Mr. Justice Lewison:
Introduction
1.The Claimant ("KBS UK") is an English company which is part of
the Knorr-Bremse Group ("KBS"), the world's largest manufacturer of
brake systems. The Claimant is part of the commercial vehicles division
of KBS and is a wholly owned subsidiary of Knorr-Bremse Systeme
für Nutzfahrzeuge GmbH ("KBS GmbH"). The Defendant is a German
company and is part of the Haldex Group ("Haldex"). Haldex is another
leading manufacturer of brake systems. Together with the Wabco group
of companies, the three groups dominate the manufacture and supply of
commercial braking systems for the commercial vehicle industry.
2.In about 2001 KBS GmbH developed a "reset to ride" valve, (SV32),
which was used to assist in the raising and lowering of the height of a
truck trailer, and specifically to move the valve from the stop position to a
drive position automatically in case the vehicle were to be driven with the
valve placed in the stop position. The valve was pneumatically operated.
KBS GmbH manufactured and offered the SV32 for sale in Germany.
Haldex claimed that the SV32 infringed its German patent DE 4120824
and began proceedings in the Landgericht Düsseldorf (Regional Court
of Düsseldorf) against Knorr GmbH. The Landgericht rejected Haldex's
claim. Haldex appealed to the Oberlandesgereicht Düsseldorf (the Higher
Regional Court of Düsseldorf). That court held that whilst the SV32
was not a literal infringement of 824, it did infringe upon a purposive
construction. The operation of SV32 Valve for raising and lowering vehicle
bodies was controlled by introducing additional functionality into the
KBS GmbH Trailer EBS ("TEBS") which had been on the market since
the 1990s. Haldex added a claim that TEBS infringed its German system
patent, namely DE 4202729. Simultaneously KBS GmbH indicated that
it would commence nullity proceedings in respect of both patents. These
two patents are German national versions of European Patents Nos. 0 520
148 ("the 148 patent") and 0 520 147 ("the 147 patent") respectively.
3.The dispute was settled in early 2006 and the settlement was embodied
in two written agreements: a settlement agreement and a licence
agreement. Although Mr Mitcheson, appearing for Haldex, opened the
application on the basis that he was relying both on the licence agreement
and the settlement agreement, I think that he accepted in the course
of his reply that it is the settlement agreement which is the one of
relevance. I shall need to return to its detailed terms. At this stage it is
sufficient to note that it dealt with both the 147 and 148 patents; and
contained provisions prohibiting infringing the two patents or challenging
their validity.
4.In 2007 Simon Craddock of KBS UK initiated the development of
a new reset to ride valve which eventually became the SV3801. Mr
Craddock says that this valve was designed wholly independently of KBS
GmbH and will be made in (or at least assembled in) the UK for the UK
market. He does not foresee that it will be made or sold in Germany. The
SV3801 provides the reset to ride functionality by in essence having a rod
connected to a spring which is subject to electromagnetic control. There
is no pneumatic valve or control piston at all. In those circumstances KBS
UK was confident that Haldex would acknowledge that it did not infringe
either of the two European Patents covered by the settlement agreement.
However despite seeking an acknowledgement of non-infringement during
the course of the summer of 2007, none was forthcoming and thus the
present proceedings were begun.
5.The Particulars of Claim accompanying the claim form pleads Haldex'
ownership of the 147 and 148 patents; and alleges that the patents
are in force. It then describes KBS UK's SV3801 valve and alleges that
commercialisation of this valve will not infringe either patent. It then
recounts the request for an acknowledgment of non-infringement and
the failure by Haldex to give it. The sole relief specifically claimed is a
declaration of non-infringement. There is no pleaded claim that either
patent is invalid.
6.Haldex now apply for a stay of the proceedings on the ground that
the parties have conferred exclusive jurisdiction on the Landgericht
Düsseldorf.
The Judgments Regulation
7.Whether this court or the Landgericht Düsseldorf has jurisdiction
is governed by Council Regulation EC No 44/2001 ("the Judgments
Regulation"). The relevant parts of the Judgments Regulation are as
follows:
i) Article 5.3 which provides that a person domiciled in a member state
may be sued in another member state
"in matters relating to tort, delict or quasi delict, in the courts for the
place where the harmful event occurred or may occur"
ii) Article 22 which provides that:
"The following courts shall have exclusive jurisdiction regardless of
domicile:
4. in proceedings concerned with the registration or validity of patents…
the courts of the Member State in which deposit or registration has
been applied for has taken place or is under the terms of a Community
instrument or an international convention deemed to have taken place.
Without prejudice to the jurisdiction of the European Patent Office under
the Convention of the Grant of European patents signed at Munich on
5 October 1973, the courts of each Member State shall have exclusive
jurisdiction, regardless of domicile, in proceedings concerned with the
registration or validity of any European patent granted for that State"
iii) Article 23 which provides that:
"1. If the parties, one or more of whom is domiciled in a Member State,
have agreed that a Court or the Courts of a Member State are to have
jurisdiction to settle any disputes which have arisen or which may arise in
connection with a particular legal relationship, that court or those courts
shall have jurisdiction. Such jurisdiction shall be exclusive unless the
parties have agreed otherwise. Such agreement conferring jurisdiction
shall be either:
(a) in writing or evidenced in writing; or
(b) in a form which accords with practices which the parties have
established between themselves; or
(c) [not relevant]"
"5. Agreements…conferring jurisdiction shall have no legal force if they
are contrary to Articles 13, 17 or 21, or if the courts whose jurisdiction
they purport to exclude have exclusive jurisdiction by virtue of Article 22."
The settlement agreement
8.The settlement agreement is expressed to be made between Haldex
Brake Products GmbH (called "Haldex" in the agreement) and Knorr-
Bremse Systeme für Nutzfahrzeuge GmbH (called "KB" in the agreement).
Thus KBS UK was not expressed to be a party to the agreement. The KBS
party was KBS GmbH alone. The preamble to the agreement included the
following:
"Haldex are the proprietor of certain patents filed in Germany and in other
countries, as listed in detail in Annexes 1 and 2 (hereinafter: PATENTS
1 and 2). PATENTS 1 and 2 are in force in Germany, where this is a
German patent, and in Belgium, Spain, France, Great Britain, Italy, the
Netherlands and Sweden, where this is a European patent. The countries
in which PATENTS 1 and 2 are in force are defined as the "TERRITORY""
9.The listed patents include the 147 patent and the 148 patent. The
preamble continues:
"The subject of PATENTS 2 is a control system for the random raising
and lowering of the vehicle body of vehicles with pneumatic suspension
equipped with level control. Haldex take the view that certain of KB's
products, namely, among others, the products "SV 32." with "reset to
ride" function and the "TEBS" indirectly infringe PATENTS 2 and for this
reason have brought claims against KB before the Higher Regional Court
in Düsseldorf. KB have disputed the indirect infringement and have
threatened to bring a nullity suit against the German Patent DE 42 02 729
C2 before the Federal Patent Court in Munich.
This agreement is intended to settle the aforementioned legal dispute.
The intention is to avoid further legal disputes.
Against this background, the parties have agreed the following:"
10.Clause 1 of the agreement provided (so far as relevant):
"KB undertake with respect to Haldex, subject, for each case of
contravention, to an appropriate contractual penalty to be set by Haldex,
the appropriate nature of which will be decided on in cases of dispute by
the Regional Court in Düsseldorf, from the time this agreement comes
into force, to refrain from:
1. manufacturing, offering for sale, bringing onto the market or using, or
importing or possessing for the above purposes, within the TERRITORY,
pneumatic control valves as claimed in claim 1 of the patents named
in Annex 1 (e.g. KB's raising/lowering valve of the type "SV 32." with
"reset to ride" function), unless these actions are expressly permitted
through any written supply agreement concluded between KB and Haldex
or through § 5 of this agreement, whereby KB may, until 31 March 2006,
fulfil their delivery obligations with respect to third parties entered into
prior to 31.12.2005.
2. offering for sale to customers within the TERRITORY and/or supplying
such customers with control valves (e.g. KB's raising/lowering valve of
the type "SV 32.." with "reset to ride" function) and ABS/EBS control
devices or other control devices (e.g. KB's "TEBS") which allow connection
to a control valve with the settings Raise, Lower, Drive and Stop and can
be used or applied making use of the PATENTS for control systems as
claimed in claim 1 of the patents named in Annex 2 (e.g. KB's "reset to
ride" system), if and insofar as these actions are not expressly permitted
through any written licensing agreement concluded between KB and
Haldex. …"
11.Clause 2 dealt with the termination of legal proceedings and said
that "Both parties will bear their own costs". Clause 3 is headed "Non-
challenge agreement" and provides:
"KB undertake neither to challenge PATENTS 1 and 2 or national parts of
these patents themselves nor to support third parties in challenging these
patents."
12.Clause 6 provided:
"The jurisdiction of the patent disputes division of the Regional Court in
Düsseldorf is agreed for all disputes arising from this agreement."
13.Clause 7 stated:
"No verbal ancillary agreements to this agreement have been arrived at.
Amendments and additions to the agreement must be in writing. The
necessity for written form can only be waived in writing."
14.Clause 8 said that the agreement would come into effect on the date
when it "is signed by the last of the two parties to the agreement".
Issues for decision
15.It is common ground that although Haldex is not domiciled in the
UK KBS UK is entitled to sue in this court for a declaration of non-
infringement, in the absence of any contractual impediment. Jurisdiction
is conferred on this court by article 5.3 of the Judgments Regulation.
16.Accordingly, the issues I have to decide are:
i) Is there any contractual impediment to KBS UK bringing its action
in this court? KBS UK says "No". Haldex says "Yes": the settlement
agreement.
ii) Is KBS UK a party to or bound by the settlement agreement? KBS says
"No". Haldex says "Yes". It is common ground that if the answer to this
question is "No" then the application for a stay fails.
iii) If KBS UK is a party to or bound by the settlement agreement, it
is common ground that a stay must be granted, unless this court has
exclusive jurisdiction under article 22 of the Judgments Regulation. If
this court has exclusive jurisdiction under article 22, it is common ground
that any agreement to confer jurisdiction on the Landgericht Düsseldorf
is ineffective so far as this application is concerned. The answer to this
question depends upon whether KBS UK has challenged or is entitled to
challenge the validity of the patents.
iv) KBS UK says that even if it is party to or bound by the settlement
agreement, the "no challenge" clause is anti-competitive and therefore
void.
v) Haldex says that whatever the status of the "no challenge" clause,
KBS UK has not in fact challenged the validity of the patents in its
pleaded case, and the outcome of this application must be decided on the
pleadings as they stand.
Burden and standard of proof
17.The question whether this court has jurisdiction is an issue which
arises only on this application. It does not go to the underlying merits of
the dispute. In Canada Trust Co v Stolzenberg [1998] 1 WLR 547 Waller
LJ held that:
i) There is no different standard of proof depending on whether or not a
point will only arise at the jurisdiction stage;
ii) The relevant standard is that of "good arguable case";
iii) It reflects the fact that that the question before the court is one which
should be decided on witness statements from both sides and without full
disclosure and/or cross-examination, and in relation to which therefore to
apply the language of the civil burden of proof applicable to issues after
full trial is inapposite;
iv) It is the concept which the phrase reflects on which it is important to
concentrate, i.e. of the court being satisfied or as satisfied as it can be
having regard to the limitations which an interlocutory process imposes
that factors exist which allow the court to take jurisdiction.
18.The decision of the Court of Appeal on this point was upheld by the
House of Lords: [2002] 1 AC 1.
19.In Konkola Copper Mines plc v. Coromin Ltd [2006] 1 Lloyd's Rep.
410 the Court of Appeal reaffirmed that the test is that of "good arguable
case". Commenting on the Canada Trust case Rix LJ said:
"Waller LJ then went on to speak of the flexibility of the "good arguable
case" test. Thus he contrasted the case where the jurisdictional factor,
viz. breach of contract within the jurisdiction, could raise an issue
whether there was a contract at all, with the different case, where the
jurisdictional factor, viz domicile of the defendant, does not enter into
the merits of the parties' dispute and so will not arise at trial at all. In
the former case the court, although needing to be satisfied as to the
existence of the contract, will not wish to give "even the appearance of
pre-trying the central issue" while scrutinising "most jealously" the factor
which provides jurisdiction, whereas in the latter case that scrutiny will be
affected only by the limitations of an interlocutory process rather than by
any inhibitions as to trespassing on to the merits of an ultimate trial."
20.Rix LJ also said that where the English court has jurisdiction, but
it is alleged that that jurisdiction has been displaced or excluded by a
foreign jurisdiction agreement, the burden lies on the party relying on the
agreement.
21.In Bols Distilleries BV v. Superior Yacht Services Ltd [2007] 1 W.L.R.
12 the claimant alleged that jurisdiction had been conferred by agreement
on the courts of Gibraltar. The Privy Council also approved the "good
arguable case" test as explained by Waller LJ in the following terms:
"Despite the submissions of counsel for the defendants to the contrary,
it appears to the Board that, if the standard of "a good arguable case" is
properly understood and applied, there is no risk that the effectiveness
of the Regulation will be impaired. The rule is that the court must be
satisfied, or as satisfied as it can be having regard to the limitations which
an interlocutory process imposes, that factors exist which allow the court
to take jurisdiction. In practice, what amounts to a "good arguable case"
depends on what requires to be shown in any particular situation in order
to establish jurisdiction. In the present case, as the case law of the Court
of Justice emphasises, in order to establish that the usual rule in article
2(1) is ousted by article 23(1), the claimants must demonstrate "clearly
and precisely" that the clause conferring jurisdiction on the court was in
fact the subject of consensus between the parties. So, applying the "good
arguable case" standard, the claimants must show that they have a much
better argument than the defendants that, on the material available at
present, the requirements of form in article 23(1) are met and that it can
be established, clearly and precisely, that the clause conferring jurisdiction
on the court was the subject of consensus between the parties."
Is KBS UK a party to or bound by the settlement agreement?
22.It is common ground that the substantive provisions of the settlement
agreement, made in Germany between two German corporations, is
governed by German law. However, Mr Vanhegan, appearing for KBS UK,
says that the existence and scope of the jurisdiction agreement, and in
particular the question whether it binds KBS UK, must be determined
as a matter of the autonomous law of the Judgments Regulation. Mr
Mitcheson, on the other hand says that once the existence of a jurisdiction
clause is established as a matter of the autonomous law of the Judgments
Regulation, its scope, and in particular the question who is bound by
it, it to be determined by the national law applicable to its substantive
provisions.
23.In Powell Duffryn plc v Petereit [1992] ECR I-1745 Powell Duffryn
was a shareholder in a German company. The company's constitutional
documents contained a choice of jurisdiction clause. The first question
was whether the jurisdiction clause in the company's constitutional
documents was an agreement between the company and its shareholders
for the purposes of the Brussels Convention (which was in similar terms to
the Judgments Regulation). The ECJ held:
"The concept of "agreement conferring jurisdiction" is decisive for the
assignment, in derogation from the general rules on jurisdiction, of
exclusive jurisdiction to the court of the Contracting State designated
by the parties. Having regard to the objectives and general scheme of
the Brussels Convention, and in order to ensure as far as possible the
equality and uniformity of the rights and obligations arising out of the
Convention for the Contracting States and persons concerned, therefore,
it is important that the concept of "agreement conferring jurisdiction"
should not be interpreted simply as referring to the national law of one or
other of the States concerned."
24.Accordingly the court held that "the concept of "agreement conferring
jurisdiction" in Article 17 must be regarded as an independent concept."
It also said that the purpose of the formality requirements was to ensure
that the consensus between the parties is in fact established. It held
that the jurisdiction clause in the company's constitutional documents
amounted to an agreement for the purposes of the Convention. As the
court explained:
"By becoming and by remaining a shareholder in a company, the
shareholder agrees to be subject to all the provisions appearing in the
statutes of the company and to the decisions adopted by the organs of
the company, in accordance with the provisions of the applicable national
law and the statutes, even if he does not agree with some of those
provisions or decisions."
25.It will be noted in particular that the question whether the jurisdiction
clause bound a shareholder was answered as a matter of the law of the
Convention rather than as a matter of national law. The second question
was whether the jurisdiction clause satisfied the formal requirements of
the Convention. The court pointed to the contrast between a shareholder
and a party to a contract of sale. It held that the formal requirements
were satisfied. This too was decided according the law of the Convention.
The third question was whether the dispute that had arisen fell within the
scope of the jurisdiction clause. The court said:
"Consequently, the reply to the third part of the national court's …
question must be that it is for the national court to interpret the clause
conferring jurisdiction invoked before it in order to determine which
disputes fall within its scope"
26.In Benincasa v. Dentalkit Srl [1997] E.T.M.R. 447 the ECJ said that
a clear distinction must be drawn between a jurisdiction clause and the
substantive provisions of the contract in which it is incorporated. It added:
"A jurisdiction clause, which serves a procedural purpose, is governed
by the provisions of the Convention, whose aim is to establish uniform
rules of international jurisdiction. In contrast, the substantive provisions
of the main contract in which that clause is incorporated, and likewise
any dispute as to the validity of that contract, are governed by the lex
causae determined by the private international law of the State of the
court having jurisdiction."
27.The court continued:
"26. Next, as the Court has consistently held, the objectives of the
Convention include unification of the rules on jurisdiction of the
Contracting States's courts, so as to avoid as far as possible the
multiplication of the bases of jurisdiction in relation to one and the same
legal relationship and to reinforce the legal protection available to persons
established in the Community by, at the same time, allowing the plaintiff
easily to identify the court before which he may bring an action and the
defendant reasonably to foresee the court before which he may be sued
(Case 38/81 Effer v. Kantner [1982] E.C.R. 825, paragraph 6, and Case
C-125/92 Mulox IBC [1993] E.C.R. I-4075, paragraph 11).
27. It is also consonant with that aim of legal certainty that the court
seised should be able readily to decide whether it has jurisdiction on
the basis of the rules of the Convention, without having to consider the
substance of the case.
28. The aim of securing legal certainty by making it possible reliably
to foresee which court will have jurisdiction has been interpreted in
connection with Article 17 of the Convention, which accords with the
intentions of the parties to the contract and provides for exclusive
jurisdiction by dispensing with any objective connection between the
relationship in dispute and the court designated, by fixing strict conditions
as to form (see, in this regard, Case C-106/95 MSG, Judgment of
February 20, 1977, unreported BAILII: 1997] EUECJ C-106/95, paragraph
34).
29. Article 17 of the Convention sets out to designate, clearly and
precisely, a court in a Contracting State which is to have exclusive
jurisdiction in accordance with the consensus formed between the parties,
which is to be expressed in accordance with the strict requirements as
to form laid down therein. The legal certainty which that provision seeks
to secure could easily be jeopardised if one party to the contract could
frustrate that rule of the Convention simply by claiming that the whole of
the contract was void on grounds derived from the applicable substantive
law."
28.However, the court also added:
"31. It must be added that, as the Court has held, it is for the national
court to interpret the clause conferring jurisdiction invoked before it in
order to determine which disputes fall within its scope (Case C-214/89
Powell Duffryn [1992] E.C.R. I-1745, paragraph 37). Consequently, in
the instant case it is for the national court to determine whether the
clause invoked before it, which refers to "any dispute" relating to the
interpretation, performance or "other aspects" of the contract, also covers
any dispute relating to the validity of the contract."
29.In Coreck Maritime GmbH v. Handelsveem BV [2001] C.L.C. 550 the
third question posed to the ECJ was whether a jurisdiction clause agreed
between a carrier and a shipper and embodied in a bill of lading was valid
as against a third party bearer of the bill of lading who succeeded by
virtue of the applicable national law to the shipper's rights and obligations
when he acquired the bill of lading. The ECJ answered that question as
follows:
"23 It is sufficient to note that the court has held that, in so far as the
jurisdiction clause incorporated in a bill of lading is valid under art. 17 of
the Convention as between the shipper and the carrier, it can be pleaded
against the third party holding the bill of lading so long as, under the
relevant national law, the holder of the bill of lading succeeds to the
shipper's rights and obligations (Tilly Russ, para. 24, and Castelletti, para.
41).
24 It follows that the question whether a party not privy to the original
contract against whom a jurisdiction clause is relied on has succeeded
to the rights and obligations of one of the original parties must be
determined according to the applicable national law.
25 If he did, there is no need to ascertain whether he accepted the
jurisdiction clause in the original contract. In such circumstances,
acquisition of the bill of lading could not confer upon the third party more
rights than those attaching to the shipper under it. The third party holding
the bill of lading thus becomes vested with all the rights, and at the
same time becomes subject to all the obligations, mentioned in the bill
of lading, including those relating to the agreement on jurisdiction (Tilly
Russ, para. 25).
26 On the other hand, if, under the applicable national law, the party not
privy to the original contract did not succeed to the rights and obligations
of one of the original parties, the court seised must ascertain, having
regard to the requirements laid down in the first paragraph of art. 17 of
the Convention, whether he actually accepted the jurisdiction clause relied
on against him."
30.In my judgment these authorities lead to the following conclusions:
i) Among the objectives of the Judgments Regulation are:
a) allowing the claimant easily to identify the court before which he may
bring an action and the defendant reasonably to foresee the court before
which he may be sued;
b) enabling the court seised to be able readily to decide whether it has
jurisdiction on the basis of the law of the Regulation, without having to
consider the substance of the case;
ii) In order to further those objectives a jurisdiction clause, which serves
a procedural purpose, is governed by the provisions of the Judgments
Regulation, whose aim is to establish uniform rules of international
jurisdiction. It is not governed by the national law that applies to the
substantive provision of the contract;
iii) The concept of an agreement is an autonomous concept of the law of
the Judgments Regulation;
iv) If under the law of the Judgment Regulation a valid agreed jurisdiction
clause is found to exist as between the original contracting parties, it will
bind a successor to the rights and obligations of one of those parties;
v) The principle that a successor is bound is part of the law of the
Regulation; but whether there has been such a succession in any
particular case is a question for the national law governing the
substantive contract;
vi) If there has been no succession, the court seised must ascertain
whether the person against whom the jurisdiction clause is invoked
actually accepted the jurisdiction clause relied on against him;
vii) The court must decide this question by reference to the requirements
laid down in the first paragraph of article 23 of the Judgments Regulation,
which is also a matter of the law of the Regulation, rather than the
national law applicable to the substantive provisions of the contract;
viii) The formal requirements of that paragraph are strict;
ix) It is for the party relying on the jurisdiction clause to demonstrate
clearly and precisely that the formal requirements are met;
x) The scope of a valid jurisdiction clause, in the sense of delimiting the
disputes that fall within it, is a question of the national law governing the
contract.
31.I therefore conclude that the question whether KBS UK is bound by the
jurisdiction clause in the settlement agreement is governed by the law of
the Judgments Regulation rather than by German law. Mr Mitcheson did
not suggest that KBS UK was a successor to the right and obligations of
KBS GmbH. His argument was that KBS UK was bound by the jurisdiction
clause in addition to KBS GmbH which was and remained also bound by
it. That submission was, as I understood it, based entirely on principles
of German law. In my judgment the principles of German law are not the
applicable principles for deciding this question. Where a succession is not
in question, the formal requirements of article 23 require the court to be
satisfied (or as satisfied as it can be on an interlocutory application) that
the person against whom the jurisdiction agreement is invoked actually
consented to it.
32.Article 23 of the Judgments Regulation applies where "the parties"
have agreed that a particular court is to have jurisdiction. The agreement
must be in writing or evidenced in writing. The purpose of the formal
requirements is that of legal certainty. One of the fundamental parts of
any agreement is who is a party to it. In my judgment therefore, the
formal requirements of article 23 require that there is a written record
of who is party to the agreement. On the face of it, in the context of the
Judgments Regulation, "the parties" appears to mean the parties to the
dispute. If that is right, then there is no agreement between KBS UK
and Haldex; and certainly no written agreement. The only agreement
is between KBS GmbH and Haldex. But even if "the parties" means the
parties to the contract, then again there is no written contract between
KBS UK and Haldex. Clauses 2 and 8 are drafted on the basis that there
are only two parties to the agreement. It is also noteworthy that KBS
GmbH and Haldex agreed by clause 7 of the settlement agreement that
there were no verbal ancillary agreements to the written agreement.
For Haldex now to submit that KBS UK were a party to or bound by the
written agreement would necessarily impugn this clause.
33.I conclude therefore that there is no valid jurisdiction clause binding
on KBS UK. It follows that the application must be dismissed. However, in
deference to the arguments that I heard, and in case this application goes
further, I will express my views briefly on the other issues argued.
The arguments based on German law
34.Haldex commissioned a report from Dr Marcus Grosch, the head
of German patent litigation at Allen & Overy. He is a German lawyer
based in Mannheim. Dr Grosch's report proceeds on the basis that under
the Judgments Regulation "it is settled that the issues of validity and
interpretation of the jurisdiction clause had to be based on the proper
law of the contract i.e. German law" (para 4.1 (b) (v)). For the reasons
I have given I disagree with this, and in any event which system of law
applies is not a matter of German law (on which Dr Grosch's evidence is
admissible) but is a matter of the law of the Judgments Regulation which
applies equally in our courts. The next section of his report deals with the
scope of the "cease and desist" obligation as a matter of German law.
There is no need for me to examine this question as it does not go to the
question whether KBS UK is bound by the agreement.
35.Dr Grosch turns to the question of the parties to the agreement in
section 4.4 of his report. He points out that only KBS GmbH and Haldex
are signatories to the settlement agreement. He says that, under German
law, the two companies are separate legal entities and that, as a rule
affiliates of such a separate legal entity are not bound by agreements
entered into by that entity. However, he refers to an exception to this
rule based on para 242 of the German Code on Private Law. Apart from
labelling this the "General Principle of Good Faith" and making some
(unspecified) link between this principle and that of estoppel in the
common law, Dr Grosch does not elucidate the general principle any
further. Moreover the furthest that Dr Grosch goes is to say that if KBS
UK acted against the jurisdiction clause this "could qualify as bad faith in
violation of" para 242. He does, it is true, quote a precedent in the shape
of a decision of the German Supreme Court. But that precedent concerned
a case of an ex-employee who was the sole shareholder in a company
which challenged the validity of a patent held by his former employer.
The foundation for the decision was that the sole shareholder and the
company were in a commercial sense, one and the same person. Quite
how this doctrine squares with the general principle that an agreement
by a company does not bind its subsidiary as a matter of German law
was not explained. Dr Grosch does not say that the doctrine of good faith
actually makes a person falling within its scope a party to the agreement
in question. Later in his report (para 4.4. (d) last sentence) he seems to
suggest that it does not. Moreover, the application of this doctrine to the
present case is a question of fact. Mr Vanhegan submits, and I agree, that
if it were appropriate to inquire into the facts, they point to the conclusion
that KBS UK was not a party to the settlement agreement. In particular:
i) KBS UK was not involved in the litigation in Germany;
ii) KBS UK was not involved in the negotiations or signing of the
settlement agreement;
iii) Although KBS UK is a wholly owned subsidiary of KBS GmbH, it is not
under the actual day to day control of KBS GmbH;
iv) KBS GmbH and KBS UK have a common director (Mr Flach) but
Mr Flach was not directly involved in the negotiations leading to the
settlement agreement, nor did he represent that KBS UK was consenting
to the terms of the Settlement Agreement or that it should be bound by
it. There is no evidence that anything said or done by him reached or was
relied on by Haldex or its advisers;
v) KBS UK did not know of the terms of the settlement agreement until
after it was concluded;
vi) The settlement agreement was left to the lawyers to document, and
they documented it in terms which included clause 7.
36.Dr Grosch does not refer to clause 7 at all, or explain how it might
impact on a decision of a German court to prevent KBS UK from acting
contrary to the agreement.
37.Dr Grosch also says that under German law "a party can be bound
by an agreement even if such party is not specifically mentioned in the
Agreement and is [not] signatory to such Agreement (provided that there
is no form requirement)." However, in the present case there is a form
requirement; so this principle does not appear to apply.
38.Finally Dr Grosch considers the question whether KBS GmbH had
authority to bind KBS UK. He refers to a principle which "applies in case
there is no explicit authorisation (Power of Representation) but the
impression/trust was caused at the counterpart that the acting person
would be authorized." The only person from Haldex present at any of
the meetings that led to the settlement agreement who made a witness
statement was Mr Seglö. However, his witness statement does not say
that he had the impression or trust that KBS GmbH was authorised to act
on behalf of its subsidiaries. What he does say, however, is that it was left
to the lawyers to implement the agreement. And they implemented it with
clause 7.
39.Accordingly, even on the assumption that German law is the correct
law for determining whether KBS UK is bound by the settlement
agreement, I do not consider that Haldex has the better of the argument.
Challenge to the validity of the patents
Has KBS UK challenged the validity of the patents?
40.As I have mentioned the pleaded case contained in the Particulars
of Claim claims only a declaration of non-infringement. It does not
assert that either patent is invalid. In his first witness statement Mr
Craddock says that as far as he can see, if Haldex maintains the position
that the SV3801 valve infringes either of the two patents, then Haldex'
construction of the patents must be so wide that KBS UK "will have no
option but to put the validity of the patents in issue". He said that he had
given instructions to his patent attorneys to do that. In his second witness
statement he confirmed that he had instructed his patent attorneys to
apply to invalidate the patents, but that he had been advised that the
correct procedural route was to file a counterclaim for invalidity once
Haldex had served its defence. At the hearing of the application Mr
Vanhegan offered an undertaking by KBS UK either to counterclaim in this
manner or to amend its claim form to claim that the patents were invalid.
41.Mr Mitcheson's response was a simple one. There was no pleaded
claim of invalidity; and the clock stopped when the application for a stay
was issued. It would be quite wrong either for the court to base a decision
on what might be brought into a claim may amendment: that would just
be guessing. It would also be quite wrong for KBS UK to be allowed to
improve its prospects of resisting a stay by altering its case in the light of
the application.
42.The starting point is the decision of the ECJ in Gesellschaft für
Antriebstechnik mbH & Co KG v. Lamellen und Kupplungsbau Beteiligungs
KG [2006] F.S.R. 45. In that case the court held:
"In the light of the position of Art. 16(4) within the scheme of the
Convention and the objective pursued, the view must be taken that the
exclusive jurisdiction provided for by that provision should apply whatever
the form of proceedings in which the issue of a patent's validity is raised,
be it by way of an action or a plea in objection, at the time the case is
brought or at a later stage in the proceedings."
43.Thus the fact that validity of a patent is called into question at a stage
later than the commencement of the proceedings does not affect the rule
that exclusive jurisdiction is conferred on the court of the member state
in which the patent is registered. However, that still leaves the question:
how is the issue of the validity of a patent to be raised?
44.Mr Mitcheson relied on a passage from the judgment of Laddie J
in Coin Controls Ltd v Suzo International (UK) Ltd [1997] FSR 660,
subsequently approved by the Court of Appeal in Fort Dodge Animal
Health Ltd v Akzo Nobel NV [1998] FSR 222. The approved passage
reads:
"As I have said, validity is frequently in issue, and sometimes the most
important issue, in English patent infringement proceedings. This is
now enshrined in section 74(1)(a) of the Patents Act 1977. We have
always taken the view that you cannot infringe an invalid patent. This
was restated by Aldous J. in the passage from the Plastus case [1995]
R.P.C. 438, 447, quoted above. However the fact that the defendant can
challenge validity does not mean that he will. In the Plastus case, he did
not. Until he does, only infringement is in issue and the approach in the
Pearce case [1977] Ch. 293 applies. The court cannot decline jurisdiction
on the basis of mere suspicions as to what defence may be run. But once
the defendant raises validity the court must hand the proceedings over
to the court having exclusive jurisdiction over that issue. Furthermore,
since article 19 obliges the court to decline jurisdiction in relation to
claims which are "principally" concerned with article 16 issues, it seems
to follow that jurisdiction over all of the claim, including that part which
is not within article 16, must be declined. It may well be that if there
are multiple discrete issues before a court it will be possible to sever one
or more claims from another and to decline to accept jurisdiction only
over those covered by article 16, but I do not believe that that approach
applies where infringement and validity of an intellectual property right
are concerned. They are so closely interrelated that they should be
treated for jurisdiction purposes as one issue or claim."
45.It is true that Laddie J said that the court cannot decline jurisdiction
on the basis of "mere suspicion" about what defence might be run. But he
also said that once a defendant "raises validity" the court having exclusive
jurisdiction must decide the issue. In later passage in the same judgment
Laddie J elucidated what he meant by raising the issue. He said:
"The result is that since I have been told and it is apparent that the
validity of the German and Spanish patents is being challenged by the
defendants, the claims of infringement are caught by article 19. I must
decline to accept jurisdiction. The plaintiff may have anticipated this
possible outcome. I was told that the day after the arguments before me
finished, the plaintiff's solicitors wrote to the defendants' solicitors saying
that invalidity "is not a matter which can be pleaded here in respect of
the German and Spanish patents." The defendants are entitled to plead
the invalidity of the patents put against them and the plaintiff cannot
avoid the effect of article 19 by telling them that they cannot. However,
rather than waste the costs of requiring the defendants to plead invalidity
here as a precursor to the claims being struck out, where, as here, it is
plain that validity is to be put in issue, the court should take the course of
striking out the relevant claims forthwith."
46.It is clear in my judgment that Laddie J held that where it is clear that
validity "is to be" put in issue (i.e. in the future) the court should decide
the application on the basis that validity is one of the issues in the case.
It is not necessary for the allegation of invalidity to be formally pleaded.
I respectfully agree. If the current action were to be stayed, what would
prevent KBS UK starting a new action tomorrow alleging invalidity as well
as non-infringement? Even if Haldex rushed off to the Landgericht, that
court would have to decline jurisdiction once the allegation of invalidity
of the UK designations of the European patents had been raised here. I
cannot see the point of that. In my judgment the challenge to validity of
the patents has been raised, with the consequence that, unless KBS is
bound by the non-challenge clause, this court has exclusive jurisdiction.
Is the non-challenge clause binding on KBS UK?
47.I have already decided that the settlement agreement (which contains
the non-challenge clause) is not binding on KBS UK. It follows, therefore,
that it is not bound by the non-challenge clause. There is no non-
challenge clause in the licence agreement, which is why Mr Mitcheson
accepted that the settlement agreement was the relevant one for the
purposes of this application.
48.Mr Vanhegan submitted that in any event the non-challenge clause
is void as being a contravention of article 81 EC. In Windsurfing
International Inc v European Commission [1988] F.S.R. 139 the ECJ
considered the effect of a non-challenge clause in a patent licensing
agreement. It said:
"[89] The seventh of the clauses which the Commission regards as
incompatible with Article 85(1) relates to the obligation on the licensees
not to challenge the validity of the licensed patents.
[90] On that point, Windsurfing International argues that the interest
of the public in an essentially free system of competition, an interest
which in any event was protected by the thorough and extensive patent
application procedure provided for by the German legislation, was better
served by a no-challenge clause making it easier to be granted a licence
by the patentee.
[91] The Commission, however, takes the view that even where a licensee
is only able to challenge a patent because of the information which has
become available to him as a result of his privileged relationship with
the licensor, the public interest in ensuring an essentially free system of
competition and therefore in the removal of a monopoly perhaps wrongly
granted to the licensor must prevail over any other consideration.
[92] It must be stated that such a clause clearly does not fall within the
specific subject-matter of the patent, which cannot be interpreted as
also affording protection against actions brought in order to challenge
the patent's validity, in view of the fact that it is in the public interest
to eliminate any obstacle to economic activity which may arise where a
patent was granted in error.
[93] It must therefore be held that the obligation referred to in paragraph
(3) of Article 1 of the decision constitutes an unlawful restriction on
competition between manufacturers."
49.In Bayer AG and Maschinenfabrik Hennecke GmbH v. Süllhöfer [1990]
F.S.R. 300 the ECJ held that it made no difference that the non-challenge
clause was contained in an agreement settling litigation. The court said:
"[14] In the Commission's view, an undertaking not to challenge an
industrial property right included in a licensing agreement should, in
principle, be considered to be a restriction of competition. Such a clause
is, however, compatible with Article 85(1) of the EEC Treaty when it is
included in an agreement whose purpose is to put an end to proceedings
pending before a court, provided that the existence of the industrial
property right which is the subject-matter of the dispute is genuinely
in doubt, that the agreement includes no other clauses restricting
competition, and that the no-challenge clause relates to the right in issue.
[15] The point of view put forward by the Commission cannot be
accepted. In its prohibition of certain agreements between undertakings,
Article 85(1) makes no distinction between agreements whose purpose is
to put an end to litigation and those concluded with other aims in mind.
It should also be noted that this assessment of such a settlement is
without prejudice to the question whether, and to what extent, a judicial
settlement reached before a national court which constitutes a judicial act
may be invalid for breach of Community competition rules.
[16] A no-challenge clause included in a patent licensing agreement may,
in the light of the legal and economic context, restrict competition within
the meaning of Article 85(1) of the EEC Treaty.
[17] In regard to that context, it should be pointed out that there is no
restriction on competition when the licence granted is a free licence in as
much as, in those circumstances, the licensee does not suffer from the
competitive disadvantage involved in the payment of royalties.
[18] Nor does a no-challenge clause contained in a licence granted
subject to payment of royalties restrict competition when the licence
relates to a technically outdated process which the licensee undertaking
did not use."
50.In the present case it is common ground that both KBS and Haldex are
part of an oligopoly in the field of braking systems for commercial vehicles
and that their trade is conducted throughout the EU. On the face of it,
therefore, a non-challenge clause is likely to distort competition and affect
trade between member states. There is no question in the present case
of a free licence. Nor is it possible to say that the technology in question
is outdated, since Haldex relies on the two patents as preventing the
commercialisation of the SV3801 valve.
51.I do not have to decide whether KBS UK are right in their contentions,
but I do consider that they have the better of the argument. There is at
the least a good arguable case that, even if KBS UK are bound by the
non-challenge clause (which in my judgment they are not) that clause is
void because it contravenes article 81 EC.
Result
I dismiss the application.