ipr and cometition policy

IPR and Competition Policy

Akinori Uesugi

Feb. 22, 2011

GRIPS, Tokyo, Japan

Topics for discussion

• Relationship between Intellectual Property Right (IPR) and Competition Laws in Japan

• New approach towards substantial restraint of competition is necessary when IPR is involved in competition law cases

• Case Studies

• Microsoft NAP case

• Qualcomm Case

IPR and the Anti‐monopoly Act(1)

• Three kinds of methods to stipulate the relationship between IPR and competitions laws;

• Japanese style; Exemption towards the exercise of IPR (Article 21 of the AMA)

• Chinese style; Exemption except abusive conducts of IPR ( Article 55 of Chinese AMA)

• U.S. style; No exemption, but rule of reason analysis applied.

• E.U. style; No exemption system, but Article 101(3) (block or individual exemption)is available

• Which system can offer the most appropriate understanding on the relationship between IPR and competition laws?


• A long process to achieve a better balance between IPR and Anti‐Monopoly Act (AMA) in Japan.

• Acts to be examined as an exercise of IPR; Refusal to license or discriminatory terms of license, to file an infringement suit, to restrict production volume or quantity of patented goods.

• Before 1989, Article 21 is deemed to exempt any acts so far as they fall under the exercise of IPR. On the other hand, contractual restrictions in licensing agreement are thought fully covered by the AMA. The JFTC applied unfair trade practices provisions of the AMA to restrictive conditions contained in licensing agreements.

• No cartel or private monopolization cases are attacked.


• In 1989, new interpretation of Article 21 is established by the blue ribbon panel of experts commissioned by the JFTC.

• If such exercise of IPR is regarded to go beyond the purpose of or contrary to the protection of IPR, Article 21 does not prevent the application of the AMA to such conducts.

• This means that IPR is safe from the application of the AMA so long as IPR is not abused, in other words, the AMA is fully applicable to any abusive conducts of IPR.

• The JFTC adopted this interpretation officially in its 1999 IPR Guidelines. High court decisions authorized this theory.

• Now, Article 21 is interpreted like Article 55 of the Chinese AMA, and could offer the best balance.


• Deep understanding on interaction between IPR and competition policy is required in order to identify abusive conducts; This is not an easy task for competition authorities.

• Two kinds of difficult issues ;

• How to apply the AMA to the refusal to license by IPR holders ( filing of an infringement suit, discriminatory terms)?

• How to apply the AMA to the restriction of production volume or quantity?

• How about joint exercise of IPR?


• In order to provide the maximum incentive to innovate, IPR holder should be free to refuse to license to any potential competitors.

• This rule should be applicable to the situation where such access to the technology is essential in order to enter into highly concentrated market.

• This mean that IPR should not be treated as an essential facility.

• However, it is important to apply AMA to acts to prevent entry to or competition in up‐stream or down–stream markets by using IPR.

New approach towards SRC(1)

• Substantial restraint of competition（SRC) is the key requirement for cartels and private monopolization prohibition in Japan.

• Actual and immediate restraint of competition is easy to identify. This is the case for price‐fixing or bid‐rigging cartels.

• In the past, the JFTC thought that investment adjustment cartel does not produce SRC, because its effect on price or volume of products is remote or indirect.

• The JFTC did not apply the Article 3 (second half) to IPR related cases up to now, because Article 19 (unfair trade practices prohibition) was easier to apply.


• In Microsoft tie‐in case ( JFTC decision on Dec. 14, 1998), the JFTC applied Article 19, because the market position of the Microsoft in word processor etc. was not dominant yet.

• Article 19 offers an easy solution for the JFTC when it faced a difficult interpretation problem. In those days, only a cease and desist order was possible, therefore, choice of applicable provision was not a serious issue.

• However, after surcharge system was introduced as for exclusionary private monopolization, this choice of applicable provision became a critical issue. This requires new approach towards SRC.


• Special problems of IPR. IPR should fully be respected, therefore, a market dominating position achieved by IPR should fully be respected.

• However, any market dominating position should not be abused in such a way as to restrict competition in up‐stream or down‐stream markets .

• Competitive situation in up‐stream or down‐stream markets should be carefully analyzed whether a market power in one market is used to prevent competition in up‐stream or down‐stream markets.

• Key issue is the identification of a market power.


• In order to encourage innovation, incentive to innovate or incentive to compete is the key factor to evaluate. If such incentive is deterred, it certainly will result in restriction of competition in the future market. This is a serious problem comparable to immediate restriction of competition by price fixing.

• Therefore, any restriction on incentive to innovate or incentive to compete should be the core concern on IPR related cases.

• Non‐assertion provision (NAP), exclusive grant back or assign back provision s, in particular, need evaluation on their impacts on incentive to innovate.

Other issues

• Joint exercise of IPR shall not enjoy an exemption privilege . This rule is made clear by the patent pool case on pachinko machine (The JFTC decision on Aug.6, 1997 )

• Exercise of acquired IPR shall also come under the AMA. In Japan, acquisition of IPR does not subject to M&A regulation, therefore, exercise of IPR that is acquired from the third party can constitute an abusive conduct.

• This rule is adopted in the 2007 IPR guidelines and can constitute an exclusionary private monopolization.

• Refusal to license of pooled patents for standardization is one of other abusive conducts.

Microsoft NAP case(1)

• Re Microsoft Corp. (JFTC decision on Sep. 16, 2008)

• The hearing proceeding was started in 2004.

• Non‐assertion provision was contained only in the licensing contract with MS Corp. ( direct contract).

• Licensees were OEM PC manufacturers in the world (only top 20 companies could enjoy such positions)

• In Japan, 15 Japanese companies + 3 U.S. companies were doing business under direct contracts.

• NAP was eliminated from the new direct contracts concluded after Aug. 1, 2004. This was just after the recommendation was issued by the JFTC against MS (July 13, 2004).


• The JFTC guidelines roughly touch on two problems of NAP, namely enhancement of dominant position of a licensor, and disincentive to innovate for licensees.

• Issues to be examined ; Definition of a relevant market and effects on competition of NAP

• Misunderstanding on the market definition. The market power of MS is in OS for PC, not in PC AV technology market.

• Issues is whether MS has a market power, and where it is used; It seems that NAP did have anti‐competitive effects on incentive to innovate of OEM PC manufacturers in general, and could be identifiable as for PC AV technology.


• Incentive to innovate for licensees is very importance value to protect, but effects on competition should be evaluated whether it is strengthening the market power of a licensor.

• Many irrelevant issues were debated during the hearing proceedings that took 4 years.

• If a holder of IPR has a dominant position in a particular market, and by using such a power had forced to accept NAP which seriously deter incentive to innovate, this is a case for exclusionary private monopolization. Whether a market power is strengthened by NAP is a key issue for evaluation.


• Unfortunately, no arguments in support of pro‐competitive effects of NAP can be seen in the JFTC decision. It is critically important to see what kinds of gains MS intended to achieve through NAP. This argument seems intentionally avoided.

• NAP imposed on licensees could be the same with cross‐licensing. I cannot find any rationale for imposing NAP against other licensees.

• Unless pro‐competitive effects are argued in a persuasive way, anti‐competitive effects looks clear in this case.

• This case should be tried as an exclusionary private monopolization case. Japan should not intervene to IPR related cases by applying a lower standard of illegality.

Qualcomm case (1)

• Re Qualcomm Inc. ( JFTC decision on Sep. 30, 2009)

• Hearing proceeding is underway at present.

• The third generation CDMA mobile phone technology is at issue. In this case, market definition is clear.

• Qualcomm had announced its policy to give licenses under a fair, reasonable and non‐discriminatory (FRAND) terms on the above technology when the third generation CDMA mobile phone standard were established.

• Qualcomm demanded licensees to accept NAP in its licensing agreement.

Qualcomm case (2)

• Differences compared with Microsoft NAP case• Restriction applies to mobile phone, mobile phone stations,

and related chips. Other areas are not covered by NAP.• In Microsoft NAP case, it can cover any technology if

incorporated in PC OS.• A market power of Qualcomm is achieved by the standard

setting activities, not by its own merit. Once the patent is incorporated in the standard, it is difficult not to use it.

• Copyright (software) v. patent• Frequent version‐up of OS extends the restrictive effects for a

longer period of time. What about in this case?• How large is the number of potential licensees ?

Qualcomm case (3)

• Is this a case against FRAND in licensing of pooled patents for standard or a simple case of NAP ?

• Can Qualcomm impose the same condition if his technology was not a part of pooled patents?

• Why Qualcomm wanted to restrict the assertion of IPR by licensees against other licensees? What kind of gains could be achieved through NAP?

• Is this a case for discouraging incentive to innovate for licensees, or strengthening of a market power of Qualcomm ? What is the position of the complaint ?

Concluding remarks

• In evaluating abusive conducts of IPR, deep understanding on interaction between IPR and competition policy is vital.

• The key factor to evaluate is incentive to innovate and/or incentive to compete. The deterrence of these incentives shall occupy an important role in evaluating anti‐competitiveness in IPR related cases.

• Availability of Article 19 of the AMA would increase a chance to commit mistakes in the IPR related cases. Higher standard of illegality shall be tested by using exclusionary private monopolization provisions.

• The JFTC needs more expert staffs in this fields.

Thank you

• Contact

• akinori.uesugi@ freshfields.com

• 81‐3‐5481‐8280

ipr and cometition policy

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