Rocep-Lusol Holdings LTD against Lindal Dispenser GmbH (Court of Session)

Factual and Procedural Background

In September 2015, the Plaintiff and Defendant entered into a contract whereby the Plaintiff exclusively licensed certain patents to the Defendant. These patents were due to expire by 22 December 2020. The contract provided for royalty payments by the Defendant to the Plaintiff for products sold or commercialised using the patented technology, at specified rates from 1 January 2016 to 31 December 2020, and at lower rates from 1 January 2021 to 31 December 2023. The Plaintiff now seeks an accounting from the Defendant for the number of relevant products sold or commercialised between 1 October 2022 and 31 December 2023, and payment of royalties accordingly. The Defendant contends no accounting is due, arguing that royalties were not payable after patent expiry, that the Plaintiff failed to provide exclusivity after patent expiry, and that any obligation to pay royalties post-expiry would be unenforceable under competition law. The matter was before the court on preliminary pleas.

Legal Issues Presented

1. Whether the Defendant is obligated under the contract to pay royalties for products sold or commercialised after the expiry of the licensed patents on 22 December 2020.
2. Whether the Plaintiff breached the contract by failing to provide exclusivity to the Defendant after patent expiry, thereby relieving the Defendant of its obligation to pay royalties.
3. Whether any obligation to pay royalties post-patent expiry is unenforceable due to breach of competition law, specifically under sections 2 and 18 of the Competition Act 1998 and Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).

Arguments of the Parties

Defendant's Arguments

• Royalties were not payable after the patents expired on 22 December 2020, based on the true construction of the contract.
• The Plaintiff breached its obligation to provide exclusivity after patent expiry, as exclusivity cannot exist once patents have expired, thus the Defendant was entitled to withhold royalty payments.
• Any obligation to pay royalties post-expiry is anti-competitive and unenforceable under UK and EU competition law, including the Competition Act 1998 and Articles 101 and 102 TFEU.
• The contract clauses requiring royalties post-expiry imposed dissimilar conditions placing the Defendant at a competitive disadvantage.
• The Defendant argued that the Plaintiff abused a dominant market position by imposing royalties after patent expiry, with no reasonable relation to economic value, constituting unfair trading conditions.
• The Defendant contended that the contract had an anti-competitive object or effect, restricting competition and trade within the UK and EU.

Plaintiff's Arguments

• The obligation to account and pay royalties is clear on the contract’s face, including for the period after patent expiry until 31 December 2023.
• The Defendant’s interpretation that royalties cease upon patent expiry is incorrect, overly literal, and ignores the contract as a whole and commercial common sense.
• The contract expressly provides for reduced royalty rates post-2020, evidencing an agreement to pay royalties beyond patent expiry.
• The Plaintiff complied with its exclusivity obligation by not licensing others and by agreeing not to compete during the contract term, including post-expiry.
• The Defendant’s alleged misunderstanding of patent expiry dates is irrelevant and does not affect contractual obligations.
• The Plaintiff denied that the contract or its terms were anti-competitive, relying on case law and regulatory guidance that post-expiry royalties are not per se unlawful, especially where the contract has a fixed term and no indeterminate obligation.
• The Plaintiff argued the Defendant’s competition law defences were irrelevant or lacked sufficient detail to demonstrate anti-competitive effects or abuse of dominance.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lagan Construction Group Ltd (in Administration) v Scot Roads Partnership Project Ltd [2023] CSIH 28, 2024 SC 12	Principles of contractual interpretation focusing on parties' intentions and natural meaning of language.	Applied to interpret the license agreement and determine parties’ obligations.
Ottung v Klee & Weilbach A/S (Case C-320/87) [1989] ECR 1177	Post-expiry royalty payments under patent license agreements are not per se anti-competitive if licensee can freely terminate.	Distinguished as no provision for free termination existed in the contract before the court.
Genentech Inc v Hoechst GmbH (C-567/14) [2016] 5 CMLR 9	Confirmed that royalty payments after patent expiry may reflect commercial value and are lawful if licensee may freely terminate.	Applied to assess competition law arguments and the absence of a free termination clause weighed against Defendant.
Gazdásagi Versenyhivatal v Budapest Bank Nyrt (C-228/18) [2020] 5 CMLR 11	Explained the "object or effect" test for anti-competitive agreements under Article 101 TFEU.	Used to analyze whether the contract had an anti-competitive object or effect.
United Brands Company v Commission of the European Communities (C-27/76) [1978] 1 CMLR 429	Definition of market dominance and abuse of dominant position under competition law.	Referenced in assessing whether Plaintiff held a dominant position and whether abuse occurred.
British Leyland Plc v Commission of the European Communities (C-226/84) [1987] 1 CMLR 185	Charging excessive or disproportionate fees can constitute abuse of dominance.	Applied to support Defendant’s argument on abuse of dominance via post-expiry royalties.
Der Grüne Punkt-Duales System Deutschland GmbH v Commission (C-385/07 P) [2009] 5 CMLR 19	Imposing fees disproportionate to economic value of service is an abuse of dominant position.	Referenced to illustrate abuse by charging for services not economically provided.
Preventx Limited v Royal Mail Group Limited [2020] EWHC 2276 (Ch)	Unfair reliance on contractual terms may constitute abuse of dominant position and unfair trading conditions.	Cited to support discussion on unfair trading conditions as abuse under competition law.
Aberdeen Journals Ltd v Director General of Fair Trading [2003] CAT 11	Effect on trade within the UK for abuse under section 18(1) of the Competition Act 1998.	Applied to confirm jurisdictional test for abuse affecting trade within the UK.
Arnold v Britton [2015] UKSC 36, [2015] AC 1619	Rules of contractual interpretation including context, commercial common sense, and the natural meaning of language.	Applied extensively to interpret the contract and reject Defendant’s literal construction.
Oxford Nanopore Technologies Ltd v Pacific Biosciences of California, Inc [2017] EWHC 3190 (Pat), [2018] Bus LR 353	Clarification on exclusivity in patent licenses despite third party options.	Used to reject Defendant’s argument that exclusivity ceased post-patent expiry.
Sainsbury's Supermarkets Ltd v Visa Europe Services LLC [2020] UKSC 24, [2020] 5 CMLR 16	Competition law balancing exercise under Article 101(3) TFEU and section 9(1) Competition Act 1998.	Referenced to note potential objective justification for contractual terms if proven.
Achilles Information Ltd v Network Rail Infrastructure Ltd [2019] CAT 20	Focus on anti-competitive effects on the market, not just on individual parties.	Applied to assess Defendant’s competition law "effect" argument as insufficient.
AstraZeneca AB v European Commission [2013] 4 CMLR 7	Abuse of dominant position requires conduct differing from normal commercial competition.	Applied to reject Defendant’s claim of abuse based on normal commercial leverage.
National Grid plc v Siemens Plc [2009] CAT 14	Requirement to show effect on consumer choice in relevant market for abuse claims.	Referenced to note Defendant’s failure to demonstrate relevant market effects.

Court's Reasoning and Analysis

The court began by applying established principles of contractual interpretation, emphasizing the intention of the parties as discerned from the contract language, context, and commercial common sense. The contract expressly provided for royalty payments at a higher rate until 31 December 2020 and at a reduced rate until 31 December 2023, reflecting an agreed continuation of royalties post-patent expiry. The patents’ expiry dates were clearly stated in Annex 1, and the contract contained provisions anticipating patent invalidation or lapse, indicating awareness of patent expiry timing.

The court rejected the Defendant’s argument that royalties ceased upon patent expiry, finding this construction inconsistent with the contract as a whole and producing an unworkable outcome. The court held that the Defendant continued to benefit from exclusivity during the entire contract term, as the Plaintiff agreed not to compete in products incorporating the patented technology, including after patent expiry.

Regarding the Defendant’s claim of breach of contract due to lack of exclusivity post-expiry, the court found that exclusivity was maintained as no other licenses were granted and the Plaintiff was contractually barred from competing in the relevant products. The definition of "exclusive license" under the Patents Act 1977 was considered but found not determinative of the parties’ contractual intentions, which were satisfied.

On competition law, the court considered the Chapter I prohibition under section 2 of the Competition Act 1998 and Article 101 TFEU. It acknowledged that post-expiry royalty payments are not per se anti-competitive if the licensee may freely terminate the contract, as established in Ottung and Genentech. However, the contract lacked a provision for free termination post-patent expiry, which weighed against the Defendant.

The court found no evidence that the contract had an anti-competitive object. The Defendant’s allegations of anti-competitive effect lacked sufficient detail and economic context to establish appreciable distortion of competition. The court noted the presence of other competing products in the market and that the Defendant was not obliged to use the licensed technology, undermining the claim of anti-competitive effects.

Regarding the Chapter II prohibition on abuse of dominance under section 18 of the Competition Act 1998 and Article 102 TFEU, the court accepted the Defendant’s market definition for argument’s sake but doubted its narrowness. It held that the Plaintiff’s conduct did not constitute abuse, as the imposition of royalties reflected normal commercial leverage in negotiation and did not amount to unfair trading conditions or excessive pricing. The Defendant failed to show that the Plaintiff’s conduct hindered competition or the market structure beyond normal commercial transactions.

In summary, the court rejected all of the Defendant’s defences, finding the Plaintiff entitled to an accounting and payment of royalties for the period in question.

Holding and Implications

The court sustained the Plaintiff's first and second pleas-in-law, rejected the Defendant’s defences, and granted decree de plano ordering the Defendant to produce a full account of its sales or commercialisation of can and actuator products from 1 October 2022 to 31 December 2023 and to pay the royalties due accordingly.

The direct effect of this decision is to enforce the Defendant’s contractual obligation to pay royalties for the entire contract term, including the period after patent expiry. The court clarified that post-expiry royalty obligations are not inherently unenforceable and depend on the contract's terms and context. No new precedent was set beyond the application of established principles of contract construction and competition law to the facts of this case.