Transcript University of Turin International Labour Organisation WIPO

Paolisa Nebbia
Autorità Garante della Concorrenza
e del Mercato (Italian Competition
Authority), Rome, Italy
e-mail: [email protected]
University of Turin
International Labour
Organisation
WIPO Worldwide Academy
ANTITRUST LAW
17-19 October 2011
1
Our plan:


Introduction;
Notion of “relevant market”;
• IP rights and market definition;

Abuse of dominant position;
• Use of IP rights to abuse a dominant
position;

Vertical agreements;
• Transfers of technology
2
Introduction:
what is competition law
about?
3
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
4
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.
5
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?
6
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!
7
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
8
Is competition law a paradox?
… in an ideal world, with perfect competition, it may be!!!
9
…but not if the players in the market
misbehave…
10
…or if they
collude….
11
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;
12
Monopoly
P
P(m)
offer
P’
demand
Q(m)
Q’
Q
13
The birth of antitrust law




This is to be traced back to the US in 1890,
when the US Congress passed the Sherman
Act.
Trust = an institution whereby one delegates to a
trustee his/her rights to vote on the board of a
company
Through criss-cross proxies on their respective
boards, managers of competing companies
decided price and market policies => cartels
=> “ANY contract in restrain of trade is illegal”
14
The common law heritage


Subject matter of protection is not
competition, but freedom of
contract and third parties’ freedom;
Restriction is either
 A limit on the freeom of contract of
one of the parties;
 A limit on third parties’ freedom to
stay in the market
15
“Restraint to competition”

US v Trans Missouri Freight Association: what was
beneficial for the users was not the
“reasonableness” of the agreed rates, but the
dynamics of competition;
NB. importance of small dealers

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’
16
The conceptual development:

“Restraint” harms competition not
when the agreement deprives
someone of his freedom, but when it
allows the price to be higher than it
would have been from the free
interplay between supply and
demand (A. Marshall, Principles of
economics, 1890).
17
Compare S v Arnold Schwinn & Co. and Continental TV Inc. v
GTE Sylvania Inc. :
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
18
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
19
Parallel imports
Manufacturer
French
distributor
Euros 10
unauthorized dealer
German distributor
Spanish distributor
Euros 7
Euros 15
20
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.
21
Sources of EC competition law:
Treaty Articles (note re-numbering
after Lisbon) and general principles;
 Regulations and Directives;
 European Court of Justice case law
(note Court of First Instance is now
called General Court);
 Practice of the Commission: decisions,
official notices, reports.
NB. articles 101 and 102 produce
horizontal direct effect: Delimitis

22
Defining the relevant
market…
…and the relevance of IP
rights to market definition
23
“Relevant market”: product market





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;
24
“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.
25
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
26
Aftermarkets
An aftermarket consisting of the secondary
products of one brand of primary product
may not be a relevant product market
where:
 it is possible to switch to the secondary
products of other producers;
 it may be possible to switch to another
primary product and thus avoidthe higher
prices in the aftermarket.
See an interesting example in 504 US 451
Eastman Kodak Company v. Image
Technical Services Inc
27
As the Commission put it (Notice on the
definition of the relevant market, 1997):
“A narrow definition of market for secondary
products, for instance, spare parts, may
result when compatibility with the primary
product is important. Problems of finding
compatible secondary products together with
the existence of high prices and a long
lifetime of the primary products may render
relative price increases of secondary products
profitable. A different market definition may
result if significant substitution between
secondary products is possible or if the
characteristics of the primary products make
quick and direct consumer responses to
relative price increases of the secondary
products feasible”.
28
Abuse of dominant
position…
…and the role of IP rights
29
Abuse of dominant position: article
102 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
30
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).
31
Establishing dominance
1st step: definition of relevant market,
then assessment market power in that
market;
 In this second phase, measurement of
market shares held by firms...
...taking into account that a high market
share is not sufficient to conclude that a
firm has got high market power, and other
factors need to be taken into account.

32
Market shares

Presumptions:
• Below 40%: not enough market power
to be dominant;
• Above 50%: presumption that firm is
dominant;
• In any case, there is never dominance
below 25% (EU) or 33%-40% (US).

Market shares give only a prima facie
picture of the competitive postiion of
the firm on a market.
33
Market shares may have little
meaning where:




Production is limited by a crucial
input;
The firm is unlikely to be a relevant
player in the near future, eg because
of outdated production plants;
Competitors have/have not a
considerable excess of capacity;
Markets are characterised by large
and infrequent orders.
34
Ease and likelihood of entry


The more entry is easy, rapid and
costless, the less a firm will be able
to charge a high margin because
large profits wold attract competitors
(contestable markets theory);
Need to take into account sunk
costs, switching costs, lock-in
effects, network externalities.
35
Buyer’s power



A strong buyer can use its bargaining
power to stimulate competition
among sellers, eg. by theatening to
switch orders to another seller;E
Entry of new players is easy where
buyers are concentrated:
Enso/Stora and ABB/Daimler Benz
(mergers).
36
To sum up, 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.
37
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’
38
“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
39
One example: bundling and tying


When a product is offered by a seller
on condition that another product is
also bought;
Anti-competitive effects:
• Price discrimination
• Leverage of dominant position from the
tying to the tied market.
40
Tying in the (old) Microsoft case (T201/04):


Windows Media Player (WMP) sold
together with operating system;
Microsoft was ordered to offer, within 90
days of notification of the decision, a fullfunctioning version of its Windows client
PC operating system which does not
incorporate WMP, although Microsoft is to
retain the right to offer a bundle of the
Windows client PC operating system and
Windows Media Player.
41
Tying in the (old) 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.
42
Tying in the new Microsoft case
COMP/39.530


Potentially illegal tying of Microsoft web browser
Internet Explorer (IE) to its dominant client PC
operating system Windows;
The Commission took the preliminary view that:
• IE enjoyed a distribution advantage that other web
browsers were unable to match and there were
barriers to downloading web browsers from the
Internet;
• in addition to reinforcing Microsoft's position on the
market for client PC operating systems, the tying of
IE to Windows created artificial incentives for web
developers and software designers to optimise
their products primarily for IE.
43
By a decision of 16.12.2009 the
Commission made the following
commitments binding:



Microsoft agreed to make available a
mechanism in Windows that enables OEMs
and users to turn Internet Explorer off and
on;
OEMs will be free to pre-install any web
browser(s) of their choice on PCs and set it as
default web browser;
Microsoft offered to distribute a choice screen
software update to users of Windows PCs by
means of Windows Update
44
Another type of abuse: refusal to
supply


Firms are generally entitled to determine
whom to supply and to decide not to
continue to supply certain trading
partners.
This may be anti-competitive where, eg.,
a dominant company denies a buyer
access to an input in order to exclude that
buyer from participating in an economic
activity (vertical foreclosure): the Zoja
case
45
‘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 102, para.229
46
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.
47
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
48
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.
49
Article 102 and IP rights:



Distinction between ‘grant’ and
‘exercise’ of an IP right;
‘normal exercise’ (Volvo);
‘Arbitrary refusal’ (Volvo, Magill)
50
…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.
51
Misuse of IP rights as an anticompetitive practice: T-321/05
Astrazeneca
First conduct: deliberately misleading
representations to patent agents to
acquire or preserve SPC for
omepraozole;
=> Creation of regulatory obstacles to
competition by the unlawful grant of
exclusive rights;

52
Court rejected AZ’s argument…
…that the existence of specific remedies which make it
possible to rectify, or even annul, patents and SPCs
granted
unlawfully
justifies
application
of
the
competition rules only where an anticompetitive effect is
demonstrated.
INSTEAD…
Where behaviour falls within the scope of the
competition rules, those rules apply irrespective of
whether that behaviour may also be caught by other
rules, of national origin or otherwise, which pursue
separate objectives. Similarly, the existence of remedies
specific to the patent system is not capable of altering
the conditions of application of the prohibitions laid down
in competition law.
53
Astrazeneca (follows)


Second conduct: de-registration of
marketing authorization for LOSEC
capsules at the time when exclusive
rights were about to cease;
Substitution of capsules with LOSEC
tablets
54
Court held:
whilst the fact that an undertaking is in a
dominant position cannot deprive it of its
entitlement to protect its own commercial
interests when they are attacked, it
cannot use regulatory procedures in such
a way as to prevent or make more difficult
the entry of competitors on the market, in
the absence of grounds relating to the
defence of the legitimate interests of an
undertaking engaged in competition on
the merits or in the absence of objective
justification.
55
Essential facilities:


Could you argue this is a case of
essential facilities, ie. a case of a
refusal to supply by a dominant firm
by virtue of the exercise of a
property right?
Why would AZ try to argue the case
is about an essential facility?
56
Anti-competitive
agreements and concerted
practices
In particular, vertical
agreements and transfers of
technology agreements
57
Article 101 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.
58
Analysis:






“Undertaking”
“Agreement”, “concerted practice”
“Effect on trade”
“Object or effect”
“Prevention, restriciton, distortion of
competition”
“appreciability”: de minimis
59
“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”
60
“Effect on trade”



“Appreciable restriction”
De minimis: Commission Notice of
2001;
“Cumulative effects” of networks of
agreements.
61
Vertical agreements: art.101(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.
62
Block exemptions



Certain types of restraints
automatically fulfill the conditions of
article 101(3);
Block exemption regulations;
The revolution of Regulation
330/2010 (“BER): the black list
63
Most common types of vertical
agreements:



Exclusive distribution agreements
(EDAs);
Selective distribution (SDAs);
Franchising agreements.
64
Hardcore restrictions (art.4 BER)




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.
65
Excluded restrictions



Non-compete obligations during the
term of the agreement;
Post-term non-compete obligations;
Non-compete obligations and
selective distribution.
66
The consequences of violating
article 101:
Art.101(2):"Any agreement or
decisions prohibited pursuant to this
Article shall be automatically void“;
->Provisions contravening Article
101(1) are, in principle,
automatically void ab initio, and may
not be enforced
-> note severability.
-> action for damages

67
Regulation 330/2010 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;
68
Common terms in the license of IP
rights:





Territorial and sale restrictions;
Field of use restrictions;
Non-compete obligations;
No-challenge clause;
Improvements.
Case-law: Nungesser, Louis ErauwJacquery
69
Regulation 772/2004 (TTBER)





Exclusivity between the licensor and
the licensee;
Exclusivity between licensees;
Requirement to use the licensor’s
trademark;
Limitation of production;
Permissible duration.
70