This paper is already over two years old, but it provides a good overview of the main challenges that arise at the intersection of competition and IP law.
The article’s thesis is that patents and copyrights seek to promote innovation by striking a balance between protecting initial inventor rights, on the one hand, and fostering follow-on or cumulative innovation, on the other. It conceptualises recent efforts to use competition law to limit the scope of IP law as attempts to limit excessive protections granted to original inventors by IP rights to the detriment of follow-on innovation. Examples of such interventions in Europe include compulsory copyright licensing remedies, the sanctioning of certain attempts to manipulate the IP regime in order to extend the scope and duration of existing IP rights, the prohibition of pay-for delay agreements, and the use of competition law to limit reliance by Standard Essential Patent (SEP) holders on patent injunctions.
The paper is structured as follows:
Section II offers a summary of the balance struck within IP law between original and follow on innovation. IP rightss seek to create incentives to innovate by granting inventors an exclusive right to exploit an invention during a certain period time. To foster follow-on innovation, the granting of IP rights is conditional on disclosure of information related to the invention during the period of IP protection. The IP regime also provides for exceptions to the exclusive rights it grants – such as fair and public interest use, among others. Lastly, the protection granted to inventors is limited by the scope of the IP right (e.g. copyright exclusivity only extends to the particular expression of an idea, leaving the idea itself available in the public domain to be used by others).
In short, the IP regime promotes both original research and follow-on innovation during the patent period, while simultaneously promoting certain forms of cooperation – in the form of cross-patenting, technology and patent pools, and standard-setting – during the period of exclusivity. At the same time, IP law balances original and follow-on innovation by reference to a number of characteristics of individual IP rights, such as their scope, the types of conduct they protect, and their duration.
Section III describes how competition law has taken a role as a regulator of the conduct of IP right holders. It also seeks to explain how competition law has been used to try to correct some perceived limitations of IP law.
Competition law accommodates IP rights by granting the normal use of these exclusive rights a form of partial immunity. While this immunity is justified by the creation of incentives for innovation, it is circumscribed by an over-riding concern with preserving effective competition. This means that competition law sets out a limit to: ‘the allowable scope of exercise of IPRs regardless of whether or not the IP owner has been adhering to the IP rules’. In particular, the immunity granted by competition law to IP rights is limited by an over-riding concern to maintain ‘effective competition’. This is unlike in the US, where – according to the author – IP rights are perceived as property rights which are completely immune from antitrust law. Instead, the exercise of IP rights in Europe is, like other property rights, potentially subject to regulatory control, including by competition law. The European focus on ‘effective competition’ also requires enforcement bodies to focus not only on original innovation, but also on follow-on innovation and how to protect it – if necessary against the original innovator. At this point the discussion veers into the stormy waters of how ‘effective competition’ relates to ‘consumer welfare’ in EU competition law – this section may be interesting for anyone trying to understand the (somewhat convoluted) evolution of the EU case law on the topic.
A second part of section III, which merits its own discussion, summarises how the ‘effective competition’ legal test identified by the author applies to IP rights. This legal test is said to have three dimensions:
- Market Power – While some IP rights, particularly patents and industrial copyright, confer a legal monopoly, this does not amount to market power as understood by competition law. Under competition law, what matters is whether the IP right holder has market power in a particular market. This entails a normal economic exercise regarding market definition and market power, without specific rules for IP rights – even if, on occasion, the existence of an IP right may affect the assessment e.g. when the patented product is the whole market.
- ‘Competition on the merits’ and IP rights – even when an IP rights leads to market power, this does not mean that the IP right holder’s conduct is anticompetitive. While there is no specific concept of abuse applicable to IP rights, the reality is that competition law makes ‘major concessions to the contribution of IPRs to innovative efficiencies and consumer welfare. ’ For example, unfair pricing must take into account the costs and risks of investing in research; and only in ‘exceptional circumstances’ will refusing to license an IPR be deemed an abuse in Europe.
At this points, the article reviews the European courts’ case law on: (i) refusal to licence an IPR (covering Magill, IMS and Microsoft); (ii) misuse of patent protection, mainly by reference to AstraZeneca’s provision of inaccurate information to patent authorities in order to extend the protection of its proton pump inhibitors; (iii) pay-for-delay in generics (covering Lundbeck and Servier); and (iv) FRAND cases by reference to Rambus, Samsung, Motorola and Huawei v. ZTE (FRAND have been the subject of a series of emails circulated between 28 April and 26 May 2017, and will be the subject of a few more emails in the coming weeks).
- Efficiencies – This sections looks at defences against claims that a practice is anticompetitive on the grounds that the practice gives rise to significant efficiencies. Interestingly (for me), the way the European Courts have put this since Microsoft (and the European Commission has set it out in its Enforcement Priorities’ Guidance) is not framed simply in terms of balancing anti- and pro-competitive effects. Instead, the courts and the Commission see this as a matter to be addressed by reference to the burden of evidence: the defendant must come forward with sufficient evidence that the efficiency claim is plausible. In practice, ‘the net effect of this standard of proof for patent and other IP owners is that there will be relatively little room to argue future innovation benefits as a justification for practices that otherwise break the competition rules.
Section IV analyses the extent to which economic thinking plays a role in the case law on Art. 102 TFEU and IP law. In effect, the case law of the EU courts has attracted extensive criticisms from lawyers and economists for being inadequately grounded in economics and for restricting innovation. These criticisms are described in detail, and found wanting. First, the author argues that courts have good reasons not to engage in full-blown economic analysis in these cases, given their institutional limitations when assessing economic evidence and the difficulties that even economic experts have in identifying the effects of individual business practices in this field. The author also notes that, to this day. there are no solid empirical studies on the overall effects of IP rights on original innovation, or on the relative effects of IP rights on original and follow-on innovation. He also considers that these criticisms: (i) tend to ignore that competition law already accommodates IP law, and hence original innovation; (ii) overlook how innovation can also occur in competitive markets; (iii) fail to address the fact that, in most cases, competition law was deployed with a view to protect follow-on innovation.
Section V concludes with some thought about the limitations inherent to using competition law to redress the imbalance in IP law between protecting original and follow-on innovation.
As I said above, this article contains a fairly comprehensive overview of the interaction between competition and IP law in Europe. One may quibble – as I do – with the author’s reliance on a concept as vague as ‘effective competition’ to delimit the scope of IPR’s immunity from competition law. It brings to my mind the very European (and very vague) concept of ‘competition on the merits’. On the other hand, this is not an unfair or inaccurate representation of the law as it stands, and allows the author to plausibly rationalise the case law as an attempt to balance the promotion of original and follow-on innovation.