Transcript University of Turin International Labour Organisation WIPO

Paolisa Nebbia
Autorita’ Garante della
Concorrenza e del Mercato (Italian
Competition Authority), Rome
e-mail: [email protected]
University of Turin
International Labour
Organisation
WIPO Worldwide Academy
ANTITRUST LAW
1
In case T-201/04 Microsoft v Commission the
European Court of First Instance upheld, almost
entirely, a decision of the European Commission
establishing inter alia that:



Microsoft had a dominant position in the
market for work group server operating
systems;
Its conduct was likely to eliminate competition
altogether in that market, as it restricted
interoperability between Windows PCs and nonMicrosoft work group servers;
Microsoft was required to disclose complete and
accurate interface documentation which would
allow non-Microsoft work group servers to
achieve full interoperability with Windows PCs
2
In practice, that meant that Microsoft had to disclose to
its competitors the information they needed to compete
with Microsoft itself. To the extent that any of this
interface information might be protected by intellectual
property, Microsoft would be entitled to reasonable
remuneration.
According to the CFI, this would eventually favour
innovation – innovation which had, until then, been
restricted Microsoft’s conduct.
3
So, according to the
Court, disclosing
information to
competitors promotes
innovation…
How is this possible?
Does it not contradict
the basic principles of
IP law?
4
There are a few concepts – such
as “dominant position”,
“relevant market”, “eliminating
competition” that need to be
clarified in order to understand
the Microsoft judgment…
…and the purpose of this module
is to explain such concepts!
5
The relationship between competition law
and IP:

They both pursue, via different
routes, the aim of keeping markets
innovative and competitive:
• Competition law’s concern is to maintain
access to markets well open;
• IP law’s concern is to ensure the
exclusive right to make, use and sell a
product
6
Is competition law a paradox?
… in an ideal world, with perfect competition, it may be!!!
7
…but not if the players in the market
misbehave…
8
…or if they
collude….
9
What is competition law about?
Ensuring lower prices, better products,
wider choice, greater efficiency by
- Promoting allocative efficiency;
 Promoting productive efficiency;
 Promoting dynamic efficiency;
 Preventing the creation of market
power;
10
Monopoly
P
P(m)
offer
P’
demand
Q(m)
Q’
Q
11
The birth of antitrust law

This is to be traced back to the US in 1890, when the US
Congress passed the Sherman Act.

US v Trans Missouri Freight Association


US v Aluminium Company of America ‘it is possible,
because of its indirect social and moral effect, to prefer a
system of small producers, each dependent for his success
upon his own skill and character, to one in which the great
mass of those engaged must accept the direction of the
few’
The influence of the Chicago School: compare US v Arnold
Schwinn & Co. and Continental TV Inc. v GTE Sylvania Inc.;
see different trends in recent US cases: Eastman Kodak Co.
v Image Technical Services Inc.
12
Schwinn
Sylvania
Manufacturer
Manufacturer
R
R
F
F
Franchisees
Retailers
Retailers could only sell to final
consumers
Franchisees could not resell
from outside their premises
13
Compare this with the development
of antitrust in the EC:



the European dirigiste tradition
the Freiburger Ordoliberalen school
the peculiar objectives of EC
competition law, in particular market
integration, protection of SMEs,
consumer protection
14
Parallel imports
Manufacturer
French
distributor
Euros 10
unauthorized dealer
German distributor
Spanish distributor
Euros 7
Euros 15
15
Examples of multi-purpose
competition policy



Matra Hachette: the impact of a certain
allegedly anti-competitive conduct on
public infrastructres and unemployment, is
an additional argument, to be taken into
account with other more economics-based
arguments.
Ford/Volkswagen: creation of jobs in a
poor area (“harmonious development of
the EC) could justify restriction of
competition.
CECED: protection of the environment
could justify a restriction to competition.
16
Sources of EC competition law:




Treaty Articles;
Regulations and Directives;
Courts’ case law (European Court of
Justice; Court of First Instance);
Practice of the Commission: decisions,
official notices, reports.
NB. articles 81 and 82 produce horizontal
direct effect: Delimitis
17
“Relevant market”: product market




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Circumstances in which it is
necessary to define a market;
The ‘hypothetical monopolist test’
(SSNIP);
The ‘toothless fallacy’;
The Commission’s approach;
Relevant markets and IP rights;
18
“Relevant market”: also consider…


Geographic market;
Temporal market.
-> identifying the relevant product and geographical
market means identifying the competitive contraints to
which a firm is subject. This is fundamental, especially
in cases of abuse of a dominant position.
19
Product markets and IP rights



Exceptionally, a particular brand may
constitute a distinct market;
This is usually the case where legal
(or factual or economic) factors
preclude the substitution of
alternatives for the branded goods;
A few examples can be found in the
so-called ‘after-markets’: see Hugin
and Volvo
20
Abuse of dominant position: article
82 EC
Any abuse by one or more undertakings of a dominant position
within the common market or in a substantial part of it shall
be prohibited as incompatible with the common market in so far
as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a)
directly or indirectly imposing unfair purchase or selling
prices or other unfair trading conditions;
(b)
limiting production, markets or technical development to the
prejudice of consumers;
( c)
applying dissimilar conditions to equivalent transactions with
other trading parties, thereby placing them at a competitive
disadvantage;
(d)
making the conclusion of contracts subject to acceptance by
the other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection with
the subject of such contracts
21
Dominant position


‘The power to behave to an appreciable
extent independently of competitors,
customers and ultimately of consumers’
(Continental Can), or
‘The ability of a firm to raise prices above
the competitive level –the benchmark
price- in a profitable manner for a
significant amount of time’ (market
power).
22
Factors relevant to proof of
dominance may be:

Structural :
• market shares (including that of
competitors);
• access to labour, finance, technology, and
raw materials;
• the degree of vertical integration;
• ownership of intellectual property rights;
• other barriers to entry, e.g. advertising.
23
Factors relevant to proof of
dominance

Behavioural:
• the ability to charge monopolistic
prices;
• the ability to engage in predatory
pricing;
• other activities indicative of the
existence of considerable market power.
NB: note ‘network externalities’
24
“Abuse”

Abuse includes both exploitative and
exclusionary conduct; examples are:
• Predatory pricing
• Discount and loyalty rebates, see eg.
decision COMP/C-3/37990 Intel
• Tying
• Excessive or unfair prices
• Refusal to supply
25
Tying in the Microsoft case
Requirements:

the tying and tied products are two
separate products;
 the undertaking concerned is dominant in
the market for the tying product;
 the undertaking concerned does not give
customers a choice to obtain the tying
product without the tied product;
 the practice in question forecloses
competition.
26
‘Essential facilities’
‘An essential facility is an indispensable
input only when duplication of the existing
facility is impossible or extremely difficult,
either because it is physically or legally
impossible to duplicate, or because a
second facility is not economically viable
in the sense that it would not generate
enough revenue to cover its costs’ (Disc.
Paper on article 82, para.229
27
This includes…
• Purely physical facilities (harbour,
airport, terminal, rail road)
• Data bases (TV/telephone listings)
• Networks (combination of facilities and
rules)
The basic idea is that the controller of an
essential facility must share it with its user
market competitors on “reasonable and
non-discriminatory” terms.
28
The early cases concerned access to transport
facilities, especially in sea ports...
Case Sealink/B& I
Holyhead Interim
Measures
Case Sea
Containers
Ltd/Stena Sealink
29
The principle was then applied to
the private sector…
Oscar Bronner:

the refusal should be likely to eliminate
all competition in the downstream
market;

the refusal must be incapable of
objective justification;

the access to the facility must be
indispensable; ie. there must be no
actual or potential substitute for the
facility requested.
30
Article 82 and IP rights:

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Distinction between ‘grant’ and
‘exercise’ of an IP right;
‘normal exercise’ (Volvo);
‘Arbitrary refusal’ (Volvo, Magill)
31
…and then IMS:
The ECJ held that refusal to supply a copyright
licence to a potential licensee would be an abuse
under the following circumstances:
• The licensee must be proposing to offer a new
product, not just a "me-too" version of the
dominant firm's product;
• There is no objective justification: refusal may be
justified by "objective considerations";
• Elimination of competition will occur: the refusal
must have the effect of "eliminating all
competition" from the downstream market;
The facility is indispensable to carry on business.
32
Article 81 EC
The following shall be prohibited as incompatible with the common
market: all agreements between undertakings, decisions by
associations of undertakings and concerted practices which may
affect trade between Member States and which have as their
object or effect the prevention, restriction or distortion of
competition within the common market, and in particular those
which:
(a)
directly or indirectly fix purchase or selling prices or any
other trading conditions;
(b)
limit or control production, markets, technical development,
or investment;
(c)share markets or sources of supply;
(d)
apply dissimilar conditions to equivalent transactions with
other trading parties, thereby placing them at a competitive
disadvantage;
(e)
make the conclusion of contracts subject to acceptance by
the other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection with
the subject of such contracts.
33
Analysis:
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“Undertaking”
“Agreement”, “concerted practice”
“Effect on trade”
“Object or effect”
“Prevention, restriciton, distortion of
competition”
“appreciability”: de minimis
34
“Object or effect”:

Horizontal agreements are deemed to
have as their object the restriction of
competition, see eg.:
• Price fixing;
• Controlling production, markets, technical
developments or investments;
• Sharing markets.

Vertical agreements usually require an
assessment of the “effect”
35
“Effect on trade”

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“Appreciable restriction”
De minimis: Commission Notice of
2001;
“Cumulative effects” of networks of
agreements.
36
Vertical agreements: art.81(3)
3. The provisions of paragraph 1 may, however, be declared
inapplicable in the case of:
- any agreement or category of agreements between
undertakings,
- any decision or category of decisions by associations of
undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution
of goods or to promoting technical or economic progress,
while allowing consumers a fair share of the resulting
benefit, and which does not:
(a) impose on the undertakings concerned restrictions which
are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating
competition in respect of a substantial part of the products
in question.
37
Block exemptions

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Certain types of restraints
automatically fulfill the conditions of
article 81(3);
Block exemption regulations;
The revolution of Regulation 2790/99
(“BER): the black list
38
Most common types of vertical
agreements:


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Exclusive distribution agreements
(EDAs);
Selective distribution (SDAs);
Franchising agreements.
39
Hardcore restrictions (art.4 BER)

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Resale Price Maintenance (RPM): compare
to the US, Leegin Creative Leather
Products v. PSKS,
http://www.supremecourtus.gov/opinions/
06pdf/06-480.pdf
Territorial and customer sales restrictions;
Territorial and customer sales restrictions
in the context of selective distribution
systems;
Restrictions concerning aftermarkets.
40
Excluded restrictions


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Non-compete obligations during the
term of the agreement;
Post-term non-compete obligations;
Non-compete obligations and
selective distribution.
41
The consequences of violating
article 81:
Art.81(2):"Any agreement or
decisions prohibited pursuant to this
Article shall be automatically void“;
->Provisions contravening Article
81(1) are, in principle, automatically
void ab initio, and may not be
enforced
-> note severability.
-> action for damages

42
Regulation 2790/99 and IP rights

Ber applies to IP rights provided that:
• provisions relating to IP rights must be part of
a vertical agreement;
• these provisions refer to the assignment to the
buyer or use by the buyer of intellectual
property rights;
• these provisions do not constitute the primary
object of the vertical agreement;
• these provisions are directly related to the use,
sale or resale of goods or services by the
buyer or its customers;
43
Common terms in the license of IP
rights:

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Territorial and sale restrictions;
Field of use restrictions;
Non-compete obligations;
No-challenge clause;
Improvements.
Case-law: Nungesser, Louis ErauwJacquery
44
Regulation 772/2004 (TTBER)

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Exclusivity between the licensor and
the licensee;
Exclusivity between licensees;
Requirement to use the licensor’s
trademark;
Limitation of production;
Permissible duration.
45