The validity of philips’ essential dvd patent (efm plus method) contested before Greek courts

1. In 2006 Philips has started an effort to collect patent royalties from Greek DVD replicators in relation to 8 patents which were registered in Greece and allegedly used for the production of DVDs but during the negotiations refused to satisfy Greek DVD replicators’ requirements in relation to these negotiations, which were the following.

i) Sufficient evidence proving that Philips’ patents are really used by Greek DVD replicators and that the use made is direct.

ii)  Equal treatment among all Greek DVD replicators.

iii) Fair remuneration (patent royalty) under the circumstances:

According to Greek DVD replicators the license fee, should be proportional to the number of licensed patents (in comparison with the number of patents licensed in other EU countries) and to also take into account the duration of the patent and the reality of the Greek Market where DVDs are sold for 0.08 euro. Philips insisted on the execution of its standard license agreement without any modification.

2. Following a negative evaluation of one out of the eight (8) Philips patents by a University Professor appointed as an expert by one of the Greek DVD replicators, Philips has elected to take Court proceedings for (only) two out of the initial 8 patents, admitting that the second of them was just an improvement of the first one which in turn was related to EFMplus, an algorithmic method contributing to the reduction of reading errors by DVD players.

3. The basic defense arguments against Philips’ patent actions were the following:

– Both patents lack novelty and inventive step because they are mere developments of scientific research and part of the state of the art if compared to a Sony patent and “worse” in results, if compared to a competitive Toshiba patent (coming from the Super Density Disc), which precedes the second Philips patent.

– Both patents (their “innovative” part) are pure algorithms and as a result being mathematic methods, they do not enjoy patent protection under Greek Law.

– The adoption of EFM plus was the result of the “DVD battle” between Warner / Toshiba on the one side and Philips/ Sony on the other. The EFMplus solution was 6% worse than the method developed by Toshiba. Additionally, the DVD specifications seem to have adopted not the first Philips patent but the specifications of Sony’s patent, which then were slightly amended and improved by the second Philips patent in dispute, but in relation to a theoretical parameter without any practical value.

– Philips’ patents are not essential. The method protected by Philips patents cannot alone lead to the production of DVDs and has a minimal contribution to the improvement achieved by the DVD in comparison to CD (density, quality improvement, error correction).

– DVD replicators do not infringe Philips patents. They simply reproduce data recorded on DLT tapes/ Glass masters which have been produced by the use, among other, of the patented method (EFMplus) during the authoring and the mastering of the DVDs but not during the replication of DVDs.

– Request for the appointment of a Court expert as well as parties’ experts to evaluate the validity of the patents and to clarify whether the methods are used by the replicators of DVDs. This request comes as a result of the objections related to the validity of the patents.

– Objection of exhaustion of Philips’ rights due to the tacit licensing (approval) by Philips of the production and sale of authoring and mastering equipment – which incorporate the patents in question- and also because Philips receives royalty payments for the use of the patented method (EFMplus) made in DVD players by the manufacturers of DVD players.

– Objection of abusive exercise of rights. Philips claims that its patents are essential for the DVD production and that no DVD can be produced without the use of the patented method. As a result, Philips holds a dominant (if not monopolistic) position which it abused by not accepting to conduct fair negotiations on the terms of its license Agreement (e.g pricing, the applicable Law, refusal to accept indemnity clauses for patent infringement etc).

4. Philips has brought initially five actions in Court against five separate DVD replicators. Three of them were heard before the Athensand one before the Salonica Courtuntil today and the hearing of the fifth has not taken place yet. There have been, until now, four decisions. Three of these decisions have accepted Philips’ claims but in one (case G), in which the defendants (represented by Kriton Metaxopoulosand Irini Daroussou of A. & K. Metaxopoulos and Partners Law Firm), forwarded all the arguments explained in detail in paragraph 3 above[1] the Athens Court has accepted the defendants’ objections on the validity of both patents and the relevant request for the appointment of a Court expert to evaluate the two Philips patents. The Court has set a hearing for this purpose for November 2011 when it was postponed for early 2012.

5. The Court appointed expert’s report in Case G is highly controversial but the defendants’ technical expert reports (four Professors of Information Technology and Engineering of the Polytechnic University of Athens and two Professors of Law of the University of Athens), clearly conclude that none of the two patents of Philips is an invention, since the first (and more precisely its allegedly innovative part) is not even used in the DVD specifications and the second is a copy of a pre- existing (Sony) patent with limited scientific and minimal practical value. Additionally, both patents are part of (or even below) the state of the art. The Court hearing on this report and as a result on the validity of the two Philips patents is , as already mentioned, expected in 2012 (Case G).

6. As far as the fifth case (Case D) is concerned, following a preliminary hearing on 18 May 2011 the Court rejected Philip’s request to proceed with the hearing of the case on its merits and instead accepted the defendants’ (who had the same legal representation and arguments with the defendant in Case G above) request to adjourn the case for a common hearing with Case G in 2012, where the validity of Philips’ patents will be discussed and decided by the Court.

These two cases appear to be particularly important because, if the Athens Court accepts the defendants’ arguments that Philips EFM plus patents are not valid, and issues a decision to this effect, such decision will certainly have a great impact not only on the Greek but also on the European DVD market since this is one of Philips’ “most essential” patents in relation to DVD.