Dutch Sony seizure dispute: a case for New Amsterdam

Going Dutch: Kat and Klock
with tulip motif, here

In "Taking the PS3s ..." earlier this month tytoc collie thought he had tidied up the loose ends, solved all the problems and removed all the speculation when he posted this item on the customs detention and subsewquent release of Sony Playstations, revealed that this was not the sordid bagging of a load of grubby counterfeits but the spin-off from a dispute concerning techical standards and the (non)availability of a Fair, Reasonable and Non-Discriminatory (FRAND) licence to use the Blu-Ray technology.  But events have moved on since then, as tytoc collie's friend Ruprecht Hermans (Brinkhof) explains:

"On Thursday 24 March the president of the The Hague Court issued a decision in writing in the preliminary injunction proceedings between LG Electronics and Sony ...
As you will recall, LG executed a civil seizure as well as obtained a customs measure to detain allegedly infringing Playstation 3s (“PS3s”) at the Dutch border. Almost 300,000 PS3s were seized and detained for allegedly infringing LG's patents relating to the Blu-ray disc technical standard.  This standard is developed by the Blu-ray Disc Association (“BDA”), to which both LG and Sony belong. The patents are said to be essential, so a licence is needed if anyone wishes to manufacture products complying with the standard.

In his written decision the president now explains his earlier oral decision.

He gives important consideration to the by-laws of the BDA which provide that all members are obliged to grant licences under their essential patents on FRAND conditions to any interested party, including other members. Regarding the relationship between members Article 16 more in particular provides:

“(4) All Members, regardless of whether they ... join any established joint licensing program for the Essential Patents, agree that the aggregate of terms and conditions of all licences necessary under the Members’ Essential Patents shall not block, frustrate or harm acceptance of any Blu-ray Disc Format as a worldwide standard or development of products complying with any Blu-ray Disc Format or commercialization of the same.

(5) Any dispute between a Member and another Member over whether the Member is offering a licence under its Essential Patent(s) on fair, reasonable and non-discriminatory terms and conditions within the context of the provision of Article 16(4) shall be decided by a single neutral arbitrator appointed under the International Rules of the American Arbitration Association ... and will be conducted under the rules of that Association in New York City. The arbitration hearing shall take place no later than ninety days after the arbitrator is selected and a decision shall be rendered within thirty days of the completion of the hearing. In evaluating the reasonableness of the disputed terms and conditions, the Arbitrator shall take into account, among other things, terms and conditions (including but not limited to applicable licence fees) of joint licence programs and individual licence programs within the area of licensing essential patents for optical disc systems, where
(i) such terms and conditions and
(ii) such optical disc systems are generally accepted by the optical disc systems industry.”

From this and also from the general purpose of the by-laws it follows, according to the President, that the purpose of the by-laws is to commercialise the Blu-ray standard in favour of the members. This intention does not in principle fit with a situation whereby members fight each other with infringement actions:

“Such action is directly contrary to the wish to promote the use of the standard. Further, it is not unimportant that an injunction will also damage other members than the attacked party. If, for example, Sony because of an injunction cannot offer PS3 consoles, the consequence is not only that LG will not profit but that other members will also not receive royalties. Cooperation between the members is therefore solely advantageous if as many products as possible can be offered under the standard.”

According to the preliminary view of the president a relationship that is governed by the notions of “fair” and “reasonable” is irreconcilable with using the threat of injunctions and seizure as a negotiation tool.

The above makes this case different from Philips/SK Kassetten (a conflict between a member of a standard setting organisation and a third party, noted here on the excellent EPLaw).

If members cannot agree on licence terms, they are obliged to refer to the arbitration provided in the by-laws. This brings the president to the conclusion that the by-laws unavoidably lead to a licence between the relevant members and this is not reconcilable with a member taking actions which may lead to an injunction".

tytoc collie says, if one assumes that LG and its legal advisers must have been aware both of the licence imperative and the arbitration provision, it seems quite astonishing that the Dutch Customs should have been asked to seize these PS3s at the border.   Merpel wonders whether Dutch law provides any remedy for other patent licensors whose entitlement to royalties under the BDA scheme would be delayed or reduced by virtue of what appears at this distance to be LG's conspicuously wrongful action.

New Amsterdam here