© 2006 mcdermott will & emery. the following legal entities are collectively referred to as...
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© 2006 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery/Stanbrook LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, MWE Steuerberatungsgesellschaft mbH, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered advertising under the rules regulating the legal profession.
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Boston Brussels Chicago Düsseldorf London Los Angeles Miami Munich New York Orange County Rome San Diego Silicon Valley Washington, D.C.
Intellectual Property Rights and Competition Law:
in balance or in conflict?
Duncan Curley
Partner, Intellectual Property, Media and Technology
McDermott Will & Emery UK LLP, London
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The Lisbon Objectives
“To be the world’s leading knowledge-based economy by 2010”
Lisbon Council, March 2000
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The Lisbon Objectives and Intellectual Property Rights
“In the context of the Lisbon objectives, there is a need for strong IP protection to foster innovation in Europe”
Deputy Director General Stoll, DG Internal Market (European Commission), at The Pan-European IP Summit, Brussels, 2 December 2004
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Intellectual Property Rights - basics
Monopoly or quasi-monopoly rights Examples: patents and copyright
They are exclusionary rights
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The role of competition policy in fostering innovation
“It is a longstanding topic of debate in economic and legal circles: how to marry the innovation bride and the
competition groom”
“Contrary to what some might think, competition is a necessary stimulus for innovation”
Mario Monti, European Commissioner for Competition Policy, January 2004
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The role of competition policy in fostering innovation
“IP law and competition law have a complementary role to play in promoting innovation to the benefit of consumers”
Mario Monti, European Commissioner for Competition Policy, January 2004
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European competition law - basics
The EC Treaty
- Article 81
- Article 82
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Article 81
Article 81 regulates joint conduct (e.g. cartels)
Article 81 can impact on IP license agreements, technology transfer agreements and other IP pooling arrangements
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Article 81
The European Commission’s approach to IP license agreements and Article 81 was substantially modified and modernised in 2004, with the aim of encouraging technology licensing in Europe
The Technology Transfer Block Exemption
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Article 81 and the Lisbon Objectives
The new rules on technology licensing will effectively contribute to the dissemination of technology within the European Union, in line with the objectives set at the Lisbon Council
European Commission Press Release, April 2004
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Article 82
Prohibits undertakings with a dominant position on a particular market from conducting themselves in a way which amounts to an abuse of their market power, in circumstances where the abusive conduct is incapable of objective justification
Article 82 is concerned with unilateral conduct
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Policy behind Article 82
The functioning of competition is disturbed not only by cartels (see Article 81) but also by economic predominance
Increasing market domination corresponds to a decreasing intensity of competition
Lack of competition lessens the incentive of a dominant firm to increase overall performance by means of cost reduction and innovationThe Role of Economics Analysis in the EC Competition Rules
D. Hildebrand, 2002
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Restricting access to technology – an abuse?
A dominant firm may fall foul of Article 82 by restricting access to the use of technology, to the detriment of consumers – Article 82(b)
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Intervention by the European Commission
A dominant position may be based on control over access to the technology, e.g. through the ownership of intellectual property rights…
…and so in certain circumstances the European Commission will intervene…
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When will the European Commission intervene?
The Magill case
“Exceptional circumstances”
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When will the European Commission intervene?
In recent years, the European Commission has taken a more interventionist stance in cases where it believes IPRs are being “abused”
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The IMS Health case
The IMS Health case not a “new” product (as in Magill) merely a “me too” product and yet the European Commission intervened
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The Microsoft case
Microsoft refused to supply interoperability information to Sun Microsystems, so as to allow Sun to offer its own work group server operating system product, in competition with Microsoft’s own work group server product
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The Microsoft case
Hardware +
Software:
Operating System
Middleware
Application Software
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The Microsoft case
The European Commission decided in March 2004 that this was an abuse of a dominant position under Article 82
Microsoft was ordered to disclose information so as to allow its competitors to compete on an equal footing with Microsoft…
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Compulsory licensing?
…even if this required Microsoft to license its IP to its competitors (including 3 patents!)
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What intellectual property rights?
“The interoperability information requested by Sun constitutes valuable intellectual property protected by copyright, trade secret laws and patents”
Microsoft submission to the Commission of 17 October 2003
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The Commission’s position
“It is implicit in Sun’s request that Sun intends to be provided with specifications that it will then be able to implement in its products. It is possible that such a use could be prevented by Microsoft relying on intellectual property rights. Furthermore, the specifications at issue may constitute innovations that are currently not disclosed and are protected by trade secrecy”
Paragraph 190 of the Commission’s Decision
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The Commission’s position
“It cannot be excluded that ordering Microsoft to disclose [its] specifications and allow […] use of them by third parties restricts the exercise of Microsoft’s intellectual property rights”
Paragraph 546 of the Commission’s Decision
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The Commission’s position
The Commission argued that Microsoft was stifling innovation in the market for work group server operating systems…
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The Commission’s position
“The major objective justification put forward by Microsoft relates to Microsoft’s intellectual property over Windows. However, a detailed examination of the disclosure at stake leads to the conclusion that, on balance, the possible negative impact of an order to supply on Microsoft’s incentives to innovate is outweighed by its positive impact on the level of innovation in the whole industry (including Microsoft)…”
Paragraph 783 of the Commission’s Decision
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The Commission’s position
“[T]he need to protect Microsoft’s incentives to innovate cannot constitute an objective justification that would offset the exceptional [Magill-type] circumstances identified”.
Paragraph 783 of the Commission’s Decision
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Intellectual Property Rights and Competition Law:in balance or in conflict?
The Commission’s arguments proceed on the basis that if Microsoft was allowed to continue its leveraging practices there was a risk that innovation in the work group server operating systems market would be stifled…
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Intellectual Property Rights and Competition Law:in balance or in conflict?
…but the Commission’s arguments do not appear properly to address the wider effect of the Microsoft decision, which may erode the IP protection available to certain (dominant) companies
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Microsoft’s position
“A crucial part of this case rests on the rights of companies to invest in research and development, innovate, produce new products to meet customer demand and then retain the right to earn a return on that investment”
Chris Parker, Director of Law and Corporate Affairs, Microsoft (May 2006)
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What is the right balance?
Report prepared by the Economic Advisory Group for Competition Policy, as part of the European Commission’s recent review of policy under Article 82 (July 2005):
“…even if a refusal to deal harms consumers in the short-run, it may be socially beneficial in the long-run. If the bottleneck is the result of investment or innovation activities of the dominant firm then forcing the firm to give its competitors access to the bottleneck is an expropriation of the returns of the firm’s efforts. This may discourage this and other firms from investing in the future, and it may reduce incentives to innovate. Tolerating a (temporary) monopoly may be the best way to promote investment and innovation incentives…”
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Intellectual Property Rights and Competition Law:in balance or in conflict?
According to Microsoft, the European Commission has…
“[committed]…the biggest encroachment on intellectual property in European competition law history”
“…opened the vaults of a bank” to hand money out to passers-by
Microsoft’s Counsel, Ian Forrester QC, before the Court of First Instance, April 2006
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Intellectual Property Rights and Competition Law:in balance or in conflict?
Conclusions
An Article 82 policy review is underway. The Microsoft decision is on appeal to the Court of First Instance.
Watch this space…