Identification of Abuse of dominant market position involving IPR Wang Xianlin, KoGoan Law School of Shanghai Jiaotong University Dalian,June 11,2010

Main Contents Ⅰ. Overview of Abuse of Dominant Market Position Involving IPR Ⅱ. Refusing to License the IPR Ⅲ. Tying Involving IPR Ⅳ.Excessive Price Involving IPR Ⅴ. Price Discrimination Involving IPR

Ⅰ. Overview of Abuse of Dominant Market Position Involving IPR It is a logical necessity under the relevant antitrust legal system on the abuse of dominant market position that if an undertaking is not yet in a dominant market position, i.e. owning a certain IPR, the issue of abusing dominant market position can’t possibly exist, albeit it may have other type of acts violating antitrust law, such as making a monopoly agreement Under the system prohibiting the abuse of dominant market position, the dominant position held by an undertaking is not in itself unlawful, it is the abuse of this position that is illegal The key issue here is determine if there exist the abuse of dominant market position. To do this, the rule of reason must be applied to weigh and analyze each individual case, and where IPR is involved, the determination process tend to be more complicated.

Exercising of IPR and Abuse of a Dominant Market Position Due to the exclusiveness of IPR, in identifying if an act constitute abuse of dominant market position, a clear line must be drawn between the legal exercising of IPR and the its abuse. Discussion here will be within the framework of antitrust law for only the anti-competition aspect of the act will be touched upon Given the exclusiveness of IPR, the US antitrust law doesn’t deny the IPR owner the right to exclude others from using its IPR, although the law prohibit some type of exclusionary practices. Even if the IPR owner holds dominant market position, it won’t be forced to license the IPR to others as long as it has no unlawful acts. According to the US patent law, the unilateral refusal of the patentee to license or use its patent doesn’t constitute abuse. As a necessary result of this principle, neither the law on IPR abuse nor antitrust law prohibit the efforts for the purpose of exercising IPR, nor do they require that the cost above competitive level should be a condition for IPR licensing At the same time, “neither IPR law nor antitrust law would allow the monopolist to cover up its anti-competitive behavior with business excuses”

General rules on distinguishing between IPR Exercising and Abuse of Dominant Market Position In principle, the exclusive use of IPR in the market of particular products containing the IPR is acceptable, while extension of it to relevant market or related products violates antitrust law (principle market and secondary market should be distinguished) The unique features of abuse of dominant market position involving IPR should be fully considered in its identification, but the general principles and analyzing rules of antitrust law must be followed Behaviors in the exercising of IPR that exceed legal limit and undermine fair competition shouldn’t be indulged for the innate exclusiveness of IPR; nor should they be subject to stricter restrictions only because its exercise has anticompetitive effect, in order to avoid unnecessary negative impact on the proper exercising of IPR. This is in essence an effort to balance and coordinate the protecting effective competition and encouraging innovation

Ⅱ. Refusing to License the IPR Refusing to license the IPR refers to the act of the IPR owner refusing to authorize other operators paid use of his or her IPR Refusing to license the IPR is a form of freely exercising the IPR by the IPR owner. Generally speaking, IPR owners are not duty bound enter into transactions with their competitors or trading counterparts. But there are exceptions: Generally speaking, behavior of unilaterally refusing to license an IPR, unconditionally and non- discriminatively in exercising the IPR shall not be termed as violating antitrust law.

Instances of Refusing to License That May Violate the Law However, refusal to license the IPR that meet the following standards shall be identified as violating provisions on the abuse of a dominant market position in antitrust law  1. the operator refusing to license the IPR has a dominant market position and refuse to license its IPR in an unfair and discriminating manner;  2. the IPR being refused license is a necessity for the licensee to participate relevant market competition, and refusing of licensing such IPR make the licensee unable to compete effectively in the relevant market and the competition and innovation in the market are adversely affected. It should also be noted that refusing to license the IPR may be used as a means by an operator to set restriction conditions or conduct tying. So its impact on competition should be analyzed in conjunction with the related restriction condition or tying behavior in question.

Ⅲ. Tying Involving IPR Tying involving IPR refers to the act of the IPR owner in licensing or exercising the right by other means, force the licensee to accept the licensing of another IPR, or buy some kind of products from the IPR owner or a third party designated by him or her. The product or IPR in a tying act can be sold or licensed separately, and have independent consumption demand. The former IPR is referred to as tying product, and the latter is referred to as tied product. The adverse impact brought about or may be brought about by tying on relevant market competition manifest itself mainly in the elimination of the trading opportunities of other suppliers of the tied product and reducing consumers' options. Tying may also have a positive effect on competition in relevant market, mainly are the reducing selling or management cost.

Instances of Tying that may violate the law In analyzing the impact or possible impact brought about by tying on competition in relevant market, due consideration should be given to such factors as the purpose of selling, the characters and interrelation of tying product and tied product, transaction practice, scale of influence of tying and actual operation capacity of undertaking carrying out tying Tying acts that meet all of the following conditions should be regarded as violating the law:  (1)The IPR owner enjoys a dominant position in the tying product market;  (2)The tying product and tied product are two separate products in terms of nature and trading practice;  (3)The tying behavior has a material effect on the tying product market, and extends the IPR owner’s dominant position in the tying product market to the tied product market.

Ⅳ.Excessive Price Involving IPR Excessive price (monopoly price) is the price which is impossible under normal competition conditions and far exceeds the level of fair price. Excessive price is in essence the exploitation of the consumers and users by abusing the dominant market position. Whether excessive price should be treated as a type of abuse of dominant position prohibited by antitrust law is controversial, and it is even more so when IPR is involved as it is more complicated then. The capacity of protected products to have higher than competitive price and the its ability to restrict competition it is the reflection of the nature of IPR, therefore, regulation of the pricing of IPR actually is a balancing between IPR and antitrust efforts.

Excessive Price Exists In Areas Involving IPR However, in the field of IPR, there also exists the problem of excessive price. Yet more factors should be taken into account in its identification, so as not to affect the proper functioning of the IPR incentive mechanism, which rewards the right owner. On this point, differences between developed and developing countries must be noted. Given their own IPR creation capacity and the bearing capacity of the consumers, some developing countries take the excessive prices of IPR products, particularly patent drugs as anti-competitive abuse of IPR and regulate them in relevant laws. For instance, Article 44 of the Argentine Patent Law list the excessive price of patent products as an anti-competitive behavior. Brazilian competition law and South African competition law both regard excessive price as anti-competitive. The Competition Committee of South Africa has ruled that the excessive prices of the anti-HIV drugs charged by two pharmaceutical companies constitute anti-competitive behavior. Although criticized by some scholars in developed countries, these practices can serve as examples for China, which is also a developing country, to uphold proper competition in the marketplace and protect the consumers’ interests.

Ⅴ. Price Discrimination Involving IPR Price discrimination, also called discriminatory pricing, is a major and typical form of discriminatory treatment. It refers to the behavior of an undertaking to give discriminatory prices, which are irrelevant to cost, to different customers in supplying or buying products or services. When a seller offer different buyers different prices for the products of the same grade and quality, or when a buyer does so to different sellers, and the difference is abnormal and irrelevant to cost, a price discrimination is constituted In identifying price discrimination, the following constitutive elements must be found: (1) the undertaking enjoys a dominant position (2) discriminatory prices exist (3) the discrimination in price is unreasonable (4)the discrimination undermines competition Thus, some behaviors which have the resemblance of price discrimination (different prices), such as adaption to competition, discrimination based on cost, quantity, and changed condition, etc, should not be determined as price discrimination

Features of IPR Should be Taken Into Account In Identifying Price Discrimination The systems and principles on prohibiting price discrimination under antitrust law are also applicable to IPR. Of course, in some cases, the features of IPR must be taken into account in the identification of a price discrimination. When an undertaking in a dominant position is protected by IPR, it can create separate markets where products are supplied with different conditions by defining the application area of the technology of protected products. For example, the IPR owner’ can use such commercial licensing strategy as using the same patent in different fields and charge different licensing fees. As long as the different treatments are targeted at different tractions, they are nondiscriminatory and don’t constitute abuse of IPR In determining if a pricing behavior constitute abuse of rights, the IPR owner must take into account the basic legal rules of defining different product markets. An IPR owner will bear more responsibilities if it is regarded as having key instruments. In cases where a discriminatory effect exists in a particular market, the owner of key instruments can’t argue that the prices are reasonable according to common practice as IPR is involved..

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