Transcript University of Turin International Labour Organisation WIPO
Dr. 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
15-17 October 2012
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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?
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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 non Microsoft 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 innovat ion – innovation which had, until then, been restricted Microsoft’s conduct.
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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?
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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!
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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!!!
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…but not if the players in the market misbehave… 10
…or if they collude….
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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) P’ Q(m) Q’ demand Q offer 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
Manufacturer
Sylvania
Manufacturer R R Retailers Retailers could only sell to final consumers F Franchisees F 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 Euros 15 Spanish distributor Euros 7 20
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 21
Defining the relevant market…
…and the relevance of IP rights to market definition 22
“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; 23
“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.
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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 25
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 26
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”.
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Abuse of dominant position…
…and the role of IP rights 28
Abuse of dominant position: article 102 EC
Any abuse by one or more undertakings of a dominant (a) 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: directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) ( c) limiting production, markets or technical development to the prejudice of consumers; 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
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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).
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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.
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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.
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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.
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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. 34
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). 35
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.
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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’ 37
“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 38
Article 102 and IPRs
When does the ownership of an IPR coincide with, or place a company in, a dominant position in a particular market?
In what situations will the use and exploitation of an IPR by a dominant company create an abuse of a dominant position?
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Dominance and IPRs
IPRs relevant to identifying barriers to entry: • The mere existence of an IPR is not a barrier; • IPRs may be a financial barrier; • Relevance of network effects.
Another key issue in determining the legal reponsibility of IPRs owners is to assess whether the high market share of its IPR protected product coincides with a de facto monopoly which is an “essential facility”.
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Abuses and IPRs: most frequent cases
Excessive prices; Tying; Refusal to supply.
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Excessive prices:
SACEM: prices “appreciably higher” > wide range of methods for identifying excessive prices; As to IPRs, there must be considerable room for a high return on IPRs based on the amounts which right holders have invested in order to perfect the protected right; => “that higher sale price for a patented product as compared with that of an unpatented product ... does not necessarily constitute an abuse” (Parke Davis).
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“Higher than competitive return”
The higher price for components sold by the manufacturer as compared to those sold by the independent producers “does not necessarily
constitute an abuse, since the proprietor of protective rights in respect of an ornamental design may lawfully call for a return on the amounts which he has invested in order to perfect the protected
design” (Maxicar) 43
Note that:
Art. 102 still requires a differentiation between dominant and non dominant undertakings; Prices must be demostrably excessive; The concept of costs can be reconciled with providing incentives to investment provided that factors such as risk of failure and delay in obtaining a return are included in the costs that can be recovered before prices are considered unreasonable‘; Fixing of prices at an unfair level can be an alternative abuse to refusing to supply spare parts to an independent repairer.
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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.
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Tying in the (old) Microsoft case (T 201/04):
Windows Media Player (WMP) sold together with operating system; Microsoft was ordered to offer, within 90 days of notification of the decision, a full functioning 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.
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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.
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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.
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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 49
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 50
‘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
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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.
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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
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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.
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Article 102 and IP rights:
Distinction between ‘grant’ and ‘exercise’ of an IP right; ‘normal exercise’ (Volvo); ‘Arbitrary refusal’ (Volvo, Magill) 55
…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. 56
..to conclude: T-201/4 Microsoft
Two approaches to “exceptional circumstances”: • variation on the innovation test of Magill
=> “incentives to innovate”
• emphasis on the historical relationship between the dominant firm and the after market and the obligations which accrue to a dominant firm to continue to supply or licence on the dependent after market.
Misuse of IP rights as an anti competitive 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; 58
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 demonstrated.
justifies application of the competition rules only where an anticompetitive effect is INSTEAD… Where behaviour in competition law.
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 59
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 60
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. 61
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?
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Anti-competitive agreements and concerted practices
In particular, vertical agreements and transfers of technology agreements 63
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) (b) directly or indirectly fix purchase or selling prices or any other trading conditions; (d) limit or control production, markets, technical development, or investment; (c)share markets or sources of supply; 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.
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Analysis:
“Undertaking” “Agreement”, “concerted practice” “Effect on trade” “Object or effect” “Prevention, restriciton, distortion of competition” “appreciability”: de minimis 65
“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” 66
“Effect on trade”
“Appreciable restriction” De minimis: Commission Notice of 2001; “Cumulative effects” of networks of agreements. 67
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. 68
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 69
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 70
Most common types of vertical agreements:
Exclusive distribution agreements (EDAs); Selective distribution (SDAs); Franchising agreements.
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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.
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Excluded restrictions
Non-compete obligations during the term of the agreement; Post-term non-compete obligations; Non-compete obligations and selective distribution.
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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; 74
Licensing agreements
• • The case-law Variety of clauses
The original approach to IPRs in licensing agreements
“A trademark right … does not in itself possess those elements of contract or concerted practice referred to in Article 101. Nevertheless, the exercise of that right might fall within the ambit of the prohibitions contained in the Treaty each time it manifests itself as the subject, the means or the consequence of a restrictive practice” (Sirena and Eda) => Consten and Grundig
In the 70ies:
Only manufacturing exclusivity was permitted; Exclusive licenses, even if open, were considered by the Commission contrary to art. 101; Open license: the owner merely undertakes not to grant other licences in respect of the same territory and not to compete himself with the licensee on that territory; => exemption of agreements depended on whether export bans on licensees were deleted (Davidson Rubber).
Exceptions: plant breeders ’ rights
Maize Seeds (Nungesser): open exclusive license of plant breeders’ rights does not infringe art. 101; “in the case of a licence of breeders rights over hybrid maize seeds newly developed in one MS, an undertaking established in another MS which was not certain that it would not encounter competition from other licensees for the territory granted to it, or from the owner of the right himself, might be deterred from accepting the risk of cultivating and marketing that product” => damage to the dissemination of a new technology and prejudice to competition in the Community.
Distinction with closed license
In Maize Seeds, INRA had tried to prevent French licensees from exporting into Germany => exclusive license jointed with territorial restrictions => absolute territorial protection => cannot be granted an exemption; But then ECJ changed its mind in Coditel and Eraw – Jacquery, where it considered the special nature of propagation seeds.
The peculiarities or Eraw – J:
The rightholder “must be allowed to protect himself against improper handling of those varieties of seeds. To that end the breeder must have the right to reserve propagation for the propagating establishments chosen by him as licensees. To that extent the clause prohibìting the licensee from selling and exporting basic seeds does not come within the prohibition laid down by Article 101”.
Common terms in the license of IP rights: no challenge provisions
AGIP: the licensee may be best placed to challenge the patent on the basis of the info it has => the market would be more competitive if invalid patents could be challenged => hostility to no challenge clauses Drawback: licensor may be unwilling to invest in R&D or grant licenses to thirds they do not control.
More flexible approach in recent caselaw: Bayer Hennecke, but note art. 5 TTBER.
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Bayer Hennecke
“a no-challenge clause in a patent licensing agreement may, depending on the legal and economic context, restrict competition within the meaning of Article 101”. No restriction where: • the agreement in which it is contained grants a free licence and the licensee does not, therefore, suffer the competitive disadvantage involved in the payment of royalties; or • when the licence is granted subject to payment of royalties but relates to a technically outdated process which the undertaking accepting the no challenge agreement did not use.
This provides little help….
Feed and grantback provisions
No infringement of art. 101 if clauses are reciprocal and enable licensee to use or license its own improvements; Velcro: Commission refused to clear grant back clause in spite of provisions for reasonable payment and arbitration clause; Note art. 5 TTBER.
Single branding obligations
Velcro: Commission condemned a clause whereby the licensee agreed not to make or sell any product in competition with the licensed invention; In Delta Chemie, the prohibition was subject to the licensor’s consent, not to be unreasonably withheld; Now see artt. 4(1) and 5 of TTBER.
Other common terms in the license of IP rights:
Territorial and sale restrictions; Field of use restrictions: limits the way that the licensed technology may be used; Tying and bundling: licesor makes the licensing of one technolgy subject to licensee taking a license for another technology; No compete: licensee may not use licensed technology to produce competing goods.
The technology transfer block exemption regulation 772/2004
(TTBER)
Scope
TTBER covers not only patent and know how licensing agreements but also applies to design and model rights and software copyright licences. Intended to be extended by analogy to software licensing; Conditional upon the fact that licensing agreement must be concluded for the purpose of producing contract products (else, turn to BER).
Horizontal and vertical licensing agreements
Competitor/non competitor relationship; Wide notion of vertical agreement: non competitors can be two manufactuers as long as they do not compete in respect of the licensed product; Assessment made with reference to the time the contract was made; Relevance to market share limits (30% 20%) and hardcore restrictions.
Main features of TTBER:
Safe harbour within market share limits (20%- 30%), but note risk of market share increase); Hardcore restrictions; Excluded restrictions;: Criteria for assessment above market share limit.
Hardcore restrictions between competitors
Price fixing; Reciprocal output limitations; Market allocation clauses, with some exceptions, eg: • some exclusive licenses with territorial protection in non- reciprocal agreeements; • field of use provisions. Restrictions to licensee’s ability to carry out R&D and exploit its own technology
Note, in particular:
Field of use restrictions: «the restriction of the licensee's ability to exploit its own technology or the restriction of the ability of any of the parties to the agreement to carry out research and development, unless such latter restriction is indispensable to prevent the disclosure of the licensed know-how to third parties»
Hardcore restrictions between non-competitors
Price fixing, except maximum or recommended prices; Territorial limitations with regards to passive sales, except: • territories or customer groups reserved to licensor • 2 years start up time (…);
Excluded restrictions:
Severability rule for such clauses, that remain to be assessed under art. 101(3) 4 main excluded restrictions: 1) any direct or indirect obligation on the licensee to grant an exclusive licence to the licensor or to a third party designated by the licensor in respect of its own severable improvements to the licensed technology; 2) any direct or indirect obligation on the licensee to assign to the licensor or to a third party designated by the licensor, rights to its own severable improvements to the licensed technology;
Excluded restrictions (follows) any direct or indirect obligation on the licensee not to challenge the validity of IPRs of the licensor without prejudice to the possibility of providing for termination of the technology transfer agreement in the event that the licensee challenges the validity of one or more of the licensed intellectual property rights; With no-competing undertakings, any obligation limiting the licensee's ability to exploit its own technology or limiting the ability of any of the parties to the agreement to carry out R&D, unless indispensable to prevent the disclosure of the licensed know-how to third parties.
Thank! you
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