Danish Court finds royalty provision contrary to Section 6 of the Danish Competition Act and Article 101 TFEU

On 29 April 2010, the Danish Maritime and Commercial Court found that a provision in a license agreement pursuant to which the licensee is required to pay royalty on sales even when the licensor's IPR is not used was contrary to Article 101 TFEU and the equivalent provision under Danish law and therefore null and void. The court applied the principles of the Technology Transfer Block Exemption regulation in arriving at this result.

On 29 April 2010, the Danish Maritime and Commercial Court found that a provision in a license agreement pur­suant to which the licensee is required to pay royalty on sales even when the licensor's IPR is not used was contrary to Article 101 TFEU and the equivalent provision under Danish law and therefore null and void. The court applied the principles of the Technology Transfer Block Exemption regulation in arriving at this result.

In 2005, Pandora Production Co. Ltd. ("Pandora") and Lise Aagaard Copenhagen A/S ("LAC") entered into a license agreement under which LAC would design glass pearls for Pandora's bracelets. Pandora would pay a royalty of 12.5 % of Pandora's total net sale of glass pearls regard­less of whether they were designed by LAC or any other designer.

The Court found that the Technology Transfer Block Exemption regulation ("TTBE") was not applicable as the know-how transferred by LAC was publicly available knowledge. However, since the license concerned the continuous transfer between two undertakings of the right to use copyright protected material, the court found that the principles contained in the TTBE were applicable when assessing whether the royalty provision was lawful.

The Court then referred to Article 4 (1) (a) and (d) of the TTBE pursuant to which the restriction of a party's ability to determine its price and the restriction of the licensee's ability to exploit its own technology, respectively, are considered hardcore restrictions. The Court found that said restrictions also cover the present provision under which LAC would receive royalty on the basis of Pan­dora's sales regardless of whether the copyrighted mate­rial was used or not.

The Court found that the restriction was not justified under Article 101(3) or the equivalent provision under Danish competition rules.

The Court therefore ruled in favour of Pandora, ie that the obligation on Pandora to pay royalty to LAC in con­nection with Pandora's sale of glass pearls not designed by LAC was null and void in accordance with the Act, Section 6(5) cf. (1) and Article 101(2) TFEU.

The judgment has been appealed to the Supreme Court.

It is the first time that a Danish court has applied the TTBE and the accompanying guidelines. The judgment is also interesting for companies within the life science industry as it shows the Danish courts' willingness to apply the TTBE and the accompanying guidelines.

Any questions in relation to the judgment can be di­rected to Mikkel Vittrup, Attorney-at-Law, mvi@plesner.com, or Jacob Borum, Attorney-at-Law, jab@plesner.com.