Favouring an economic effect-based approach towards
refusals to supply IPR’s on both sides of the Atlantic: A
cutback on unnecessary interventions by the courts
Thomas Lee Pullar
Thomas.pullar@student.uva.nl
11352183
International and European Law: Competition Law and Regulation
Supervisor: Or Brook
Acknowledgements
I would like to thank first and foremost my supervisor Or Brook for her dedication, support and interest in the paper. I would also like to thank Prof. Annette Schrauwen for her support and feedback throughout the oral defence proceedings. Finally, to thank the staff of the UvA European Law department for their invaluable input and education throughout the past year which made the completion of this paper possible.
Abstract
This paper explores the current regime in place for governing cases in which dominant undertakings refuse to licence their IP. Refusals of such a nature impact both competition law and IP law. Thus, the jurists in both the US and the EU for a number of years have
implemented a balancing mechanism in dealing with cases of such a nature. They aim to obtain both the benefits of IP and Competition law whilst trying not to undermine one system in favour of the other. This approach has led to an interventionalist approach by the courts in this area and we have reached a state where the tests formulated by the courts have ultimately lead to a very wide scope where an abuse of a dominant position can be established.
This is unfavourable as this is likely to lead to one significant problem: a disincentive to innovate. This is, of course, the opposite of the objectives of both these areas of law which are designed to promote innovation in the market to the benefit of consumers. By favouring an interventionalist approach, the courts run the risk of undermining both systems of law.
Thus, it is argued in this paper, that it is essential for the courts to primarily consider the pro and anti-competitive effects in reaching decisions in this area rather than sticking to rigidly formulated tests. It is important that the effect of the refusal is established and the court should refrain from punishing form rather than effect. In reaching a conclusion where it can be demonstrated which outcome would have the most beneficial economic effect, the courts are able to cater for both areas of law in allowing the main objectives of both bodies of law: an improvement of innovation.
Table of Contents Contents Acknowledgements...2 Abstract...3 Table of Contents...4 Introduction...4
Ch 1 – The relationship between Intellectual Property Rights and Competition Law...8
1.1 – IP and Competition – How these laws have developed...8
1.2 – The EU Approach – How to balance Competition law with IPR’s...9
1.3 – The US Approach...11
1.4 – Concluding remarks...12
Ch 2 – The role of the essential facilities doctrine...13
2.1 – The development of the US essential facilities doctrine...13
2.2 – The Development of the EU essential facilities doctrine – A consequence of US law?...16
2.3 – The difficult application of the essential facilities doctrine to IP cases...20
Ch 3 – Using common sense in balancing IP and Competition Law...25
3.1 – The answer should always be maybe...26
3.2 – Using economic analysis of the effects to suit both areas of law...27
Conclusion and Recommendation...29
Conclusion...29
Introduction
The intertwining relationship between Intellectual Property law and Competition law has been one of debate for many years.1 On one hand, Competition law aim to protect consumers
by creating fair conditions for undertakings to operate on the market, thus aiming to preserve competition on the market.2 On the other hand, IP law provides owners of creations with an
exclusive right to behave in a certain manner.3 Ultimately, the conferral of IP rights on
owners means that they are able to act independently of other competitors, as they are able to protect innovations and prevent unlicensed use of their creation. From the eyes of
competition law, this creates a serious problem. This is because dominant undertakings who hold access to IP rights are theoretically able to distort competition by refusing to provide access to an important or even essential intangible asset.4 Ultimately, IP owners are given a
significant amount of discretion over how to license or use their inventions.5
Where competition authorities decide to intervene excessively, undertakings will be less inclined to innovate in the future as their protection under IP law is not guaranteed.6 On the
contrary, where undertakings are afforded particularly strong IPR’s, in cases where the undertaking enjoys a dominant position, its incentive to innovate is drastically reduced.7 This
balancing process means that the courts are required to make careful assessment of the facts of the case. In simple terms, too much protection to competition law will reduce the incentive to innovate, but too much protection for IPR’s will generate exactly the same problems. Clearly, at first glance, it appears that there is some conflict between these two areas of law. This has led to commentators suggesting that there is an “inherent tension”8 and an
“innovation paradigm”9 created by the intersection of these fields of law. However, this logic
is perhaps misconstrued, indeed, both of these areas of law share almost identical objectives
1 For example, See John Temple Lang, “Compulsory Licensing of Intellectual Property in European Community” (2002) 30 Antitrust Law
2 See Gregory Sidak & David J Teece “Dynamic Competition in Antitrust Law” (2009) Journal of Competition Law and Economics, 5(4), 587
3 Richard Whish and David Bailey, Competition Law (OUP, 8th edn, 2015)
4 Luc Peeperkom “IP Licences and Competition Rules: Striking the Right Balance” (2003) World Competition Journal, 26(1), 527, 527
5 Richard Gilbert and Alan J Weinschel. "Competition policy for intellectual property: Balancing competition and reward." (2007) Competition Policy Center Working Paper, 2
6 Daniel Kanter “IP and compulsory licensing on both sides of the Atlantic – an appropriate antitrust remedy or a cutback on innovation” (2006) ECLR 351, 351
7 Ibid
8 Jennifer Davis, Intellectual Property Law (OUP, 4th Edn, 2012), 5; Whish and Bailey, 812
9 Joseph Drexl “IMS Health and Trinko – Antitrust Placebo for Consumers instead of Sound Economics in Refusal to Deal Cases” (2004) IIC 35(7), 788, 793
of improving consumer welfare, admittedly, in two very different manners. Indeed, it was held in the US case Atari Games v Nintendo, the court quite eloquently illustrated the convergence between the areas:
“When [a] patented product is so successful that it creates its own economic market or consumes a large section of an existing market, the aims and objectives of patent and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and
competition”10
Thus, the complimentary nature of these two bodies requires that some form of conformity is applied when dealing with cases relating to alleged competition infringements where
ownership of an IP right is involved. The task of doing so is not simple. Indeed, the close relationship between IP law and Competition law and the difficulties it presents can be demonstrated with the significant amount of academic comment11 and jurisprudence12 on this
topic.
It is not presented in this current discussion that there is a clear tension in this area inherently, rather, it is the courts reluctance to draw a clear line on where one field of law should prevail over the other that leads to controversy. The answer to this question is still somewhat unclear in both the US and the EU. Ultimately, one system must prevail over the other in particular situations or there is no possibility to reach a conclusion on the matter. On this point,
commentators on both sides of the debate have argued that IP should prevail over competition by providing stronger IPR for inventors13, whilst many have argued to the contrary.14
The problems are worsened at EU level when it is considered that Competition law is
regulated at union level whereas the vast majority of IP rules are left to Member States.15 This
10 Atari Games v Nintendo 897 F.2d 1572 (Fed. Cir. 1990)
11 For example: Yee Wah Chin & Katheryn Walsh “The Growing Interplay of Patent and Competition Law: Antitrust Pitfalls in Licensing” (2006) PLI/Pat, 197; Frank Easterbrook “Intellectual Property is still Property” (1990) Harvard Journal of Law and Public Policy, 13(1), 110
12 To cite examples for both jurisdictions evaluated in this paper, see: Image Technical Services v Eastman
Kodak 125 F.3d 1195 (9th Cir, 1997) and Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE)
and Independent Television Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-743
13 See generally: David Kennedy "Some Caution about Property Rights as a Recipe for Economic
Development," (2011) Accounting, Economics, and Law Journal, 1(1); Herbert Hovenkamp “Restraints on Innovation” (2007) Cardozo Law Review, 29(1), 247
14 Frank Easterbrook “The limits of Antitrust” (1984) Texas Law Review, 63(1)
15 Urška Petrovčic, Competition Law and Standard Essential Patents: A Transatlantic Perspective (Kluwer Law International, 2014), 42
means that different MS are likely to apply varied levels of protection to owners of IPR’s, which ultimately affects the unions ability in providing a coherent answer when called upon via the preliminary ruling system.
This paper will explore how the courts on either side of the Atlantic have dealt with conflicts of interest between IP rights and competition concern, thus making an assessment of where the courts believe that competition should prevail over property rights when considering potential abuses of dominance. In doing so, it will evaluate the development of this field and conclude with why the current approach is somewhat weak in promoting innovation as strongly as it could. It will also make a clear assessment of the application of the essential facility doctrine and how it has been expanded in recent years to cases relating to IP. The paper will then conclude that the EU has failed to adequately consider the economic effects of refusals to licence. The Court has preferred an invasive approach in which a strict competition test is used in the exceptional circumstances where intervention is deemed necessary to protect innovation. The test formulated by the EU has two problems, firstly, it appears to protect competitors rather than consumers and ultimately undermines the IP systems of Member States, and secondly, the test has been applied too rigidly which does not allow the court to take into consideration the pro and anti-competitive economic effects of the case at hand. The approach appears to have been generalised and does not consider the particular characteristics of the market in question. It is therefore necessary to take into consideration how the US have applied economic considerations to their case law and how this approach is far more likely to protect innovation than a generic strict test as well as looking at how this approach has been considered, yet not followed, at EU level. Most importantly, it is important for the courts where assessing potentially abusive refusals to supply to consider the pro-competitive effects that may occur due to the refusal. In doing so, this allows the author to make a clear recommendation as to how the application of the essential facilities test could be applied in practice within the EU.
In order to fully illustrate this argument, the writer will use a comparative study format in assessing both the system in the US as well as in the EU. We can see that both systems do have serious underline problems, however it is evident that both the EU and the US are making positive steps towards an economic effects based approach towards refusal to supply cases.
Ch 1 – The relationship between Intellectual Property Rights and Competition Law
1.1 – IP and Competition – How these laws have developed
Ones right to protect their creations from exploitation by others was first recognised in the US in the Constitutional Convention of 1787 where it described the right of protection for patents and copyrights.16 Such a right was already well established within Europe, some
authors citing 1474 as being the year of the first fully developed patent law being passed in national systems.17 It was not until much later, however, that the term ‘intellectual property’
was used for the first time to recognise copyrights, patents and trademarks under one concept.18
Competition law on the other hand, was recognised by courts throughout Europe and the US well before the most legislators had decided to implement policy.19 The rationale for a
development of anti-monopolist regulation was largely influenced by popular economics of the time.20 This has not changed in modern times, as cases frequently approach the facts from
an economic perspective.21
However, it was not until a much later stage that the interlink between these two laws were recognised. The scope of this discussion focuses on situations where IPR’s arguably generate considerable market power, and thus, receive attention under Article 102 TFEU in Europe, and under s.2 of the Sherman Act in the US. Where an undertakings creation benefits from protection, there is a high possibility that they enjoy a large market share on the market in which they operate.22 That being said, holding a dominant position on the market does not in
itself mean that an undertaking is in violation of competition law, an abuse of that possession must be present.23 Nonetheless, the ECJ has held persistently in its more recent jurisprudence
16 U.S. Constitution, Article I, Section 8, Part 8
17 Frank Schechter “The Rational Basis Of Trademark Protection”, (1927) Harvard Law Review, 40(1), 813 18 Davoll v Brown CCD Mass. 7. F. Cas. 197 (1845)
19 See for example: Darcy v Allin (1602) 74 ER 1131; Proprietors of Charles River Bridge v Proprietors of
Warren Bridge, 36 U.S. 420, 549 (1837)
20 Adam Smith, Wealth of Nations (1776) Book I, Chapter 10, para 82; John Stuart Mill, On Liberty (1859) Chapter 5, para 4
21 The courts in the US have frequently applied a ‘Chicago School’ approach to economics throughout the years. See: Spectrum Sports v McQuillan 506 U.S. 447 (1993); State Oil Company v Khan 522 U.S. 3 (1997) 22 Giorgio Monti, EC Competition Law (Cambridge University Press, 2007), 124
23 Case 27/76, United Brands v Commission [1978] ECR 207; and more directly related to IP related dominance, Case 24/67, Parke Davis & Co v Probel [1968] ECR 55
that ownership of an IPR does not necessarily constitute possession of a dominant position.24
Rather, it has indicated a number of exceptional circumstances in which a refusal to licence an IPR constitutes an abuse of a dominant position.25
1.2 – The EU Approach – How to balance Competition law with IPR’s
The absence of a unified IP system in the EU means that in the various 28 jurisdictions, the approach of MS is likely to vary.26 At first glance, this appears to generate difficulties at
union level as this renders the Court incompetent to rule on matters regarding the exercise of IPR’s. However, in Consten and Grundig27, The Court, accepting the ruling passed down by
the Commission, spoke of a clear distinction between the existence of a national IPR, which could not be held to be in their competence, and the exercise of said right, which was within their scope. Whilst this case dealt with an infringement of what we now call Article 101 TFEU, the author sees no reason why this logic could not be applied to alleged abuse of dominance cases.
The EU approach in creating an existence/exercise separation when considering IPR’s allows it to assert its jurisdiction over cases relating to distortions of competition. This is a somewhat activist approach to extend its jurisdiction to cases which would otherwise be reserved for MS. One commentator has claimed that in ruling in such a nature, the EU courts “provided itself with a weapon for judicial law reform.”28 Upon analysis, it is easy to conclude this
decision helped to effectively render what we now know as Article 118 TFEU meaningless in IP cases,29 and thus, create the doctrine of exhaustion of IP rights.30 Undoubtedly, this reduces
the scope for IP rights to be protected through numerous jurisdictions, as where the product has been marketed in one MS, it must be allowed to be distributed in others.
24 Case 238/87 Volvo v Veng [1988] ECR 6211, para 9; Case 53/87 Maxicar v Renault [1988] ECR 6039; Case 418/01 IMS Health v NDC Health ECR I-5039, para 24
25 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television
Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-743, para 73, refusals to deal will be dealt with
inChapter 2.
26 The ECJ has held that IP shall be considered as the same as physical property, and thus is within the competence of MS, see Case C-350/92 Spain v Council of the European Union [1996] ECR
I-1985
27 Joint Cases 56 & 58/64 Consten & Grundig v Commission, [1966] ECR 299
28 Valentine Korah “The interface between Intellectual Property and Antitrust: The European Experience” (2002) Antitrust Law Journal, 69(3), 801, 805
29 Ibid
30 The doctrine of exhaustion can be seen in, for example: Case 15/74 Centrafarm v Sterling Drug Inc [1974] ECR 1147
This does not mean that the Courts extension of its scope has resulted in less protection for IPR’s in general. In Volvo, the court stated, “that a refusal to grant such a licence cannot in itself constitute an abuse of a dominant position.”31 Rather, the Court has reserved its
concentration for cases in which intellectual property rights are used to restrict competition abusively.32 This stance was confirmed in Magill, where a four part test was created in
assessing abusive misconduct.33 One can only assume that this is the Courts way of
attempting to balance the rights of IP holders with competition concerns. Only focusing on issues where it is clear that the use of IP rights is designed to give holders unfair competitive advantages over other competitors provides for a reasonable approach in achieving the objectives of both fields of law.
It should also be noted however that in the context of Article 101, modern EU competition law recognises the vast pro-competitive effects of technology transfer between competitors.34
Thus, it is also important to recognise that where the pro-competitive benefits outweigh the importance of IPR protection, it appears that the EU will favour a an economic analysis of the case at hand and favour competition law in increasing innovation and as a result, the benefits seen by consumers.
The distinction made by the court between existence/exercise of IPR’s in allowing it
jurisdiction over matters has been criticised heavily. This is because the ability to exercise an IPR is the precise reason these rights exist.35 It appears to have been a distinction simply
made to allow the Court to exercise competence over situations at a central level. Further, by scrutinising IPR’s and issuing obligations to licence, the EU runs the risk of protecting competitors, rather than consumers. This is contradictory to the aims of the EU treaties.36
Nonetheless, concerns of IPR holders are short lived when the case law is explored in further detail. Thus far, only ‘exceptional circumstances’ have created reasonable grounds on which the EU judiciary will depart from a strong protection for IP owners. It is also worthy to point
31 Case 238/87 Volvo v Veng [1988] ECR 6211, para 9
32 Case 262/81 Coditel v Ciné-Vog Films SA and others [1982] ECR 3381, para 14. These cases are dealt with in more detail in CHAPTER….
33 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television
Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-743, para 73
34 Commission Notice “Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements” [2014] OJ C 89, paras 9 and 17
35 Craig P. & De Búrca G. EU Law, (Oxford University Press, 2003), 1119
36 Case T-201/04, Microsoft v Commission [2007] ECR II-3601, para 632; James Turney “Defining the Limits of the EU Essential Facilities Doctrine on Intellectual Property Rights: The Primacy of Securing Optimal Innovation” (2005) Northwestern Journal of Technology & Intellectual Property, 3(1), 180, 183
out that the initial hostility to IPR’s created by the exhaustion principle is diminishing considerably.37
1.3 – The US Approach
The general rule in the US, like in the EU, is that holders of IPR’s are under no obligations to contract or licence with any other undertaking. In its Colgate ruling, the Supreme Court stated:
“[I]n absence of any purpose to create or maintain a monopoly, the Sherman Act does not restrict the long-recognized right of a trader to […] freely exercise its own independent discretion as to parties with whom he will deal.”38
The approach in the US of granting compulsory licencing orders is likely far more restricted in than the EU because US antitrust policy makers does not also have to take into
consideration the principles of free movement and a single market like its EU counterpart does. Further to this, IPR’s are protected under the US constitution.39 Therefore, inherently,
IP rights have an unbreakable protection according to US law, it is, as a result, undeniable that IPR’s have some forms of priority over antitrust regulation in the general sense.40
IP law in the US does not even appear to take into account antitrust concerns.41 Rather, the IP
guidelines go as far to state that unilateral market power created or influenced by an IP does not confer an obligation to deal on undertakings.42 However, this does not mean that IP
protection is definite. In approaching cases which involve antitrust and IP, the courts apply a cross interpretation technique where only conduct which is outside the scope of the patent can be considered from an antitrust perspective.43
In this respect, the approach is similar to what we can see in the EU. However, it is evident that an even stricter scope is applied in the EU in antitrust assessments of IPR related refusal
37 Case C-427/93 Bristol Myers Squibb v Paranova A/S [1996] ECR I-6285; Case T-504/93 Tiercé Ladbroke
SA v Commission [1997] ECR II-923
38 United States v Colgate & Co 250, U.S. 300, 307 (1919) 39 U.S. Constitution, Article I, Section 8, Part 8.
40 Stewart v Abend 495 U.S. 207, 228-29 (1990)
41 Konkurrensverket, The Intersection of IPR and Competition Law Studies of recent developments in European and U.S. law- Report (2008) Chapter 3: An IPR Perspective Madeline Claesson, 45
42 1995 US Antitrust Guidelines for the Licensing of Intellectual property, issued by the UD Department of Justice and the Federal Trade Commission, April 6, 1995, Section 2.2
to licences.44 Whilst there are examples to demonstrate it is not impossible to prove an
anticompetitive refusal to licence,45 it appears that where IPR’s are used legitimately there
can be no question of antitrust liability. Thus, it appears the EU have applied competition law widely in protecting IPR’s whereas the US have favoured IP regulation in combatting abusive conducts by undertakings. Undoubtedly, it appears that the US legislature and judiciary favour a system of strongly protected IPR’s in creating a system of incentives to innovate rather than use competition mechanisms to achieve the same objectives by using higher protection to owners than its EU counterpart which aims to protect them with stricter competition laws.
1.4 – Concluding remarks
It is recognisable that both jurisdictions are reluctant to invade on an undertaking’s right to deal with whomever they please. Nonetheless, IPR owners are “in no way immune from competition law” and thus competition regulations may limit the exercise of a legitimate IPR right.46 Competition laws appear to prevail over IPR’s only in exceptional circumstances
where undertakings are involved in exploitative practices. However, it appears that the EU has adopted a more interventional approach than its US counterpart. This is in line with the economic arguments of people such as Arrow who believes that free competition provides more incentives to innovate.47The jurisprudence explored in the upcoming chapters of this
paper demonstrates that the EU envisions competition laws as the best means of improving innovation in situations where undertakings use IPR’s to distort competition. Kovacic argues in this respect that the US are perhaps more reluctant to apply competition law to matters concerning IPR’s as plaintiffs in the past have used antitrust law as a means of gaining commercial advantage. To grant the disclosure of IPR’s would perhaps create a mass exodus of claims by less effective competitors seeking to obtain trade secrets and patent information in order to compete, thus creating a ‘free riding effect’.
44 One only needs to compare the strict test formed in Case C-418/01 IMS Health v NDC Health [2004] ECR I-5039 in comparison to CSU, LLC, and others v Xerox Corporation 203 F.3d 1322 (10th Cir. 2000).
45 See for example, Image Technical Services v Eastman Kodak 125 F.3d 1195 (9th Cir, 1997)
46 Urška Petrovčic, Competition Law and Standard Essential Patents: A Transatlantic Perspective (Kluwer Law International, 2014), 65
Both jurisdictions, to varying extents, have adopted the ‘essential facilities doctrine’ in combatting excessive disclosures of IPR’s. This attempts to combat free riding effects by only issuing orders to licence under exceptional circumstances, which usually falls under Article 102 TFEU and Sherman Act s.2. It is submitted that whilst this approach does help to combat abusive uses of IPR’s, the courts in both jurisdictions have failed to take into
consideration the economic effects of the essential facilities doctrine application. This has received criticism not only by commentators,48 but also by the EU courts themselves.49
Creating doctrines which fail to fully consider the economic implications on a case by case basis by applying rigid tests creates a severe risk that competition laws start to protect weaker competitors rather than consumers. It is discussed in the next chapter how the essential facilities doctrine has developed and the advantages and disadvantages how the courts on either side of the Atlantic have approached the matter.
Ch 2 – The role of the essential facilities doctrine
2.1 – The development of the US essential facilities doctrine
The essential facilities doctrine has been established on both sides of the Atlantic as a method of identifying exceptional circumstances where monopoly owned facilities should be shared with competitors in order to provide undistorted competition on the downstream market.50
The reason for applying such a doctrine is to prevent situations where large monopolist undertakings are able to use their ‘facilities’ in order to prevent access of other competitors to the market.51 The US jurisprudence, having been formed well before the EU, dates back well
48 Joseph Drexl “IMS Health and Trinko – Antitrust Placebo for Consumers instead of Sound Economics in Refusal to Deal Cases” (2004) IIC 35(7), 788 794
49 Case T-342/99 Airtours v Commission [2004] II-01785, Joined cases C-12/03 P-DEP and C-13/03 P-DEP
Tetra Laval v Commission [2010] I-00067
50 Ulf Muller and Anselm Rodenhausen “The rise and fall of the essential facility doctrine” [2008] ECLR 310, 310
51 R Pitofsky and D Patterson and J Hooks, ‘The Essential Facilities Doctrine Under United States Antitrust Law’ (2002) 70 Antitrust Law Journal 443, 462
before the first decisions of the EU. It is thus understandable that the EU approach, to an extent has been largely based on decisions of the US courts.
The first noted decision by scholars in the US is held to be Terminal Railroad Association.52
The Terminal Railroad Association was a corporation formed in St. Louis with the idea of combining numerous railroads for unilateral access. The corporation intended to deny other competitors access to the facility. This prevented other competitors accessing various parts of the state as these were the only facilities available. The court held that the “unified system”53
which the cooperation had created was able to prevent competitors from entering the market and/or give the monopoly “distinct advantage”54 within the market. As a result, access to the
facility was deemed to be essential.
The earliest unilateral refusal to deal case in the US appears to be Otter tail.55 Here, an
electric company refused to allow competitors to obtain electricity from its sources, as a result, this prevented them from accessing the downstream market. The court stated that the dominant undertaking had “used its monopoly power […] to foreclose competition or gain a competitive advantage, or to destroy a competitor, all in violation of antitrust laws”.56
From these two early rulings, we see that the main concern of the courts in the US is where dominant undertakings use their property abusively in order to gain competitive advantages over other undertakings. From a development perspective, the requirement to provide access to one’s own property and rights with competitors is likely to act as a disincentive for
undertakings to innovate and create technology.57 This is the reason why the Supreme Court
has indicated that whilst the right to deal with whomever one may chose is considered in high regard, it does not mean that “the right is unqualified.”58 Where a competitive relationship
exists, plaintiffs alleging abusive refusals to supply may rely on the doctrine.59
Interestingly, these cases deal with refusals to supply and do not explicitly mention a so-called essential facilities doctrine, nonetheless, the use of such a doctrine was mentioned in
52 United States v Terminal Railroad Association 224 US 383 (1912) 53 Ibid, 405
54 Ibid, 408
55 Otter Tail Co v United States 410 U.S. 366 (1973) 56 Ibid, 377
57 Liyang Hou ‘The essential facilities doctrine – what went wrong in Microsoft?’ (2012) IIC, 451, 452 58 Aspen Skiing Co v Aspen Highlands Skiing Corp 472 US 585, 601 (1985)
Hecht60 and it was not until a number of years later until the Supreme Court made use of the
specific wording.61 In this case, a four stage test was adopted, in which it must be established:
- There is control of an essential facility by a monopolist
- It is impractical or unreasonable for a competitor to duplicate the facility - There exists a denial of access by the monopolist
- It is feasible to provide the facility62
The case at hand considered the prior jurisprudence and established that in cases such as
Aspen Skiing, a limited exception had been established where a refusal to grant access to a
facility can be considered abusive. The lower courts have applied this test in numerous following cases.63 Unlike the EU however, the Supreme Court appears to have taken a step
back in its most previous jurisprudence with regards to the essential facilities doctrine. For evidence of this, we need look no further than the Supreme Court case of Verizon v Trinko64
where the Supreme Court clearly distanced itself from applying the essential facility doctrine in stating that the Supreme Court had never recognised the essential facilities doctrine.65
Rather, it was held by the court that this ‘doctrine’ was a creation of the lower courts. This fits with Areeda’s analysis of the topic, in which he has stated:
“You will not find any case that provides a consistent rationale for the doctrine […] It is less a doctrine than an epithet, indicating some exception to the right to keep one’s creations to oneself, but not telling us what those exceptions are”66
It has also been argued in this respect that the Supreme Court, in their MCI ruling, were never aware of creating such a doctrine,67 indeed, it is argued that the lower courts have even
interpreted the essential facilities doctrine as being entirely separate grounds from the Sherman Act for striking down abusive misconduct. Justice Scalia did indeed indicate in the
Trinko ruling the prior key rulings, and indeed namely, Aspen Skiing, was “at or near the
60 Hecht v Pro-Football Inc 570 F.2d 982 (1977)
61 MCI Communications Corporation v AT&T 708 F.2d 1081 (1983) 62 Ibid, 1132-1133
63 Caribbean Broad Sys Ltd v Cable 8c Wireless PLC 148 F.3d 1080, 1088 (D.C. Cir. 1998); Ideal Dairy
Farms, Inc v John Labatt Ltd 90 F.3d 737, 748 (3d Cir. 1996); City of Anaheim v S. Cal Edison Co 955 F.2d
1373, 1380 (9th Cir. 1992)
64 Verizon v Trinko 540 US 398 (2004) 65 Ibid, 410-411
66 Phillip Areeda “Essential Facilities: An Epithet in Need of Limiting Principles’ (1990) Antitrust Law Journal, 58(4), 841, 841
67 Ulf Muller and Anselm Rodenhausen “The rise and fall of the essential facility doctrine” [2008] ECLR 310, 314
outer boundary of Section 2.”68 Commentators have argued that the journey of essential
facilities from a doctrine to an epithet was at this stage complete,69 or at least predicted the
inevitable demise of the doctrine.70 However, it would be argued that this is not the case,
since the lower courts continue to refer explicitly to the doctrine, albeit in a more linear fashion.71 The trend following Trinko appears that the US are returning to stronger values in
relation to property rights, as in correlation with the constitution itself in applying a very strict test in ordering dominant undertakings to provide access for competitors to its facilities. This is clear evidence of favourability of the US in applying stricter IPR’s than using
competition to combat difficulties. The problem with this approach is that it inherently adopts a very rigid approach in which it is hard to make an economic analysis on the facts of the case. Nonetheless, as is explored in the next section, where the US have applied antitrust as a remedy, they have applied a more economical approach than appears to be the case with its EU counterpart.
2.2 – The Development of the EU essential facilities doctrine – A consequence of US law?
The development of the EU system understandably came at a much later date. Much like the US system, the view in the EU is that to order a competitor to deal with another is a far-reaching restriction of one’s property rights.72 The first cited case considering a refusal to deal
came in Commercial Solvents.73 This case concerned an alleged abuse by the only
manufacturer of a chemical in the production drugs which prevented tuberculosis. The producer decided to start operating on the downstream market for the sale of drugs and as a consequence decided to start refusing to supply competitors with the necessary raw materials. The CJEU established in this case that it is sufficient that one of the competitors on the downstream market is eliminated in order for the conduct to lead to an elimination of
effective competition and thus render the conduct abusive under Article 102 TFEU.74 Thus, it
68 Verizon v Trinko 540 US 398, 409 (2004)
69 Spencer Weber Waller “Areeda, Epithets, and Essential Facilities” 2008 Wisc L Rev, 360, 365
70 Daniel Kanter “IP and compulsory licensing on both sides of the Atlantic – an appropriate antitrust remedy or a cutback on innovation” (2006) ECLR 351, 362
71 For example, see New York Mercantile Exchange v Intercontinental Exchange F.Supp. 2d 559, 568 (S.D.N.Y. 2004); Levine v Bellsouth Corp 302 F.Supp. 2d 1358, 1372 (S.D. Fla.2004)
72 Mats Bergman ‘The Bronner case – a turning point for the essential facilities doctrine?’ [2000] ECLR 59, 59 73 Joined Cases 6/73 and 7/3, Instituto Chemioterapico Italiano SpA v Commission [1974] ECR I-00223 74 Ibid, para 409
could be determined that an abuse could be proven where a new customer required an input that was “truly essential and could not be replicated”.75 This fits in with consistent case law
where an abuse can be established where dominant undertakings on the upstream market restrict or foreclose the downstream market by refusing to supply them with an essential input.76
The first explicit mention of an essential facility can be traced back to Sea Containers. Where it was held the owner of an “essential facility which uses its power in one market in order to protect or strengthen its position in another related market imposing on competitors a disadvantage [..] infringes Article 82”.77 However, like the US, it appears that the higher
authorities in the EU tend to refrain from using the term, as indicated by the CJEU’s decision to refrain from repeating AG Jacobs use of the term in his Opinion.78 A dominant undertaking
is of course allowed to take reasonable measures to promote its commercial interests, but this may not be in an abusive manner and must be proportional.79 There must also be no technical
or economic justification to supply existing or new customers.80 This appears to differentiate
from the US approach as it appears that the essential facility doctrine only applies where there is already an existing relationship between the competitors.81
However, there are a number of examples of where the two jurisdictions appear to have clear similarities. As is highlighted in the above section, the US have adopted a four-part test in establishing the existence of an essential facility. In Oscar Bronner, the CJEU also
formulated a test in establishing existence. Rather than explicitly referring to a facility as such, the court pointed out three conditions in the establishment of an abuse:
- A refusal is likely to exclude all competition in the relevant market - Access is essential and indispensable to continue to operate in the market - There is no objective justification82
75 Mark Furse Competition Law of the EC and the UK (Oxford University Press, 6th Edn, 2008), 447
76 Case 27/76 United Brands v Commission [1979] ECR 207, para 65
77 Commission Decision 94/199/EC, 1994 OJ (l 105) (IV/34.689 – Sea Containers v Stena Sealink)
78 Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverslag GmbH &
Co. KG and Others [1998] I-07791, Opinion of AG Jacobs, para 33
79 Boosey and Hawkes (BBI/Boosey & Hawkes: Interim Measures 87/500 (1987) OJ L286/36, para 19 80 Case 311/84 Centre Belge d’Etudes de Marché- Telemarketing (CBEM) v SA Compagnie Luxembourgeoise
de Télédiffusion and Information Publicité Benelux [1985] ECR 3261, para 26
81 Intergraph Co v Intel Co 195 F.3d, 1146, 1357 (Fed Cir 1999)
82 Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverslag GmbH &
This case has been described as a “turning point”83 in this area. This is because the Court
appears to clearly to distance itself from prior EU decisions where it states that interference should only be considered in:
“cases in which the dominant undertaking has a genuine stranglehold on the related market. That might be the case for example where duplication of the facility is impossible or
extremely difficult owing to physical, geographical or legal constraints or is highly undesirable for reasons of public policy. It is not sufficient that the undertaking's control over a facility should give it a competitive advantage.”84
From this, we can see that the Court is clearly concerned that the scope of the doctrine has been extended too far and thus, the court has tried to establish a stricter criterion in which a refusal to supply can be deemed to be abusive. This fits with the view of the most respected commentators in the US where they believe that the law has developed to such a stage at which the Courts try to limit the use of the doctrine.85 This approach certainly helps to
prevent undue restrictions on one’s property rights as well as their right to deal with whoever they chose, which in turn, creates an approach to the doctrine which benefits consumers, rather than competitors.86
When we look deeper into the rules governing US and EU law, we can see that there are clear similarities, to do so, it is important to look into the application of the similar tests seen in
MCI and Oscar Bronner in cases on both sides of the Atlantic. Firstly, it is recognised in both
jurisdictions that there must be the existence of a facility which is under the control of a dominant undertaking. In McKenzie v Mercy Hospital, access to hospital facilities were not deemed to be necessary as the Plaintiff, who was a doctor, was able to carry out his functions in his clinic, albeit, with fewer resources and less space to carry out his duties.87 This binds
close resemblance to the decision in Oscar Bronner, where it was held that an essential facility could not exist where there were other means of accessing the market, even if they were “less advantageous”.88
83 See Mats Bergman ‘The Bronner case – a turning point for the essential facilities doctrine?’ [2000] ECLR 59 84 Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverslag GmbH &
Co. KG and Others [1998] I-07791, para 64
85 Phillip Areeda ‘Essential Facilities: An Epithet in Need of Limiting Principles’ [1990] Antitrust Law Journal, 58(4), 841, 841
86 Antonio Capiobanco "The essential facility doctrine: similarities and differences between the American and the European approach", (2001) 26(6) ELR 548, 550
87 McKenzie v Mercy Hospital 854 F.2d 365, 370 (10th Cir 1988)
88 Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverslag GmbH &
The MCI test also indicates that there should be an inability to duplicate the facility. In
Fishman, the Court made reference to the unreasonableness of the costs involved in building
a new stadium which the Defendant had refused access to.89 Likewise, the EU courts have
recognised that a facility may be deemed to be essential where there are excessive time or economic restraints on replicating the facility.90 This is also related to the indispensability of a
facility. The European Courts consistently held that where it is not economically viable to replicate the matter in question, it can be considered to amount to an ‘indispensable’ product.91 The third test also bares similarity in that there must be a denial of access, whilst
this is an explicit requirement in the US tests, the EU has indicated in its recent cases that access must be granted on reasonable terms unless there are clear reasons or difficulties in providing the services.92
The final part of the MCI test is that it must be feasible to provide the access. The wording of the test here is somewhat confusingly interpreted as the courts in the decisions following
MCI have treated this as there being the requirement of an objective justification for not
providing access to the facility.93 It is also largely recognised that a dominant undertaking
may also provide an objective justification in evading violation of Art. 102 TFEU.94 It is
evident that the modern case law in this area appears to be somewhat more sympathetic to dominant undertakings than has been previously illustrated, so long as there is an objective basis for refusing to supply access to the facility.95 This ultimately restricts the reach of the
doctrine by siding with the owners of the property.
The analysis shows that the EU, like the US, with regards to physical property is taking a step back with regards to the application of the essential facility doctrine. Both leading cases in the area have clearly applied similar tests in ensuring that only exceptional circumstances access should be provided to facilities held by dominant undertakings. It has even been argued that with regards to physical property, the EU in Bronner, has applied a higher legal
89 Fishman v Estate of Wirtz 807 F.2d 520, 540 (7th Cir 1986)
90 Joined cases T-374/94, T-375/94, T-384/94 and T-388/94, European Night Services v Commission [1998] II-03141, para 209
91 Case T-201/04, Microsoft v Commission [2007] ECR II-3601, para 374; Case C-7/97, Oscar Bronner GmbH
& Co. KG v Mediaprint Zeitungs- und Zeitschriftenverslag GmbH & Co. KG and Others [1998] I-07791, para
46
92 Case T-201/04, Microsoft v Commission [2007] ECR II-3601, para 808 93 S. Pac Communications Company v AT&T 740 F.2d 980 (D.C. Cir. 1984) 94 Case T-201/04, Microsoft v Commission [2007] ECR II-3601, para 688
95 Elaine Johnston “Intellectual Property as an ‘Essential Facility’” (2005) The Computer & Internet Lawyer, 22(2), 17, 18
standard than the US.96 This is correct, at least with regards to the approach taken by the
lower courts in the states. It is submitted on this note however, that the courts in both
jurisdictions have failed to take careful consideration of the facts of individual cases. Rather, they have created stringent tests that an undertaking must demonstrate cumulatively in each individual case, failing to take into consideration the varying characteristics of individual market sectors.
An illustration of this is the application of Oscar Bronner, which regards the delivery of nationwide newspapers, to cases involving IP protected databases97 and telecommunication
disputes.98 Thus, it would be argued that there appears to be a lack of economic analysis in
the decisions in both jurisdictions, a more effective approach would be to review the
economic advantages and disadvantages which consumers rather than competitors achieve by the compulsory order to deal on a case by case basis rather than applying a generic test to refusal to deal cases. Fortunately, there has been some development on this matter with regards to IP related essential facilities, albeit, we are far from the finished product. 2.3 – The difficult application of the essential facilities doctrine to IP cases
The modern case law on compulsory licensing in the EU was established by the
aforementioned plethora of cases dealing with essential facilities in the traditional sense, that is, when the "facility" in question is physical property of some kind, such as a railway or a port.99 Whilst ownership of IP cannot, as such, confer market power,100 as aforementioned
there are instances where a refusal to licence IP rights may generate an infringement of competition law. This is more likely to be the case where the existence of an IP right is important for existence on the market, for example, in telecommunications or
pharmaceuticals.101 This has been accepted by courts in both jurisdictions where it has been
consistently held that whilst IP does not confer market power, the pro-competitive and
anti-96 Daniel Kanter “IP and compulsory licensing on both sides of the Atlantic – an appropriate antitrust remedy or a cutback on innovation” (2006) ECLR 351, 363
97 Case C-418/01 IMS Health v NDC Health [2004] ECR I-5039
98 Case C-52/09 Konkurrenseverket v TeliaSonera Sverige AB [2011] I-00527
99 Frank Fine “European Community Compulsory Licensing Policy: Heresy versus Common Sense Symposium on European Competition Law” (2004) Northwestern Journal of Law and Business, 24(3), 619, 621
100 Debra Valentine “Abuse of Dominance in Relation to Intellectual Property: US Perspectives and the ITEL cases” (2000) Computer Law Review International 3(1), 73, 76
101 Harris Apostolopoulos “Refusal to Deal Cases of IP Rights in the Aftermarket of US and EU Law: Convergance of Both Law Systems Through Speaking the Same Language of Law and Economics” (2007) DePaul Business and Commercial Law Journal 5(2), 237, 241
competitive features of a refusal to supply must be considered.102 This suggests a more
economic approach to assessing refusals to licence on the IP front, which is perhaps used as a further barrier of protection for owners of IP rights. However, it will be explored in this section that it has been the US courts which have adopted an economic approach significantly further than its EU counterparts, and thus, it is important to assess the EU approach and how it falls short of offering the most efficient approach in assessing potential infringements of Article 102 TFEU.
In recent jurisprudence, the first case mentioning potential abuses of dominance with respect to IPR’s came in Volvo. The CJEU, in line with the prior jurisprudence, held that ownership of an IPR and refusal to licence such a right does not automatically result in an abuse of dominance, however, where the refusal is arbitrary, this may result in violation of Article 102 TFEU.103 This can be understood as where a dominant undertaking uses its power on an
upstream market to foreclose a downstream market for its own benefit. Further clarification of this came in RTT where the CJEU held an:
“undertaking holding a monopoly in the market for the establishment and operation of the network, without objective necessity, reserves to itself a neighbouring but separate market, in this case the market for the importation, marketing, connection, commissioning and maintenance of equipment for connection to the same network, thereby eliminating all competition from other undertakings infringes Article [102] TFEU”104
In these cases, the Court held open the door to potential abuses of dominance where there is a refusal to licence. Some years later, in Magill,105 the Court was given the opportunity to
expand on this, and thus applied a test in setting out the conditions necessary to establish an abuse. The Magill case regarded a Claimant who sought to produce listings to three TV companies in a weekly guide. The broadcasting companies denied access to this as the listings were protectable under UK and Irish Law. The Court, ruling against the Defendants, applied the Oscar Bronner test in assessing an abuse of dominance, but also went further in
102 Case 40/70 Sirena v Eda [1971] ECR 69, para 16; Illinois Tool Works Inc v Independent Ink 126 S. Ct 1281 (2006)
103 Case 238/87 Volvo v. Erik Veng (UK) Ltd [1988] E.C.R. 6211, para 9
104 Case C-18/88 Régie des Télégraphes et Téléphones v. GB-Inno-BM S.A, [1991] E.C.R. I-5941, para 19 105 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television
adding another cumulative condition, the new product requirement.106 This new criterion
appears to have been established in order to create an extra level of defence for IPR owners in compulsory licencing cases.
According to Ahlborn, the ‘new product’ terminology should be viewed in consideration with the ‘potential demand test’ pursuant to which a new product is one that meets the needs of consumers in ways that existing products do not. The potential demand test requires that an undertaking seeking access to a product introduces of a new option; not just an alternative of the same product as supplied by the dominant undertaking.107The ECJ test seeks to restrict
compulsory licensing to particular situations in which the prospective benefits for consumers of licensing are large, while the negative effects of acting as a deterrent to innovation is minimal. “The ECJ test ensures that intervention is restricted to cases where the intervention is still likely to increase social welfare.”108
Magill still left a certain amount of ambiguity in this area, this is because it failed to establish
whether or not the conditions set out were cumulative or not. In IMS Health, the CJEU finally described the conditions as being “cumulative”.109 This means that all the conditions
established in Magill must be achieved in proving an abuse of dominance. The author believes that the rigid test applied by the CJEU creates a significant problem. By following
IMS Health, future decisions are bound by a strict set of rules in establishing a dominance.
This limits the ability of the court to take a US-like approach in assessing the economic benefits and concerns in assessing compulsory licencing. By describing the Magill test as cumulative, in future cases, the Court is restricted in assessing the economic benefits of compulsory licencing as the test appears to largely consider the economic implications of a refusal to licence.
It should be noted that with the addition of the new product requirement, these issues may be lessened. This is because a new product on the market is of benefit to consumers and where this criterion is achieved, a compulsory licencing order will create rather than lessen the incentive of dominant undertakings to innovate as there will be a new competing product on the market. This test inherently has economic considerations enshrined in it. The Magill/IMS
106 Ibid, para 54
107 Christian Ahlborn and others, 'The Logic & Limits of the “Exceptional Circumstances Test” in Magill and IMS Health' [2004] Fordham International Law Journal, 28(4) 1109, 1112
108 Ibid, 1110
criterion has naturally, due to its strict nature, amounted to a “very low convictions rule”.110Thus, naturally, it is argued that the achievement of the new product requirement
delivers pro-competitive and economic effects, whereas the other tests appear to simply protect competitors rather than consumers.111 However, this test has been somewhat
diminished by Microsoft, as the CFI ruled that even a “technical development” on the dominant undertakings product would be enough to satisfy the new product requirement.112
This approach offers far less protection to owners of IPR’s in this regard. Nonetheless, a wider scope of interpretation does allow the Courts to take more consideration into the economic advantages of compulsory licencing in this regard. The new product requirement appears to have transformed from a high threshold test which directly protects dominant undertakings to a test which encompasses the extent of technical advancement to the benefit of consumers. However, this test applied by the GC is inconsistent with the new product requirement laid down in IMS by the CJEU. The new product test set out by IMS serves the function of establishing whether or not the refusal to license “prevents the development of the secondary market to the detriment of consumers”.113 This approach appears to consider the
disadvantages of the existence of a monopolist on an upstream market using its power to foreclose a secondary market. This is consistent with the leading IP case in the US.114 It is
thus unclear following Microsoft, how the CJEU would approach such a situation. Commentators have criticised the approach, suggesting that the approach taken by EU effectively undermines the IP system and creates clear disincentives to innovate.115 This is
because Competition law appears to intervene in the IP system significantly, and the EU courts appear to significantly prefer competition remedies in protecting IP. This does not appear to be as much of a concern with the US , as the case law evidently directly considers the discouragement of innovation and appears to balance antitrust and IP concerns.116
However, it is argued the ruling in IMS Health would suggest that the EU case does not undermine the IP system at all. The test applied by the CJEU here imposes a strict assessment
110 Yannis Katsoulacos “Optimal Legal Standards for Refusals to License Intellectual Property: A Welfare-Based Analysis.” (2008) Journal of Competition Law & Economics 5(2), 269, 286
111 Gustavo Ghidini ‘Part I, Ch 2: The bride and the Groom, On the Intersection between Intellectual Property and Antitrust Law’ In Giandonato Caggiano, Marina Anna Tavassi et al, Competition Law and Intellectual
Property. The European Perspective (Kluwer International Law, 2012), 44-45
112 Case T-201/04, Microsoft v Commission [2007] ECR II-3601, para 647 113 IMS Health, para 48
114 Image Technical Services v Eastman Kodak 125 F.3d 1195 (9th Cir, 1997)
115 John Temple Lang, “Compulsory Licensing of Intellectual Property in European Community” (2002) 30 Antitrust Law
of refusal to licences and will only find an abusive refusal to supply in exceptional
circumstances. Indeed, the test appears to be far stricter than the tests set out in the US, which do not appear to even consider a new product requirement.117 This however, in the authors
view, is not the issue. The issue we face is that the strict test set out in IMS Health means that the Courts do not have an adequate scope of discrepancy in assessing the economic
advantages of compulsory licencing. The EU Commission has flirted with the idea of a more economics based test in its guidance paper, however this has yet to be used as the threshold in assessing abusive refusal to licence IPR’s.118
Thus, it is submitted that the EU jurists could benefit from using a less rigid approach to refusals to licence and rather, assess the pro-competitive effects of such a refusal in exceptional cases where IP laws fail to enhance innovation as recommended in the Guidelines.119 This would generally be in situations where dominant undertakings on the
upstream market are trying to use such a power to gain unfair leverage on competitors on the downstream market. Further it should also, as seen in Trinko, apply a less interventional approach to IPR’s. This is achieved by trusting the Member States IP systems to ensure efficiencies and only opting to intervene in extreme circumstances where there is a clear threat to innovation due to objectively abusive measures taken by dominant undertakings which the IP systems are inept to rectify. At this current time, the EU and their
interventionalist approach runs the risk of entirely undermining the IP system.
117 Daniel Kanter “IP and compulsory licensing on both sides of the Atlantic – an appropriate antitrust remedy or a cutback on innovation” (2006) ECLR 351, 363
118 European Commission ‘Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings’ [2009] C-45/02, paras 82-86
Ch 3 – Using common sense in balancing IP and Competition Law 3.1 – The answer should always be maybe
AG Wahl recently stated in his opinion in the new Intel case that with regards to abuse of dominant position case, it is important to take a common-sense approach.120 The case has
regards to an exclusive rebate system where Intel gave discounts to a select number of competitors on the downstream market. Historically, the EU had consistently held that exclusive rebate systems are Per Se abuse’s and thus no analysis is required in finding an abuse of a dominant position. AG Wahl’s view differs significantly from this approach. In his opinion, Wahl finds that in 102 cases, it is important to always make an analysis of the pro and anti-competitive effects that the behaviour has. In reaching this view, Wahl clearly states that “experience and economic analysis do not unequivocally suggest that loyalty rebates are, as a rule, harmful or anticompetitive.”121 Further, AG Wahl has criticised recent decisions,
120 Case C-413/14 P Intel v European Commission, Opinion of AG Wahl, 20 October 2016, ECLI:EU:C:2016:788
particularly Post Danmark II122 as failing to take into consideration the economic
consequences of the behaviour of the dominant undertaking. Rather, AG Wahls’s approach is more similar to that seen in cases such as Irish Sugar.123
Whilst this case relates to a completely different form of abuse explored in this paper – an exclusion of competitors rather than a refusal to supply – this approach can be used for all forms of 102 cases. This can be demonstrated by his statement at paragraph 118 of his opinion where he states:
“[T]he special responsibility of dominant undertakings … cannot be taken to mean that the threshold for the application of the prohibition of abuse laid down in Article 102 TFEU can be lowered to such an extent as to become virtually non-existent. That would be the case if the degree of likelihood required for ascertaining that the impugned conduct amounts to an abuse of a dominant position was nothing more than the mere theoretical possibility of an exclusionary effect, as seems to be suggested by the Commission. If such a low level of likelihood were accepted, one would have to accept that EU competition law sanctions form, not anticompetitive effects.”124
Approaching abuse of dominance cases from this approach means that ultimately, by
assessing the economic implications and the level of harm caused to competitors, we are able to side track outdated views that certain forms of behaviour always constitute an abuse. This is not the case. For example, there are many instances where a refusal to supply IP rights has far greater benefits than a decision to grant licencing. By using an approach which has clear regards to consumer welfare and the economic advantages of the decision, by using
competition law provisions, we are able to protect both the IP regime as well as the interests of competition law. To support this view, albeit with a non-IP case, in the decision inBritish Airways, it was held that a refusal to deal with particular competitors does not constitute an
infringement of Art.102 if the refusal is based on an economically justified consideration and does not lead to consumers being prevented from buying from competitors.125 It has been
argued that the approach taken in this case where a clear efficiency justification can be established with substantive economic evidence of the benefits allows us to successfully achieve the objectives of competition law.126 It is, thus, argued in this context that by using
122 Case C-209/10, Post Danmark A/S v. Konkurrenceradet, EU:C:2012:172 123 Case T-228/97, Irish Sugar v Commission [1999] E.C.R. II-2969
124 Case C-413/14 P Intel v European Commission, Opinion of AG Wahl, para 118 125 Case T-219/99, British Airways v Commission [2003] E.C.R. II-5917 paras 246 and 247
126 Paul John Loewenthal, ‘The Defence of Objective Justification in the Application of Article 82’ (2005) World Competition 28(1), 444, 456
economic analysis on a case by case basis, both IP interests and Competition interests can be protected, without the requirement of a ‘balancing act’ between the two areas of law.
3.2 – Using economic analysis of the effects to suit both areas of law
The effect based balancing approach set out by the General Court in Microsoft brought us one step forward in assessing IP and Competition cases from the right perspective. The balancing test which was developed by the Commission in order to dismiss Microsoft’s claim that the disclosure of interoperability information would significantly reduce its incentive to innovate was appropriate for the Commissions objective aim of ‘keeping both parties happy’ in
balancing the two areas of law.127 However, the case did not successfully increase the level of
innovation on the market in the way that it intended. This is because far too much consideration was given to the interests of IP law.128
Indeed, the decision appears to take no consideration of the efficiencies, rather importance was laid upon the fact that there remains a reasonable balance between the two areas of law. Indeed, one commentator has noted that efficiency considerations are “alien” to the EU courts and as a result, dominant positions have failed to be fully uncoupled from an abuse of that dominant position.129 Put simply, the court has been all too willing in cases such as Microsoft
and indeed the recent Google Shopping decision, to find that where a dominant position refuses to allow fair access to its trade secrets protected by IP, that this is almost certainly enough to constitute an abuse. One commentator has explained the approach of the EU quite clearly stating:
“[T]he Commission as policy entrepreneur who could not resist the temptation to intervene, even after its concerns had been by and large addressed. The CFI failed to see that second story.”130
127 Simonetta Vezzoso, The Incentives Balance Test in the EU Microsoft Case: a Pro innovation ‘Economics-based’ Approach’ (2006) European Competition Law Review, 27(1), 382, 393 128 Ibid, 385
129 Meinrad Dreher and Michael Adam ‘Abuse of dominance under reform - sound economics and established case law’ (2007) ECLR 28(4), 278, 282
130 Pierre Larouche, ‘The European Microsoft Case At The Crossroads Of Competition 2
Policy and Innovation’ (SSRN, May, 2008) TILEC Discussion Paper No. 2008-021, 673, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1140165 Accessed 02 July 2017
However, a recent string of case law in the EU courts has demonstrated that there appears to be a movement towards putting more weight on the pro-competitive effects that may be the result of a refusal to deal or other alleged abuse of dominance. In Huawei v ZTE Corp131, a
case which concerns on what basis holders of standard essential patents (SEPs) will infringe EU competition rules against abuse of a dominant position where they refuse to grant licences to competitors, it was held that there are a number of objective justifications which a
dominant undertaking may present in defence of refusing to supply patent rights.132 The
criteria which has been set out by the court is quite extensive, but clearly relates to the undertaking being able to establish why there are clear pro-competitive benefits caused by a refusal to supply. In this respect, the approach somewhat replicates the Supreme Court suggestion in its Trinko decision whereby it states that monopoly power was a good thing because it would lead to further innovation in the market in question.133
The writer believes that this approach is indeed correct should that conclusion be reached on a sound economic grounding. In doing so, strong IP protection is granted to the rightful owners and their right to deal with whomever they choose is left intact. Alongside this, the objectives of competition law are achieved as the dominant undertaking has established that there are more pro-competitive effects than anti-competitive. This means in the long run that consumers are able to benefit from the once supposed abuse of dominance more than they would have benefitted from a forced refusal to supply. This might seem harsh to competing undertakings, but taking a black letter approach to the intentions of competition law, the law was never designed to protect them specifically in the first place. For too long in cases such as Microsoft, the courts have erred towards an approach of protecting competitors first, and consumers second.
It may also be of use to consider that the behaviours of dominant undertakings holding IPR’s should only be considered as abusive where there is an exploitative nature of their refusal. For example, where an IPR holder is clearly refusing to deal in order to prevent a competitors
131 Case C-170/13 Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH ECLI:EU:C:2015:477
132 Ibid, paras 62-70
access to the market.134 In reaching these conclusions, we are able to assess whether or not a
refusal to deal really does have a negative effect on the market rather than apply the cumulative factors set out in the case law such as Bronner and IMS Health.
Conclusion and Recommendation Conclusion
Thus, we can see that in both the US and EU jurisprudence, the courts are reluctant to choose a side when it comes to regulating IP and Competition law.135 A balancing mechanism has
been adopted in attempt to get the most out of both systems of law whilst attempting to refrain from undermining the system. To this date, some success has been achieved with this approach. In cases such as IMS Health, the CJEU has been able to establish a criterion which must be established when considering abusive refusals to supply. Regrettably, the General Court’s decision in Microsoft to lessen the new product requirement and invariably widen the scope upon which a new product may be established to exist has ultimately led to the
balancing mechanism being weighed in the favour of competition law rather than IP.136
The balancing system may only work if it does exactly what it intends to do, put simply, it must assess the interests of the IP system as well as the competition in attempting to achieve a satisfactory solution to the issue. This means that the courts spend the majority of their time attempting to tip-toe past the real issue. Whether or not the refusal to deal is merited on the
134 Hans W Friederiszick, Linda Gratz ‘Hidden Efficiencies: The Relevance of Justifications in abuse of dominance cases’ (2015) Journal of Competition Law & Economics 11(3), 671,
135 Urška Petrovčic, Competition Law and Standard Essential Patents: A Transatlantic Perspective (Kluwer Law International, 2014), 61
136 Daniel Kanter “IP and compulsory licensing on both sides of the Atlantic – an appropriate antitrust remedy or a cutback on innovation” (2006) ECLR 351, 351
