1. Exercise of IP rights as an abusive behaviour under EU antitrust law Christian Vollrath European Commission DG Competition 1

2. I.Introduction II.Case-law on refusal to licence as abusive behaviour: IMS Health and Microsoft III.Standardisation IV.Conclusion 2

3. I. Introduction 1. What are the aims of IP rights? PatentProtects innovative inventions CopyrightProtects creative works TrademarkProtects reputation 3

4. Necessity to reward innovation No patent protection R&D costs R&D costs Copying of innovation by competitors Copying of innovation by competitors No incentive to invest in R&D No incentive to invest in R&D No incentive to bring product to market No incentive to bring product to market With patent protection R & D costs Copying is illegal Innovator is rewarded Incentive to innovate Incentive to invest in R&D Incentive to bring product to market 4

5. IP rights: Reward innovation… Reward innovation… …by prohibiting free-riding …by prohibiting free-riding …thereby enhance consumer welfare …thereby enhance consumer welfare IP rights and antitrust law share the same basic objective: the promotion of consumer welfare IP rights and antitrust law share the same basic objective: the promotion of consumer welfare 5

6. Interface between antitrust law and IP rights Interface between antitrust law and IP rights Article 102 TFEU: Article 102 TFEU: “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.” 6

7. Some key considerations: Art. 102 is only applicable where an undertaking has a dominant position on a market. Art. 102 is only applicable where an undertaking has a dominant position on a market. Art. 102 does not prohibit dominance. It is only concerned with abuses of a dominant position. Art. 102 does not prohibit dominance. It is only concerned with abuses of a dominant position. Art. 102 does not as such make it illegal to obtain (or seek to obtain) a dominant position. Art. 102 does not as such make it illegal to obtain (or seek to obtain) a dominant position. 7

8. Consequences for the interface with IP rights: Holding an IP right can not be as such illegal under Art. 102 Holding an IP right can not be as such illegal under Art. 102 The essence of an IP right is the grant of an exclusive right to exploit the right and to exclude others from doing so The essence of an IP right is the grant of an exclusive right to exploit the right and to exclude others from doing so Exercise of this right can be abusive in exceptional circumstances Exercise of this right can be abusive in exceptional circumstances 8

9. II. Case – law on Refusal to licence as abusive behaviour II. Case – law on Refusal to licence as abusive behaviour A dominant firm can (generally) freely choose whether to grant a licence or to whom it wants to grant a licence. The holder of an IP right can reserve to himself the right to exploit the IP right. A refusal to licence may be abusive in exceptional circumstances. 9

10.  Key Case law on interface between Art. 102 and IPRs:  ECJ, Case C-241/91 RTE and ITP v Commission („Magill“)  ECJ, C-7/97 Bronner  ECJ, C-418/01 IMS Health  CFI, T-201/04 Microsoft  Commission‘s Guidelines for application of Art. 102 in exclusionary cases 10

11. The IMS Health Case 1 Key facts: The „1860 brick structure“ The „1860 brick structure“... is based on geographical areas... is based on geographical areas... forms the basis of reports on sales of pharmaceuticals in Germany... forms the basis of reports on sales of pharmaceuticals in Germany... is protected by copyright under German law... is protected by copyright under German law 11

12. The IMS Health Case 2 Conditions for applying Article 102 EC to refusals to licence: Access to the IP right is indispensable to the exercise of a particular activity on a downstream market; The refusal excludes effective competition on that market; The refusal prevents the emergence of a new product for which there is potential consumer demand or technological development to the detriment of consumers; The refusal is not objectively justified. 12

13. The IMS Health Case 3 Indispensability: “It must be determined whether there are products or services which constitute alternative solutions (…) and whether there are technical, legal or economic obstacles capable of making it impossible or (…) reasonably difficult for any undertaking (…) to create (…) the alternative products or services” 13

14. The IMS Health Case 4 Indispensability (cont.): Indispensability (cont.): IPRs create exclusive rights to inventions, creative works, etc... IPRs create exclusive rights to inventions, creative works, etc... Focus of competition law is on markets Focus of competition law is on markets „Alternative solutions“: substitutes for protected technique „Alternative solutions“: substitutes for protected technique 14

15. The IMS Health Case 5 Excludes effective competition Excludes effective competition Distinction between 2 markets: Distinction between 2 markets: Downstream market: Provision of sales data for pharmaceuticals in Germany Downstream market: Provision of sales data for pharmaceuticals in Germany Upstream market: input for this downstream market (licencing of the brick structure Upstream market: input for this downstream market (licencing of the brick structure Potential market sufficient Potential market sufficient Leveraging effect of refusal to licence Leveraging effect of refusal to licence 15

16. The IMS Health Case 6 Emergence of a new product Emergence of a new product Refusal to licence must prevent emergence of a new product Refusal to licence must prevent emergence of a new product Mere duplication of the business activity of the IPR holder is not sufficient Mere duplication of the business activity of the IPR holder is not sufficient Potential consumer demand for new product Potential consumer demand for new product 16

17. The IMS Health Case 7 No objective justification No objective justification Burden of proof on the IPR holder/defendant Burden of proof on the IPR holder/defendant Efficiencies may justify refusal to licence Efficiencies may justify refusal to licence... for example: chilling effect on incentive to innovate... for example: chilling effect on incentive to innovate 17

18. The Microsoft Case 1  Complex case involving  Refusal to supply interoperability information  Tying (media player)  Interoperability case focuses on markets for  PC operating systems  Work server operating systems refusal to supply interoperability information an abuse? 18

19. The Mircrosoft Case 2 Court assumes that interoperability information is protected by IPR Court assumes that interoperability information is protected by IPR Court agress with Commission that interoperability information is indispensable Court agress with Commission that interoperability information is indispensable 19

20. The Microsoft Case 3 Elimination of competition Elimination of competition Behaviour is „likely“ to lead to an elimination of all competition Behaviour is „likely“ to lead to an elimination of all competition Applicable criterion: „effective competition“ Applicable criterion: „effective competition“ Niche competition not enough to exclude abuse 20

21. The Microsoft Case 4 New product requirement New product requirement Not mere reproduction of the IPR holders product or service.... Not mere reproduction of the IPR holders product or service....... but technical developement and innovation is enough... but technical developement and innovation is enough 21

22. 22 The Commissions Guidelines on the application of Article 102 in exclusionary cases (2008) Guidance on enforcement priorities Guidance on enforcement priorities Focus on single dominance and exclusionary conduct Focus on single dominance and exclusionary conduct General approach General approach Safeguarding the competitive process and not the protection of competitors Safeguarding the competitive process and not the protection of competitors Effects on consumers Effects on consumers Objective necessity and efficiency defence Objective necessity and efficiency defence To ensure that dominant firms do not impair effective competition by foreclosing rivals in an anti-competitive way thereby having an adverse impact on consumer welfare To ensure that dominant firms do not impair effective competition by foreclosing rivals in an anti-competitive way thereby having an adverse impact on consumer welfare

23. 23 Refusal to supply General concern about incentives to invest in tangible and intangible assets – a specific framework General concern about incentives to invest in tangible and intangible assets – a specific framework Focus on input foreclosure Focus on input foreclosure Cumulative conditions for intervention Cumulative conditions for intervention Input needs to be objectively necessary to compete effectively in the downstream market: there is no actual or potential substitute to the input and replication would not be undertaken to a sufficient degree Input needs to be objectively necessary to compete effectively in the downstream market: there is no actual or potential substitute to the input and replication would not be undertaken to a sufficient degree Elimination of effective competition: immediately or over time Elimination of effective competition: immediately or over time Consumer harm : a dynamic perspective. Do the negative consequences of the refusal to supply outweigh the negative consequences of imposing an obligation to supply Consumer harm : a dynamic perspective. Do the negative consequences of the refusal to supply outweigh the negative consequences of imposing an obligation to supply

24. 24 Consumer harm may arise if refusal to supply prevents competitors from bringing new products or stifles innovation Consumer harm may arise if refusal to supply prevents competitors from bringing new products or stifles innovation Efficiencies : the refusal to supply may be necessary to give the dominant firm incentives to develop its input or develop new product downstream Efficiencies : the refusal to supply may be necessary to give the dominant firm incentives to develop its input or develop new product downstream Overall, balance of incentives to invest Overall, balance of incentives to invest

25. Conclusion on refusal to deal 1 The essence of an IP right is the grant of an exclusive right to exploit the right and to exclude others from doing so The essence of an IP right is the grant of an exclusive right to exploit the right and to exclude others from doing so This is also true for dominant firms This is also true for dominant firms Exercise of this right can be abusive in exceptional circumstances Exercise of this right can be abusive in exceptional circumstances 25

26. Conclusion on refusal to deal 2 Conditions for finding an abuse: Conditions for finding an abuse: Indispensability of the access to IPR protected information or technique to compete on a downstream market Indispensability of the access to IPR protected information or technique to compete on a downstream market Refusal would exclude effective competition Refusal would exclude effective competition Refusal would prevent emergence of new product or technical innovation Refusal would prevent emergence of new product or technical innovation There is no objective justification for refusal There is no objective justification for refusal 26

27. III. Standardisation Setting of industry standards.... Setting of industry standards.......is typically pro-competitive:...is typically pro-competitive: Favours market penetration Favours market penetration And developement of new products And developement of new products De facto standards De facto standards Standard-Setting Institutes (SSI) Standard-Setting Institutes (SSI) 27

28. Potential concerns in standard-setting: Potential concerns in standard-setting: Lock-in Lock-in Patent ambush Patent ambush Patent hold-up Patent hold-up Specific rules of SSIs: Specific rules of SSIs: Disclosure requirement Disclosure requirement FRAND/RAND commitment FRAND/RAND commitment Role of antitrust rules? Role of antitrust rules? 28

29. Rambus Rambus Preliminary assessment of the European Commission: patent ambush Preliminary assessment of the European Commission: patent ambush Commitment decision Commitment decision US-cases (FTC v Rambus) US-cases (FTC v Rambus) 29

30. IV. Conclusion Relationship between IPR and Art. 102 is complex Relationship between IPR and Art. 102 is complex Both rules share same basic aim: consumer welfare Both rules share same basic aim: consumer welfare Application of Art. 102 to IPR exersize must focus on facts of the case.... Application of Art. 102 to IPR exersize must focus on facts of the case....... and on the long-term incentives to innovate... and on the long-term incentives to innovate 30

31. Thank you. Thank you. 31