPs.

43
Sidak (n 7) 990.
44
Patrick J Flinn, Keith E Broyles and Alston and Bird LLP, Brief for Nokia Corp and Nokia Inc as Amici Curiae in
Support of Reversal and in Support of Neither Party in Apple Inc v Motorola Inc (Fed Cir, 6 May 2013); see also ZTE
Press Release, ‘The Licensing Policy on LTE Essential Patents of ZTE’ (22 December 2008).

15
 D-Team Jaeger

J. OBSERVATIONS ON QUESTION THREE

28. Defendant’s Position: It is submitted that the Ruritanian national court is obliged to provide a
passing on defence under the EU principles of unjust enrichment, effective judicial protection and
effectiveness.
(I) The indirect purchaser standing shall be recognised in Ruritania
29. The Issue of the Indirect Purchaser Standing Should Be Considered First: The notions of the
indirect purchaser standing and the passing on defence are so intertwined and tangled that it is
unrealistic to analyse one without addressing the other. It is also the underlying reason why the
Commission had chosen to consider the two issues together in the Green Paper 45 and White
Paper. 46 Therefore, it is submitted that this Court should first decide whether the indirect
purchaser standing is recognised in Ruritania before addressing the issue of the passing on defence.
30. Recognition of the Indirect Purchaser Standing in EU: It is submitted that, at the EU level, the
legal position on whether the indirect purchasers should be entitled to claim damages for an
infringement of competition law has now been well settled.
(1) In Courage, the ECJ first repeated the general rule that the then equivalents of Articles 101
and 102 ‘produce direct effects in relations between individuals and create rights for the
individuals concerned which the national courts must safeguard’47 and then ruled that ‘[t]he
full effectiveness of Article 81 of the Treaty48 would be put at risk if it were not open to any
individual to claim damages for loss caused to him… by conduct liable to restrict or distort
competition’. 49 Reaffirming the position in Courage, the ECJ held in Manfredi that ‘any
individual can claim compensation for the harm suffered where there is a causal
relationship between the harm and agreement or practice prohibited under Article 81 EC’.50
(2) In response to the ECJ’s judgment in Manfredi, it is the view of the Commission in the White
Paper that it ‘welcomes the confirmation by the Court of Justice that “any individual” who
has suffered harm caused by an antitrust infringement must be allowed to claim damages
before national courts. This principle also applies to indirect purchasers’.51

45
Green Paper on Damages Actions for Breach of the EC SEC (2005) 1732.
46
White Paper on Damages Actions for Breach of the EC Antitrust Rules COM (2008) 165.
47
Case C-453/99 Courage Ltd v Crehan [2001] 5 CMLR 28, [23].
48
Equivalent of Article 101.
49
Courage (n 47) [26].
50
Joined Cases C-295/04, C-296/04, C-297/04 and C-298/04 Manfredi v Lloyd Adriatico Assicurazioni SpA [2006] 5
CMLR 17, [61].
51
White paper (n 46) 4. See also the Damages Directive, following the two landmark cases, which provides under Article
12.1 that ‘compensation of harm can be claimed by anyone who suffered it, irrespective of whether they are direct or
indirect purchasers from an infringer’.

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(3) Although the two aforementioned cases only concerned Article 81 of the EC Treaty
(predecessor of Article 101), it is submitted that the ECJ’s ruling on the indirect purchaser
standing should invariably apply to Article 82 of the EC Treaty (predecessor of Article 102),
as there is no justification to distinguish between the two. The contention could also be
supported by the White Paper which expounds that ‘[a]ny citizen or business who suffers
harm as a result of a breach of EC antitrust rules (Articles 81 and 82 of the EC Treaty) must
be able to claim reparation from the party who caused the damage’.52
31. Relying on the Principles of Effective Judicial Protection and Effectiveness, it is submitted that
Ruritanian law should, despite any absence of relevant legal provisions, be brought be in line with
the EU position and recognise the indirect purchaser standing.
(1) Under Article 47(1) of the Charter, an individual may rely on the right to effective judicial
protection with a view to protecting the substantive rights which EU law confers.53 In essence,
in implementing the EU law, national courts are obliged to interpret remedial provisions
accordingly to fully realise the objectives of the EU law and provide sufficient remedies for
protecting substantive rights the EU law has conferred.54
(2) It is submitted that, national procedural autonomy should be applied subject to principles of
effective judicial protection and effectiveness. In Kone AG,55 where Austrian law excludes
the right to compensation on the basis of rules on causation,56 the ECJ held that ‘[national
procedural] rules must … specifically take into account the objective pursued by Article
101’57 and hence ‘national legislation must recognise the right of any individual to claim
compensation for loss’ such that the full effectiveness of Article 101 would not be put at risk.58
32. Concluding Remarks: As the indirect purchaser’s right to compensation under Article 102 is a
substantive right conferred upon by the EU law, the Ruritanian courts should interpret its national
procedural rules accordingly to ensure that the right is effectively recognised.

52
ibid 2.
53
See also, the Treaty of European Union, Article 19(1), which provides that ‘Member States shall provide remedies
sufficient to ensure effective legal protection in the fields covered by Union law’.
54
Ioannis Lianos, ‘Effectiveness, remedies and the limits of adjudication’ in M Marquis and others (eds) Effective and
Legitimate Enforcement of Competition Law (Hart Publishing: Oxford 2015).
55
Case C-557/12 Kone AG v OBB-Infrastruktur AG [2014] 5 CMLR 22.
56
Specifically, the Austrian law excludes a right to compensation in a situation where, in the absence of a contractual link
with a member of the cartel in question, the causal link between the loss sustained and the cartel is considered to have
been broken by the autonomous decision of the undertaking not becoming a party to the cartel, but which applied, owing
to the existence of the cartel, umbrella pricing.
57
Kone AG (n 55) [32].
58
ibid.

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(II) Parallel recognition of the indirect purchaser standing and the passing on defence
33. Fairness: It is submitted that, if indirect purchasers have a right to claim compensation, it logically
follows that there should be a parallel recognition of a passing on defence.
(1) From the perspective of fairness, a scenario that involves recognition of the indirect purchaser
standing and rejection of the passing on defence had previously been envisaged by the Green
Paper, in which it was noted that the option would ‘entail possibility of the defendant being
ordered to pay multiple damages as both the indirect and direct purchasers can claim’.59
Such an absurd position that will very likely result in multiple recoveries could hardly be
reconciled with the notion of fairness.60
(2) If indirect purchasers could prove passing on of overcharge at trial in suing infringers
(offensive passing on as a sword), out of equality and procedural fairness, infringers should
not be denied the right to adduce the same as a defence (defensive passing on as a shield).61
34. Unjust enrichment: The principle of unjust enrichment requires that no one shall be compensated
for harm that he had not actually suffered.
(1) If the direct purchaser has passed on his overcharge to indirect purchasers further down in the
supply chain, and if there is no passing on defence, the former would be unjustly enriched if
he could obtain an amount exceeding what he had actually suffered.
(2) Although the Damages Directive has not yet been implemented, it nonetheless manifests the
Commission’s latest policy priorities and carries persuasive force. Under Article 12.2, the
Damages Directive provides that ‘compensation for actual loss at any level of the supply chain
does not exceed the overcharge harm suffered at that level’ in order to avoid
overcompensation. Accordingly, Article 13 requires Member States to ensure that infringers
of competition law can rely on the claimant’s passing on of the overcharge as a defence.
(III) Observations on deterrence and judicial economy
35. Deterrence: Some might argue that as direct purchasers have a stronger incentive to sue than
indirect purchasers, allowing passing on would mean dilution of interests (by splitting the
damages ‘pie’) and risk of free-riding, thereby impairing deterrence effect of private enforcement.
(1) However, the proposition that direct purchasers have stronger incentives to sue may not
always hold true, as it is entirely possible that ‘direct purchasers might refrain from suing

59
Green Paper (n 45) 8.
60
Firat Cengiz, ‘Passing-On Defense and Indirect Purchaser Standing in Actions for Damages Against the Violations of
Competition Law: What Can the EC Learn from the US?’ (November 2007) CCP Working Paper No 07-21, 14.
61
C Petrucci, ‘The issues of the passing-on defence and indirect purchasers’ standing in European competition law’ (2008)
29(1) European Competition Law Review 33, 41.

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 D-Team Jaeger

because of fear of disrupting the relations with their suppliers’.62 Also, studies suggested that
there is no empirical evidence that direct purchasers are more likely to sue than indirect ones.63
(2) Further, a passing on defence supplemented by an effective collective redress mechanism in
the future, including representative actions and opt-in collective actions as recommended in
the White Paper 64 , in accordance with principles of the non-binding Recommendation in
2013,65 could cope with the problem of inadequate incentives to bring claims. Any further
discussion would be beyond the scope of this Submission but the essence is that the passing
on defence does not necessarily come into conflicts with the objective of deterrence.
36. Judicial Economy: In line with the reasoning in Illinois Brick, it is also contended that the
insurmountable task of quantifying the passed-on overcharge would significantly burden the
judicial process. 66 Nonetheless, there may still be many cases where the supply chain is
uncomplicated such that assessing overcharge downstream is not always burdensome. Further, a
number of economic methodologies and models have been developed to estimate the
overcharge,67 evincing that while the challenges should never be overlooked, with reasonable
endeavours an appropriate quantification of damages is at least tenable. Above all, the use of
‘massive evidence and complicated theories’ are common in all competition law cases and it
should not be a factor against recognition of a passing on defence.68
37. Policy Priorities in EU: In any event, the EU law has prioritised compensation and fairness above
effectiveness and judicial economy especially since Courage and Manfredi. There are disparate
understandings of the concept ‘effectiveness’ between the US and EU jurisprudence owing to the
fact that the EU perceives effectiveness as a consistent and almost absolute enforcement of the
rights stemming from the EU law across time and in different Member States.69 It is accordingly
submitted that this Court should not attach as much weight to deterrence and judicial economy
arguments against the passing on defence.

62
ibid 36.
63
Robert G Harris and Lawrance A Sullivan, ‘Passing on the Monopoly Overcharge’ (1979) 128 University of
Pennsylvania Law Review 269.
64
White Paper (n 46) 4.
65
Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective
redress mechanisms in the Member States concerning violations of rights granted under Union Law [2013] OJ L201/60.
66
Illinois Brick Co v Illinois 431 US 720 (1977), [493].
67
Harris and Sullivan (n 63); see also, Ashurst, ‘Study on the Conditions of Claims for Damages in Case of Infringement
of EC Competition Rules’ (31 August 31 2004) 32.
68
Illinois Brick (n 66) [758].
69
Cengiz (n 60) 27.

19