I. Case 320/87, Kai Ottung v Klee & Weilback A/S and Thomas Schmidt A/S Judgment, 12 May 1989.
The case was brought before the So-og Handelsret, Copenhagen and concerned the execution of a licensing agreement. The contract, which related to the commercial exploitation of two complementary devices, was entered into during the period between a patent application being submitted in respect of one of the devices and the patent being granted. The terms of the contract provided for the payment by the licensee of a royalty for an indeterminate period in respect of each device sold, and accorded to the licensee the right to terminate the contract on giving six months' notice, whereupon the licensee would lose all rights of commercial exploitation of the device. On the expiry of the patent, which had been granted after the contract was entered into by the parties, the licensee refused to continue paying the stipulated royalty on the ground that he was not bound by this term after the expiry of the patent. The licensor brought proceedings before the national court. The Danish court considered that certain questions raised in the present case were material to the application of Article 85(1) of the EEC Treaty, and submitted to the Court of Justice for a preliminary ruling four questions, which concerned, in substance, two points:
1. The first question can be expressed thus; does the contractual obligation of a patent licensee to pay a royalty for an indeterminate period, which therefore extends beyond the date of expiry of the patent, contravene the provisions of Article 85(1) in the circumstances of this case?
The Court accepted that the contractual obligation to pay a royalty may not rest on the grant of a patent, as was originally the case in this instance, where such a term was included in an agreement which was entered into after the patent application was submitted, but before the patent was granted. The Court considered that an agreement which provides for the payment of a royalty even after the expiry of the patent to which the licence relates may contravene Article 85(1) if, having regard to the legal and economic context, it does not provide for the termination of the agreement by the licensee on giving 'reasonable notice', or if it operates to significantly weaken his competitive position. The Court therefore accepts the validity of a term which provides____________________