"No Challenge" clause in Patent Infringement Settlement Agreement may be Invalid in the European Union

Pursuant to a settlement agreement between Haldex Brake Products GmbH (Haldex) and Knorr-Bremse Systeme für Nutzfahrzeuge GmbH (KBS GmbH), KBS GmbH agreed not to infringe two of Haldex's patents over pneumatic control valves and also not to challenge the validity of those patents. Subsequently, Knorr-Bremse Systems for Commercial Vehicles Limited (KBS UK), a wholly-owned subsidiary of KBS GmbH, independently developed a non-pneumatic valve which did not contain a control piston and which it believed did not infringe Haldex's patents. However, Haldex refused to acknowledge that KBS UK's valve did not infringe the two patents of the settlement agreement. KBS UK sought a declaration of non-infringement alleging that it was not bound by the settlement agreement and, in any event, the non-challenge clause was anti-competitive and void. Although the England and Wales High Court (EWHC) found that the settlement agreement was not binding on KBS UK, the court continued to comment on the other relevant issues including the effect of the non-challenge clause. The EWHC reviewed two European Court of Justice Decisions which held that a non-challenge clause in a patent licensing agreement or settlement agreement was an unlawful restriction of competition between manufacturers, unless the license was a free license or applied to a technically outdated process. Justice Lewison noted that neither exception applied in the present case and remarked that KBS UK had a strong case that the non-challenge clause was void as in contravention of article 81 EC. In 2007, the United States Supreme Court held that a patent licensee can challenge the validity of the subject patent, even if the licensee is in good standing and continues to pay royalties under the license agreement. Therefore, a patent licensee does not have to breach or terminate its license agreement before challenging the patent's validity, (see E-TIPS®, US Supreme Court Gives a Gift to Patent Licensees Vol 5, No 15, January 31, 2007). For the full-text reasons in Knorr-Bremse Systems for Commercial Vehicles Limited v. Haldex Brake Products GmbH, [2008] EWHC 156 (Pat), visit: http://www.bailii.org/ew/cases/EWHC/Patents/2008/156.html For the text of Article 81 EC, see: http://tinyurl.com/2m5v92 Summary by: Lauren Lodenquai