Peter Hoeltzenbein, General Policy Division, Bundeskartellamt The Relation of Competition Policy and Intellectual Property in the European Union – An Introduction EU-China Workshop on Application of Anti-monopoly Law in Intellectual Property Area Changsha, 11. – 12. March 2010 Peter Hoeltzenbein, General Policy Division, Bundeskartellamt peter.hoeltzenbein@bundeskartellamt.bund.de

Overview The European Union European Competition Policy Intellectual Property Rights (IPRs) Relation of Competition Policy and IPRs

The European Union

The European Union (1) 27 countries 500 million people 23 official languages A unique economic and political partnership between 27 democratic European countries.

The European Union (2) 1952 1973 1981 1986 1990 1995 2004 2007 The EU was set up in the aftermath of World War Two to bring peace, stability and prosperity to Europe.

The European Union (3) Share of world trade in goods (2007) Share of world trade in services (2007) EU 17% EU 28.5% Others 40.6% Others 53.2% United States 14.5% Japan 5.8% United States 18.2% China 9.5% China 5.9% Japan 6.8%

The European Union (4) Not a federal state Member States remain independent sovereign nations However, Member States delegate some of their powers so that decisions on specific matters can be made democratically at European level The European Union (EU) is not a federation like the United States. Nor is it simply an organisation for co-operation between governments, like the United Nations. It is, in fact, unique. The countries that make up the EU (its ‘member states’) remain independent sovereign nations but they pool their sovereignty in order to gain a strength and world influence none of them could have on their own. Pooling sovereignty means, in practice, that the member states delegate some of their decision-making powers to shared institutions they have created, so that decisions on specific matters of joint interest can be made democratically at European level.

The European Institutions European Parliament represents the European people European Council represents the 27 Member States European Commission 27 Commissioner, one from each state proposes new legislation main executive body The Council of the European Union, which represents the member states, is the EU’s main decision-taking body. When it meets at Heads of State or Government level, it becomes the European Council whose role is to provide the EU with political impetus on key issues. The European Parliament, which represents the people, shares legislative and budgetary power with the Council of the European Union. The European Commission, which represents the common interest of the EU, is the main executive body. It has the right to propose legislation and ensures that EU policies are properly implemented.

Law making at European level Citizens, interest groups, experts: discuss, consult European Commission: makes formal proposal Parliament and Council: decide jointly National or local authorities: implement Commission and Court of Justice: monitor implementation

The Single Market One of the European Union’s greatest achievements is the single market Restrictions on trade and on free competition have gradually been eliminated The single market is supported by a strong competition policy ensuring that free competition is not distorted The single market is one of the European Union’s greatest achievements. Restrictions between member countries on trade and free competition have gradually been eliminated, with the result that standards of living have increased. The single market has not yet become a single economic area. Some sectors of the economy (public services) are still subject to national laws. The individual EU countries still largely have the responsibility for taxation and social welfare. The single market is supported by a number of related policies put in place by the EU over the years. They help ensure that market liberalisation benefits as many businesses and consumers as possible.

European COmpetition Policy

European Competition Policy (1) Prohibition of illegal state aid national government interventions must not distort competition and trade inside the EU Merger Control concentrations must not impede effective competition Antitrust Prohibition of anti-competitive agreements Prohibition of abuse of dominance

European Competition Policy (2) The European Antitrust rules may be enforced by the European Commission by all 27 National Competition Authorities Interpretation of the Antitrust rules The European Commission issues detailed (non-binding) guidance on various topics Ultimately, the European Court of Justice interprets and develops the law on appeal

European Competition Policy (3) Cooperation of European competition authorities within the European Competition Network (ECN) Case allocation to the authority best placed to take action Exchange of information Mutual assistance Power of the European Commission to claim competence over a certain case (which rarely happens)

European Competition Policy (4) European Antitrust rules only apply where trade between Member States is affected they do not apply to cases with regional or local impact All the Member States have national antitrust laws which resemble the European regime and which are only enforced by the respective national competition authority

Intellectual Property Rights

IPRs (1) IPRs are rights to exclude others from exploiting intangible assets such as inventions = patents creative works = copyright signs & names = trade marks shapes & forms = design rights plant varieties = plant breeders rights

IPRs (2) The owner of an IPR is entitled to prevent unauthorised use of his IP exploit it by using the IP itself and/or by licensing it to third parties Once a product incorporating IP has been put on the market within the EU the IPR is exhausted

IPRs (3) IPRs are usually limited in time patents = 20 years copyright = 70 years after the author’s death trade marks = renewable every 10 years (if used) designs = up to 25 years plant breeders = up to 25 years rights

Market definition IPRs usually pertain to two relevant markets (using a patented technology as example) Technology markets on which the technology for a certain product or a certain production process is (or could be) licensed Product markets on which the products incorporating the technology are (or could be) offered A technology is either integrated into a product or used in the production process.

IPRs and market power IPRs are legal monopolies They may (but must not) lead to market power and sometimes even to an economic monopoly This always depends on the number of (potential) substitutes for the IP If you can choose between a number of different equally suitable technologies (some of which might even be in the public domain) then there is most likely no market power

Relation of Competition Policy and IPRs

Competition and Innovation (1) Competition is said to induce companies to offer the best products at the lowest price Innovation is said to cause markets to change improved products and production processes are introduced consumer satisfaction increases and production costs decrease Innovation is said to be the main source of increases in economic welfare!

Competition and Innovation (2) Competition has mixed effects on innovation competition is said to spur innovation - in principle however, competition may also be detrimental to innovation copying and free riding may undermine the incentive to innovate there is also little incentive to disseminate knowledge and know how if it is used to free ride Inventions and know how will be kept a secret and not be shared in order to prevent free riding on innovation efforts these effects are highly debated in academia

Patents and Innovation (1) Patents are supposed to incentivise innovation efforts and the dissemination of knowledge without the prospect of an exclusive right, few firms would spend large sums on research and development patent applications are published and, even before the patent expires, the protected invention can be used for research and development patents facilitate the negotiation of licences and the dissemination of the technology This holds true for instance in the pharmaceutical sector where one medicine is often covered by but one patent without the prospect of an exclusive right, few firms would spend large sums on research and development. Secondly, patent applications and claims are published by national authorities and, even before the patent expires, the protected invention can be used for research and development, although not for commercial manufacture or sale. Consequently, the exclusive right can be perceived as the price of publication. Thirdly, patents facilitate the negotiation of licences. The licensee is unlikely to agree to pay a licence fee or accept other restrictions on its conduct unless it has been able to test the technology, but that would be difficult to arrange if the licensee were then free to exploit the invention without infringing the law.

Patents and Innovation (2) However, in other sectors (e.g. semiconductor) one product may be covered by hundreds of patents Patents are increasingly used for defensive purposes the big companies build up large and highly costly patent portfolios to block products of competitors as a bargaining chip in cross-licensing negotiations to prevent or defend against infringement suits Does the current patent system strike the right balance for all industry sectors? Does it grant to much protection?

Patents and competition policy (1) Both IPRs and competition policy ultimately aim at increasing economic and social welfare Competition is the driving force for efficient and dynamic markets Patents (try to) strike a balance between over- and underprotecting innovator’s efforts At the highest level of analysis IPRs and competition complement each other

Patents and competition policy (2) Antitrust issues Potentially anti-competitive agreements licensing agreements settlement agreements agreements on standard setting and on the pooling of patents the application of competition law is less controversial Potentially abusive unilateral conduct Misuse of the IPR system Patent ambush Refusal to deal the application of competition law Is more controversial

Questions?

Thank you for your attention!