1 The EC Competition Policy on Patent Pools. Has the Commission Struck the Right Balance? Paul Lugard Head of Antitrust Royal Philips ElectronicsABA Brown Bag Lunch, March 20, 2007

2 There are often strong business considerations for setting up joint licensing programs. In particular, by allowing for one-stop licensing, patent pools may reduce transaction costs and royalties. In many industries, increased outsourcing of production and shorter product cycles put greater pressure on patent licensing as a source of revenue for sufficiently funding research and development.

3 Over the past few years, US and EC antitrust law have in some respects converged. In particular, both US and EC law acknowledge the potential for efficiencies, as well as the scope for negative effects, depending on the nature of the pooled technologies. Inclusion of: Substitute Technologies: Price Collusion – US FTC in VISX Non-Essential Technologies:Foreclosure of Competing Technologies - Princo

4 But the EC framework of analysis diverges from the US methodology in material respects. May collective dominance under Article 82 EC be derived from jointly licensing of substitutable technologies? Does an essential patent ipso facto imply dominance under Article 82 EC? What is the threshold test for anticompetitive foreclosure if the pool includes non-essential patents? And which party bears the burden of proof? Does Article 82 EC provide clear guidance, if at all, with respect to potentially excessive royalty rates?

5 Collective Dominance Joint licensing may be a necessary condition for collective dominance under Article 82 EC, but is not a sufficient condition.

6 The concept of essentiality The scope of the concept Do patent owners need a patent evaluator? Assessment of essentiality may not always be “an on- going process” as stated in EC Guidelines para 222

7 Foreclosure What is the threshold test for anticompetitive foreclosure of competing technologies under Article 81 (and 82) EC as a result of non-essential patents? Inclusion of non-essential patents may be pro-competitive EC Guidelines 222 and EC Notice Article 81(3) Harm to competition as well as net negative effects on consumer interests are preconditions Party claiming must demonstrate and quantify Competing with a “zero-price” is not sufficient – Princo Theoretical exclusion is insufficient

8 Excessive royalty rates? In contrast to US antitrust law, EC antitrust law seeks to prohibit exploitative prices charged by dominant firms. However, Article 82 EC provides unclear guidance, at best, for royalty rates. EC Commission future Guidelines on Article 82 EC? Ex-Ante disclosure of licensing terms is not mandated by Article 82 EC and may be unpractical and inefficient.